Without notice or consultation, the unexpected abolition of Climate Change Levy (CCL) exemption in the Summer Budget has shocked the energy industry. Costs for UK business and public sector energy consumers will increase by millions of pounds as a result. This is contrary to Treasury analysis that “removing the exemption is not expected to significantly increase business energy bills”, and Utilitywise calls on HMRC to allow existing contractual arrangements to be met in full.

Widely reported as a subsidy for renewables, the CCL is primarily a tax on the consumption of energy by UK businesses. It is charged on the supply of coal, gas and electricity, with the revenue collected by suppliers and passed on to the Treasury. The CCL has been one of the more stable energy policy costs since its introduction in 2001. It both increased the cost of energy consumption and provided support to renewables.

Businesses could offset their obligation by sourcing their energy from sources exempt to the levy. Levy Exemption Certificates (LECs) have been granted to electricity generated from renewables and Good Quality Combine Heat and Power (GQCHP), which have been bought by energy suppliers, and then sold on to consumers.

While consumers initially paid a premium to the CCL for Levy Exempt Supplies, growth in renewable generation has resulted in LECs trading at a discount to CCL. Suppliers have profited from buying and selling LECs, but in an increasingly competitive market, Utilitywise has been able to negotiate for our customers Levy Exempt supplies at a discount to the CCL. As a result of the Budget, consumers will no longer be able to benefit by surrendering LECs, but will instead have to pay the full CCL to the Treasury.

While the aim of the policy is to stem the flow of UK taxes to support foreign renewable generation, three quarters of the affected renewable generation are in the UK. This policy removes an incentive for renewable generation, but for businesses the cost of the levy not only remains, but has increased. The HMRC Policy Paper explaining the CCL changes is demonstrably wrong to state that “removing the exemption is not expected to significantly increase business energy bills”, with increased costs for UK business and public sector energy consumers running to millions of pounds.

Utilitywise calls on HMRC to allow existing contractual arrangements to be met in full.