Budget Briefing – 16th March 2016
The Chancellor has delivered the Budget 2016; please find enclosed details of those policies that may affect our clients:
Budget Policy Overview
The government is committed to meeting the UK’s ambitious environmental targets in a cost-effective way, ensuring value for money for the taxpayer and retaining protection for the smallest and most energy intensive businesses. This Budget announces the biggest business energy tax reforms since the taxes were introduced, in response to the business energy efficiency tax review. To simplify the landscape and drive business energy efficiency the government will:
- Abolish the CRC energy efficiency scheme (CRC) following the 2018-19 compliance year, ending a complex scheme with bureaucratic and costly administrative requirements. It will significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers rather than CRC participants being required to forecast energy use, buy and surrender allowances.
- Increase the Climate Change Levy (CCL) from 2019, to recover the revenue from abolishing the CRC in a fiscally-neutral reform, and incentivise energy efficiency among CCL-paying businesses.
- rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in electricity generation, moving to a ratio of 2.5:1 (electricity:gas) from April 2019. In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 (electricity:gas) rates by 2025. This will more strongly incentivise reductions in the use of gas, in support of the UK’s climate change targets
- Keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place until at least 2023, ensuring energy intensive industries remain protected. From April 2019, the CCL discount available to CCA participants will increase so that they pay no more than an RPI increase. The government will ensure that these agreements deliver on their energy efficiency goals through a DECC-led target review starting in 2016
At Budget 2014 the government capped Carbon Price Support (CPS) rates at £18 t/CO2 from 2016-17 to 2019-20 to limit competitive disadvantage to British businesses.
Due to the continued low price of the EU Emissions Trading System (EU ETS), the government is maintaining the cap on CPS rates at £18 t/CO2, uprating this with inflation in 2020‐21, in order to continue protecting businesses.
The government will set out the long-term direction for CPS rates and the Carbon Price Floor at Autumn Statement, taking into account the full range of factors affecting the energy market.
The Budget 2016 also announced that fuel duty will be frozen again, for the sixth year in succession.
Energy and Environmental Taxes
Reform of Business Energy Taxes
Following consultation on simplification of the business energy efficiency tax landscape, the government will:
- Abolish the Carbon Reduction Commitment (CRC) energy efficiency scheme with effect from the end of the 2018-19 compliance year. Businesses will be required to surrender allowances for the final time in October 2019. The government will work with the devolved administrations on closure details for the reporting element of the scheme.
- Increase the main rates of Climate Change Levy (CCL) from 1 April 2019, to cover the cost of CRC abolition in a fiscally-neutral reform and incentivise energy efficiency in CCL-paying businesses.
- Increase the CCL discount for sectors with Climate Change Agreements to compensate equivalently for the increase in CCL main rates. The CCL discount for electricity will increase from 90% to 93%, and the discount for gas will increase from 65% to 78% from the 1st April 2019. The government will retain existing eligibility criteria for Climate Change Agreement schemes until at least 2023, with a target review to include a review of the buy-out price for periods 3 and 4 starting in 2016.
- Rebalance the main rates of CCL for different fuel types to reflect recent data on the fuel mix used in electricity generation. In the longer term, the government intends to rebalance rates further to deliver greater energy efficiency savings, to reach a 1:1 ratio of gas and electricity rates by 2025.
- Consult later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.
Climate Change Levy (CCL) Main Rates (2017-18 and 2018-19)
CCL main rates will increase in line with RPI from 1 April 2017 and 1 April 2018. The rates for 2016 to 2017 and the rates covered by the Budget 2016 announcement are as follows:
Climate Change Levy Main Rates
| Taxable Commodity | Rate from 01/04/2016 | Rate from 01/04/2017 | Rate from 01/04/2018 | Rate from 01/04/2019 |
|---|---|---|---|---|
| Electricity (£ per kWh) | 0.00559 | 0.00568 | 0.00583 | 0.00847 |
| Natural gas (£ per KWh) | 0.00195 | 0.00198 | 0.00203 | 0.00339 |
| LPG (£ per kg) | 0.01251 | 0.01272 | 0.01304 | 0.02175 |
| Any other taxable commodity (£ per kg) | 0.01526 | 0.01551 | 0.01591 | 0.02653 |
Climate Change Levy Reduced Rates
| Taxable Commodity | Rate from 01/04/2016 | Rate from 01/04/2017 | Rate from 01/04/2018 | Rate from 01/04/2019 |
|---|---|---|---|---|
| Electricity | 10% | 10% | 10% | 7% |
| Natural gas | 35% | 35% | 35% | 22% |
| LPG | 35% | 35% | 35% | 22% |
| Any other taxable commodity | 35% | 35% | 35% | 22% |
CRC Energy Efficiency Scheme (CRC)
Allowance prices for CRC compliance years 2016-17, 2017-18 and 2018-19 will increase in line with RPI.
Climate Change Levy (CCL) Exemption on Renewably-Sourced Electricity
As announced in the Autumn Statement 2015, a transitional period for electricity suppliers to apply the CCL exemption on renewably-sourced electricity generated before 1 August 2015 will end on 31 March 2018.
Carbon Price Support Rates
As previously announced, the government will continue to cap Carbon Price Support (CPS) rates at £18/tCO2 to 2019-20. For 2020-21, the cap will be maintained in real terms and set at £18/tCO2 plus RPI. This will continue to protect business competitiveness. The government will set out the long-term direction for CPS rates and the Carbon Price Floor in the Autumn Statement 2016.
Enhanced Capital Allowances (ECAs)
The list of designated energy-saving and water-efficient technologies qualifying for an ECA will be updated during summer 2016, subject to State aid approval.
Support for Renewable Electricity
The government will auction up to £730 million support for offshore wind and other less established renewable technologies this parliament for projects generating electricity in 2021 to 2026. The first auction will offer £290 million of support.
