Drax Power Ltd & Anor, R (on the application of) v HM Treasury & Ors

EU law does not make withdrawal of a tax exemption inherently unforeseeable. A claimant challenging abrupt fiscal change must establish that the authorities promoted a specific legitimate expectation concerning the relevant protection, such as a defined lead time or equivalent benefit. General policy stability, economic modelling and the integration of related support schemes do not necessarily create that expectation.

Where no relevant expectation is established, a proportionate decision may withdraw the exemption immediately if the measure is suitable and necessary to pursue legitimate fiscal and energy-policy objectives, allowing for an appropriate margin of appreciation. Property rights under A1P1 protect concluded contracts and associated goodwill, but not merely hoped-for future income.

The claimants, renewable electricity generators, sought judicial review of the removal of the renewable-source electricity exemption from the Climate Change Levy. The withdrawal was announced on 8 July 2015 and took effect through a House of Commons resolution on 14 July 2015, with effect from 1 August 2015. It was subsequently enacted by section 49 of the Finance (No 2) Act 2015, amending paragraph 19 of Schedule 6 to the Finance Act 2000.

The claim challenged the mode and speed of implementation, rather than withdrawal of the exemption itself. The issues were whether the measure breached EU-law foreseeability and legitimate-expectation principles, EU-law proportionality, or the claimants’ property rights under A1P1.

1. Permission and outcome. Permission was granted on all three grounds, but the claim for judicial review was dismissed.
2. EU-law scope. The amendments to paragraph 19 of Schedule 6 to the Finance Act 2000 fell within the scope of EU law. The renewable-source electricity exemption operated within the framework and objectives of the Energy Taxation Directive and the Renewable Energy Directive. The reasoning in Plantanol was not rejected as wrongly decided.
3. Foreseeability and legitimate expectations. The relevant EU-law principles required, at minimum, proof that the authorities had promoted a legitimate expectation that withdrawal would not occur without a two-year lead time or equivalent fiscal benefit. That expectation had to arise from an express assurance or an implication tantamount to one. The modelling of the Renewables Obligation bands and Contracts for Difference strike prices assumed continuation of the exemption until 2017, but merely reflected current policy and did not promise its continuation or a particular implementation period. The wider history of measured policy change, and the existence of an earlier two-year period for withdrawing the CHP exemption, were insufficient. The first ground therefore failed.
4. Proportionality. Applying the two-stage EU-law test of suitability and necessity, with a reasonably broad margin of appreciation for macro-economic and fiscal decisions, the withdrawal was proportionate. The Government had advanced a reasonably compelling public-interest case based on fiscal savings, the inefficiency and diffusion of the exemption, the availability of substantial alternative renewable support, and benefits accruing to foreign generators. The State-aid issue created a further plausible reason for avoiding delay. The second ground failed.
5. A1P1. The claimants’ concluded contracts and related marketable goodwill were capable of attracting protection, although hoped-for future contractual income was not. Change-of-law clauses did not prevent loss of contractual value from constituting an interference. Nevertheless, for substantially the same reasons as under EU-law proportionality, the interference was justified. The claim was dismissed.