A recent report by the Institution of Mechanical Engineers warns that the UK is facing an estimated 40 to 55% electricity supply gap as a result of ageing coal-fired power stations coming offline, Eaton says it had hoped the Chancellor would use the Budget as an opportunity to encourage industry to reduce its energy use. It had specifically called for an extension to the existing Enhanced Capital Allowance scheme that allows companies to offset the cost of new energy-efficient machinery and equipment.
But a lack of focus on energy-efficiency in the Budget represented a missed opportunity, said Jonathan Hart, senior manager at Eaton. “The Budget was a golden opportunity to encourage companies to think about their energy use and to invest in more efficient equipment. There was little focus on this issue in the Budget, revealing a lack of urgency behind energy-efficiency at a time when we really need to build up some momentum.”
Eaton has reiterated calls on the government to consider providing financial incentives and extending tax relief to help manufacturers to invest in new energy efficient technology. The existing Enhanced Capital Allowance scheme lets companies offset the cost of new energy-efficient machinery such as such as boilers, electric motors, air conditioning and refrigeration systems, but only in the first year. While major industrial purchases of such machinery can expect to see a return in just three years, Eaton argues that the tax relief needs to be extended to reflect this investment cycle.
Hart added: “The UK government has been explicit in stating its desire to reduce energy demand. One of the most obvious ways of doing this is by encouraging industrial companies to cut down on their electricity consumption. While the Enhanced Capital Allowance goes someway to doing this, we believe the government needs to look at improving this initiative. This is a crucial route through which demand-side reduction can be achieved.”
The 2016 Budget saw the Chancellor George Osborne announce the abolition of the Carbon Reduction Commitment, a mandatory carbon emissions reduction scheme that applies to large organisations, and raise the Climate Change Levy from 2019 to compensate. But Hart said that taking the ‘stick’ approach of top-line fiscal changes would not be enough to encourage firms to invest in more energy-efficient plant and equipment. “The government recognises a need for financial incentives but it believes a simplified tax in the form of the CCL is a sufficiently robust signal to drive the uptake of energy efficient technologies. Eaton is not convinced that this should be the only approach,” he said.