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Sudden change to Finance Bill will have impact on community energy

A sudden, and unannounced, change to the third reading of the Finance Bill last week will have a large impact on community energy schemes in the UK. The Treasury has stated that community energy projects will be excluded from the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) tax reliefs as soon as the 30th November 2015. They have further stated that community energy schemes will be excluded from Social Investment Tax Relief (or SITR), reversing the Government’s previous statement in March 2015.

This gives investors a small window of opportunity to invest under EIS/SEIS. If you are interested in investing in the community energy share offers currently listed on Ethex, please note that the deadline is 24 November. 

Coupled with previous changes to planning law and proposed reduction to the Feed-in Tariffs (see our previous blog), this will put strains on the community energy sector. This is despite £36 million invested in 75 community energy schemes in the last year (see Ethex’s Positive Investing Report 2015, page 13), which leverages new investment into renewable energy. Most investment into community renewables comes from local people who want to back renewable energy schemes in their area and see the community benefit. Community energy schemes result in an extraordinary range of community benefits beyond reduction of carbon emissions: support for fuel poverty, free energy provision in schools, improvements to community buildings, computers for low income schools, improving wildlife areas and providing local healthcare services. The change in legislation applies to community energy organisations that are registered as community benefit societies and have community benefit embedded in their rules or articles of association. These community benefits had, until now, been supported by individual investors encouraged by the 30% tax relief. Many of these schemes may not go ahead and the carbon reduction and all the community benefits lost.

This policy change has not been consulted on and goes back on previous promises to allow community energy schemes to benefit from the new Social Investment Tax Relief (SITR). And, what’s more, there hasn’t been adequate warning of the closure of the current tax relief mechanisms, which undermines investment in the sector. Community energy schemes are currently eligible for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief. This was to be removed but a six-month transition period for SITR permitted in order to allow all schemes to make advance applications for relief to HMRC and then to have time to complete their offers. However, EIS and SEIS relief is now to be withdrawn with no prospect of SITR to be available.

It’s hard to understand Treasury’s rationale for the switch. Community energy raised £36m last year and has been the fastest growing area of community investment. That would have cost £11 million in tax relief but hat has to be balanced against jobs created, VAT, income tax and National Insurance collected, and carbon saved. The Community Energy England survey, published earlier this month (see previous blog), found that 38 of the community energy groups surveyed had received £7.4 million in Feed-in Tariff subsidies since the scheme began in 2010, which has brought in £50 million of private investment and generated £45 million for local economies. The tax reliefs are important to community energy projects as the risks are often higher than commercial projects as returns to investors are capped to maximise the community benefit they generate.

Given the potential that community investment has shown to deliver strong social and environmental benefit to society, at little or no cost to the tax payer, it is surprising that Government shows little inclination to support it. There has been no prior warning of this policy change and no explanation of why the government has decided to take this step. One hundred and fourteen community energy organisations – including Ethex – have now signed a letter to the Chancellor, Rt Hon George Osborne MP to ask him to reconsider the change to the Finance Bill. Let's see what happens.

Ethex are listing a range of community energy share offers this month to take advantage of the EIS tax relief window before it closes at the end of November. This is a chance to show your support for community energy.

For further information on what recent Government changes mean for community energy see our blog here.

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