This week in Brexitland, November 17th, 2022

Why the Rees-Mogg line about how we were ‘ruled by Brussels’ was always a complete myth - The European Energy Taxation Directive and ‘Platinum Plating’

Writing in the Daily Telegraph last week, Jacob Rees-Mogg spoke about the ‘nearly 4,000 laws passed by the European Union’ which ‘remain on the statute book’. He said:

‘These rules and regulations, spewed out by a great bureaucratic machine, became UK law without any ability to amend them or, if based on EU regulations, even debate them.’

Herein contains one of the most important myths around EU membership that needs to be dispelled. The idea that EU law was handed down from on high and the UK, when it was a member, just had to accept whatever came our way is totally false. As usual with Rees-Mogg, I don’t know whether he knows this and is being deceitful or simply doesn’t actually understand how the EU works in even the most basic of ways. As ever, it’s the ‘Is he lying or stupid?’ question that hangs over all of 21st century politics thus far.

To illustrate this important point, I’m going to take you through how EU law became UK law when we were still an EU member and demonstrate just how much leeway the UK had to change things - using something the UK government of the time changed for the worse.

The European Energy Taxation Directive (2003/96/EC) was created to harmonise to the greatest extent logically possible the way that sources of energy can be taxed within Member States. The ethos behind this was to create as much competition throughout the single market for energy products by stopping governments from gaming the system. For instance, without something like this Directive, one government could slap a huge export and import tax on all energy products, while even offering tax rebates on energy for domestic supply, thereby keeping competition out and possibly artificially inflating domestic energy prices (or artificially lowering them to the long term detriment of the country for short term political advantage). To be clear, the Directive only really looks to curb the worst excesses involved in energy supply - something like the energy price cap the UK government is using now would be totally fine, as a for instance.

The European Energy Taxation Directive Issue was transposed into UK law via The Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc.) Regulations 2004. These regulations were then later amended in part via The Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc) (Amendment) Regulations 2007, although none of these amendments are applicable to the tax relief sections, which is where the fun begins.

For decades now, energy companies in the UK have been trying to get the Treasury to offer incentives in the way of lower taxes on the production and development of synthetic road fuels that would provide exceptionally low carbon or exceptionally low levels of air pollution. The Treasury has long pushed back on this, saying they would like to be able to offer these incentives but that their hands are tied because of EU regulation, specifically in the form of the European Energy Taxation Directive.

The problem with this explanation is that it was never technically true - yes, the Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc.) Regulations 2004 forbids this sort of thing - but that isn’t an EU regulation or Directive, it only forms the UK translation of the European Energy Taxation Directive. The Directive itself does not prevent tax incentives for exceptionally low-carbon or exceptionally non-polluting synthetic road fuels. In fact, Article 15 (1) of the Directive explicitly allows this:

1. Without prejudice to other Community provisions, Member States may apply under fiscal control total or partial exemptions or reductions in the level of taxation to:

(a) taxable products used under fiscal control in the field of pilot projects for the technological development of more environmentally-friendly products or in relation to fuels from renewable resources;

The Article goes on from there, but I only needed to give you part a in order for the relevant exemption to show up. In other words, in the list of things that are exempt from the Directive’s powers, ‘technological development of more environmentally-friendly products’ is the very first one! So what happened then? Well, Regulation 21 (1) of the UK Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc.) Regulations 2004 limits tax relief on fuel substitutes to cases in which the fuel-substitute is “used as motor fuel in a generator to produce electricity”. In other words, a technicality was added in translation to UK law so that the exemption spelled out in the Directive is effectively removed.

Why the Labour government of the time did this, I have no idea. Perhaps they didn’t feel it was an effective use of taxpayers money and figured out that a clever way to get away with stopping it without blowback from both the energy companies and environmental pressure groups was to sneak it into something that was a translation of an EU Directive. This seemed to happen a reasonable amount during our time as a member of the EU - UK governments sneaking things through in this way, able to then turn around and say ‘sorry, love to help you, EU’s fault’ when in fact the problem had nothing to do with the EU.

There’s a term you might have heard before - gold plating. It refers to the habit of taking EU Directives and applying the harshest possible reading of what they say when translating them into UK law. However, what happened with the European Energy Taxation Directive goes way beyond this, into a term I invented myself called ‘platinum plating’; forget about what the Directive called for and instead use the translation process to sneak in something outside the Directive’s remit (or in this case, ignore an exemption the Directive clearly states) to get a policy into UK law you can then blame the EU for.

Some Brexiters might now say: your example only shows why being in the EU was a bad idea since it has demonstrated a way the UK government used EU membership to sneak naughty things onto the UK statute books. Had we never been a member, this legislative shortcut wouldn’t have been available to them. To which I say: this is a problem only the UK seems to have had out of any EU member state, past and present, at least to the same level. Only the UK decided to do this sort of stupid thing, at least as far as I can tell. Blaming the EU for the failure of the UK government to govern honestly is a massive cop out. It demonstrates a flaw in the UK’s system, not the EU’s way of doing things.

To conclude here, how would a governmental task force, told to get rid of all traces of EU regulation still on the UK’s books, handle the remnants of the European Energy Taxation Directive? Well, you could just get rid of The Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc.) Regulations 2004. That would technically take care of the ‘taint’ of EU regulation on UK law. However, that UK 2004 regulation, while it acted in part as a translation of the EU Directive, it did other things as well. UK governments often mixed together elements required by EU Directives and other stuff they wanted to do anyhow - as I demonstrated above, it seems like UK governments often used this process to ‘sneak through’ policy items as it had the dual advantage of usually not needing debate in the House and being something you can blame the EU for later.

This government could blow away the Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc.) Regulations 2004, but then that opens up a can of worms since you’ll need something to replace it, a regulation which dictates how energy is taxed in the UK. And with this opened up completely again, all of the energy and oil companies will be lobbying the government to the ends of the Earth, creating a huge amount of work and a reasonable amount of political headaches. This would be true at any time, but when the government is subsidising energy bills in the midst of a full-blown energy crisis, it could be a disaster for them.

And this would be repeated across the entirety of UK law. People like Rees-Mogg seem to view getting rid of EU regulations as just eliminating a bunch of cumbersome stuff that once gone would liberate Britain to be something greater than it currently is. And yes, there are many laws on the books that got there via an EU Directive, but they are mixed in with a lot of domestic related stuff that you’d need some replacement for. It’s not as easy as just ‘getting rid of EU regs’ - the process of disentanglement would take decades and decades, which is a waste of time since we’ll have rejoined the EU by that point and it will all have been for nought.

Thank you for reading. If you haven’t subscribed, please do, and I’ll be back next week with the worst of Brexit.