Supplementary memorandum submitted by
the Micropower Council (CIT 34a)
Question 6 "To what extent is `green
taxation' an effective driver of behavioural change?"
1. The Micropower Council is pleased to
provide an additional response to the Committee's inquiry into
the "citizen's agenda" on the impact of green taxes
as a driver for behavioural change.
2. We noted on our original response that
we see four areas where urgent Government action is needed—this
included the need for Government to develop and implement a fiscal
strategy for promotion of low carbon solutions within the domestic
sector—to cover both energy efficiency and microgeneration.
3. In this context we welcome the Chancellor's
announcement, within the Pre Budget Report, of measures to promote
the uptake of microgeneration by clarifying the rules regarding
taxation of domestic customers exporting electricity and the introduction
of a time limited exemption from stamp duty for new zero carbon
homes.
4. We see these as small but significant
steps in the right direction. However, on their own, they are
unlikely to have a material impact:
— clarifying the rules on income tax
will remove a current uncertainty and hence removes a potential
barrier. To be effective, this exemption will need to be sufficiently
widely drawn to include income from ROCs[35]
as well as from the sale of exported power and to cover all domestic
installations; and
— removing stamp duty on new zero carbon
homes will affect only a very small percentage of house movers
and effective action requires the use of incentives (carrots and
sticks) for all householders.
5. Government has stated[36]
that the "principle that fiscal measures can play a part
in achieving our environmental goals has been established".
We agree with this whole-heartedly and believe that, if the potential
benefits are to be secured, it is critical that Government acts
now to remove existing fiscal barriers to the uptake of microgeneration
and develops and implements a broad based fiscal strategy for
promoting low carbon solutions across the whole domestic energy
sector.
CURRENT BARRIERS
6. We set out below two barriers that continue
to frustrate the development of microgeneration (one relates particularly
to business premises but has been included because we consider
it to be a matter of considerable importance and we believe the
Committee would wish to be made aware of it—there may also
be implications for domestic premises).
Barrier 1—tax treatment of companies installing,
and leasing, microgeneration in domestic premises
7. Where a business installs microgeneration
within domestic customers' premises and either leases the equipment
to the customer, or is paid for the energy delivered, it is liable
for tax on any profits generated but does NOT have access to any
form of capital allowances to allow it to offset the capital cost
of the installation that would normally be available for business
investments.
8. This limits the evolution of cost effective
mechanisms for delivering microgeneration technologies to the
less well off sectors of society.
9. We propose that all companies offering
to lease microgeneration within domestic premises should have
access to capital allowances equivalent to those available to
businesses installing microgeneration within business premises.
Barrier 2—rateable value of premises with
microgeneration
10. The installation of microgeneration
equipment on business premises will lead to the rateable value
of the premises being increased. The method that will generally
be used (the "contractors basis") is likely to result
in an increase in the rateable value of the premises of 5% of
the replacement (or installation) cost of the microgeneration
installation. Rates payable are currently ~43p in the £,
meaning that the annual increase in rates payable will be over
2% of the replacement cost of the microgeneration. The potential
for rate increases of this magnitude will act as a major deterrent
to the uptake of microgeneration.
11. We are unsure how, or whether, installation
of microgeneration would affect council tax liability and suggest
that this issue also needs to be investigated to ensure there
is no potential for installation of microgeneration to result
in an increase in domestic households' rates liability.
INCENTIVES
12. There is a wide range of fiscal measures
that could be used to provide effect incentives (both carrot and
stick) to promote microgeneration within the domestic sector.
Such measures can be used to:
— reduce the cost of low carbon energy
solutions to consumers;
— raise awareness of microgeneration/energy
efficiency options; and
— provide effective mechanisms for
reflecting the cost of carbon into energy decisions and rewarding
those that opt for low carbon solutions.
All of which are effective drivers for behavioural
change.
13. The Micropower Council has identified
a number of potential fiscal measures that can deliver these benefits
and proposes that Government should implement a portfolio of measures
that, in combination, ensure complete coverage of all potential
domestic microgeneration/energy efficiency sectors.
