Appeal judge dismisses challenge to removal of climate change levy exemption

Out-Law News | 26 Oct 2016 | 3:10 pm | 2 min. read

A legal challenge to the government's decision to end the climate change levy (CCL) exemption for renewable source electricity with only 24 days' notice has been dismissed by the Court of Appeal.

Infinis Energy, described by the court as the UK's leading independent renewable energy generator, had argued that the government's approach breached EU law. A High Court judge had previously ruled that the removal of the exemption was justifiable on public interest grounds.

The Court of Appeal went one step further, finding that Infinis Energy could not argue that it had a "legitimate expectation" that the government would continue with the policy indefinitely.

"[The government] had made no promise and given no assurance that [the exemption] would be maintained indefinitely, nor that it would be subject to the giving of a period of notice before being changed," said Sir Terence Etherton, giving the unanimous judgment of the court.

"In the context of establishing and changing the rules of a national tax regime, a prudent and circumspect economic operator would appreciate that the tax authorities and the national legislature might change the tax code without giving notice. They are entitled to do so, as it is their function in a democratic society to manage the public finances by weighing up all the competing demands on the public purse against all the possible, conflicting ways of raising tax revenue and adjusting the elements on both sides of the equation as they see fit, in accordance with the policy they think should be pursued," he said.

By the same token, Infinis "was not entitled to expect that the existing [arrangements] would continue because, absent any precise assurance given to the contrary, the tax authorities and parliament had a general discretion to alter the tax regime as they saw fit", he said.

The CCL was introduced in 2001. It is a tax on UK businesses, collected by energy suppliers, that is designed to encourage energy efficiency, reduce carbon emissions and promote energy from renewable sources.

Businesses were previously able to claim an exemption from the tax if they could show a levy exemption certificate, showing that they had purchased energy from qualifying renewable energy sources. Then UK chancellor George Osborne announced the removal of the exemption as of 1 August 2015, in his Summer Budget on 8 July 2015.

Infinis argued that implementing this change with only 24 days' notice breached the EU legal principles of foreseeability, legal certainty and protection of legitimate expectations, as well as the proportionality principle. It also argued that there was wrongful interference with its right to peaceful enjoyment of its possessions, through the loss of the potential future revenue stream stemming from the exemption.

In the High Court, Mr Justice Jay found that Infinis had to be able to show that the government "promoted ... a legitimate expectation of there being no withdrawal of [the exemption] without a two year time limit" in order for its claim to succeed. This "promotion" could take the form of either an "express assurance by the government", or by implication "tantamount to an express assurance". Because it was unable to do so, its claim failed.

The Court of Appeal agreed, albeit after coming to slightly different conclusions on the meaning of the European case law relied upon by each of the parties than the trial judge did. It also agreed with the judge that the government had given no precise assurances about the future of the exemption, and that there was "not a consistent practice regarding periods of notice for introduction of changes in renewable subsidy regimes" such as to give rise to an implication that a certain amount of notice would be given here.

"In the absence of any precise assurance, it was always inherently foreseeable that there was the possibility of an immediate withdrawal," Sir Terence Etherton said in his Court of Appeal judgment.

"[The exemption] was part of a fiscal regime and, like all fiscal regimes, subject to change in the discretion of the government of the day and parliament in the light of current economic conditions," he said.