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Thanks to the sudden withdrawal of tax benefits for community energy projects, these waters at Abingdon Lock, Oxfordshire, will remain unharnessed for many years to come. Photo: Victor Bayon (CC BY-NC-SA).
Thanks to the sudden withdrawal of tax benefits for community energy projects, these waters at Abingdon Lock, Oxfordshire, will remain unharnessed for many years to come. Photo: Victor Bayon (CC BY-NC-SA).
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George Osborne must back down on community energy tax

Georgina Matthews

11th November 2015

Surprise changes to the Finance Bill in its third reading have withdrawn tax benefits for investors in community renewable energy projects, writes Georgina Matthews. While some societies are rushing to complete their fund-raising by the end of the month, others have been forced to close. If these measures are not withdrawn, a small but flourishing sector will be at risk.

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 so little inclination to support it.

A sudden, unannounced, change to the third reading of the Finance Bill at the end of October could have a huge 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 leaves only a small window of opportunity for community energy organisations to raise investment for projects in the pipeline under EIS and SEIS tax reliefs. Many are now moving fast to raise funds while they still can.

But a number of projects have already folded, some at an advanced stage, with hundreds of thousands of pounds invested. One such is Abingdon Hydro, which was set to install twin Archides screw turbines on the Thames in Oxfordshire, and had raised £815,000 for the project from local supporters. As the group explains:

"This was a true community project, offering something for everyone - not just sustainable electricity, but a place to view the river and see water power up close, a fish pass designed as a natural flowing stream, an area that was formerly overgrown with brambles replanted for people and wildlife, better provision of white water for the canoe clubs, an educational resource, a tourist attraction, and a community fund to support other environmental projects.

"But finances and the clock were against us. We had deadlines to meet, and the sheer complexity of the regulations was slowing progress. Then over the last few months the incentives that were designed to encourage groups like ours have been cut drastically."

The cost of EIS to community energy? Just £11 million

It's hard to understand Treasury's rationale for the switch. Last year community energy raised £36m for 75 schemes, and has been the fastest growing area of community investment.

Those schemes have cost the Treasury £11 million in tax relief - hardly a great sum in the scheme of things. But even then that has to be balanced against jobs created, VAT, income tax and National Insurance collected, and carbon saved.

The Community Energy England survey, published in October, 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. Together with the EIS relief, that 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.

Coupled with previous changes to planning law and proposed reduction to the Feed-in Tariffs, these changes will put massive strains on the community energy sector. 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 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.

As Emma Bridge, CEO of Community Energy England, explains: "Community energy enables people to take greater control over how energy is generated as well as ensuring wider benefits are fed back to the local area. Schemes offer a range of benefits from reducing energy bills and developing skills to generating revenue in the local economy, as well as the more obvious benefit of encouraging the production of cleaner energy."

Imposed at the last moment with no consultation

The change in legislation applies to community energy organisations that are registered as community benefit societies (IPSs) or community interest companies (CICs) 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 will be 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 SITR was to be 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 being made available.

Many community energy organisations have responded by launching sooner rather than later to take advantage of EIS tax relief while it's still available to their investors. This has triggered a surge in community energy share offers launching on Ethex, the positive investment and savings platform.

These include: Bristol Energy Cooperative; Wolverton Community Energy in Milton Keynes; Meadow Blue Community Energy in Merston, West Sussex; Bath and West Community Energy; and Nottinghamshire Community Energy in Colton Basset.

Osborne must withdraw this inexplicable measure

One hundred and fourteen organisations - including Ethex and Community Energy England - have now signed a letter to the Chancellor, the Rt Hon George Osborne MP, to ask him to reconsider the proposed amendments to the Finance Bill. As the letter states:

"The proposal to deny community energy investors access to both Enterprise Investment Scheme (EIS) tax relief and Social Investment Tax Relief (SITR) is seen by many in the sector as the final nail in the coffin for future projects; especially given numerous recent assurances on admissibility and coming on top of proposals to significantly reduce Feed-in Tariff rates, remove access to pre-accreditation and remove Climate Change Levy exemptions."

This is perhaps the largest mobilization of community energy groups yet, and reflects the outrage felt in the sector. There has been no prior warning of this policy change and no explanation of why the government has decided to take this step. Indeed the Conservative Manifesto for the 2015 election states that the party would "give more people the power and support to ... start their own social enterprise."

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 so little inclination to support it.

I, and my colleagues in the sector, call on George Osborne to withdraw this measure which will save so little, and cost so much.

 


 

Georgina Matthews is marketing executive at Ethex, the not-for-profit positive investment platform that offers potential investors the opportunity to invest online in a wide range of savings and investment products - offering strong social and environmental benefits, as well as a financial return. 

Ethex has raised nearly £20 million into 40+ social businesses and won Investment Deal of the Year at the 2014 Social Enterprise Awards, the Finance Award at the 2014 PEA Awards, the Sustainable Finance Award at the 2015 Sustainable City Awards and, most recently, the Community Energy Funding Award in the 2015 Community Energy Awards.See Ethex's Positive Investing Report 2015.

 

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