COUNCIL TAX
14. Council Tax liability is currently based
solely on an assessment of property values and ignores the environmental
impact of energy use within a property.
15. As with vehicle excise duty, council
tax payments could be set by reference to the energy rating of
a property, as well as property value (leaving the total amount
of income recovered unchanged so that there is no net cost to
the Treasury).
16. In the short term to medium term, council
tax rebates could be given for households installing energy efficiency
and/or microgeneration (with higher rebates or rebates over a
number of years for higher cost measures).
17. Experience of the Centrica/Braintree
initiative, where a rebate is available for certain energy efficiency
measures, suggests that this could be a particularly effective
and potent measure.
STAMP DUTY
EXEMPTION/REBATE
18. We note that the Chancellor is already
proposing to deploy this measure within a limited sector of the
new build market. We believe consideration should be given to
extending this measure more widely to ensure that there is a strong
incentive to promote low carbon solutions across the whole housing
market—not just new build. We also suggest that the threshold
for qualification should be lower in the existing homes market
because of the higher cost of improving the energy performance
of existing buildings.
TAX EXEMPTION
ON EMPLOYER
SUPPORTED GREEN
LOANS
19. Allowing employers to provide loans
to employees to cover the cost of installation of energy efficiency/microgeneration
measures (repayable via "salary sacrifice") without
requiring any benefits accruing under such loans to be declared
for tax and NICs purposes. Thus saving the employer the cost of
employer's NIC and the employee both NICs and tax.
20. Such measures have already proved very
successful in other areas, such as home computers and provision
of bicycles.
TAX ALLOWANCES
ON CAPITAL
EXPENDITURE
21. Allowing individuals installing microgeneration
to claim tax relief on the capital cost of the installation. This
measure would have the major benefit of reducing the capital cost
of purchasing/installing some of the more costly technologies
in a similar way to business which already benefits from similar
allowances.
TAX CREDITS
AGAINST LOANS
22. Allowing individuals obtaining loans
(or mortgage extensions) specifically for the purposes of funding
major energy efficiency/microgeneration installations (above a
de minimis level) to off-set the cost of the annual loan
repayments against their annual tax liability). Such mortgages
are particularly attractive where any increase in mortgage repayment
costs to cover, for example, investment in energy efficiency and
microgeneration are, in effect, self-financing because they can
be offset by lower annual energy costs.
MEASURES TO
INCENTIVISE LANDLORDS
23. The "Landlord's Energy Saving Allowance"
currently provides up-front relief, for landlords, on capital
expenditure for installations of loft, cavity, and solid wall
insulation in rented accommodation. However, there is no equivalent
relief for investments in other forms of energy efficiency and
microgeneration.
24. The Treasury has advised that the current
legislative arrangements cannot be extended to include these measures.
Consequently new legislation is need to extend this form of incentive
to these measures to ensure that the benefits of improved energy
efficiency and microgeneration can be extended to rented properties
reducing carbon emissions and delivering lower cost energy to
tenants.
REDUCED PLANNING
GAIN SUPPLEMENT
25. Kate Barker's 2004 report on housing
supply recommended that the Government should actively pursue
measures to share in the windfall development gains accruing to
landowners when they sell land for housing. She suggested the
introduction of a "planning gain supplement" as a way
of doing this.
26. Developers could be incentivised through
liability for a reduced supplement for new build that reaches
certain sustainability criteria (including microgeneration).
A TAX ALLOWANCE
FOR COMPANIES
TRAINING INSTALLERS
AND SPECIFIERS
OF ENERGY
SAVING/MICROGENERATION
EQUIPMENT
27. There is an increasing need for trained
and accredited installers and specifiers of energy efficiency
measures and microgeneration. Many installers/specifiers are small
scale or sole traders few of whom are able to take on and train
apprentices as it reduces their own productivity while providing
training.
28. The ability to offset training time
and costs against their tax bill could be a useful incentive to
overcome this problem. This could be achieved through a rebate
on tax for heating, insulation, and microgeneration installers
and specifiers if they take on apprentices.
The Micropower Council
January 2007
35 Renewables Obligation Certificates. Back
36
Energy Review, July 2006 (paragraph 6.35). Back
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