Inheritance Tax and Energy Security – a potent cocktail?
The law of unintended consequences states that actions, especially those taken by governments, can have unforeseen results. These results can be beneficial, harmful, or neutral and may not be directly related to the original goal of the action.
There were many announcements in the budget that certain sectors of the business community may complain about. However, we must acknowledge that running a country is not easy, and it is impossible to always satisfy everyone all the time. I believe that the announcement on inheritance tax is one of those areas where the government may have created some unintended consequences. In light of this, shortly after the budget was released, UKIFDA wrote to the Chancellor to express our concerns.
As many will know, fuel distribution involves many companies, unlike the supply of oil and gas to consumers. It has been recognised by government and other authorities that the presence of many small family-run businesses positively impacts the prices consumers pay for fuel.
The large number of smaller businesses provides consumers with more choices and constrains unjustifiable profits, as consumers typically have the opportunity to purchase from at least four different distributors within a 25-mile radius of their homes. This competition has proven effective, as prices for consumers have reduced by nearly 50% since the big market reaction to the invasion of Ukraine. This reduction is unique in the energy markets.
Currently, there are over 500 distribution depots across the country. Of these, 68% of UKIFDA distributors own just one depot; these are often family-run businesses that have been passed down through multiple generations and typically employ between 30 and 40 people. Many owners reinvest their profits to grow and diversify their businesses for the next generation, including investments in renewable energy and products.
Unfortunately, many of these companies now face a significant potential inheritance liability due to the new proposals in the recent budget. This could hinder their ability to pass the businesses on to the next generation. A material reduction in the number of these businesses will not only impact competitiveness but also have a detrimental impact on consumers in terms of choice and cost.
I am sure that within the difficult decisions made by the Government recently, this was not an ‘intended consequence’.
I also expressed to the Chancellor my concern that the attractiveness of this industry to the next generation will diminish significantly, and these family businesses will now reduce or stop their further investment, which will have a negative impact on the Government’s clean power ambitions.
As such, I have strongly advocated that businesses that are clearly there to provide not only a fuel service to remote areas of the country, ensuring energy security and resilience, and competitiveness, but also a future pathway to new investment, are exempt from the new inheritance changes. Without this exemption the industry will become dominated by fewer companies.
Removal of an unintended consequence in Scotland
In April this year, the Scottish Government enacted legislation prohibiting housebuilders from using bioenergy heating systems in new homes. This ban included systems that use wood and Hydrotreated Vegetable Oil (HVO). The Government’s reasoning behind this decision was that any system producing carbon dioxide at the point of use should be classified as a polluting heating system. The legislation would have also had a negative impact on existing homes, too.
UKIFDA worked exceptionally hard over the intervening months to ensure that the Scottish Government understood the implications of such action, especially for rural communities in Northern Scotland. We were pleased to see that in September, the Minister issued a directive to planning authorities, allowing the use of bioenergy in new builds. Additionally, in November, new legislation was laid in the Scottish Parliament.
Probably more importantly, the new regulation comes with a policy note for parliament which states, “We recognise that bioenergy may represent the best option to help decarbonise some homes for which there may be challenges in installing a clean heating system – due to grid constraints or other reasons” and in associated documents clarification regarding how the government will treat bioenergy “it is important to acknowledge that how we consider the emissions and treatment of bioenergy has evolved. While combustion of biomass does physically produce CO2 emissions at the point of use, these emissions are balanced out against CO2 that was absorbed from the atmosphere when the biomass feedstock grew. As a result, for the purposes of reporting on emissions, and in line with international carbon accounting practice, the Scottish Government considers the combustion of biomass to produce net zero CO2 emissions at the point of use.”
This is a major change and should mean that bioenergy will not be treated as a polluting fuel, removing a massive barrier to the deployment of HVO in Scotland.
Thank you!
As we conclude another busy year, I want to take a moment to express my heartfelt gratitude to all our UKIFDA members and the companies that support us throughout the year and at our annual events. I would also like to give a special shout-out to my incredible small team, who always greet challenges with a smile, regardless of the workload. I look forward to 2025 and wish you all season’s greetings.
Image credit: UKIFDA
