Budget 2016 didn’t do enough to encourage manufacturers to invest in more energy-efficient technologies, warns leading global power management company, Eaton.
With the UK facing an estimated 40-55% electricity supply gap as a result of ageing coal-fired power stations coming offline, Eaton had hoped the Chancellor would use the Budget as an opportunity to encourage industry to reduce its energy use.
It had specifically called for an extension to the existing Enhanced Capital Allowance scheme that allows companies to offset the cost of new energy-efficient machinery and equipment.
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But a lack of focus on energy-efficiency in the Budget represented a missed opportunity, said Jonathan Hart, a senior manager at Eaton,
“A recent report by the Institution of Mechanical Engineers warned that the Government’s policy to close all coal-fired power stations by 2025 and growing electricity demand will leave the UK facing a 40-55% electricity supply gap.
“The Budget was, therefore, a golden opportunity to encourage companies to think about their energy use and to invest in more efficient equipment. There was little focus on this issue in the Budget, revealing a lack of urgency behind energy-efficiency at a time when we really need to build up some momentum.”
Eaton has reiterated calls on the Government to consider providing financial incentives and extending tax relief to help manufacturers to invest in new energy efficient technology.
The existing Enhanced Capital Allowance scheme lets companies offset the cost of new energy-efficient machinery such as boilers; electric motors; air conditioning, and refrigeration systems, but only in the first year.
While major industrial purchases of such machinery can expect to see a return in just three years, the company argues that the tax relief needs to be extended to reflect this investment cycle.
Enhanced Capital Allowance scheme:
In the UK, the Enhanced Capital Allowance scheme is designed to help manufacturing businesses invest in new plant or machinery designed to save energy which might otherwise be considered too expensive.
In the first year, allowances allow companies to set 100% of the cost of the assets against taxable profits, meaning the company can offset the cost of the machinery against the business’s taxable profits in the financial year the purchase was made.
Eaton has also called on the Government to make it simpler for companies to claim credits under the Enhanced Capital Allowance scheme, and for the introduction of more specific categories to make it easier for purchasers to identify qualifying products.
Hart added: “The UK government has been explicit in stating its desire to reduce energy demand. One of the most obvious ways of doing this is by encouraging industrial companies to cut down on their electricity consumption.
“While the Enhanced Capital Allowance goes someway to doing this, we believe the Government needs to look at improving this initiative.
“This is a crucial route through which demand-side reduction can be achieved.”
Chancellor George Osborne’s Budget 2016 announced the abolition of the Carbon Reduction Commitment, a mandatory carbon emissions reduction scheme that applies to large organisations, and raised the Climate Change Levy (CCL) from 2019 to compensate.
But Hart said that taking the ‘stick’ approach of top-line fiscal changes would not be enough to encourage firms to invest in more energy-efficient plant and equipment,
“The Government recognises a need for financial incentives, but it believes a simplified tax in the form of the CCL is a sufficiently robust signal to drive the uptake of energy efficient technologies. Eaton is not convinced that this should be the only approach.”