Following the announcement of a review of the business energy efficiency tax landscape at the Summer Budget, the Government launched a consultation to seek the views of stakeholders on the proposal to simplify and improve the effectiveness of the landscape in supporting its objectives around simplicity, productivity, security of supply and de-carbonisation.

The review is considering the interactions between business energy policies and regulations, including the Climate Change Levy (CCL), the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), taxes on other fuels – e.g. heating oils, Climate Change Agreements (CCA), Mandatory Greenhouse Gas (GHG) reporting, the Energy Saving Opportunity Scheme (ESOS), Enhanced Capital Allowances (ECAs), and the Electricity Demand Reduction (EDR) pilot. The intention is to move away from the current system of overlapping policies towards a system where a business or organisation faces one tax and a single reporting scheme for the energy it uses. This is a move that we fully support.

The current regime of taxation and reporting requirements means that the direct and overhead costs associated to energy use and compliance reporting is far greater than necessary. It is also disappointing that, despite the many measures that have been put in place, energy reduction is not currently a direct outcome of any requirement. At present, the whole system is merely a set of very complex arrangements with no end goal.  In order to improve this, taxation should be simplified and reporting requirements streamlined. If the UK is to achieve its carbon targets there must be a requirement to reduce energy that flows from any regulatory reporting.

Adopting a single mandatory energy reporting regime would be welcomed. It is vital that whatever model is adopted, the administration burden needs to be kept to a minimum if this is to be well received and deliver positive outcomes. When developing a reporting model, the Government must not lose sight of any future plan to introduce a statutory requirement to reduce energy use and ensure that the mechanism put in place can be extended to include this. Failure to encompass this will only mean further changes are required further down the road which will be costly and ill-received.

It must be noted that simplification and a reduction in costs are not always sufficient drivers to ensure energy reduction from all business users. For many organisations, energy cost is not the most significant expenditure and therefore are not placed in the spotlight when examining financial performance. It is vital that the reporting structure adopted has board level focus if reduction initiatives are to be embraced throughout organisations. Emissions reporting should also be incorporated with targets for reduction that are relative to company size giving allowance for business growth within the reporting period.

The removal of the administration burden of the current regime is likely to have a more positive effect than the introduction of new incentives to invest in efficiency measures. Confidence in the longevity of incentives has been diminished following recent Governments cuts and it is now perceived that inducements cannot be relied upon in the long term when making investment decisions. Nevertheless, financial savings made due to any reduction in administration burden can be channelled into Investment in energy saving measures resulting in an additional benefit to the changes.

Organisations that have robust carbon targets in place will take advantage of all opportunities to reduce their CO2 emissions. However, the removal of incentives drives other organisations away from the ‘green agenda’. This was seen recently as a result of scrapping the CCL exemption when the uptake of demand for renewable energy noticeably reduced. If the current Government is to progress its efficiency targets, alongside the streamlining of the energy efficiency tax landscape it needs to give consideration to tax relief for demonstrable efficiency improvement.

In summary, the development of a single reporting mechanism and streamlining of business energy taxation will be a welcome reform however the Government should take the opportunity now to incorporate mandatory energy saving requirements into the new model if this is to be seen as a positive policy development aimed at achieving carbon targets.

The Government has collated all feedback and is now considering responses. It is likely that the formal response to the consultation will be announced during the Budget in the spring of 2016. Depending on the outcome of this consultation, the government may follow up with more detailed consultation on policy design and implementation. We will keep you informed on developments.

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