Budget 2017: Chancellor must protect SMEs from rising energy taxes

Posted On: 
9th November 2017

Calor is calling on the Chancellor to reverse recent reforms to the Business Energy Efficiency tax regime to prevent the price of gas for small to medium sized businesses soaring by 2019. 

Credit: 
PA

In 2016, government reformed the business energy efficiency tax system. It will scrap a scheme called the Climate Reduction Commitment (CRC) in 2019 which covers large public and private sector organisations in the UK (which use over 6,000MWh of electricity) and in order to meet this tax shortfall, increase the Main Rates of the CCL across all businesses, disproportionately impacting SMEs who make up the majority of the economy. 

Businesses pay the Climate Change Levy (CCL) for the use of electricity, gas and solid fuels which is displayed on their energy bills. Changes will see the CCL rate for natural gas and LPG move closer to electricity before reaching parity by 2025. 

Evidence from the Committee on Climate Change (CCC) indicates that current government climate and decarbonisation policies will hit SMEs hardest. For small commercial firms, the CCC estimate that gas prices will increase in real terms by 15% to 2020 and 69% to 2030. Of this, low-carbon policy will be responsible for over half of the increase to 2020 and two-fifths of the total increase to 2030. The main increase in low-carbon policy costs comes from an increase in the CCL in order to recoup revenue lost from scrapping the CRC for larger gas consumers, a rise in the CCL to match the electricity rate, and additional gas network costs.

Calor is the UK's leading supplier of LPG which is used by thousands of rural, off-gas grid businesses for heating purposes. In these off-gas grid areas, LPG has a lower carbon footprint than commonly used alternative fuels including kerosene (heating oil) and coal. Kerosene – the common alternative to LPG – sits outside the CCL and is zero-rated for domestic and commercial use. Kerosene is 15% more carbon intensive than LPG but does not have a ‘carbon’ tax applied to it. 
 
Calor has modelled the impact on a typical off-gas grid 80 room hotel. It would see its annual CCL bill almost double between now and 2019 with costs rising from £668 (2015) to £1209 in 2019. Such a significant rise – occurring whilst kerosene remains zero-rated – is likely to induce fuel switching to more carbon-intensive sources.

Paul Blacklock, Head of Strategy and Corporate affairs outlines: “Our modelling shows that if government moves towards bringing the CCL charge on gas to parity with electricity, the cost to rural businesses will rise significantly. Our modelling also shows that the changes to the CCL will incentivise off-gas grid businesses to move to more carbon intensive fuels such as heating oil which runs counter to the purpose of the CCL, which should incentivise firms to switch to cleaner fuels.”

Paul Blacklock concludes: “Now is not the time to increase the environmental taxes on SMEs and we are asking the Chancellor to put a halt to these reforms at the Autumn Budget. Current carbon taxes in the UK are complicated and are not equitably distributed across the economy. In the case of LPG, current policy perversely incentivises firms using gas for heating and cooking to move towards dirtier fuels such as kerosene which is at odds with government policy to reduce their use and decarbonise the rural economy”.