UK budget: silence is golden for solar as VAT rise fears allayed, for now

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Today’s U.K. budget for 2016 made no mention of an increase in value-added tax (VAT) for solar panels, raising hopes that British solar customers will not be hit with yet a further price hike following months of policy setback and subsidy withdrawal.

The British solar industry had feared that the current 5% VAT rate on solar panels could be increased to 20% following last year’s announcement that Her Majesty’s Revenue & Customs (HMRC) had opened a consultation to remove the current tax relief for solar panels from August.

However, chancellor George Osborne made no mention whatsoever of solar power in his budget address, prompting cautious optimism – led by the Solar Trade Association (STA) – that solar has escaped further regressive measures.

"No VAT news is good news on Budget day," said STA CEO Paul Barwell. "This delay means we can continue to make the very strong case for Treasury to abandon plans to hike up VAT on solar. It makes no sense to penalize British families that want to take meaningful action on climate. The Energy Department is on the record saying they will look again at support levels for domestic solar if VAT rates are increased so households should be assured it will still pay to go solar whatever happens. However, the VAT increase should not go ahead; it would delay the point at which solar will not need public support in the UK and that would be an own goal."

Fossil fuels receive further tax relief

The silence on solar, while tentatively welcomed in some corners, was all the more hard to bear for clean energy advocates following Osborne’s generous tax cuts for the U.K.’s oil and gas industries. The budget revealed that the government is to effectively abolish the petroleum revenue tax, lower the supplementary charge from 20% to 10%, steer an additional $30 million in funding for seismic survey – a greenlight to the growing fracking industry to continue scouring the country for suitable drilling locations – and consult on a new shale gas wealth fund.

"The direction for this government is becoming increasingly clear," remarked Renewable Energy Association (REA) chief executive Nina Skorupska. “With a huge tax cut for oil and gas with the most polluting industries continuing to be protected."

A tax raise for renewable generators was also announced, pouring further salt into clean energy’s wounds. The lack of clarity around new investment opportunities for renewable energy was particularly galling for the REA, which argued that the budget was a missed opportunity to make clear the funding available in all future CfD pots.

"The removal of the supplementary charge for oil and gas industry amounts to a £1bn giveaway, added on top of the subsidies planned for nuclear, gas and diesel this year, all whilst renewables are getting continually squeezed and blocked.

"Less than three months after the Government heralded the signing of the Paris agreement, we see more support for fossils fuels and protection for polluters. If the government are serious about their national and international commitments they need to back up the empty rhetoric with real actions," Skorupska added.