One for you, 19 for me

For years, business has been told it should fund any investments in energy efficiency itself. Cash-flow, recycled savings, bank borrowings, whatever - anything except help from the Treasury. A year shy of the Climate Change Levy, and the Chancellor is handing back £1,000m of revenue. Andrew Warren on sticks and carrots.

I am likely to irritate some readers working in the energy intensive sector of manufacturing industry. Why? I am going to propose that the Chancellor deny you a tax break he was considering offering you. Correction – I am going to urge that he doesn’t provide you with a double tax-break on precisely the same investment. There. That sound more reasonable?

The deal is very simple: you put in X and Y investments into the relevant site, delivering Z amount of energy/carbon dioxide savings. In turn, you can have 80% off your Levy payment. The Government gets the emission savings it needs. The companies have only marginally increased fuel bills, plus sites that will be more efficient to run. All thoroughly sensible.

On top of that, the Government is intending to expand its long-established best practice advice programme. Employing a lot of extra consultants to individual sites to provide more specific advice. Precisely who will be so privileged is still a little unclear. Officially, the scheme is meant to be targeted both at smaller companies and at “businesses where energy bills are a significant proportion of costs”. Not many fit the bill. It is the numerous non-energy intensive firms which, between them, are responsible for the bulk of business’ energy consumption – something over 61% of the total, according to official figures.

Previously, these companies – of which there are literally hundreds of thousands – have tended to be neglected even by the information programmes. It is commonly accepted that motivating those for whom fuel costs are relatively trivial as a proportion of turnover is pretty difficult. But given the enormous wastage which the average business has on energy – figures of around 30% potential savings regularly crop up – it makes enormous sense to stir them into action.

And what better way than by offering them a tax-

break? No, not via 80%, or even 50%,

discounts on the Climate Change Levy. That level of generosity can be reserved to appease the vociferous lobbying of the energy intensive companies. What about something rather more modest, but much more likely to catch the eye of any halfway financially aware company director? Like an opportunity to write o ff any capital investments in energy efficiency measures in the first year?

Surprise, surprise. Just such a carrot is precisely what the Chancellor has in mind, to the value of about £100m per year. Don’t get too excited, however. Such “accelerated capital allowances”, as they are called, cost the Exchequer nothing like as much – just the foregone interest on that amount each year (say £5m?). Even if the allowance doubles in the Levy’s second year – which it should – it is still not going to make a huge dent in the nation’s coffers.

But it may well stimulate some action. To an extent, that is what

worries the official mind: that that action might prove too much for the £100m budget. Unlike grant schemes, tax breaks are not cash-limited, so the sum allocated has to be simply a sophisticated guess. A guess due to stimulate, I gather, some £800m investment in energy efficiency.

Extra investment? Not necessarily. Not, at any rate, if it is available for precisely those company sites which have already been the subject of negotiated agreements, and whose parent company is already receiving a discount on the full Levy.

What would more or less guarantee extra investment taking place would be if the new tax allowance was reserved just for that section of business which was not permitted to negotiate a discount: the services sector, the growth part of the economy. And probably more interested in buildings improvements than, say, the variable speed drives or industrial motors currently on the approved list of energy-saving investments.

Certainly, help with boiler or lighting investment – already on offer – makes sense. But what logic is there in excluding such obvious energy savers as fabric insulation or high-efficiency glazing? Neither is currently in line to qualify for the capital allowance scheme – a silly oversight, which needs correcting.

All right, all right – if an energy intensive site invests more than the worth of the Levy discount, allow them in. But for Heaven’s sake, let us try to stimulate some new investment, not just subsidise that which is already committed.

Doesn’t that make sense?

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