Changes to rates for the Climate Change Levy for 2022 to 2023 and 2023 to 2024
Published 3 March 2021
© Crown copyright 2021
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/changes-to-rates-for-the-climate-change-levy-for-2022-to-2023-and-2023-to-2024/changes-to-rates-for-the-climate-change-levy-for-2022-to-2023-and-2023-to-2024
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 2022 to 2023 and 2023 to 2024, implementing the rates announced at Budget 2020. Early announcement was made to give those affected as much time as possible to prepare.
This measure also amends, for 2022 to 2023 and 2023 to 2024, the reduced rates of CCL for qualifying businesses in the Climate Change Agreements (CCA) scheme. Similarly, early announcement of these changes was made at Budget 2020.
Policy objective
This measure will legislate for the main and reduced rates of CCL for 2022 to 2023 and 2023 to 2024, which were announced at March Budget 2020.
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.
In terms of impact on business costs, the rates on electricity are frozen while those for gas are increased but CCL makes up a relatively small proportion of energy bills.
The changes to the reduced rates seek to limit the impact on CCA scheme participants to a Retail Prices Index (RPI) 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 CCA 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. Moving to a ratio of 2.5:1 (electricity: gas) from April 2019. The announced rates for 2022 to 2023 and 2023 to 2024 for which we now wish to legislate follow a trajectory towards the government’s objective of reaching a ratio of 1:1 by April 2025.
Budget 2016 announced that, alongside the 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 than they would have if the rates were increased in line with the Retail Prices Index (RPI) as in previous years. Budget 2020 announced amended reduced rates for 2022 to 2023 and 2023 to 2024 which would similarly limit the impact on CCA scheme participants to an RPI increase.
Detailed proposal
Operative date
The changes will have effect for supplies of taxable commodities treated as taking place on and after 1 April 2022 (2022 to 2023) and 1 April 2023 (2023 to 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) of Schedule 6 to FA 2000 provides that, for supplies of electricity, only 8% of the main rate is payable where a supply is a reduced-rated supply. For supplies of other taxable commodities, 19% 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 CCA scheme to calculate their CCL relief entitlement, including the reduced rate.
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to amend the CCL main rates and the reduced rates in paragraph 42 of Schedule 6 to FA 2000.
The main and reduced rates for 2021 to 2022 and the rates for 2022 to 2023 and 2023 to 2024 announced at the March Budget 2020 are as follows:
| Taxable commodity | Rate from 1 April 2021 | Rate from 1 April 2022 | Rate from 1 April 2023 |
|---|---|---|---|
| Electricity (£ per kilowatt hour (KWh)) | 0.00775 | 0.00775 | 0.00775 |
| Natural gas (£ per KWh) | 0.00465 | 0.00568 | 0.00672 |
| LPG (£ per kilogram (kg)) | 0.02175 | 0.02175 | 0.02175 |
| Any other taxable commodity (£ per kg) | 0.03640 | 0.04449 | 0.05258 |
| Taxable commodity | Rate from 1 April 2021 | Rate from 1 April 2022 | Rate from 1 April 2023 |
|---|---|---|---|
| Electricity | 8% | 8% | 8% |
| Natural gas | 17% | 14% | 12% |
| LPG | 23% | 23% | 23% |
| Any other taxable commodity | 17% | 14% | 12% |
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | - | +115 | +215 | +210 | +200 |
These figures are set out in Table 2.2 of Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
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 Climate Change Levy (CCL) is not levied on the supply of energy to individuals and households, so should not affect individuals or household energy bills. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
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 continuing 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 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.