UK: Budget 2011 Clean Energy Summary

Last Updated: 28 March 2011
Article by Michelle T. Davies

Budget 2011 Summary

In the Chancellor's 2011 Budget published on 23 March 2011, it was stated that the Government is committed to being the greenest Government ever and sees support for the low carbon economy as central to providing a platform for strong, long term sustainable growth. It is one of the aims of Budget 2011 to increase the proportion of tax revenue accounted for by environmental taxes.

As such, Budget 2011 announces:

Enhanced capital allowances scheme for energy-saving technologies

The energy-saving enhanced capital allowance scheme will, subject to State aid approval, be updated during summer 2011. The main change includes the addition of a new technology-efficient hand dryer.

Capital allowances on Feed in Tariff (FIT)

HMRC have acknowledged that there is some uncertainty over the rate at which capital allowances may be claimed. It is, therefore, proposed to introduce legislation to clarify the availability of capital allowances and the rate of capital allowances for expenditure on plant and machinery covered by the FITs and Renewable Heat Incentive schemes to ensure certainty over treatment. There will be consultations on this measure and the consultation document is expected to be published in May 2011 with a view to introducing legislation in the Finance Bill 2012.

Carbon price floor

The Government confirmed a carbon price floor that will come into effect on 1 April 2013. The carbon price floor will tax fossil fuels used in electricity generation under the climate change levy and fuel duty. The floor price will begin at £16 per tonne in 2013 and rise to £30 a tonne by 2020.

EIS / VCT Schemes

Measures affecting solar companies only:

Currently HMRC accept that a company whose main business is the receipt of FIT payments is a "qualifying company" for the purposes of these reliefs. However, it has been announced that legislation will be introduced in the Finance Bill 2012 to state that companies whose trade consists wholly or mainly in the receipt of FIT payments (or similar subsidiaries) will only be eligible for these schemes if the commercial electricity generation has begun before 6 April 2012. Shares issued pre 23 March 2011 will not be affected by these changes.

Where new investors wish to claim EIS / VCT relief on their share subscriptions into solar companies those companies must have started generating electricity pre-6 April 2012. It is not yet clear whether a company which starts generating electricity pre-6 April 2012 will be affected if it starts generating electricity on new sites post 6 April 2012.

General changes to be introduced from 6 April 2012

In addition to the above a number of the tests to meet for EIS / VCT relief will be amended in the Finance Bill 2012 (including the size of the company pre-investment; the annual amount that may be invested through EIS / VCT; and the amount an individual may invest through the EIS scheme).

Changes to be made from 6 April 2011

The rate of income tax relief on investments made from 6 April 2011 will increase from 20% to 30%.

Climate change levy rates

Legislation will be introduced to increase the rates of climate change levy in line with the retail prices index from 1 April 2012.

Climate change levy exemption: certain forms of transport

The climate change levy exemption for taxable commodities used in rail freight will be suspended from 1 April 2011 pending EU State aid re-approval. The exemption will be re-instated upon receipt of the further approval, with retrospective effect if the approval allows.

Climate change levy exemption: recycling processes

The exemption from the climate change levy for taxable commodities used in certain processes relating to the recycling of steel and aluminium is an approved State aid. The current approval expires on 31 March 2011 and the UK Government is seeking re-approval but cannot legally continue with the exemption beyond 1 April without European Commission approval.

Green Investment Bank

The government's flagship Green Investment Bank ("GIB") will launch in 2012, a year earlier than expected but GIB will not be able to borrow additional funds until 2015/16. The bank will be backed by £1bn of government funding and an additional £2bn raised from asset sales. This initial capitalisation will allow the bank to leverage an extra £15bn of private sector investment over the course of the parliament. It was confirmed that the bank would not be allowed to borrow until 2015/16 and, even then, only if the government's debt targets are met.

Company Car Tax rate 2013-14

The appropriate percentages will be reduced by 1% for all vehicles with carbon emissions between 95g and 220g from April 2013. Zero emissions cars will remain at 0% and ultra low emissions cars with emissions up to 75g will remain at 5%.

Fuel duty rates

  •  the main fuel duty rate will be reduced by 1 penny per litre (ppl) from 6pm on 23 March 2011
  • the 1 April 2011 increase will be deferred and implemented on 1 January 2012 when the main fuel duty rate will increase by 3.02 ppl
  • on 1 January 2012 the effective rate of duty for non-road fuels will rise in proportion to the main fuel duty rate; the duty increases on natural gas will maintain the differential with the main road fuels, and the differential for road fuel gas other than natural gas will be reduced by the equivalent of 1 ppl of petrol and
  • on 1 January 2012 the duty rate for leaded petrol will increase by the same monetary amount as main fuel duty, and the duty rate for aviation gasoline will rise in proportion to the main fuel duty rate.

The duty differential for biodiesel produced from used cooking oil will end as intended on 31 March 2012.

Landfill tax

The standard rate of landfill tax will be increased by £8 per tonne for disposals made, or treated as made, to landfill on or after 1 April 2012, increasing the rate to £64 per tonne.


The 2011 Budget included a section on planning reform. This included:

  • 21 new enterprise zones to be created with tax breaks, simplified planning and discounted business rates
  • a presumption in favour of sustainable development in the planning system
  • fast tracking of major infrastructure schemes

New Changes Subject to Consultation

Capital allowances: feed-in tariffs and renewable heat incentives

The renewable heat incentive (RHI) scheme is due to be introduced in summer 2011 and will sit alongside the FITs regime to incentivise heat generation from renewable sources. Where the electricity and heat generation is undertaken by a business, the business may also be able to claim capital allowances in respect of expenditure on the generating equipment.

Reform of climate change agreements

The scheme will be extended to 2023 and the current 54 participating sectors will continue to be eligible for the scheme. From 1 April 2011, CCA facilities will pay a reduced rate of CCL of 35 per cent on all taxable commodities. For electricity supplies only, this reduced rate of CCL will be amended from 35 per cent to 20 per cent from 1 April 2013.

Aviation tax consultation

A consultation with proposals for reform of Air Passenger Duty from April 2012 was published. The Government has also announced its intention to tax business jets.

For further information or advice, please contact:

Michelle Thomas
Tel: 0845 498 7553

Deneze Hastings
Tel: 0845 497 8223

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