Yesterday, George Osborne delivered his Budget 2016. It contained a host of measures that will be welcomed by businesses, especially SMEs, with reductions in a range of business taxes. From a sustainability perspective, although any direct measures appear thin on the ground at first glance, there are still some important changes for businesses to note.
Technologies and supplies
The Chancellor announcedÂ additional support for renewable electricity. The Government will auction up to Â£730 millionÂ support for offshore wind and other less established renewable technologies in this parliament,Â for projects that will be generating electricity in 2021 to 2026, presumably to help close the gap that will be evident with the closure of all coal-fired power stations by 2025. Â The first auction will offer Â£290 million ofÂ support.
Following the National Infrastructure Commissionâ€™s report “SmartÂ Power“,Â the Government will allocate at least Â£50 million for innovation in energy storage,Â demand-side response and other smart technologies over the next 5 years. Again, this follows the announcement in September 2015 that coal-fired power generation will end in 2025, and that closing the gap that will be left will need a combination of new energy sources, better grid balancing and energy storage to help combat the problems of intermittency with wind and solar renewables.
The Government is launching the first stage of aÂ competition to identify a small modular nuclear reactor (SMR) to be built in the UK, and willÂ publish an SMR delivery roadmap later this year. It will also allocate at least Â£30m of funding forÂ R&D in advanced nuclear manufacturing.
Further to the announcement in January, the Government confirmed in Budget 2016 that it will provide a further Â£20 million in funding for seismic surveys to support the exploration of new onshore oil and gas discoveries.
Beyond support for technologies aimed at helping the UK meet its goal of decarbonising energy generation, Budget 2016 also contained a number of changes to energy taxes.
The Climate Reduction Commitment, or CRC efficiency scheme, is a mandatory carbon emissions reporting and pricing scheme to cover large public and private sector organisations in the UK that use more than 6,000 MWh per year of electricity and have at least one half-hourly meter settled on the half-hourly electricity market. Under the CRC, participantsÂ are required toÂ measure and report their electricity and gas supplies annually following a specific set of measurement rules, and buy allowances for every tonne of carbon they emit – the requirement to purchase allowances being intended to incentive energy efficiency and carbon reduction measures. Budget 2016 abolishes the CRC from the end of the 2018-19 compliance year.
To cover the cost of CRC abolition, theÂ main rates ofÂ Climate Change Levy (CCL) will increase from 1 April 2019. Businesses with Climate Change Agreements will see their discounts rise in order to compensate for the rise in the main CCL rates.
The Chancellor also announced that the Government plans toÂ rebalance the main rates of CCL for different fuel types to reflect recent data on the fuel mixÂ used in electricity generation. In the longer term, the government intends to rebalance ratesÂ further to deliver greater energy efficiency savings, to reach a 1:1 ratio of gas and electricity
rates by 2025. It says the mainÂ reason for doing so is toÂ more strongly incentivise reductions in the use of
gas, in support of the UKâ€™s climate change targets – contrary to popular belief given the Government’s backing for fracking.
Low emissions vehicles
The Government, through the Office for Low EmissionÂ Vehicles and Innovate UK, is awarding Â£38 million of grants across the UK, matched by industry,Â for collaborative R&D into low emission vehicles. This will presumably capture all forms of low emissions vehicle technology, including electric vehicles, hydrogen fuel-cell technology and Compressed Natural Gas (CNG) engines.
In other measures to support transition in the UK to cleaner zero andÂ ultra-low emission vehicles, which will help improve air quality in the UKâ€™s towns and cities andÂ protect the environment for the next generation, the Chancellor announced that the Government willÂ extend the 100% First Year Allowance (FYA) for businesses purchasing lowÂ emission cars for a further 3 years to April 2021; Â reduce the main rate threshold for capital allowances for business cars to 110Â grams/kilometre of CO2 and the FYA threshold to 50 grams/kilometre of CO2 fromÂ April 2018, to reflect falling vehicle emissions;Â continue to base Company Car Tax on CO2 emissions of cars, and consult onÂ reforming the lower CO2 bands for ultra-low emission vehicles.
Spending on flood defences and resilience isÂ to beÂ increasedÂ by more than Â£700 million by 2020-21, funded by a 0.5% increase in the standard rate ofÂ Insurance Premium Tax. In addition to this, the Government will spend a further Â£130 million onÂ repairing transport infrastructure damaged by Storms Desmond and Eva.
The list of designated energy-saving and water-efficient technologies qualifyingÂ for Enhanced Capital Allowances (ECAs)Â will be updated during summer 2016, subject to State aid approval.Â The first year allowances let businesses set 100% of the cost of the assets against taxable profits in a single tax year. This means the company can write off the cost of the new plant or machinery against the businessâ€™s taxable profits in the financial year the purchase was made, making investment in energy-saving and water-efficient technologies more affordable.
The Government will legislate later in 2016 to reduceÂ statutory plastic packaging recycling targets for 2016 and 2017, to reduce the burden onÂ business. The Government will also set new recycling targets for glass and plastic packagingÂ for 2018, 2019 and 2020. This will be particularly relevant to obligated businesses (those thatÂ handle more than 50 tonnes of packaging materials or packaging aÂ year, andÂ have a turnover more than Â£2 million a year).
The Aggregates Levy rate will remain frozen atÂ Â£2 per tonne in 2016-17, to support the construction sector. Meanwhile, the Government will consult on a newÂ exemption from the Aggregates Levy for aggregate which is an unavoidable by-product of layingÂ pipes for utilities, with a view to legislating in Finance Bill 2017.
The Landfill Communities Fund
In the Autumn Statement 2015, theÂ Government announced reforms to the Landfill Communities Fund, including simplification ofÂ record-keeping requirements and changes to the schemeâ€™s objectives. The scheme’s regulator, ENTRUST, will publish guidance shortly setting out the requirement for landfill operators to makeÂ a greater contribution to the fund from April 2016.
The standard and lower rates of Landfill Tax will increase in line withÂ RPI, rounded to the nearest 5 pence, from 1 April 2017 and again from 1 April 2018 as announced previously.
HMRC will consult later this year on the definition of a “taxable landfill disposal”, with the intention of changing the definition in Finance Bill 2017. ThisÂ change aims to bring clarity and certainty to the tax without affecting its intended scope.
The Chancellor also announced that additional funding will be made available overÂ the next five years for HMRC to increase compliance activity across the waste supply chain,Â enabling the Government to better tackle waste crime by identifying and addressing fraud and tax evasion which often accompanies unlawful waste management.