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Changes to the CRC - A New Business Tax?

23 Nov 2010

The recent Treasury Spending Review announced that “The CRC Energy Efficiency scheme will be simplified to reduce the burden on businesses, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011.”

The CRC Energy Efficiency Scheme (CRC), formerly known as the Carbon Reduction Commitment, is a mandatory energy saving and carbon emissions reduction scheme for the UK. The scheme is intended to raise awareness of energy consumption in large organisations, especially at a senior level, and to encourage changes in behaviour and infrastructure. It applies principally to large businesses and public sector organisations. The scheme originally required organisations to buy allowances based on their level of electricity use in April 2011. Depending on the performance of the organisation, the money would then be returned with a bonus or penalty in October 2011.

Nicola Tiffen, a partner in Hay & Kilner’s commercial property unit, commented:
“This delay in the requirement to purchase the allowances until April 2012 is generally good news, although the allowances must still cover emissions from 2011-2012 onwards. There is also a likelihood that participants will have to buy two years’ worth of allowances, some retrospectively for 2011- 2012, and some going forward to cover 2012 – 2013. The changes to the CRC consisted of only five lines buried in the Department for Energy and Climate Change’s settlement and the precise details are therefore as yet unclear.”
The Treasury has said that, “…further decisions on allowance sales are a matter for the Budget process.”

 

What does however appear to be clear is the somewhat unexpected announcement that the revenue from allowance sales will be retained rather than recycled back to the participants, as had previously been anticipated. The CRC was designed to be “revenue neutral”. Now, while there is no requirement to buy allowances until 2012, all money received from the purchase of allowances will be retained by the Government. Critics have described this as a stealth tax indicating that it will add at least five per cent per annum to energy costs.

The withdrawal of recycling payments will come as a blow to businesses, many of whom will now have to alter their strategies. Additionally, it will do nothing to assist the continuing debate between Landlords and Tenants on the issue. A recent Guide for Landlords and Tenants on CRC, published by a working party representing the interests of the property industry, highlighted a number of different ways in which the CRC can be addressed in leases. These included CRC costs in the normal service charge, running a separate service charge, charging a levy on energy costs, and leaving the lease silent on CRC costs. It is now more likely than ever that Landlords who face an increase in costs as a result of the retention of the revenue from allowance sales by the Government, will seek to pass that cost on to their Tenants.

It is evident that this is not the last word on CRC. Property owners need to be aware of its implications and to consider forward planning, particularly given the changing nature of the provisions and in the context of properties which are tenanted.

Nicola Tiffen has been named as a leading individual in commercial property in Chambers 2011, an independently researched guide to the legal profession. For further information contact Nicola Tiffen on 0191 232 8345 or email nicola.tiffen@hay-kilner.co.uk

Please note:
This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.