Changes to Climate Change Levy (CCL) Rates Effective from April 2024

The UK government has announced changes to the Climate Change Levy (CCL) rates, effective from April 1, 2024. These adjustments include an increase in the main CCL rate for gas to match the frozen electricity rate, with the rate for solid fuels rising proportionately to gas. Meanwhile, the CCL rate for liquefied petroleum gas (LPG) will remain frozen for the 2024-25 fiscal year. Additionally, the reduced CCL rates for gas and solid fuels for businesses qualifying under the Climate Change Agreements (CCA) scheme will be adjusted, while the reduced rates for electricity and LPG will remain unchanged.

Policy Objective

The policy aims to fulfil the government’s commitment made in the 2016 Budget to equalise the main CCL rates on electricity and gas by 2025. By freezing the main CCL rate on LPG, the government ensures consistency between LPG and other portable fuels used in commercial premises not connected to the gas grid. Adjusting the reduced CCL rates on gas and solid fuels under the CCA scheme will prevent CCA participants from paying more tax than they would if the main rates were increased in line with the Retail Prices Index (RPI) forecasted by the Office of Budget Responsibility in November 2022.

Background

The CCL is levied on supplies of electricity, gas, LPG, and solid fuels to businesses and public sector organisations. The levy is applied to energy bills in a manner similar to VAT by energy suppliers. The CCA scheme allows energy-intensive businesses to pay reduced CCL rates in return for meeting stringent energy efficiency or emissions reduction targets. These businesses receive a discount on their energy bills, with the CCL charged at a percentage of the main rate.

In the 2016 Budget, the government announced a rebalancing of the CCL main rates to reflect changes in the fuel mix used for electricity generation. Initially, the CCL rates ratio between electricity and gas was 2.9:1 in 2016. This was adjusted to 2.5:1 from April 1, 2019, with a goal of achieving a 1:1 ratio by 2025. This adjustment aims to incentivise businesses to use gas more efficiently and to remove the tax disincentive for using electricity, thereby contributing to national climate change goals.

Additionally, the 2016 Budget outlined amendments to the reduced CCL rates for qualifying businesses in the CCA scheme to ensure that participants did not face higher CCL costs due to the main rate increases. This approach was reaffirmed in the 2020 Budget, which set revised main and reduced CCL rates for 2022-23 and 2023-24, legislated through the Finance Act 2021.

Detailed Proposal

Operative Date: The new rates will be applicable for energy supplies from April 1, 2024.

Current Law: The Finance Act (FA) 2000 governs the CCL, with the main rates detailed in paragraph 42(1) of Schedule 6 to the Act. Paragraph 42(1)(ba) and (c) specifies the reduced rates for CCA participants. The formula for calculating CCL relief entitlement for businesses in the CCA scheme is set out in the Climate Change Levy (General) Regulations 2001 (SI 2001/838).

Proposed Revisions: The Spring Finance Bill 2023 will introduce legislation to amend the CCL main and reduced rates on gas and solid fuels as outlined in paragraph 42 of Schedule 6 to FA 2000. Additionally, the formula in the Regulations will be updated to reflect these changes.

Conclusion

These adjustments to the CCL rates are a significant step towards aligning the taxation of gas and electricity, promoting efficient energy use, and supporting the UK’s climate change objectives. Businesses, particularly those participating in the CCA scheme, will need to stay informed about these changes to manage their energy costs effectively and comply with the new regulations.