Written evidence submitted by the Association
for the Conservation of Energy|
The Association for the Conservation of Energy was
formed in 1981 by major companies active within the energy conservation
industry, in order to encourage a positive national awareness
of the needs for and benefits of energy conservation, to help
establish a sensible and consistent national policy and programme,
and to increase investment in all appropriate energy-saving measures.
We welcome this opportunity to submit our views on Budget 2011
and green taxation.
Coalition Government has repeatedly asserted its wish to be the
"Greenest Government Ever". In his Budget statement,
the Chancellor George Osborne also stated that, "Green taxes
will increase as a proportion of our total tax revenues".
However, while there were some welcome references to energy efficiency
- for example, the need to "encourage and incentivise take-up"
of the Green Deal before it is introduced - Budget 2011 failed
to seize a number of key opportunities to put investment in energy
efficiency at the heart of our economic recovery.
particular we were disappointed by the absence of any announcement
of a stamp duty incentive for householders making energy efficiency
improvements to their home. Such an announcement had been heavily
trailed by officially inspired leaks in the weeks preceding the
Budget, and its absence on the day leads us to conclude that the
Treasury intervened at the eleventh hour to remove it.
regret that the Budget contained no announcement of a reduced
rate of VAT on the installation of energy efficient windows. We
have been calling for this for some time, as it is a glaring omission
in the list of energy saving products that already attract the
reduced VAT rate.
welcoming the creation of the new Green Investment Bank with initial
capitalisation levels of £3 billion, we were disappointed
that the Bank will not have borrowing powers till 2015-16 at the
very earliest. The power to borrow is what would give the Bank
its potential to leverage in billions of pounds held by institutional
investors. Critically for energy efficiency, without the power
to borrow, the Bank will not be able to raise low cost finance
to support the Green Deal.
we have no intrinsic objection to a carbon price floor for electricity
generation, we have two key concerns about the carbon floor price
announced in the Budget. First, we believe that, at £16 per
tonne, the price is likely to be far too low to have a significant
influence on investment decisions. Second, as the floor price
will be passed on to customers' electricity bills, we believe
that the adverse effects of this should be offset by an undertaking
from Government that receipts from both the carbon floor and the
EU Emissions Trading Scheme will be ringfenced to fund energy
efficiency improvements in both the domestic and non-domestic
on the previous point, we are concerned, more generally, that
an increasing number of energy and climate change policies are
being funded by means of outsourced "quasi-taxation".
We refer principally to the raft of obligations that are placed
on energy suppliers, the costs of which are then recovered from
the consumer, either on a per kilowatt hour basis, or on a crude
"per household" basis that is fundamentally regressive.
Recovering costs in this way runs counter to the "polluter
pays" principle; it also gives no incentive to consumers
to lower their energy use.
1. The Coalition Government has repeatedly
asserted its wish to be the "Greenest Government Ever".
Furthermore, in his Budget statement, the Chancellor George Osborne
reiterated his earlier promise that, "Green taxes will increase
as a proportion of our total tax revenues". The jury is out
as to whether either of these targets is on course to be met.
The cut in fuel duty has to some extent been offset by the announcement
of a carbon floor price, but it is uncertain as to how much revenue
the latter will generate.
2. We were heartened by the acknowledgment
in the Budget document that: "The Government is committed
to the success of the Green Deal and will act to encourage and
incentivise take-up so that the Green Deal will appeal to households,
businesses and prospective providers alike, before it is introduced
in 2012". We have long been concerned that considerably
more public policy interventions are needed to ensure the success
of the Green Deal by optimising take-up across all sectors. We
are glad that our concerns appear to have been acknowledged by
3. However, despite this welcome step, the
Budget contained few other substantive references to energy efficiency
and a number of key opportunities were missed to adjust fiscal
policy in such a way as to put investment in energy efficiency
at the heart of our economic recovery. Specifically, the "Plan
for Growth", published by BIS and HM Treasury alongside the
Budget document, contains only two references to energy efficiency,
both in the context of the oft-repeated assertion that, "the
Green Deal will enable households and businesses to invest in
energy efficiency measures at no upfront cost". This constitutes
somewhat less than a comprehensive assessment of the part that
energy efficiency can play in boosting our economic recovery.
