Chancellor asked to rethink community energy tax changes

Removing two forms of tax relief for community energy projects could have a severe impact on the sector, according to more than 100 organisations. In a letter addressed...

Removing two forms of tax relief for community energy projects could have a severe impact on the sector, according to more than 100 organisations.

In a letter addressed to the Chancellor, 114 groups that back community energy are asking George Osborne to abandon plans to deny community energy investors access to both the Enterprise Investment Scheme (EIS) tax relief and Social Investment Tax Relief (STIR).

The letter warns that “radical and wholly unexpected changes to the Finance Bill will decimate the area that has shown by far the greatest potential for community share issues – community energy.”

Removing access for community energy investors to EIS and STIR could be the “final nail in the coffin for future projects”, argue the organisations.

“Your previous support for community energy had resulted in real growth and confidence. The sector was at last taking off: with dozens of projects leveraging tens of millions of investment from local communities. Community projects are supported by ordinary people across the UK in a way that is almost unique.

“Please reconsider the decision to exclude community energy from this essential support and help communities build a competitive, popular, clean energy system for the future,” reads the letter.

On 26 October, treasury minister David Gauke announced the removal of EIS tax relief for community energy schemes receiving subsidies, from 3 November. The changes come in the context of a reduction in Feed-in Tariff rates, the removing of access to pre-accreditation and climate change levy exemptions.

The EIS tax relief was due to be removed for bona fide co-operatives on 6 April 2015, but was extended to community energy co-operatives for another six months. The extension was announced in the 2015 Budget, presented by Mr Osborne on 18 March.

The Treasury was expected to expand STIR as an alternative for community energy schemes. But the affected schemes will remain ineligible, even after SITR has been enlarged. The changes reverse announcements in the 2014 autumn statement and the 2015 budget statement.

Gavin Shuker, chair of the Co-operative Party Parliamentary Group and Labour/Co-op MP for Luton South, has also sent a letter to the Chancellor asking him to explain the reversal in policy in relation to community energy and STIR.

Chancellor George Osborne has been asked to explain his u-turn on tax relief for community energy schemes

“Despite the public declarations from the Financial Secretary to the contrary, your decision to exclude Community Energy from SITR (Social Investment Tax Relief) represents another significant blow for this new and important sector in the UK energy market,” writes Mr Shuker.

The MP is also asking the Chancellor to estimate the effect of the decision on the community energy sector and the measures the Government would develop in order not to further destabilise jobs and investment in the sector.

He added: “Over recent years community energy has been a rapidly expanding part of the co-operative movement. This is despite a number of serious setbacks since 2010.

“Despite hard-won recognition within the Energy Act 2013, the Government in which you serve failed to deliver the legislative support. This disappointing decision has since been compounded by changes to registration rules, changes to planning regulation and perhaps most importantly the decimation of feed-in tariffs.”

Mr Shuker also referenced research carried out by Co-operatives UK in September 2014 for a Department of Energy and Climate Change consultation on community energy investment incentives, which showed that removal of tax relief on these important schemes would mean that potential member owners were 40% less likely to invest with 38% likely to not invest at all. “This threat to community investment seems to run contrary to support explicitly stated within the Conservative Party Manifesto 2015,” he said.

In a statement to the News, a spokesperson from HM Treasury that while “the government is committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy,” they want to do this “in a way that is fair and provides value for money to hardworking taxpayers”.

 They added: “The Venture Capital schemes are designed to deliver investment into high-risk and innovative businesses that need funding to develop and grow. We are aware of significantly increased interest in the use of subsidised community energy for low-risk tax planning purposes, which is why we have made changes to these schemes to ensure they remain effective at delivering investment to high-risk businesses that need funding to develop and grow.”
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