Dramatic cuts to Department of Energy and Climate Change budget could damage economic growth and undermine switch to clean energy

The UK’s Department of Energy and Climate Change (Decc) faces cuts of 90% to its staff budgets within three years, threatening the government’s ability to tackle climate change and move the energy supply to cleaner sources, according to an expert analysis.

Former energy secretary Ed Davey told the Guardian that cutting Decc’s head count so dramatically would damage economic growth and undermine private investment.

The finding by the politically-neutral environmental thinktank the Green Alliance came as eight leading energy academics wrote to Oliver Letwin, the minister in charge of the cabinet office, to express concern that the cuts could undermine the UK’s ability to deliver climate policy.

Ring-fencing of health, education and development budgets means other departments face an average cut of 11.6% over the next five years, with the steepest cuts expected at the start of the parliament.

Green Alliance estimated that once officially and unofficially protected spending was taken into account – including nuclear cleanup costs, liabilities over old coal and capital spending – cuts would leave the department with just £40m by 2018-19 for so-called resource spending, which largely consists of staff costs. That budget is £402m in 2014-15.

“You have to have internal expertise, you have to have some troops in the department able to interpret ministers’ words,” said Matthew Spencer, Green Alliance’s director. “If you end up with a dumbed-down department you get a bad deal for consumers and citizens.”

Davey said: “The main effect of slashing the headcount at Decc will be cutting economic growth and undermining private sector investment. It is Osbornomics at its worst.” He said the department was an “economic powerhouse” for the UK, with energy infrastructure investment dwarfing investments in transport, communications and water combined.

The analysis said that reductions in staff spending could be a false economy, because a lack of expertise might lead to overspending on nuclear and renewable energy, funded by levies on household energy bills, which would drive up the cost of decarbonising the energy supply.

Spencer said it was “a small department with a big impact on the British economy” and it “determines pretty much the future of the UK energy infrastructure”. The department’s total budget is around £4bn a year.

He added: “Decc has two big peculiarities in its budget. It has huge historical liabilities, principally from nuclear industry, which is not officially protected but it’s hard not to spend money on keeping nuclear waste safe. Secondly, Decc has a much bigger capital spend [than some departments], and government has said it’s going to protect capital spending.”



He said the department could ditch a key part of its capital spending – £1bn on its books for a demonstration carbon capture and storage (CCS) plant – but that would mean jettisoning one of the “three legs” of UK energy policy, which are renewable energy, nuclear and CCS.

The analysis comes three days after the government’s statutory climate advisers warned that there was doubt in how government policies would help meet the UK’s post-2020 carbon targets. Decc has already said it will cut £70m this year from its £4bn annual budget, mainly on schemes designed to help people save energy at home.

In the letter to Letwin, signatories including Jim Watson of the UK Energy Research Centre, Catherine Mitchell of the University of Exeter, and Paul Ekins at University College London warned of higher household energy bills for consumers if Decc’s budget was cut too far.

“Costs to consumers from energy policy are likely to be higher, and energy supply less secure, if government does not protect its in-house expertise to negotiate contracts with the energy industry, to complete energy market reform, and to develop new energy saving programmes for the most vulnerable customers,” they wrote.



They added that it was “vital that government protects its impressive track record in climate diplomacy”. In November and December, the UK and nearly 200 other governments meet at a UN climate summit in Paris in attempt to seal a new deal on post-2020 action on carbon emissions.

Chancellor George Osborne is expected to lay out the details of Decc’s settlement in his emergency budget next Wednesday.

A Decc spokesman said: “Through making savings from underspends last year we have been able to protect spend on priority areas for 2015/16 including keeping the lights on and reducing greenhouse gas emissions. Decc budget will be set out by the Chancellor and any estimates before that are pure speculation.”