We have had some interesting comments on the clauses.
Clause 20 builds on incentives already introduced to encourage development and growth in the take-up of microgeneration by householders, such as the DTI low-carbon buildings programme, to which the hon. Member for Falmouth and Camborne (Julia Goldsworthy) referred, and a reduced rate of VAT on the installation of microgeneration systems. As she said, my right hon. Friend the Chancellor announced in the Budget a further £6 million for the low-carbon buildings programme for households, bringing the total to more than £18 million for the coming year. We see that as a contribution towards a transition to a more mature market—one that is not dependent on grants—for microgeneration in the future. I reassure her, however, that the programme of household grants will resume allocation in May.
Clause 20 removes a genuine barrier to the take-up of microgeneration by householders, and helps them to contribute to the reduction of carbon emissions. Let me explain how the barrier arises and how the clause addresses it. I hope that I will then be able to explain why the amendment is inappropriate.
Households that have invested in microgeneration will often produce more electricity than they require for their own use. Therefore, they have the opportunity to sell or export surplus electricity back to their energy supplier, and so earn additional income. In our discussions with the industry and environmental groups, it became clear that uncertainty about the tax treatment of that income has discouraged some householders from investing in microgeneration. I can clarify today that the Government’s view is that a tax charge will indeed arise, hence the need to rectify the position and ensure that there will be no income tax charge.
Therefore, clause 20 introduces a tax exemption for the income that individuals receive from exporting electricity back to their supplier. It ensures that where an individual installs microgeneration in their home to generate electricity for their own use, any payment or credit that they receive from the sale of surplus electricity is not subject to income tax. Therefore, it achieves clarity and certainty for householders and achieves investment in microgeneration in line with the Government’s microgeneration strategy.
The clause is targeted at people whose primary intention is to consume in their home the electricity that they generate. I have suggested to the Committee that it would not be right to extend, as the amendment would, the exemption to everybody. If accepted, the amendment would provide an exemption for businesses selling electricity if they happen to be run by an individual on domestic premises. In the case of businesses, there is no uncertainty, as there is with householders, about the tax position. For businesses, therefore, there is not a barrier to the take-up of microgeneration, so I suggest that the clause does not need to be extended as the hon. Member for Falmouth and Camborne proposes.
It would be rather peculiar to give incentives to electricity companies to set up power stations, albeit small ones, in people’s homes. A business based on commercial microgeneration should pay tax on its profit, just like any other commercial activity. To do as the amendment proposes would be unfair, and addresses a problem—uncertainty about the tax position—that does not exist where the primary purpose is commercial.
A similar argument applies in the case of clause 21, which deals with renewables obligation certificates, the purpose of which is to certify the generation of electricity from a renewable source. The auction price of renewables obligation certificates has been remarkably stable, at around £40 to £50 per megawatt-hour, since the renewables obligation was introduced in 2002. As intended, it has proved to be an effective market-based mechanism for increasing renewable electricity generation.
Those using microgeneration at home can receive ROCs in the same way as any other electricity generator. They can sell their certificates to energy companies seeking to fulfil their renewables obligations. In those circumstances, the tax consequences could be complex. Householders could find themselves liable to income tax when they received their ROCs, and to capital gains tax when they sold them. The clause avoids that complexity, and ensures that individuals will not be liable for either tax in respect of ROCs that they acquire for electricity generated through microgeneration in their homes. Together with the income tax exemption in the previous clause, it provides clarity and certainty, along with very a favourable tax treatment of the income that householders receive from microgeneration of electricity.
Businesses do not face the same barriers to take-up as individuals. I do not consider it appropriate to give a tax exemption to some people pursuing a commercial activity when others competing with them do not have the same advantages. That applies equally to income from ROCs and income from sales of surplus electricity. I hope the Committee will reject that amendment as well.
I listened with interest to what was said by the hon. Member for Wycombe (Mr. Goodman) and my hon. Friend the Member for Nottingham, South (Alan Simpson) about new clause 1, which would provide a legal obligation for the Treasury to publish an annual report on fiscal measures appropriate to assist with energy efficiency, microgeneration and small-scale generation. The clause is not necessary, because there is already a requirement to produce information on those subjects. The Sustainable Energy Act 2003 requires annual reports on progress towards sustainable energy aims. Last year it was amended by the Climate Change and Sustainable Energy Act 2006 to require the annual reports to include"““things done during that period for the purpose of implementing the strategy for the promotion of microgeneration in Great Britain””,"
a strategy that was published last year. The"““things done during that period””"
will of course include fiscal changes.
Details of the environmental impact of Budget measures are published by the Chancellor every year, not once but twice, in both the Budget and the pre-Budget report. They are in chapter 7 of the Red and Green Books, which is dedicated to measures to meet the Government’s environmental objectives. The environmental chapter was first included in the 1999 pre-Budget report, and has been a standard feature of Budget and pre-Budget report documentation ever since. That reflects the high priority assigned by the Treasury to environmental matters throughout the past decade.
The Government are committed to tackling the global challenge of climate change. We have introduced a range of measures to support energy efficiency across all sectors, from heavy industry to individual householders. Energy efficiency is key not only to reducing greenhouse gas emissions, but to helping to reduce fuel poverty.
I was delighted to hear the hon. Member for Twickenham (Dr. Cable) pay tribute to the climate change levy. Along with the climate change agreements, it has encouraged energy efficiency in industry. It is estimated in this year’s Red Book that the levy and agreements will deliver emissions savings of 6.3 million tonnes of carbon a year by 2010. In the domestic sector, we have reduced VAT rates to help households take the most cost-effective steps to improve energy efficiency. Fiscal measures certainly have a role to play in improving energy efficiency, and that underpins a range of steps that we have taken.
A great deal of work is already being done across Government to encourage energy efficiency, microgeneration and local energy generation. Information on progress is reported regularly. The new clause is not necessary, and while I hope it will not be pressed to a vote, I invite the Committee to reject it if it is.
Finance Bill
Proceeding contribution from
Stephen Timms
(Labour)
in the House of Commons on Tuesday, 1 May 2007.
It occurred during Debate on bills
and
Committee of the Whole House (HC) on Finance Bill.
Type
Proceeding contribution
Reference
459 c1478-81 
Session
2006-07
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2023-12-15 12:00:18 +0000
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