Stamp Duty Incentive
4. As already noted, we were disappointed
that the Budget contained no announcement of a stamp duty incentive
for householders making energy efficiency improvements to their
home. Such an announcement had been heavily trailed in the weeks
preceding the Budget, and its absence on the day leads us to conclude
that the Treasury intervened at the eleventh hour to remove it.
5. ACE has been calling for such an incentive
for nearly a decade. Owner occupiers account for 68% of householders
but to date, despite considerable discounts offered by suppliers
under CERT and its predecessors, relatively few of these households
are improving the energy efficiency performance of their properties.
We believe that a stamp duty incentive offers a simple and low-cost
option for Government to effect a significant change in householder
6. We are firmly of the view, however, that
any stamp duty incentive should not be restricted only to householders
taking up the Green Deal. This would unfairly penalise those who
choose to finance improvements to their property out of general
household funds or, for example, by taking out a green mortgage.
OF VAT FOR
7. A reduced (5%) rate of VAT already exists
for the installation in households of a range of energy saving
products and materials. The list of eligible products has been
extended over recent years - and recent additions include ground-
and air-source heat pumps, micro-CHP units and wood-fuelled boilers.
However, we believe there is no good or logical reason why this
should not be further extended to cover low emissivity ("low-e")
glass. We have been pressing Government for some time to remedy
this omission, and we were disappointed that Budget 2011 did not
do this. We shall continue to press Government to make the change,
so that householders are encouraged to replace old, heat-leaking
windows sooner rather than later, and with the most energy efficient
8. We have long argued that the Green Investment
Bank (GIB) should be a proper bank, not a fund - and that it should
have adequate levels of capitalisation, with borrowing powers
enshrined in its constitution. We therefore welcomed the announcement
in Budget 2011 that the GIB will be a proper public green bank;
we also welcomed initial capitalisation levels of £3 billion,
which are higher than anticipated some months previously - and
not too far adrift of the minimum of £4 billion recommended
by Ernst & Young in their recent report.
9. However, in a blow to the potential for the
Green Investment Bank to drive energy efficiency, Budget 2011
delayed the Bank's borrowing powers until at least 2015, subject
to the Government meeting its target to eliminate the annual structural
deficit. This is a significant own goal.
10. The power to borrow is the most critical
aspect of the GIB. It would give the Bank the potential to leverage
in huge resources held by institutional investors. Critically
for energy efficiency, without the power to borrow the Bank will
not be able to raise low cost finance on which a successful Green
Deal critically depends. This short-sighted decision by the Treasury
not only imperils the success of the Government's flagship energy
efficiency policy, but also fails to address the wider low carbon
investment needs of the UK. We shall continue to press the Government
to bring forward the 2015 date and drop the condition that the
deficit must be eliminated before borrowing can begin.
11. The Budget announced that, following consultation,
a carbon price floor for electricity generation will be introduced
from April 2013. This made good promises in both the Coalition
Statement and the Conservative election manifesto. ACE supports
in principle the introduction of a carbon floor price. However,
that support is conditional upon the combined receipts from the
carbon floor and the EU ETS being ringfenced to fund energy efficiency
improvements in homes, businesses and industry. Evidence from
the US indicates that investment in energy efficiency delivers
seven times the CO2 savings than carbon taxes and prices.
Ring-fencing this revenue for energy efficiency can therefore
greatly increase the carbon reductions resulting from taxation
12. By contrast, failure to use receipts in this
manner would impact upon the productivity of British industry,
raise public anger at increases in their bills and exacerbate
fuel poverty. Even at £16 per tonne, the Treasury expects
the floor price to raise £1.6 billion a year by 2015-16.
This is a significant sum that should be used to fund energy efficiency
improvements, rather than simply to line Treasury coffers.
