HM Treasury’s tax relief change has dealt a body blow to the community energy sector

UPDATE:

Community Energy has withdrawn a threat to take HM Treasury’s decision to withdraw tax relief on community energy schemes to judicial review (see Philip Wolfe’s ‘Perspective’, below).

The group said HM Treasury had now admitted that it gave only five weeks’ notice of the change, and not the six months which it had promised in the Budget. The group rejected government lawyers’ suggestion that an earlier ministerial statement that it was ‘monitoring’ the schemes had in effect put community energy enterprises on notice and said a court would also reject the argument. However, it has decided “not to devote scarce resources to pursuing the matter to judicial review; but instead to help the Treasury become better informed about the benefits of bone fide community energy schemes.”
Community Energy believes the Treasury is concerned about commercial organisations “dressing themselves up as community interest companies”. Chris Blake, chair of Community Energy Wales, said “While we share this concern, surely government can police this by proper drafting of legislation and regulation of the sector. As things stand, bona-fide social enterprises are becoming collateral damage in a heavy-handed move to prevent abuse by others.”
Philip Wolfe added that “the response suggests that the Treasury is not well informed about the community benefits which our members offer or the risks inherent in developing these projects.”

 

Philip Wolfe, chairman of Westmill Solar Co-operative and Community Energy England, says the community energy sector has been treated unfairly. It shows government does not understand how the energy industry is changing

Successive governments have talked up the benefits of community energy as a consumer-friendly alternative to the multinational suppliers. Practical support has, however, been modest; and most of that has been whittled away by the Chancellor since the general election.
The latest assault was the unexpected U-turn on tax relief for community energy schemes. In this year’s budget, HM Treasury had said it would update Social Investment Tax Relief (SITR) to include community energy. Then, once the SITR changes had received state aid approval and been implemented, community energy would be given six months’ notice and removed from the Enterprise Investment Scheme (EIS).

“There was no formal ministerial statement, no consultation, no regulatory impact assessment; no evidence was presented… The statutory instrument was laid the next day, before most of those affected had even heard about the U-turn”

Suddenly, in October, the Treasury minister stated in a parliamentary debate that community energy would not become eligible for SITR and would be removed from EIS with barely one month’s notice. There was no formal ministerial statement, no consultation, no regulatory impact assessment; no evidence was presented to support this abrupt change. The statutory instrument was laid the next day, before most of those affected had even heard about the U-turn.

Legal action

Members of community energy associations in England, Wales and Scotland were exasperated that time and money they had invested in many projects, on the assurance of at least six months’ notice of any change, had suddenly been rendered unviable. Legal advice said it was unlawful to disregard their legitimate expectations in this way.
On behalf of a consortium of supporters around the country, Community Energy England (CEE) therefore sent a ‘pre-action letter’ to HM Treasury. The pre-action protocol is a mechanism to consider such complaints ­without the court time and expense of a full judicial review. Our legal letter spelt out why we believe the ­Treasury’s action is unlawful in light of the legitimate expectations of the sector, and requested the evidence behind the Treasury’s change of policy.
At the time of writing, CEE has received a partial response, but the supporting evidence has been omitted.
The government lawyers do not dispute that the notice given for the removal of EIS was substantially less than the six months originally indicated. They argue that a July ministerial statement that the Treasury would be “monitoring” these tax relief schemes was tantamount to putting us on notice that the policy was under review.
That statement actually said “the government will continue to monitor the use of SEIS, EIS and VCT… to ensure that support… provides good value for money for the taxpayer and is not subject to misuse”. It is hard to imagine that many people, or many judges, would interpret those words as proper notice of an imminent policy change.
Even if such an interpretation were made, it could only be justified if the monitoring process had shown poor value for taxpayers’ money or misuse of the tax relief schemes, over the few months between July and October. The government has not, at the time of writing, provided any evidence that its monitoring showed any such thing.

Overseeing community interest companies 

The partial government response does indicate concern that organisations that are not bona fide social enterprises, might establish themselves as community interest companies (CICs) solely to benefit from SITR. We in the sector would also want to avoid that; but government could readily do so by tight drafting of legislation and by appropriate regulation of CICs. It is wholly disproportionate to close down the concession entirely, simply for fear of abuse by a few.
It seems to me that many in government fail to comprehend the inevitable shift to a more ­decentralised, more sustainable, more democratic energy system – all the more imminent after the Paris agreement.
The Chancellor appears too ready to listen to ­predecessors from eras when fossil fuel was king
and nuclear power was the great white hope. While removing concessions from clean ­renewable energy, he has allowed suppliers of the most ­polluting ­generation – standby diesels – to access EIS tax relief while ­winning subsidies in December’s ­capacity auction.

“The Chancellor has allowed suppliers of the most polluting generation – standby diesels – to access EIS tax relief while winning subsidies in the Capacity Market”

Some in his party do support our viewpoint. For example, a letter to the Treasury on behalf of Boris Johnson complains about the short notice of this U-turn and his concern that the proposals could endanger the
expansion of the community energy sector. “The Mayor believes tax relief for community renewable generation should be maintained while minimising the risk of abuse,” it says.
Recent budgets have shown that the Chancellor is not averse to appropriating good ideas from opponents and rivals; I am hoping that he will come round to Boris’s view on this issue, too.

 

First published in the January 2016 issue of New Power

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