Osborne's community renewables tax 'unlawful'

| 27th November 2015
The UK's pioneering community energy project, Westmill Solar Park and Wind Farm in Oxfordshire, England. Photo: Richard Peat via Flickr (CC BY-NC-ND).
The UK's pioneering community energy project, Westmill Solar Park and Wind Farm in Oxfordshire, England. Photo: Richard Peat via Flickr (CC BY-NC-ND).
The surprise removal of tax benefits for investors in community renewable energy schemes - effective from Monday - is unlawful and must be reversed, states a legal letter to the Treasury. But meanwhile, investments in the sector have hit record levels, with two days still to go.
This exceptional rate of investment in community renewable projects shows there is wide-scale support for community energy to be a significant player in the industry in the UK.

Community Energy England are challenging George Osborne's sudden and unexplained termination of tax benefits for investments in community energy schemes.

The termination of Enterprise Investment Scheme (EIS) tax relief from community energy comes into effect on Monday - just as the COP21 climate summit in Paris begins.

Solicitors acting for CEE, which represents the community energy sector, have served a letter on HM Treasury and its solicitors challenging the Government's move and warning of legal action if it is not reversed.

The Treasury's surprise announcement came on 26th October 2015, in the final stages of the Finance Bill - giving renewable energy promoters little over a month to prepare for the change, and leaving many projects in the lurch.

The letter, from CEE solicitors Bates, Wells and Braithwaite, also charges that the government acted unlawfully in reversing, with no prior warning, the Government's promise of a new form of tax benefit, Social Investment Tax Relief, to replace EIS, with a six-month transition between the two reliefs.

In the letter, CEE warns that it "reserves the right to commence judicial review proceedings, including injunctive proceedings (as well as raising the possibility of damages claims being made by affected parties), unless the Government takes immediate action to reverse its unlawful decision."

But right now, investments are pouring in!

An unintended consequence of the sudden withdrawal of tax relief as of Monday next week has been to stimulate a flood of applications for shares in renewable energy cooperatives, with well over £7 million received since last month's announcement.

By 13th November, for example, the Awel Wind Coop in South Wales had raised £81,250. By 25th November it reached its £500,000 fund raising target, and raised the ceiling to £1m to reduce its need for bank debt. The sum raised now stands at over £700,000.

Other star performers include Bath and West Community Energy with £1,228,150 raised, Meadow Blue Community Energy in West Sussex with £1,157,587, and Edinburgh Solar Cooperative which quickly reached its £1m target within days of the Treasury's announcement.

Jan Willem Bode of Mongoose Energy - which worked with both Bath and West and Meadow Blue - said: "This exceptional rate of investment in community renewable projects shows there is wide-scale support for community energy to be a significant player in the industry in the UK. I think we will look back at this moment and realise this is the beginning of truly locally owned, low carbon power.

"While the removal of EIS is an odd blow for George Osborne to land on the same day as the UN Climate Change Conference, it has helped to raise awareness and interest in these opportunities and these investment figures shows that people want to invest in ethical, local energy sources."

A number of schemes are still raising funds over the weekend and the final investment tally could rise substantially by the Monday deadline. Jamie Hartzell, Chair of ethical investment platform Ethex commented:

"We are really pleased to see the huge groundswell of support for community energy schemes over recent weeks, particularly the six share offers listed on Ethex. Last Wednesday we saw over £1 million investment raised into these projects in 24 hours!"

But there are losers as well as winners

However other schemes have fared less well - in particular those at an earlier stage of development or struggling with planning issues, unable to go out and raise funds in the short time left available to them.

For example Abingdon Hydro, which was set to install twin Archimedes screw turbines on the Thames in Oxfordshire, and had raised £815,000 for the project from local supporters, was forced into liquidation by the removal of EIS tax relief while it was still working hard to satisfy planners' concerns.

"Finances and the clock were against us", the group explained. "We had deadlines to meet, and the sheer complexity of the regulations was slowing progress. Then over the last few months the incentives that were designed to encourage groups like ours have been cut drastically."

It is for groups such as Abindon Hydro, and others still in business but facing an uphill battle in fund-raising, that CEE is trying to force chancellor George Osborne to keep his promise - or provide redress to those who have lost out by believing his assurances.

According to the March 2015 Budget Statement: "companies benefiting substantially from subsidies for the generation of renewable energy will be excluded from also benefiting from EIS, SEIS and VCTs with effect from 6 April 2015, with the exception of community energy generation undertaken by qualifying organisations which will in future become eligible for the Social Investment Tax Relief (SITR).

"The government will allow a transition period of 6 months following state aid clearance for the expansion of SITR before eligibility for EIS, SEIS and VCT is withdrawn."

CEE says the Statement created a "legitimate expectation" that the Government would not remove EIS from community energy groups without transitional provisions. These assurances could, as a matter of law, be relied upon by the community energy sector, says CEE, and it was not open to the Treasury to reverse the proposals without due process.

'No rationale has been properly elaborated'

Its letter to the Treasury states: "As a result of the Treasury's representations prior to the Announcement and the Decision, CEEs have been developing projects in the expectation that they would be eligible for tax relief; initially under EIS, and in due course under SITR. They also had a reasonable expectation that changes to tax relief eligibility would not be made with less than six months' notice."

"No rationale has been properly elaborated by way of a public and/or parliamentary statement as to why the EIS is being withdrawn without a transitional period, and, why the SITR is not intended to be expanded as previously announced"

"The implementation of the Decision would be entirely unjust as it is being proposed to be done without warning and without proper elaboration of the reasons for the Decision."

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