Select Committee on Trade and Industry Appendices to the Minutes of Evidence - Ninth Report


Memorandum Submitted by SEEBOARD and eleven other electricity supply companies

  You have invited industry to submit written evidence to the Trade and Industry Committee on the impact on industry of the proposed Climate Change Levy (CCL).

  The Government's statement of intent on environmental taxation published in July 1997 contained the following paragraph:

  ``Environmental taxation must meet the general tests of good taxation. It must be well designed to meet objectives without undesirable side effects; it must keep deadweight compliance costs to a minimum: distributional impact must be acceptable; and care must be had to implications for international competitiveness''.

  I understand that the Electricity Association will be providing written and, possibly, oral evidence on behalf of the Electricity Supply Industry on the impact of the Levy on competition and the environment. We, on behalf of the 12 electricity companies listed below, would like to draw the Committee's attention to the impact of the Levy on our billing systems.

  Section 12 of the consultation document published by HM Customs & Excise suggested two broad options for the provision of relief in those cases identified for special treatment (energy used to produce other energy products, non-energy use of fuel products and energy intensive industries together with the use of energy by public transport). The two options are:

  ``1. relief provided by the customer certifying to the supplier that the Levy should not be charged on a proportion of use, or should be charged at a lower rate; and

  2. relief provided by the customer claiming a refund of the Levy from Customs and Excise''.

  Representatives of the gas and electricity industries have had a meeting with the Excise Policy Group (``EPG'') to express concern that the provision of relief by way of Option 1 would require highly complex changes to our accounting and billing systems and may not be ready for implementation in April 2001. In addition set-up and continuing compliance costs would be unnecessarily high. This has been set out in greater detail in the submissions of individual companies in the gas and electricity industries and their trade organisations and in subsequent correspondence with the EPG.

  The gas and electricity industries believe that the use of Option 2 will protect the tax base and ensure that the right amount of tax is collected from the right taxpayers at the right time. On the other hand, the use of Option 1 will:

  give estimated and therefore inaccurate Levy charges;

  make the bills more complicated for customers to understand if two or more rates of Levy and exemptions are included;

  introduce a second layer of certification (on top of VAT certification) which could result in confusion for customers and suppliers alike; and

  be difficult and expensive to programme into the billing systems of energy suppliers which systems are already complex.

  The accuracy of Levy charges is of paramount interest to Government and suppliers alike, because unlike VAT which is a pass-through for a registered business, CCL is a real cost to the customer. The certificate envisaged under Option 1 would have to show 'a percentage usage of (say) the lower rate of Levy. To be accurate, the actual percentage would have to vary from month to month (particularly so if the business is seasonal) and this would be extremely difficult to administer.

  Customers overpaying the Levy will demand refunds, adding to suppliers' administration costs. On the other hand, customers may be reluctant to volunteer evidence of underpayments. In fact, underpayments of Levy are more likely, as customers may over-estimate usage which is subject to lower rates.

  The use of CCL certificates presents a Levy avoidance opportunity which is similar to that identified by Customs in respect of VAT certificates and which they are currently trying to address. Option 1 will also undoubtedly give inaccurate results where the supplier's customer is not the final consumer. Examples of this include retail shopping complexes, business parks and industrial complexes. Taking the industrial complex as an example, the electricity may be used for:

  the landlord's own use, some or all of which may be at a lower rate;

  the landlord's heating and lighting, subject to the standard rate Levy; and

  onward sale to tenants who may be business users entitled to a lower rate Levy or an exemption or to tenants with domestic supplies.

  Under Option 1, the supplier would have to accept certificates submitted by landlords who onward supply to tenants, some of whom may not have metered supplies. Unless the landlords are registered for CCL purposes, they would recoup the Levy by increasing their onward charges. As the mix of actual usage is unlikely to be the same as the estimated mix on the certificate, the landlord would make a profit or loss from the Levy.

  For the reasons stated above, the gas and electricity industries have urged Customs to choose Option 2 which will protect the tax base and minimise deadweight compliance costs.

for and on behalf of:

Eastern Group Plc  Scottish and Southern Energy Plc

London Electricity Plc  SEEBOARD plc

National Power Plc  South Western Electricity Plc

Northern Electric and Gas Ltd  United Utilities Plc

Powergen Plc  Yorkshire Electricity Group Plc

Northern Electric and Gas Ltd

June 1999

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