The UK’s transition to a net zero economy will require taxpayers to fund more than £800bn over the next two decades, according to the Office for Budget Responsibility.
This substantial sum comprises nearly £9.9bn each year for technology investments, including upgrades to the electricity grid.
The OBR’s analysis shows that technology investments will dominate the costs initially, before declining tax receipts become the primary financial burden as the transition progresses.
The OBR warned that climate change itself also poses additional financial risks beyond transition costs.
If global temperatures increase by 3C above pre-industrial levels, the UK would face a “double whammy” of net zero expenses and climate damage costs.
An additional £20.5bn will be lost annually in fuel duty revenue
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An additional £20.5bn will be lost annually in fuel duty revenue as electric vehicles increasingly replace traditional petrol cars.
The watchdog explained that “in the next decade, expenditure accounts for the bulk of the fiscal cost, particularly public investment in residential buildings, removals and surface transport, which start to decline from 2036 to 2037.”
This timeline indicates that Government spending on green technology and infrastructure will be front-loaded, with investments in buildings and transport systems requiring the most funding in the coming years.
As these initial investments taper off in the mid-2030s, the financial burden will shift. Lost tax revenue from declining fuel duty will increasingly dominate the costs as more drivers switch to electric vehicles.
The OBR’s projections suggest this transition from spending-led costs to revenue-loss costs will fundamentally reshape how net zero impacts public finances over the coming decades.
The £800bn figure represents a reduction from the £1.1 trillion estimate the OBR calculated in 2021. The watchdog attributed this decrease to fuel duty freezes resulting in lower lost receipts and higher-than-expected electric vehicle adoption rates.
The £800bn figure represents a reduction from the £1.1 trillion estimate the OBR calculated in 2021
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The revised costs also reflect updated projections from the Climate Change Committee, which has lowered its estimates for transition expenses across the entire economy.
These findings emerge amid increasing political resistance to net zero policies. Energy Secretary Ed Miliband recently received a warning from former prime minister Sir Tony Blair that net zero policies were “doomed to fail.”
Sir Keir Starmer’s government faces mounting pressure from Reform UK, which has placed scrapping net zero at the centre of its political platform and has maintained a polling lead since April.
Britons face ‘double whammy’ hit as Ed Miliband’s net zero agenda
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This scenario would reduce economic growth and add 74 per cent of GDP to Government debt by the early 2070s compared to current projections.
The watchdog cautioned that “unlike transition costs, there is little the UK can do to directly reduce these costs, as they are driven by the impact of global climate change.”
The OBR suggested that implementing road taxes for all vehicles, including electric ones, could help offset declining fuel duty revenues. This controversial measure has been advocated by organisations including the Resolution Foundation to prevent what they describe as a “massive black hole” in tax receipts.