Policy paper

Changes to rates for the Climate Change Levy from 6 April 2020

Published 11 March 2020

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 amends the main rates of Climate Change Levy (CCL) for 2020 to 2021 and 2021 to 2022, implementing the rates announced at Budget 2018. Early announcement was made to give those affected as much time as possible to prepare. This measure also amends, for 2020 to 2021 and 2021 to 2022, the reduced rates of CCL for qualifying businesses in the Climate Change Agreements scheme. Similarly, early announcement of these changes was made at Budget 2018.

Policy objective

This measure will legislate for the main and reduced rates of CCL for 2020 to 2021 and 2021 to 2022, which were announced at Budget 2018.

The changes to the main rates are in line with the government’s commitment to continue to rebalance the electricity to gas ratio announced at Budget 2016. The electricity rate will be lowered and the gas rate will increase in both years, so that the gas rate reaches 60% of the electricity rate in 2021 to 2022.

The changes to the reduced rates seek to limit the impact on Climate Change Agreements scheme participants to a Retail Prices Index increase only.

Background to the measure

CCL was introduced in 2001 and is a UK-wide tax on electricity, gas, LPG and solid fuels supplied to businesses and public sector consumers. The main rates on these commodities are paid to HMRC by energy suppliers who pass on the costs, through billing, to their non-domestic customers. The reduced rates available to Climate Change Agreements participants are expressed as a percentage of the full main rates.

Budget 2016 announced that, from 1 April 2019, rates would become subject to ‘rebalancing’ to reflect changes in the fuel mix used in electricity generation (the increase in rates from 1 April 2019 also sought to recover the tax revenues lost by closing the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme).

Budget 2018 reaffirmed the government’s commitment to continue with this rebalancing and the announced CCL rates for 2020 to 2021 and 2021 to 2022 reflected this.

Budget 2016 also announced that, alongside the rates increase from 1 April 2019, the reduced rates of CCL for qualifying businesses in the Climate Change Agreements scheme would be amended so that participants did not pay more in CCL than they would have if the rates were increased in line with the Retail Prices Index as in previous years. Budget 2018 announced amended reduced rates for 2020 to 2021 and 2021 to 2022 which would similarly limit the impact on Climate Change Agreements scheme participants to an Retail Prices Index increase.

Detailed proposal

Operative date

The changes will have effect for supplies of taxable commodities treated as taking place on and after 1 April 2020 (2020 to 2021) and 1 April 2021 (2021 to 2022).

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) of Schedule 6 to FA 2000 provides that, for supplies of electricity, only 7% of the main rate is payable where a supply is a reduced-rated supply. For supplies of other taxable commodities, 22% of the main rate is payable where a supply is reduced-rated supply.

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 Climate Change Agreements scheme to calculate their CCL relief entitlement, including the reduced rate.

Proposed revisions

Legislation will be introduced in Finance Bill 2020 to amend the CCL main rates and the reduced rates in paragraph 42 of Schedule 6 to FA 2000.

The rates for 2019 to 2020 and the rates covered by the Budget 2018 announcement are as follows:

Taxable commodity Rate from 1 April 2019 Rate from 1 April 2020 Rate from 1 April 2021
Electricity (£ per kilowatt hour (KWh)) 0.00847 0.00811 0.00775
Natural gas (£ per KWh) 0.00339 0.00406 0.00465
LPG (£ per kilogram (kg)) 0.02175 0.02175 0.02175
Any other taxable commodity (£ per kg) 0.02653 0.03174 0.03640
Taxable commodity Rate from 1 April 2019 Rate from 1 April 2020 Rate from 1 April 2021
Electricity 7% 8% 8%
Natural gas 22% 19% 17%
LPG 22% 23% 23%
Any other taxable commodity 22% 19% 17%

Summary of impacts

Exchequer impact

2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025
- +40 +60 +65 +85 +90

These figures are set out in Table 2.2 of Budget 2020 as “Climate change levy: move toward equalised gas and electricity rates” and have been certified by the Office of Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2018.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

It is not anticipated that there will be impacts on those groups sharing protected characteristics.

Impact on business including civil society organisations

The measure is expected to have a negligible impact on businesses and civil society organisations. The cost of CCL for some businesses and civil society organisations will rise and for some it will decrease. One off costs will include familiarisation with the rate changes and updating systems to reflect the new rates. There are not expected to be any ongoing costs.

Customer experience is expected to stay broadly the same because this measure only changes the rates of CCL.

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

Environmental impact

CCL is an energy tax which aims to increase energy efficiency. Increasing tax rates strengthens the price signal for businesses to reduce energy consumption.

Other impacts have been considered and none have 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 Cesar Yanchev on Telephone: 03000 532030 or email: lachezar.yanchev@hmrc.gov.uk.