Budget Briefing – 3rd March 2021

Spring Budget 2021

The Chancellor has delivered the Spring Budget 2021; please find enclosed details of those policies that may affect our clients: 

Budget Policy Overview

The Budget follows a year of extraordinary economic challenge as a result of the ongoing COVID-19 pandemic. Like that of many other countries, the UK’s economy has been hit hard, with both the direct effects of the virus and the measures necessary to control it leading to an unprecedented fall in output and higher unemployment.

The Budget sets out how the government will extend its economic support to reflect the cautious easing of social distancing rules and the reopening of the economy in the government’s roadmap.

Support in the Budget reflects the easing of restrictions to enable the private sector to bounce back as quickly as possible.

Energy and Environmental Taxes

Fuel Duty

The government will freeze fuel duty in 2021-22. This is the eleventh consecutive year of the freeze, cumulatively saving the average car driver £1,600 compared to the pre-2010 escalator. Future fuel duty rates will be considered in the context of the UK’s commitment to reach net-zero emissions by 2050.

Climate Change Levy

The main and reduced rates for 2021 to 2022 and the rates for 2022 to 2023 and 2023 to 2024 are as follows:

Climate Change Levy Main Rates

Taxable Commodity Rate from 01/04/2021 Rate from 01/04/2022 Rate from 01/04/2023
Electricity (£ per kWh) 0.00775 0.00775 0.00775
Natural gas (£ per kWh) 0.00465 0.00568 0.00672
LPG (£ per kg) 0.02175 0.02175 0.02175

Climate Change Reduced Rates

Taxable Commodity Rate from 01/04/2021 Rate from 01/04/2022 Rate from 01/04/2023
Electricity 8% 8% 8%
Natural Gas 17% 14% 12%
LPG 23% 23% 23%

Carbon Price Support (CPS) Rate

The government will maintain the freeze on Carbon Price Support rates at £18 per tonne of carbon dioxide in 2022-23. The government is committed to carbon pricing as a tool to drive decarbonisation and intends to set out additional proposals for expanding the UK Emissions Trading Scheme over the course of 2021.

Red Diesel

At Budget 2020, the government announced that it will remove the entitlement to red diesel and rebated biofuels from April 2022, excepting use for agriculture (including horticulture, fish farming and forestry), rail vehicles and for non-commercial heating. 

Alongside the Budget the government is publishing a summary of responses to last year’s consultation and setting out next steps on these tax changes. This confirms further exceptions to the red diesel ban after April 2022: those using red diesel to power vessels for commercial purposes, including fishing and water freight, travelling funfairs and circuses, amateur sports clubs as well as golf courses, and non-commercial power generation.

Enhanced Capital Allowances

An enhanced capital allowance of 100% for companies investing in plant and machinery for use in Freeport tax sites in Great Britain, once designated. This will apply to both main and special rate assets, allowing firms to reduce their taxable profits by the full cost of the qualifying investment in the year it is made, and will remain available until 30 September 2026.

Carbon Markets

Carbon markets working group will establish a new group with the aim of positioning the UK and the City of London as the leading global market for high quality voluntary carbon offsets, which can play an important role in addition to international efforts to reduce carbon emissions. The working group will draw on the UK’s financial expertise and entrepreneurship and build on the work of crossing-cutting initiatives such as the Taskforce for Scaling Voluntary Carbon Markets.

Energy Innovation

In line with the commitment to double spending on energy innovation, the government is announcing support for the development of new solutions to cut carbon emissions and accelerate near-to-market low-carbon energy innovations:

  • The launch of a £20 million programme to support the development of floating offshore wind technology across the UK.
  • The launch of a new £68 million UK-wide competition to implement several first-of-a-kind energy storage prototypes or technology demonstrators.
  • A £4 million UK-wide competition for the first phase of a biomass feedstocks programme, to support the rural economy in making improvements to the production of green energy crops and forestry products.

UK Emissions Trading Scheme (ETS)

The UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS on the 1st January 2021. The four governments of the UK have established the scheme to increase the climate ambition of the UK’s carbon pricing policy, whilst also protecting the competitiveness of UK businesses.

The UK ETS Authority and its regulators will release guidance necessary to advise operators and facilitate their compliance obligations with the UK ETS. The “How to Comply” guidance is planned to be released in early 2021 alongside the Small Emitters and Hospital Opt-Out Scheme and the Ultra-Small Emitter Exemption guidance.

Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme. This limits the total amount of carbon that can be emitted and, as it decreases over time, will make a significant contribution to how we meet our Net Zero 2050 target and other legally binding carbon reduction commitments.

The UK ETS will apply to energy intensive industries, the power generation sector and aviation. It covers activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW (except in installations for the incineration of hazardous or municipal waste).

If you carry out an activity covered by the UK ETS, you will need a greenhouse gas emissions permit.

You may also need:

  • A small emitter or hospital permit (if you are classed as a small emitter or a hospital).
  • An emissions monitoring plan (if you are an aircraft operator).

Activities covered by the UK ETS are any of the activities listed in Schedule 1 (for Aviation) and Schedule 2 (for stationary installations) of the Greenhouse Gas Emissions Trading Scheme Order 2020.

Northern Ireland electricity generators shall remain in the EU ETS by virtue of the Ireland/Northern Ireland Protocol.

If you have any questions regarding the Spring Budget and how it may affect you, please do not hesitate to contact us on 01293 521 350 or at info@2ea.co.uk.

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