A cut in the budget for the current LCF framework had been expected in the government's post-election budget today. Yesterday, one government source was reported by the Financial Times newspaper: "In the longer-term, we will take this budget down."
"The chancellor will review the system to see whether further steps can be taken to cut the cost of climate change schemes, such as the subsidies," sources were quoted in The Sunday Telegraph.
The Levy Control Framework sets a yearly budget to cap government spending on low-carbon technologies to avoid rises to consumer bills. Yesterday, the Confedaration of British Industry (CBI) lobby called for a seven-year rolling LCF to be introduced to provide greater clarity to the renewables industry.Trade body RenewableUK responded angrily to the anticipated cut, accusing the government of undermining confidence in the renewables sector.
But there was no mention of the LCF when the budget was announced today by Chancellor of the Exchequer, George Osborne. He did, however, tell Parliament that the Climate Change Levy exemption for renewable electriciy will be removed. The budget document said the removal "will correct an imbalance in the tax system by preventing taxpayers' money benefitting renewable electricity generated overseas, and by helping ensure support for low carbon generation provides better value for money for UK taxpayers".
The Climate Change Levy is a tax on businesses' power usage, designed to encourage energy efficiency and to reduce carbon emissions.
The chancellor's budget sets out the government spending for the coming year and any changes to taxation. This is the first budget following the UK general election in May, where the Conservative Party won a majority in Parliament.
Before the budget was announced, RenewableUK director of policy, Gordon Edge said: "A sensible chancellor would use his budget speech to reassure the renewable energy sector that the government will provide long-term stability by setting out clear targets and well-defined levels of financial support to attract investment and encourage growth.
"However, the chancellor has been briefing the media that he will use his speech to undermine confidence in the renewables sector by abandoning future low-carbon targets, with a 'review' of the very pillars of green growth."
Edge expressed concerns for the offshore sector, which is waiting to hear how much money will be available for the next Contracts for Difference (CfD) auction, expected to take place in October. The CfD budget is affected by the limit set by the Levy Control Framework.