13. We are also concerned that the price is too
low to drive a significant increase in investment in low carbon
14. One of the arguments often made against environmental
taxation is that the amount of revenue raised is unpredictable
because a successful environmental tax will, by definition, change
"environmentally negative" behaviour, resulting in a
drop in tax revenue. By contrast, combining the receipts from
the carbon price and the auction of EU ETS permits will create
a more predictable and stable revenue stream for the Treasury
at any given price floor. This in turn will provide a stable funding
stream for the energy efficiency programme that we are advocating.
CRC ENERGY EFFICIENCY
15. No substantive announcements were made in
the Budget about this Scheme, save to confirm that the first allowances
on sale in 2012 will be priced at £12 per tonne of carbon
dioxide. However, it had been widely hoped that the Chancellor
would bow to pressure from all sides (including the CBI and other
industry representatives) and revert to the original proposal
to recycle the revenues from CRC allowance sales to participating
16. To a chorus of criticism the Chancellor dropped
this original proposal in last October's Spending Review, announcing
that CRC revenues would simply be "used to support the public
finances", ie swallowed up by the Treasury. All informed
commentators believe that this will act as a reduced incentive
to Scheme participants to lower their carbon emissions. We are
therefore disappointed that Budget 2011 gave no sign that the
Government were minded to reverse their October decision.
17. The Landlords Energy Saving Allowance (LESA)
is a tax allowance, introduced in April 2004, that allows private
sector landlords to claim up to £1,500 (per property) against
tax every year for investment in energy saving. However, awareness
among landlords is low and the value allowable is not high enough
to incentivise significant whole-house retrofits of properties.
We have therefore been advocating that the current £1,500
cap be significantly raised to incentivise the installation of
more expensive energy efficiency measures. This should be accompanied
by an awareness campaign by the Treasury, who have to date been
remarkably coy about advertising the existence of LESA - no doubt
one reason why the Allowance has only ever been claimed by less
than 0.2% of those eligible to do so.
18. Finally, we have mounting concerns that an
increasing number of energy and climate change policies are being
funded by means of outsourced "quasi-taxation". We refer
principally to the raft of obligations that are placed on energy
suppliers, the costs of which are then recovered from the consumer
on a crude "per household" basis. According to DECC,
in 2010 these obligations accounted for 4% of an average annual
domestic gas bill and 12% of an average electricity bill.
19. The obligations include the Carbon Emissions
Reduction Target (CERT), Community Energy Saving Programme (CESP),
Feed in Tariffs, Renewables Obligation and of course, and the
newly announced carbon floor price. There are a number of flaws
in this gathering trend:
some cases it has not been made clear whether the costs will be
recovered through a "per household basis" or a "per
kilowatt hour basis" - however situations where all consumers
pay a flat rate, regardless of their income or level of energy
consumption, are fundamentally regressive.
is not transparent. Consumers do not know exactly how much they
are paying via their fuel bills to fund the various policy initiatives.
fuel bills are already having a damaging effect on household incomes.
By requiring bills to carry in addition the costs of an ever-increasing
number of climate change policies, there is a real danger that
the general public will be "turned off" the whole environmental
costs are recovered from all energy customers at a flat rate this
would run counter to the basic principle underlying environmental
taxation, ie that "the polluter pays". There is no penalty
for environmentally negative activity, and no reward for "good
20. In this regard we were interested to read
in the "Plan for Growth"
that the Government plans to introduce "a new framework to
cap the impact of levy-funded support on energy bills". As
far as we are aware, no further detail has yet emerged as to the
Government's plans - and we would urge them to clarify their intentions
20 April 2011
66 English Housing Survey 2008 Back
Ernst & Young LLP, Capitalising the Green Investment Bank,
Key issues and next steps, October 2010 Back
RAP, Delivering Energy Efficiency on a Large Scale: Challenges
and Lessons Learned, November 2009, slide 14
DECC, Estimated impacts of energy and climate change policies
on energy prices and bills, July 2010 Back
HM Treasury and BIS, The Plan for Growth, March 2011, para.