What form will energy tax simplification take?
Tax is hardly an appealing subject. But nevertheless, it’s an important one, especially when policy-related taxes add so much to essential business commodities such as energy.
The burden of cost is coupled with a large administrative burden too, with so many regulations – from the CRC to ESOS – taking up time and valuable resources.
We know businesses are keen to have the energy tax landscape simplified – and this is something the government is pledging to do, following a consultation on energy tax simplification which closed last week.
Calls for long-term continuity
Many of our customers have participated in this consultation, keen to air strong views. For example, one customer told us: “To comply with each tax regime involves our time and cost to comply. Each successive government seems to make changes and introduce another form of tax. We need long-term continuity with a system that will endure future changes in government.”
Another said: “Many areas of business energy tax cross over and in some cases it feels like duplicate information is needed to be provided, which is both time consuming and mundane.”
We agree clarity and certainty are key. We also believe energy tax simplification should:
- Result in more efficient and cost-effective processes for both administration and compliance.
- Provide the right signals to drive investment into energy efficiency and carbon reduction.
- Drive cost efficiencies for all parties – and not be overly complex.
A system that’s fit for purpose
The new system has to be designed to be fit for purpose, rather than a framework that’s then bent out of shape by shoe-horning in new polices. That’s what happened to the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) – it started out trying to address a perceived policy gap, then was complicated by lots of additions here and there, and so ended up becoming a sprawling monster.
The Department of Energy & Climate Change (DECC), the Department for Business, Innovation & Skills (BIS) and the Treasury are currently working out the new energy taxation detail. While a full response isn’t due until the March 2016 Budget, we do expect some indication in the Comprehensive Spending Review, which is due to be published alongside the Autumn Budget later this month.
So what do we know?
What we do know is that the government is looking to replace the current system with a single energy tax and a single reporting framework. We know that any change has to be revenue neutral for government. And we know a key aim is to simplify and reduce compliance and administrative costs.
Having spoken to DECC, BIS and Treasury, we’ve been led to understand:
- Treasury is to propose abolishing CRC while ensuring that the associated revenue (circa £800m pa) is still recovered, which we anticipate will be added instead to Climate Change Levy (CCL) costs
- Protecting energy intensive businesses at risk of carbon leakage is key, although the current Climate Change Agreement subsidies are being reviewed, so how support will be structured going forward (and for whom) is not yet known
- Supporting productivity through increased take up of energy efficiency and carbon reduction is a priority, although it’s not yet clear how this will be delivered
In terms of a single reporting framework, the government has indicated that this could be based on the Energy Savings Opportunity Scheme (ESOS), which might seem strange seeing as this hasn’t even been assessed yet. A key aim is to ensure that the most effective elements from existing reporting arrangements are kept. While not confirmed, we are also expecting that the requirement for Board level sign off will continue.
Many questions still to answer
There’s an awful lot we still don’t know – from what level of energy efficiency and/or carbon reduction is expected, to which organisations will be impacted and when these changes will be implemented.
Although the consultation has closed, DECC, BIS and Treasury are looking to engage with businesses to gauge reaction to proposals as they take shape, so there will still be an opportunity to make your views known (and we will keep you informed).
How you can prepare
In terms of whether your organisation will be a ‘winner’ or a ‘loser’, only time will tell. But to help you prepare, we are suggesting:
- Review your existing investment plans/business case for energy efficiency improvements
- Ensure you make use of all the currently available benefits, eg capital allowance schemes for energy efficiency investment
- Utilise and use up banked surplus allowances from the CRC or CCA, given the current uncertainty regarding the timing of the proposed changes
- Speak to us about opportunities for energy solutions and investment if you are unsure
Kate Garth is Customer Policy Manager at npower. Here, she shares the main messages from her recent popular Energy Live seminar on Energy Tax Simplification.
This is a sponsored article.