Decision by the Court of Appeal

The decision to remove the exemption for renewable source electricity from the climate change levy did not breach the EU law principles of foreseeability, legal certainty, the protection of legitimate expectations or proportionality.

In the case of Infinis Energy Holding Ltd. v (1) HM Treasury (2) Revenue & Customs Commissioners (2016) the Court of Appeal has recently upheld the decision of the Administrative Court that the government's decision in July 2015 to withdraw a subsidy for renewable energy was lawful.

Background and decision by the Administrative Court

In the July 2015 Budget the government announced its decision to remove the exemption that renewable source electricity had enjoyed from the tax known as the climate change levy; the withdrawal took effect from 1 August 2015. Infinis Energy Holding Ltd. and Drax Power Limited made an application to the Administrative Court to judicially review the decision.

Infinis Energy Holding Ltd. is the leading independent renewable energy generator in the UK. It challenged the decision to remove the subsidy on the basis that principles of EU law, namely foreseeability, legal certainty, the protection of legitimate expectation and proportionality, had been offended.

Prior to the change in policy Infinis (and other operators) had enjoyed the benefit of an exemption from the climate change levy, on the basis that it produced renewable source electricity. The subsidy, which had been in place since 2000, was removed because the government wanted to move away from a system of indirect support to one of direct support, as this is more efficient and cost-effective. Government also said that the subsidy benefitted foreign energy generators and it would support domestic businesses through other incentives; it said that it had considered the potentially impact on Infinis and decided that this was outweighed by public interest.

The application for judicial review was unsuccessful and the Administrative Court dismissed Infinis' suggestion that withdrawing the subsidy with only 24 days' notice was unlawful, although the Court acknowledged that the change in law was extremely rapid.

Appeal to the Court of Appeal

Infinis appealed the decision to the Court of Appeal and argued that EU law had been offended, namely that the principles of foreseeability, legal certainty and protection of legitimate expectations had been violated in that a withdrawal without notice of the tax exemption would not have been foreseeable by a prudent and circumspect economic operator, also that the very quick withdrawal of the subsidy was not proportionate and interfered with their property rights. Infinis also argued that they should have expected a proper lead time to withdraw the subsidy and that they were entitled to compensation.

The Court of Appeal dismissed the appeal against the decision of the Administrative Court.

When considering the principle of legitimate expectation the Court of Appeal decided that a prudent and circumspect economic operator would appreciate that the tax authorities and the national legislature might change the tax code without notice. The tax authority is entitled to manage public finances by weighing up the competing demands on the public purse as they saw fit, also that in the absence of any specific assurance it was inherently foreseeable that a subsidy might be immediately withdrawn.

The Court of Appeal decided that there had not been a breach of the principle of proportionality. The evidence showed that the impact on Infinis, and other renewable energy generators, had been specifically considered, both before and after the decision to withdraw the subsidy was announced. Whilst Infinis' interests had been effected the impact was outweighed by the public interest and the continuance of other available financial incentives.

The Court of Appeal decided that government and parliament had not overlooked the interests of Infinis, nor had they failed to appreciate the likely impact of the withdrawal of the subsidy. Further, the immediate withdrawal of the subsidy was judged to be proportionate.

The decision to withdraw the subsidy has been upheld. The Autumn Statement and Spending Review 2015 announced that the Finance Bill 2016 would include legislation for a transitional period for electricity suppliers to apply the exemption to renewable source energy before 1 August 2015. This was confirmed in the Budget in March 2016. Further information is available from HMRC.