Taxation – Climate change levy – Renewable source exemption – Respondents removing tax exemption previously accorded to renewable energy sources – Whether decision to remove exemption at short notice breaching appellant’s legitimate expectation – Whether that decision disproportionate – Whether interfering with right to peaceful enjoyment of possessions under Article 1 of First Protocol to European Convention on Human Rights – Appeal dismissed
The appellant company was the leading independent renewable energy generator in the UK, with a 5% market share as at the end of 2014. It was the largest landfill gas operator in the UK and one its leading onshore wind generators. The appellant’s business benefited from a tax exemption provided by the government in relation to the climate change levy, an environmental tax levied on electricity, gas, solid fuels and liquefied petroleum gas supplied to business and the public sector. The exemption was for renewable source energy (the RSE exemption) and it was applied by the issue of levy exemption certificates (LECs).
In July 2015, the Chancellor of the Exchequer announced in his summer budget statement that the RSE exemption was to be removed. That decision was implemented shortly afterwards by a resolution of the House of Commons, which had temporary statutory effect by virtue of section 1 of the Provisional Collection of Taxes Act 1968, and in due course by enactment in section 49 of the Finance (No 2) Act 2015, which came into force in November 2015 and amended para 19 of Schedule 6 to the Finance Act 2000. The removal of the exemption took effect from 1 August 2015, mitigated only to a modest extent by a transitional period during which suppliers were allowed to utilise existing stocks of LECs relating to electricity generated prior to that date.
Along with another company, the appellant brought judicial review proceedings against the respondents to challenge the decision to remove the RSE exemption. It contended that the removal of the exemption with only 24 days’ advance notice violated EU law, including: (i) the principle of foreseeability, legal certainty and protection of legitimate expectations; (ii) the principle of proportionality, as a disproportionate interference with the appellant’s protected interest in the form of the right to property set out in Article 17 of the EU Charter of Fundamental Rights (the Charter), contrary to Article 52 of the Charter; and (iii) the appellant’s right to peaceful enjoyment of its possessions under Article 1 of the First Protocol (A1P1) to the European Convention on Human Rights, as incorporated into domestic law by the Human Rights Act 1998. The appellant suggested that a notice period of one fiscal year should have been given. The claim was dismissed in the court below: see [2016] EWHC 228 (Admin). The appellant appealed.
Held: The appeal was dismissed.
(1) The removal of the SRE exemption did not offend against the principles of legal certainty and protection of legitimate expectation, so far as they imposed certain standards of foreseeability in the application of the law. For legitimate expectation to arise, there had to be a clear and precise assurance. The test was no different in the case of a change in legal rules. In all cases, the position was that: (i) the principles of legal certainty, foreseeability and protection of legitimate expectations were never infringed by a change the possibility of which could have been foreseen by a prudent and circumspect economic operator; and, further (ii) they could only be invoked if the authority in question had promoted a reasonable expectation that there would be no change by precise assurances given to that effect. It was therefore necessary to test whether precise assurances had been given that there would be no change, or that a period of notice would be given before there was a change, by looking to see whether a prudent and circumspect economic operator would regard whatever had been said or done by the relevant authorities as precise assurances in the requisite sense. Where a member state was accorded a wide discretion under EU law, for example in relation to fiscal matters which were constantly being adjusted to reflect changes in economic and other circumstances, the mere fact of a change after a long period without change could not of itself give rise to a breach of a legitimate expectation based on EU law.
In the instant case, the respondents had made no promise and given no assurance that the RSE exemption would be maintained indefinitely or that a period of notice would be given before it was changed. Nor was there any consistent, settled practice regarding periods of notice for the introduction of changes in renewable subsidy regimes, such as might give rise to an expectation. 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, as they were entitled to do. It was the function of the respondents, 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 saw fit, in accordance with the policy they thought should be pursued. The appellant was not entitled to expect that the RSE exemption would remain in place, because, in the absence of 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: Di Lenardo Adriano Srl v Ministero del Commercio con l’Estero (Joined Cases C-37/02 and C-38/02) [2004] ECR I-6911, Spain v EU Council (Case C-310/04) [2006] ECR I-7285 and Plantanol GmbH & Co KG v Hauptzollamt Darmstadt (Case C-201/08) [2009] ECR I-8343 and ADJ Tuna Ltd v Direttur ta-Agrikoltura u s-Sajd [2011] ECR I-1655 applied.
(2) For the purposes of the present dispute, the appellant’s rights under Articles 17 and 52 of the Charter were in all material respects similar to its rights under A1P1 of the Convention. Even though the precise approach of the court to the issue of proportionality might not be identical, if the appellant failed under Article 17 of the Charter it could not succeed under A1P1: Breyer Group plc v Department of Energy and Climate Change [2015] EWCA Civ 408; [2015] 1 WLR 4559 applied.
The appellant’s case on proportionality failed on the facts of the case. The judge’s decision on that issue was a multi-factorial assessment which involved no error of principle and was not plainly wrong. In a context where there was no legitimate expectation that the RSE exemption would remain, or that it would remain for any particular period, or that any particular period of notice of its withdrawal would be given, it was not disproportionate for respondents to take the course that they had. The withdrawal of the RSE exemption pursued a legitimate object, where the government considered that direct support of electricity generators using renewable energy was a more efficient and cost effective than the RSE exemption as a means of incentivising the generation of energy using renewable power and achieving national targets for green energy. The RSE exemption applied a flat rate, the benefit of which was spread across the supply chain, being shared between the customer, supplier and generator, and it was comparatively crude, in that it did not apply different rates to different types of technology so as to provide more targeted incentives for better forms of energy generation. By contrast, other schemes involved subsidies that went directly to generators and so incentivised production rather than consumption. At the time of its withdrawal, the RSE exemption was a relatively small part of the overall framework of incentives for the generation of renewable energy and was diminishing in value as more renewable electricity was being generated. As the judge had found, there was no evidence that the removal of the RSE exemption was a poorly conceived, rushed decision made largely on political grounds and without reference to the merits.
The court was being invited, by invocation of the principle of proportionality, to effect an alteration of a fiscal measure by parliament, which had to weigh up a number of macro-economic considerations, including (i) the most effective and cost efficient way to secure the national targets for green energy; (ii) the extent to which the RSE exemption benefited foreign generators; (iii) the balancing of different fiscal and economic requirements at a time when cost reduction was a major public priority; (iv) the need to put public finances in order and reduce the deficit; (v) the substantial amount of the tax saving that would be lost by deferral; and (vi) the extent to which business could and would be boosted by other tax changes. The court should be very slow to second guess the decision of parliament in relation to such an assessment. In the context of proportionality, and in the absence of any legitimate expectation, the fact that the removal of the RSE exemption reduced the appellant’s income had little, if any, weight when set against the public interest as judged by parliament. A mere change of income for individuals or companies because of a change in the tax regime could not be regarded as something which indicated disproportionality in a tax measure adopted by a state.
Michael Fordham QC and Jason Pobjoy (instructed by PriceWaterhouseCoopers LLP) appeared for the appellant; James Eadie QC, Jennifer Thelen and Oliver Jones (instructed by the legal department of HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
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