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Inenco predictions for the 2018 Budget

Chancellor Philip Hammond is set to deliver his Budget on 29th October, and with Brexit on the horizon, many businesses will be waiting to find out how it will affect them or whether the Treasury can shed any light on a post-Brexit Britain.

While the Budget always contains a few surprises, our energy experts think that we can expect to see some key energy issues addressed, including:

EII exemption thresholds 

It is likely that the Government will announce extra support for energy intensive industries in the UK, elaborating on the plans to widen the threshold for the EII exemption they put forward earlier this year.

They have already consulted upon lowering the current electricity intensity threshold from the current 20% to either 17%, 15% or 10%, and the effects on businesses will vary depending on which of these options they choose. If they lower the threshold to 17%, only a small number of additional EIIs would become eligible for the exemption, and this option would add the least amount of cost pressure onto ineligible businesses – from an extra £100 to an average small business’s annual bill, to around £30,000 extra on a large business’s annual bill.

If the Government decides to lower the threshold to 10%, many more businesses will become eligible for the exemption, and ineligible businesses will see far higher cost rises: small businesses could see around £300 added to their annual bill, while large businesses could face an additional £110,000 in energy costs.

For more information on how the EII exemption could affect your business, visit our EII hub.

Carbon price confirmation

The price of carbon is currently higher than in recent years, as fossil fuel plants are paying both a higher-than-anticipated EU ETS and carbon price support.

Carbon price support was originally conceived to set a higher cost of carbon in the UK because of the collapse in EUETS prices following the global recession. However, the recent increase in EUETS prices mean that power generators are seeing very significant increases in their fuel costs, which is helping to sustain the current high electricity prices.

All eyes are on Brexit negotiations to find out what the implications of leaving the EU will be on the price of carbon. The Government’s latest no deal preparations indicated that Treasury would turn the carbon floor price into a straightforward carbon tax – whether Philip Hammond will disclose more detail on this in the Budget remains to be seen.

The CfD levy falling

As wholesale costs have risen, the Government has paid out less Contracts for Difference (CfD) support than expected this year, because the amount of support they pay is based on the contract price minus the current wholesale cost.

This means that rather than the forecast £1.2bn, CfD support has only cost the Government £800m in the past year.  That could mean that the CfD levy will be lowered accordingly, as this levy is intended to cover the costs of CfD support. However, this reduction in the CfD levy is small compared with the rise of wholesale electricity costs.

Climate Change Levy (CCL) rates for 2020/21

Next year, will see the first major change to CCL rates – after years of inflationary increases, the CCL will jump by 45% for electricity and 67% for natural gas. The increase is intended to recover the revenue the Government will lose when the Carbon Reduction Commitment (CRC) scheme ends.

In this Budget, we can expect to find out the 2020/21 CCL rates. Currently, the CCL is much higher for electricity than it is for gas, but the Government aims to level it out, so that it’s split equally over gas and electricity by 2025. Whilst it was initially assumed this transition would be gradual, there is increasing speculation that they will actually make the shift all at once from 2020/21. If this happens, businesses that use a large amount of gas will need to prepare for a significant rise on that side of their energy bills.

Looking ahead

Our industry experts will be monitoring the Budget closely to hear what the Chancellor announces. Look out for our in-depth Budget analysis blog next week to find out what any energy changes will mean for your business.