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The Spring Statement and the Energy Crisis: A Missed Opportunity?

The Chancellor took the opportunity to use the Spring Statement on 23 March 2022 to address a limited number of aspects contributing to the current increases to the costs of living - including rising energy prices - but fell far short of a coherent set of policies designed to meet the Government's 2019 manifesto promise of reaching Net Zero by 2050 through investment in clean energy solutions and green infrastructure.

Energy Proposals in the Spring Statement

Measures in the Spring Statement addressing the energy crisis include:

  • VAT relief for "energy saving materials"

No VAT will be payable on the installation of "energy saving materials" - cut from a rate of 5% - at least until 31 March 2027. VAT Notice 708/6 defines "energy saving materials" to include insulation, solar panels, and ground source heat pumps. Wind and water turbines now also qualify for the VAT relief and the Chancellor has removed the "social policy conditions" which had to be satisfied to obtain the VAT relief.

This measure is intended to help households improve their energy efficiency and therefore keep down their energy costs.

  • Expansion of the "Energy Company Obligation"

The existing Energy Company Obligation will be expanded to £1 billion per year until March 2026.

The Energy Company Obligation requires certain energy suppliers to promote measures which improve the energy efficiency and reduce the heating costs of low-income and "fuel poor" households and is administered by Ofgem on behalf of the Department for Energy, Business & Industrial Strategy.

  • Green Reliefs for Business Rates

The Chancellor has brought forward business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage (including solar panels and heat pumps) so that they will now take effect from 1 April 2022 rather than the previously planned date of 1 April 2023. The Chancellor says these exemptions will "support the decarbonisation of non-domestic buildings." Eligible low-carbon heat networks with their own rates bill will receive 100% relief.

A Missed Opportunity?

The Shadow Chancellor has criticised the absence of a windfall tax on oil and gas producers in the Spring Statement's, as well as the VAT relief on building materials and the lack of measures to address "our energy intensive manufacturing industries".

Notably absent is any reference to domestic battery energy storage – widely acknowledged to be the “game changer” when it comes to reducing reliance on the grid in a domestic context, and a significant cost for which a VAT cut would have been immensely helpful. The Chancellor acknowledges that the situation in Ukraine has led to volatility in the price of raw materials used in battery energy storage systems, perhaps underlining that only so much can be done in a Spring Statement to address the effects of global events on the UK economy.

The Chancellor has made it clear that more will be done in the future to address energy security (and therefore energy prices), promising "further measures to reinforce our long-term energy security" in the coming weeks. This announcement is expected to include details regarding the UK's commitment to ending coal-fired power generation, domestic renewable energy generation and the phasing out of Russian oil and gas in the UK. We wait with anticipation to hear more about these measures.

For more information on this article, please contact Ben Thomson or Stephanie Dixon.

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