Budget Alert 2018

Headlines

Chancellor Philip Hammond delivered the government’s Budget on Monday 29 October.

The principal changes are:

  • Clarity on carbon pricing, with the CPS rate frozen and a no deal Brexit carbon price confirmed
  • Confirmation of a rebalancing of Climate Change Levy rates
  • Reform of Enhanced Capital Allowances to boost electric vehicle infrastructure

Budget announcement details

Total Carbon Price

Reflecting that the price of EU Emissions Trading System (ETS) allowances has risen significantly over recent months, the government will freeze the Carbon Price Support (CPS) rate at £18/tCO2 for 2020-21. From 2021-22, the government will seek to reduce the CPS rate if the Total Carbon Price (EU Emissions Trading System + Carbon Price Support) remains high.

In the event of a “No Deal” Brexit and the UK departing from the EU ETS in 2019, the government would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act 2008. The tax would apply to all stationary installations currently participating in the EU ETS from 1 April 2019. A rate of £16/tCO2 would apply to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS. The government also committed to bring forward new legislation so it can prepare for a “range of long-term carbon pricing options”.

The Office for Budget Responsibility notes receipts from the carbon price floor (CPF) are little changed, with the rise in electricity generation from renewables and natural gas at the expense of coal continuing to reduce the tax base.

The Autumn Budget 2017 previously stated that the government is “confident” that the Total Carbon Price is currently set at the right level, and that the government would continue to target a “similar” carbon price until “unabated coal is no longer used”.

Climate Change Levy (CCL)

The CCL is a tax on energy delivered to non-domestic users in the United Kingdom. Its aim is to provide an incentive to increase energy efficiency and to reduce carbon emission. Some sectors are exempted through Climate Change Agreements (CCAs), charities, and the non-domestic users consuming no more than 4.4MWh of gas per month, or 1MWh of electricity per month.

The Budget sets the CCL main rates for 2020-21 and 2021-22 and continues with the government’s commitment to rebalance the main rates paid for gas and electricity. The electricity rate will be lowered in 2020-21 and 2021-22. The gas rate will increase in 2020-21 and 2021-22 so it reaches 60% of the electricity main rate by 2021-22.

The measure was first sign-posted in the government’s 2016 Budget which outlined plans to rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in generation rebalancing the rates to reach a ratio of 1:1 (electricity:gas) rates by 2025. The ratio for the current year (2018-19) is 2.8:1 and for next year (2019-20) is 2.5:1.

The Office for Budget Responsibility notes “receipts in the near term are little changed since March, but they are boosted in 2023-24 when the current CCA scheme comes to an end.“

Enhanced Capital Allowances (ECAs)

The government will end ECAs and First Year Tax Credits for technologies on the Energy Technology List and Water Technology List from April 2020. The savings will be reinvested in an Industrial Energy Transformation Fund, to “support significant energy users to cut their energy bills and transition UK industry to a low carbon future.”

The government will extend Enhanced Capital Allowances for companies investing in electric vehicle charge points to 31 March 2023.

Business low-carbon funding

As part of the Industrial Strategy, the government will establish an Industrial Energy Transformation Fund, backed by up to £315mn of investment, to support businesses with high energy use to transition to a low-carbon future and to cut their bills through increased energy efficiency. The government will also issue a call for evidence on introducing a new Business Energy Efficiency Scheme, focused on smaller businesses.

North Sea fiscal regime

As announced at Autumn Budget 2017, the government will introduce a transferable tax history mechanism in Finance Bill 2018-19 for oil and gas companies that will remove tax barriers to new investment in the North Sea. Headline tax rates for oil and gas will be held at their previous level.

Nuclear Fusion

£20mn is allocated in 2019-20 to support UK research into nuclear fusion.

Cornwall Insight view

Rarely has a Budget speech had so little on energy in the main speech, however important detail lurked in the accompanying documents.

Industry will welcome more clarity on carbon pricing, whatever scenario occurs in the next few months. CCL rates rebalancing represent an action that has little impact in the short term on total tax take.

This entire Budget also comes with the proviso that much of this is conditional on the outcome of Brexit negotiations. On 28 October, Hammond confirmed that in the event of a no-deal Brexit, the government would need to come forward with a new Budget. This would involve a “different response”, with “fiscal buffers” being maintained to provide support for the economy. At the Budget, Hammond said this could take the form of the Spring Statement becoming a “full fiscal event”.

DOWNLOAD FULL ALERT

Related thinking

Energy storage and flexibility

How nuclear energy can help the UK reach its net zero goals

This article was originally written in Energy Spectrum on 21 March 2021. To find out more about a subscription to Energy Spectrum, please contact Nick on n.palmer@cornwall-insight.com. There are several challenges to reaching net zero, where its proponents believe nuclear could add value. Some of tomorrow’s main issues concern: How to provide low...

Announcement

Alert: Budget 2021

Chancellor Rishi Sunak delivered his Budget on 3 March, a year on from the start of the COVID-19 crisis and his second in the job. Headline announcements included, among others, a sovereign green bond, the UK Infrastructure Bank, a freeze in Carbon Price Support and £20mn for floating offshore wind....

Regulation and policy

Answers to some FAQs about Brexit

Following the end of the transition period on 31 December 2020 and the signing of the Trade and Cooperation Agreement, aspects of the relationship between UK and the EU in respect of the arrangements for energy trading and cooperation have changed. We set out answers to some Frequently Asked Questions...

Commercial and market outlook

A look back at 2020

As we take our first steps into 2021, we look back at the biggest developments in the UK energy markets in 2020, setting us up for the significant year ahead. As 2019 turned into 2020, we were still waiting for the Energy White Paper (EWP), a document which had been...

Low carbon generation

Analyse thy neighbour: Interconnectors and their importance to future power prices

Whilst we build towards 2021 and post-Brexit energy markets, focus has been applied to how we in GB strive towards net zero ambitions with a more independent policy agenda. However, regardless of future trading arrangements, interconnectors with EU nations will continue to play a pivotal role in driving wholesale power...

Regulation and policy

Getting it done? What the Budget means for energy and clean growth

New Chancellor Rishi Sunak has delivered his first Budget after less than a month in the job. On areas such as the living wage, growth and investment, Sunak said again and again that the government is “getting it done!” However, there was relatively little news in the speech on what...

Announcement

Celebration: Cornwall Insight wins second FT award

Tom Palmer, our managing consultant, discusses our recent success of achieving a bronze award for consulting from the Financial Times for the second year running. Last week we discovered that for the second year running we have been rated in the top 20 Management Consultants for Energy, Utilities and Environment...

Home supply and services

Retrofitting, it’s on the House… Almost

In this week's blog, we look at Minister Bruton's Monday announcement that the DCCAE “will ring-fence one-third of the carbon fund for housing upgrades… Bringing total investment in retrofitting to almost €6 billion”. This announcement comes at an appropriate time given that large-scale retrofitting is called for in the Climate...

This site is registered on wpml.org as a development site.