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£900 million Carbon Reduction Commitment tax to be axed: But who will pick up the bill?

(Fri, May 27, 2016)


The answer is simple: all UK businesses, from 1st April 2019, via an increased Climate Change Levy (CCL) main rate.

Carbon Reduction Commitment (CRC) was introduced in 2009 to encourage organisations with high energy consumption to improve efficiency and reduce carbon emissions, but as Chancellor George Osborne announced in his recent budget statement in March, CRC will be scrapped.

CRC has been generating the treasury £900 million a year from some of the nation’s highest energy users, those businesses using over 6,000MWh (6,000,000kwh) of electricity per annum. Companies that have to comply with CRC are compelled to report on all forms of energy usage and pay a levy based on their carbon emissions, measured in tonnes of CO2. It has been widely criticised for being complex to administer as well as placing an unnecessary compliance burden on bigger businesses.

Reduced administration aside, there is also a financial benefit of no longer having to comply with the CRC scheme for those businesses that previously had to, from 1st April 2019 the saving through the removal of the CRC levy outweighs the cost of the increase in the CCL main rate.

However, and not surprisingly, that £900 million will need to be recovered elsewhere, and so instead, from 1st April 2019, all businesses will have to contribute to the pot by paying an increased CCL main rate.

CCL is an existing environmental tax based on business energy consumption and can be clearly seen on an energy invoice, charged in pence per kWh by the energy supplier. This means that for those businesses not having to comply with the CRC scheme, the effect is a direct rise in CCL costs. The published CCL increases are outlined below; increases this year, next year and 2018 are relatively small until it leaps fairly dramatically for both electricity and gas from 2019.

When you combine these increasing CCL costs with other rising non-commodity charges, it will potentially mean that only a third of a business’ energy bills will actually be paying for the use of the energy itself.

One of Purchase Direct’s energy procurement specialists, Steven Boulter commented: “Along with the good news for those who will no longer have to adhere to CRC, unfortunately the trade-off for those that weren’t captured by the scheme is the increase in CCL from 2019, meaning that this is another example of continually rising non-commodity charges. When you combine CCL with the rising costs of all other use of system and environmental levies, it could mean that from 2019 a staggering two thirds of the end user p/kwh billed is actually non-commodity.”

There’s no avoiding a direct tax - if we’re liable we have to pay it, but the means to reduce the amount payable as far as energy use is concerned is in the hands of bosses. To mitigate the rise in direct taxes, energy efficiency has become a strategic priority for more and more businesses. The only sure fire way to protect your business against growing costs is an absolute reduction in the amount of energy consumed.

At Purchase Direct, we have developed an award winning energy management service to assist with the drive to reduce energy consumption, if this is something you wish to explore in more detail, please contact Sharron Page in the first instance on 01707 299115.