Climate Change Levy: changes to rates from 1 April 2024
Published 15 March 2023
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Who is likely to be affected
Business and public sector users of energy; gas and electricity utilities and suppliers of solid fuels and liquefied petroleum gas (LPG).
General description of the measure
This measure increases the main rate of Climate Change Levy (CCL) for gas to meet the frozen electricity rate, with the main rate for solid fuels being increased proportionally to gas, both with effect from 1 April 2024. The main rate of CCL on LPG will continue to be frozen in 2024-25.
The measure also amends the reduced rates of CCL on gas and solid fuels for qualifying businesses through the Climate Change Agreements (CCA) scheme from 1 April 2024 and freezes the reduced rates on electricity and LPG.
All changes to rates will be legislated for in Spring Finance Bill 2023.
Policy objective
The measure fulfils the government’s commitment in Budget 2016 to equalise the main rates of CCL on electricity and gas in £ per kilowatt hour (kWh) by 2025.
Freezing the main rate of CCL on LPG will continue to ensure better consistency between LPG and other portable fuels for commercial premises not connected to the gas grid.
Amending the reduced rates of CCL on gas and solid fuels will ensure that CCA participants do not pay more tax on these fuels than they would have done had the main rates on these fuels been increased in line with the Office of Budget Responsibility’s November 2022 forecast of the Retail Prices Index (RPI).
Background to the measure
The main rates of CCL are payable on supplies of electricity, gas, LPG and solid fuels to businesses and public sector organisations. They are applied to relevant energy bills by gas and electricity utilities in a similar way to the way in which VAT is applied to energy bills.
The CCA scheme sits alongside CCL. Energy intensive businesses are eligible to pay CCL at reduced rates in return for meeting challenging targets to improve energy efficiency or reduce emissions. Businesses in the scheme claim the discount from their energy supplier who charges CCL at a percentage of the main rate in their energy bill (see tables below).
Budget 2016 announced that, from 1 April 2019, the main rates of CCL would be rebalanced to reflect changes in the fuel mix used in electricity generation. The CCL rates ratio between electricity and gas was 2.9:1 in 2016 and this was adjusted to 2.5:1 with effect from 1 April 2019, with a further commitment to reach a ratio of 1:1 by 2025. The aim was to provide a financial incentive for businesses to use gas more efficiently and remove the tax disincentive to use electricity, saving carbon in sectors not covered by the Emissions Trading Scheme and delivering on national climate change commitments.
Budget 2016 also announced that, alongside the main rates increase from 1 April 2019, the reduced rates of CCL for qualifying businesses in the CCA scheme would be amended so that participants did not pay more in CCL on these fuels than they would have if the main rates were increased in line with the RPI.
Budget 2020 announced revised main and reduced rates of CCL for 2022-23 and 2023-24, with the changes to the reduced rates limited in the same way as in 2019-20. These changes were legislated for in Finance Act 2021.
Detailed proposal
Operative date
The changes will have effect for supplies treated as taking place on and after 1 April 2024.
Current law
CCL is provided for by the Finance Act (FA) 2000. The main rates are set out in paragraph 42(1) of Schedule 6 to the Act. Paragraph 42(1) (ba) and (c) provides for the reduced rates for Climate Change Agreement participants (see table below).
Paragraph 2 of Schedule 1 to the Climate Change Levy (General) Regulations 2001 (SI 2001/838) (‘the Regulations’) sets out the formula used by businesses in the CCA scheme to calculate their CCL relief entitlement.
Proposed revisions
Legislation will be introduced in Spring Finance Bill 2023 to amend the CCL main and reduced rates on gas and solid fuels in paragraph 42 of Schedule 6 to FA 2000. The Bill will also amend the formula in the Regulations.
The main and reduced rates for financial years 2022-23, 2023-24 and 2024-25 are as follows:
Main rates
| Taxable commodity | Rate from 1 April 2022 | Rate from 1 April 2023 | Rate from 1 April 2024 |
|---|---|---|---|
| Electricity | £0.00775 per kWh | £0.00775 per kWh | £0.00775 per kWh |
| Natural gas | £0.00568 per kWh | £0.00672 per kWh | £0.00775 per kWh |
| LPG | £0.02175 per kilogram (kg) | £0.02175 per kg | £0.02175 per kg |
| Any other taxable commodity (solid fuels) | £0.04449 per kg | £0.05258 per kg | £0.06064 per kg |
Reduced rates
| Taxable commodity | Percentage of main rate from 1 April 2022 | Percentage of main rate from 1 April 2023 | Percentage of main rate from 1 April 2024 |
|---|---|---|---|
| Electricity | 8% | 8% | 8% |
| Natural gas | 14% | 12% | 11% |
| LPG | 23% | 23% | 23% |
| Any other taxable commodity (solid fuels) | 14% | 12% | 11% |
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2022 to 2023 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| — | — | +85 | +90 | +95 | +100 |
These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
Updated estimates consistent with Spring Budget 2023 forecasts can be found in Table 4.2 of Spring Budget 2023.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to impact on individuals as CCL is not levied on the supply of energy to individuals and households.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on the costs for businesses using gas and solid fuels such as coal. The cost of CCL for businesses using these fuels will rise. One-off costs for suppliers will include familiarisation with the rate changes and updating systems to reflect the new rates. There are not expected to be any continuing administrative costs for either fuel users or suppliers.
The measure is not expected to have an impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC’s processing systems are designed to accommodate tax rate changes. The measure will not increase HMRC processing or compliance resource.
Other impacts
CCL is an energy tax which aims to increase energy efficiency. Increasing tax rates strengthens the price signal for businesses to improve their energy efficiency. Increasing incentives to use electricity rather than gas will also incentivise a shift to lower carbon sources of energy. We therefore expect a marginal reduction in greenhouse gas emissions as a result of this measure.
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, please contact Farah Ullah on 03000 595857 or email Farah.ullah@hmrc.gov.uk