Wednesday, February 22, 2012

CBI calls on Chancellor's Budget to support nuclear power

John Cridland
CBI director, John Cridland speaking at a recent conference sponsored by French nuclear company EDF, which stands most to benefit from the tax breaks

Ahead of next month's budget, business representatives are calling on the Chancellor to reduce taxes on carbon-emitting industries, support nuclear power and to merge the Carbon Reduction Commitment (CRC) and Climate Change Levy (CCL).

The CBI's director, John Cridland, has written to Number 11 with a shopping list of items he would like to see George Osborne announce in his Budget on March 21.

Support for nuclear power

Near the top is a request for capital allowances to be applicable to investment in infrastructure for which is currently not eligible; foremost among the list of examples is the building of nuclear power structures, as well as waste treatment structures and airport terminals.

It says that giving tax relief to the building of new nuclear power stations would reduce their cost by up to £30 million.

Prior to April 2008, nuclear power qualified for 4% annual capital allowances tax relief; this was abolished as part of a range of measures to protect public finances.

The CBI says the lack of any tax relief at all makes it around 20% more expensive to invest in a structure or building that does not qualify for capital allowances, compared to a plant that does receive standard capital allowances.

This means that there is not a level playing field internationally, and that the UK is therefore discouraging investments in some types of energy compared to similar projects overseas.

It says its proposals would cost the taxpayer an average of up to £200m per year if assets are depreciated over 25 years.

Its letter gives the example of a new nuclear power station costing £2 billion, which includes 30% of spending that is non-qualifying under the current capital allowances regime.

Applying the CBI's proposals would reduce the cost of the previously non-qualifying part of the project by 10%, or 7%, depending on the depreciation rate (4% or 2.5%).

This would in turn reduce the overall cost of the project by 3% or 2% respectively (£30 million or £20 million), which, it says, either makes new nuclear power stations more likely to be built, or reduces costs to the end user, or both.

The letter says this approach would “complement the extra funding for infrastructure provided in the Autumn Statement" and private sector infrastructure investment.

It also wants to see more regulatory roadblocks removed and reform of Private Finance Initiative agreements to make them more attractive.

Were the Chancellor to consider changing the rules to support nuclear power, this would raise accusations from his Liberal Democrat Coalition partners that he was providing government support for the industry, to which they are staunchly opposed.

It would be French company EDF which would be most likely to benefit from such tax relief, since it is the one most advanced in its plans, to build a new nuclear opwer station at Hinckley Point, Somerset.

CBI also wants a change carbon reporting laws

The CBI is also calling for reform of the Climate Change Levy (CCL) and the Carbon Reduction Commitment (CRC).

It says that that while it supports the original objective behind the CRC to secure emissions reductions and promote energy efficiency, since the Chancellor chose to convert it to a straightforward carbon tax instead of recycling the revenue back to energy efficient companies, it is no longer an “effective and proportionate mix of the financial, reputational and reporting drivers required" to promote energy efficiency.

Instead, it proposes reforming the Climate Change Levy (CCL) as well as Mandatory Carbon Reporting (on which Defra consulted last year) to differentiate the rates of the CCL, which would allow the Treasury to protect this CRC revenue stream by removing unnecessary administration burdens on business.

At the same time, it urges protection for energy-intensive businesses so they are not unfairly penalised.

It says that introducing MCR would ensure that reducing emissions gets board level attention and would allow the companies which succeed most in reducing emissions to gain the most reputational advantage in the public eye.

It believes that business has dismissed the current CRC performance league table as part of a mere tax and the issue is not being considered at board level.

However, carbon reporting does retain credibility amongst companies, investors and NGOs. Emissions reporting under an MCR framework would therefore stand a better chance of getting results.

...And opposes carbon taxes

The CBI wouldn't be the CBI if it wasn't against taxes. So, in the same letter, it is calling for several policies on taxation which will ensure that carbon emissions do not fall.

It wants to see Air Passenger Duty (APD) to continue to be pegged to the rate of inflation for the foreseeable future, calling for the government to balance “the value of air travel's contribution to the Exchequer with the potential impact of further immediate rises on the UK as a place to trade and invest".

The duty would therefore rise in line with inflation by 5% this April. Currently it is slated to rise by 8%. This reduction would cost the taxpayer £145 million a year.

The CBI also reiterates its "robust opposition" to a Europe-wide carbon tax as proposed in the draft reforms to the Energy Taxation Directive (ETD), on the basis that tax is a national competency and imposing it would go against the principle of subsidiarity.

It points out that individual member states of the European Union are already working towards binding targets in 2020, and several existing European directives support this work.

Imposing the ETD would “reduce the ability of member states to choose the measures most appropriate to their circumstances to reach 2020 targets".

The current proposals for the directive are to split the minimum tax rate into two parts: one would be based on CO2 emissions of the energy product and be fixed at €20 per tonne of CO2.

The other would be based on the actual energy that a product generates and the minimum tax rate would be fixed at €9.6/GJ for motor fuels, and €0.15/GJ for heating fuels and be applied to all fuels used for transport and heating.

Consistent with this attitude, the CBI also calls for no further opportunistic tax raids on Britain's oil and gas industry.

It says this is important because the sector represents 7% of all business investment in the country, equivalent to around £8 billion last year.

It also calls for greater certainty over tax relief available for decommissioning old fields.

Green Deal

Finally, the CBI welcomes the £200 million allocated by the Treasury in the Autumn Statement to attract early adopters to the Green Deal.

It calls for an incentive scheme similar to the boiler “scrappage" scheme in 2010, where a voucher worth £400 was given to those who replaced their old boiler with something more efficient.

This succeeded because it was consumer friendly and simple. Another proposed option is a discount for early adopters such as “sign up now and get the 1st 6 months free".

The country will have to wait until 21 March to see how closely George Osborne listens to the voice of business.

No comments: