Reflections on the Spending Review

The energy sector emerged as one of the big winners in yesterday’s Spending Review.

A key reason for this boost lies in the fiscal rules introduced by Rachel Reeves last year. These new rules allow the government to increase investment (or capital) spending without that spending counting towards its debt targets. The result? A surge in capital investment across departments.

Nowhere is this more apparent than at the Department for Energy Security and Net Zero (Desnz). Its capital spending (excluding the Sizewell C nuclear project) is set to rise by 16% per year in real terms between 2023-24 and 2029–30. That’s the fastest growth of any Whitehall department.

One major area is Carbon Capture and Storage (CCS), which is getting £9.4 billion over the review period. This funding will help expand the number of industrial emitters in the existing Track 1 CCS clusters and support the development of Track 2 clusters, specifically Acorn in Scotland and Viking in Humberside.

On the nuclear front, in addition to the £14.2bn going into Sizewell C, there’s over £2.5 billion earmarked for Small Modular Reactors (SMRs) and another £2.5 billion for nuclear fusion — a clear signal that the government sees these technologies as part of the UK’s future energy mix. GB Energy’s total budget of £8.3 billion has also been confirmed, though the support for the SMR programme will now come from the GB Energy budget.

There’s also £7 billion of capital spending allocated to energy efficiency, mainly targeting improvements in social housing, and £80 million to upgrade port infrastructure to support floating offshore wind projects.