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Why the FIT Cuts will Cost Money

A new analysis conduceted by Element Energy, a strategic energy consultancy, has been commissioned by Friends of the Earth and the 'Cut Don't Kill' solar campaign. This has revealed that the cut to the FIT tariff, if it does indeed go ahead, will cause up to 29,000 job losses and decrease the Treasury's tax income by up to £230 million per year.

It seems unintuitive at first glance, but this remarkable fact will mean that the Government will actually lose out on large amounts of money due to decreased income taxes and National Insurance, in what campaigners have described, as an "utterly counterproductive" move.

Estimates for current income for the Treasury from just employment taxes and VAT from the Solar PV sector is £275 million - a figure that doesn't include corporation tax and indirect spending (such as companies' spending on advertising which is then taxed and so on). The proposal to cut the Feed-in Tariff from the previous rate of 43.3p per kWh to 21p has been sold by Climate Change Minister Greg Barker as a money-saving measure, but this new analysis by Element Energy demonstrates that in fact that such a move would cause a net cost to the government.

The main findings are as follows:
  • "DECC's uptake assumptions imply a loss of between 18,000 and 29,000 jobs in the industry, depending on whether the Energy Performance Certificate 'C' rating requirement is introduced."
  • "This would result in a loss to the Treasury from income taxes / NI of between £150m and £230 per year."
  • "The future PV deployment rate used in DECC's Impact Assessment represents a fall of 50-95% relative to installations in 2011."
  • "Our analysis suggests that Treasury inflows from the PV sector are currently £275m per year from employment taxes and VAT on domestic installations, not accounting for corporation taxes, indirect spending in other sectors etc."
Andy Atkins, Executive Director of Friends of the Earth said, "Government plans to slash solar incentives will devastate a thriving industry and pull the plug on thousands of jobs. In a time of economic gloom, the solar industry has been one of the UK's brightest success stories, enabling homes and communities across the country to free themselves from expensive fossil fuels. We believe the Government's proposals are not only wrong, they're also illegal - which is why we are taking Ministers to court."

Howard Johns, founder and MD of Solar Century Ltd. and of the Cut Don't Kill campaign, said, "The Government are forging ahead with a cut which is going to cost the Treasury a fortune, as well as devastate a thriving industry. It is madness at a time when David Cameron's priorities are deficit reduction and delivering growth to enact a proposal which will make the deficit and the economic situation worse. This study shows that the tariff cut is utterly counterproductive for the Government - added to which tens of thousands of workers are facing redundancy before Christmas. This was meant to be the greenest Government ever, but if they push ahead with their plans they will become famous only for shooting themselves in the foot."

Greg Barker defends his changes - not a popular viewpoint.