What impact will the October Budget have on green energy and logistics?   

The Chancellor Rachel Reeves made history when she became the first female in British parliamentary history to deliver a Budget. Billed as a Budget made up of ‘tough decisions’, it was feared British business would bear the brunt of shoring up the economy and investing in public services. Indeed, many feared any proposed changes would be to the detriment of meeting green policy obligations.  

In the end, the Budget brought some relief in terms of fuel overheads and helping some firms invest in a greener future. However, it wasn’t without pain, particularly that related to increases to employment costs.  

Mixed reaction from the industry

There’s been a mixed reception from industry leaders and green campaigners regarding the announced green energy policies and investment. Some say the measures don’t go far enough and could stifle green investment, whilst others suggest that every step forward should be welcomed, especially if it is one made in the right direction.  

Specifically for logistics there are some extremely positive aspects of the Budget, notably:  

• Fuel duty freezes, which are always a welcome relief in touch economic climates.  
• Electric vehicle investment to help those forging strategies to promote lower carbon emissions in the supply chain.  
• Improving road maintenance and infrastructure is overdue for the hauliers challenged by costs associated to damage to vehicles.  

However, as with all change, there are some challenges the industry must grapple with first. Namely changes to tax laws and managing higher employment costs, which exerts more pressure on cost efficiencies.  

Let’s look at the highs and lows in detail.  

Fuel Duty Freeze: This is considered a huge win for the logistics sector given how sensitive the supply chain is to fuel costs. The Ukraine war and volatile fuel markets have contributed to extraordinary pump prices over the last few years.  

To illustrate the enormity of the pressure fuel presents to logistics, David Wells, chief executive of business group Logistics UK, said in a statement: “The sector operates on very narrow margins – often only 2.5% – with fuel representing a large proportion of the weekly operating cost for hauliers[MOU1] .”  

Keeping the 5p per litre cut in fuel duty for another year will go some way to mitigate overall operational cost pressures the industry is facing across the globe. Numerous commentators noted that logistics acts as a backbone to the UK’s economy and the decision to freeze the duty will help to drive confidence.  

However, slim margins were brought into sharp focus by the announcement to increase Vehicle Excise Duty, the HGV Road User Levy, and business rates for high-value properties. Combined these could have a detrimental financial impact on the smaller providers in the industry.  

Support for electric vehicles: ‘My next van will be green’ is a slogan we regularly see on the side of a commercial vehicle, as logistics firms spread the message on their green credentials.  

The investment in electric vehicle (EV) initiatives, including a £120 million allocation for the Plug-in Van Grant in 2025/26, has made welcome reading to the firms intent on harnessing low-emission logistics.  

Supporting the transition with additional investment in the infrastructure for hydrogen and EVs is also regraded as an important step towards long-term sustainability. However, there has been criticism for failing to lower the duty on fuel alternatives such as hydrotreated vegetable oil (HVO), which can reduce emissions by as much as 90% compared to diesel. Bryan Main, managing director of mobility at Certas Energy, said it was a “missed opportunity[MOU2] ” to decarbonise commercial transportation.  

Road infrastructure improvements: The announcement of an additional £500 million for road maintenance should go some way to reducing the operating costs associated with vehicle wear and tear due to poor road conditions.  

But, while some road improvement funding has been allocated, delays in the Road Investment Strategy (RIS3) and cancellations of strategic road projects haven’t gone unnoticed. Many commentators say that the lack or urgent progress limits the supply chain sector’s growth potential and are calling for more clarity.  

Organisations including the charity IPPR, which promotes sustainable travel policy, argues building roads is not the only aspect that needs attention. Resilience is also[MOU3]  fundamental. As the country experiences more intense heat and flooding, so there needs to be dedicated planning for keeping Britain moving and ensuring routes are not impassable.  

Rising employment costs: Raising National Employer Tax was undoubtedly a tough policy for any business to swallow. The tax now stands at 15%, and coupled with a lowered threshold for contributions (£5,000) significantly raises labour costs.  

Membership groups for logistics, retail and hospitality were quick to point out that though ensuring public services could be maintained, consumers would ultimately bear the brunt, furthering the likelihood of shop and restaurant closures and damaging prospects of economic recovery and growth.  

Finding a way ahead

The logistics sector will have to make some tough decisions of its own if they are to stay in business. Balancing the increase in costs firms now face by reducing operational overheads, will be fundamental to staying competitive.  

Technology can play a huge role in trimming costs and boosting margin. If you’d like to know more about how Touchstar can help, please use the contact form (accessed from the top of this page).