In the July 2015 UK Budget, it was proposed that the renewable source electricity exemption from the climate change levy be withdrawn from 1 August 2015. This exemption was valuable to renewable energy generators able to trade in levy exemption certificates.

Her Majesty’s Treasury’s (HM Treasury) decision to remove the exemption was challenged by Drax & Infinis on the basis that the announcement gave unreasonably short notice of the proposed change. They sought judicial review of the decision on the basis of European Union principles of foreseeability, legal certainty and protection of legitimate expectations, principles of proportionality and of their rights under the European Court of Human Rights to peaceful enjoyment of their possessions.

The High Court dismissed the claim in February 2016. Infinis (but not Drax) appealed to the Court of Appeal.

On 21 October the Court of Appeal dismissed Inifinis’ appeal. The Court of Appeal were satisfied that the Government had given no indication that the exemption would continue so there was no legitimate expectation that the exemption would continue. It is well understood by taxpayers that tax legislation and exemptions could be changed or withdrawn by HM Revenue & Customs (HMRC) without notice. Further, that there had been no breach of the EU principle of proportionality, as the Government had considered the impact of the withdrawal on renewable energy generators and the wider public interest, and decided to withdraw the exemption following such assessment.

The decision, although not unexpected, illustrate the difficulties of challenging changes in government policy by judicial review. It remains to be seen whether there will be further changes in government policy in relation to renewable energy generators, and if so, any judicial challenge would appear difficult in the absence of very clear assurances by HM Treasury or HM Revenue & Customs to the contrary.