Revisions to the Government’s plans for energy tax and spending are expected to be announced in next week’s Budget on 29 October. Will it include a further increase to the Climate Change Levy (CCL) on gas use?
As revealed earlier this month, during the Conservative party conference, fuel duty was frozen for the ninth year in a row. In order to raise revenue and curb emissions, it has been reported that the Chancellor, Philip Hammond, is instead considering an increase to the Climate Change Levy (CCL) on gas use from April 2019.
What is CCL?
CCL is a tax on energy delivered to non-domestic users within the UK. It was introduced in 2001 under the Finance Act 2000. Businesses participating in Climate Change Agreements (CCAs) can avoid up to 90% of the levy by investing in agreed energy efficiency and emissions reduction measures.
The levy has been credited with helping to curb business energy use and carbon emissions. However, it has come under criticism from business groups who argue that it’s part of an overly complicated set of different energy taxes.
The proposed increase would see the levy on corporate gas use rise from 0.339p/kWh to 0.847p/kWh, matching the rate currently charged on electricity use. This is part of a wider plan designed to encourage investments in renewable energies and improvements in efficiency.
The alignment of the electricity and gas levies has previously been signaled by the Government to be carried out by 2025, however these changes would see that happen much sooner. The change is designed to simplify the CCL and is estimated to raise an additional £500m a year for the Treasury.
How will this impact your bills?
The increase in revenue for the Treasury will come as a direct result of higher energy bills for businesses. A sharp increase in the CCL for 2019 was already expected as a result of the closure of the Carbon Reduction Commitment (CRC). Normally, CCL rises with the rate of inflation, but the end of the CRC is resulting in additional financial pressure being put on the CCL to continue encouraging energy efficiency. It was anticipated that the gas rate for CCL would rise over 60% as a result, with a 45% increase for the electricity rate. With the proposed balancing of rates, the total increase on 2018 rates would be over 300%.
Take control of your costs
CCL already makes up a significant part of a gas bill – currently around 6%, rising to an estimated 10% with the CRC changes. A further increase on top of this would significantly accelerate the growing trend of rising non-negotiable, and largely unavoidable, non-commodity costs (NCCs).
Non-commodity costs are a mix of transmission, distribution, and other regulated charges paid on top of the wholesale cost of energy, representing one of the biggest challenges facing major energy users as they become an ever-larger portion of your bill. In the 10 years between 2010 and 2020 non-commodity costs for electricity will have risen by a total of 230%.
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