The Treasury has outlined the increased Climate Change Levy (CCL) rates due to come into force in 2019, which will see the Exchequer benefit to the tune of £425 million in a move originally dubbed as “fiscally-neutral”.
Chancellor George Osborne announced in his Budget last week that the Carbon Reduction Commitment (CRC) would be scrapped in order to remove a “burdensome” scheme from UK businesses.
In order to make up the revenue from this, the amount paid under the CCL – a tax on energy delivered to non-domestic users – is to be increased, with the new rates outlined in the Finance Bill released this morning.
The changeover between rates is scheduled for 2019, explaining the sudden jump in rates seen above. According to the Treasury, revenue from the CRC accrues one year after closure, meaning the government will collect payments for the final compliance year (2018/19) the following year.
However, companies will be able to purchase CRC allowances and surrender them up until October 2019, despite increase rates for the CLC being implemented in April of that year. The overlap between the two policies means that the Treasury stands to make £425 million from the changes which have been trailed as “fiscally-neutral”.
For this to be the case, the government would have to spend this tax revenue whereas currently there are no published plans for the windfall.
A Treasury spokesperson has claimed the policy is fiscally neautral as CCL is being increased by a factor equivalent to the loss of CRC revenue, however he failed to explain the financial gain for the Treasury resulting from the reforms.
Energy intensive industries are also set to benefit from the plans, with new reduced rates set to be established. These firms are able to enter into a climate change agreement (CCA) and currently receive up to 90% and 65% reduction on levy payments for electricity and gas respectively in exchange for actively pursuing energy efficiency.
These rates will be increased to 93% and 78% as the UK government seeks to reduce the gap between gas and electricity consumption.
There is some question over how much this will incentivise the use of renewable energy as a way of securing CCA rates, particularly as renewable energy generators is no longer exempt from the CCL and now expected to pay a carbon tax for low carbon energy.
The government has yet to consult on plans for a new carbon reporting framework which will accompany the new rates, although a consultation is expected by this summer.
