DCLG plans to penalise CRC non-qualifying councils

posted in: Consultation, CRC | 5

Government has issued a Technical Consultation on the 2015-16 Local Government Finance Settlement.

It is proposed that local authorities who previously qualified for participation in the CRC (in Phase 1), but who no longer qualify due to the withdrawal of schools from the scheme, will receive a reduction in funding to compensate for the loss of tax revenue to the Exchequer (calculated as £6.4m).

The Government therefore proposes to reduce funding to each authority falling out of the scheme, equal to the tax which would have been due on the total emissions (excluding schools) for that authority.

Local Energy is inviting councils affected by this proposal to send comments to us. You can do this by emailing me directly (karen.lawrence@lgiu.org.uk) or by commenting on our LinkedIn page where Pete Wiggins (Gloucestershire) has already started a discussion.

A couple of points to bear in mind:
First of all, no revenue was originally intended to go to the Treasury (when the CRC included revenue recycling); then recycling was removed so all the funds went to the Treasury; now they are claiming that “When local authorities fall below the threshold for participation in the scheme, there is a loss of tax revenue to the Exchequer, for which compensation is required”.

I may be wrong, but I don’t recall the settlement to LAs being increased to pay for CRC allowances when revenue recycling was removed (new burdens?). In this case, it seems particularly unfair that councils now have to ‘compensate’ the Treasury.

Second, the way this is being calculated seems very unfair on those who no longer qualify for the CRC. Their settlement will be reduced by an amount equal to what they would have paid for their non-school emissions. LAs still in the CRC (Phase 2) appear to receive no reduction in funding due to removal of schools, although the ‘lost’ tax revenue may be greater than from an LA leaving the CRC altogether.

It also seems to go completely against the rules of the CRC; if any other organisation no longer qualified – even missing qualification by just 1t/CO2 – then they are out of the scheme and are not required to pay ‘compensation’ for lost tax revenue. I wonder whether they intend to do this in future years, or just as a one-off?​

We’d really like to hear your views on this. The consultation document is online together with a spreadsheet showing the financial penalty for each local authority. Please send us your comments by midday on Thursday 18 September.

The consultation will close at 5pm on 25 September 2014. To respond directly, email to:
LGFSummerConsultation@communities.gsi.gov.uk
Or by post to:
Andrew Lock
Department for Communities and Local Government
Second Floor
Fry Block
2 Marsham Street
SW1P 4DF

Any queries may be sent to andrew.lock@communities.gsi.gov.uk

5 Responses

  1. Andrew Snow

    What do the CBI and NHS have to say about this? Or are they exempt?

    “Fair play is bonny play” as they say in Scotland

    • Andrew – this proposal relates to local authorities and schools only, so CBI and NHS are not directly affected.
      It does, however, indicate that the Government (and Treasury in particular) takes no account of ‘fair play’ when they wish to claw back ‘lost’ revenue, even when that loss is as a result of changes made to the Scheme by Government itself.

  2. Douglas Robinson

    The proposals seem perverse and unfair for the reasons outlined. I’ve been asked by my Resources Director to check whether LGA and/or County Councils Network intend to respond. LGA have confirmed they do and are aware of the CRC issue. We certainly intend to comment through as many channels as possible.

  3. Peter Wiggins

    Draft response (approved by Sponsor):

    Question 5: Do you agree with the proposed methodology for reducing funding to authorities which have fallen below the threshold for participation in the Carbon Reduction Commitment Energy Efficiency Scheme, to take account of the loss in tax revenue to the Exchequer?

    No. Gloucestershire County Council is strongly of the opinion that government should not be seeking to recover lost ‘tax revenue’ to the exchequer under the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) for a number of reasons:
    1. Revenue was not originally intended to go to the exchequer when the CRC included revenue recycling. When this recycling method was removed and monies instead kept by government, participant local authorities were not ‘compensated’ for this new burden with a corresponding increase in their financial settlement.
    2. The purpose of the CRC is as a primary vehicle for incentivising emission reduction from ‘medium’ energy users, to help meet the UK statutory carbon targets under the Climate Change Act. It seems perverse therefore that local authorities who have invested in emissions reduction and so did not qualify for Phase 2 of the CRC should be penalised for doing so. Is it government’s intent to similarly penalise the private sector?
    3. DECC has consistently stated that the CRC revenues do not constitute a tax, which was also an alternative method ruled out under the government’s comprehensive review of the CRC.