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Huge bills as carbon stealth tax hits councils

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Larger councils face shock bills running into hundreds of thousands of pounds after the government changed the carbon reduction commitment into a straight tax on carbon use.

This fresh blow came in the small print of yesterday’s spending review, which brought deep cuts to council budgets.

Councils that spend more than about £500,000 a year on electricity – including use in schools – are eligible to meet the commitment, which includes businesses and public bodies of all kinds.

This would have been a mechanism under which councils bought permits for carbon use and were then rewarded or penalised at the end of each year according to their performance against an average improvement.

It was designed as a self-contained fund to encourage lower carbon use, but the proceeds will now be taken by HM Treasury.

Russell Reefer, an environment policy officer at the Local Government Association, said: “This is in effect a new tax on local authorities and it is quite concerning if this money is to be retained by the government instead of being recycled among winners and losers.

“Nobody knows what the cost will be, since no-one knew what they would have got back because that depended on relative performance. But it could certainly run into hundreds of thousands of pounds for councils.”

Mr Reefer said carbon reduction projects that needed upfront funding from councils’ ‘winnings’ from the scheme could now be in doubt.

Climate change minister Greg Barker said: “This hasn’t been done lightly but against the background of the unprecedented deficit, we’ve had to allocate proceeds of the CRC to support public finances, including the environment.”

Stephen Cirell, a consultant who has advised many councils on the commitment, called the move “an exocet”, and said “this turns it into a tax”.

The Treasury grab is expected to raise it £3.4bn over four years, according to consultant PriceWaterhouse Coopers.

Its environmental tax specialist Harry Manisty said: “The CRC will operate effectively as a tax on companies taking part.”

In other parts of the review, feed-in tariffs for electricity generation will be worth £40m less by 2014/15, affecting councils that have invested in equipment to generate power and sell surpluses. The tariffs would be “refocused on the most cost-effective technologies”.

Mr Cirell said that meant money would not be available for more speculative techniques.

“There had been talk beforehand of the feed in tariff itself being cut, rather than the overall total, so this is not as bad as it might have been”, he said.

Energy and climate change secretary Chris Huhne said his department’s resource spending would fall from £1.2bn to £1bn by 2014/15, but during that time its capital spending will increase from £1.7bn to £2.7bn.

This will include up to £1bn to for commercial-scale carbon capture and storage demonstration plants, and another £1bn for a green investment bank, though this well below the level originally envisaged.

There will also be £200m for low-carbon technologies, including offshore wind technology.

Coastal defence and flood prevention schemes will go ahead but the Department for the Environment, Food and Rural Affairs said it would seek procurement efficiency savings equivalent to 15% of the cost, which would be reinvested in this work.

It said better protection for 145,000 homes would be achieved by March 2015.

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Readers' comments (1)

  • From my working in more than one authority, councils have been too slow to start working on carbon reduction, some good work was done such as significant reduction in street lighting, not by simply turning them off.

    At one council we had a rolling scheme that was self funding within a year, creating profit for the in house contractor, and significantly reducing future energy bills, the head of finance couldn't understand it, so it was delayed several times.

    If only councils were more change confident, then millions more would have been saved long before this became a tax!

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