If something sounds too good to be true, it probably is, so we should not be too surprised that the Government is looking to pull the plug on venture capital trusts that had hoped to generate secure income from feed-in tariffs.
The tax breaks on VCTs are already generous. With 30 per cent relief on investments up to £200,000 and tax-free dividends and capital gains to boot, there is already a handsome incentive for taking the risks associated with VCTs.
But now Energy Secretary Chris Huhne has said there will be a speedy review of the size of body that can benefit from feed-in tariffs, throwing a spanner in the works of many clean energy VCTs that had planned to exploit the opportunity.
It is no wonder that investors were salivating at the idea of getting a fixed income guaranteed by the Government on investments that were already tax-advantaged. Roll back a few months to the autumn and solar was meant to be powering the growth in VCTs. Now the industry is in uproar and the cloud of uncertainty created by the announcement of the review has frightened many investors away.
With VCTs mainly the preserve of high-net-worth individuals, allowing the situation to continue would have ended up with an even greater concentration of the £400m allocated to the feed-in tariff going to higher earners.
“So what?” say those who see meeting our EU targets for renewables as the key priority. But stopping the expansion of solar farms in Cornwall to focus on domestic household energy generation is going to make it harder to meet those targets and our carbon footprint will be bigger as a result.
It seems the Government instead prefers the argument that focusing on domestic solar energy will prime the pump of the manufacture of these technologies, so that, through the economies of scale of mass production, we can all pick up photovoltaic cells for our roof for the cost of a flat-screen TV.
Some green activists are critical of the domestic scheme, arguing that only middle-class homeowners have the roof-space and cash to benefit from the feed-in tariff scheme, which is effectively paid for by higher bills for everyone else. Even worse, people in the South get more out of the scheme than those in the North.
The solar feed-in tariff is a pretty good deal, which is why everyone wants a piece of it. Solar panels are probably not in the realm of what people expect their IFAs to talk to them about and recommending them will never come up on the CII’s curriculum but there are worse investments people could make.
So generous is the feed-in tariff to those homeowners with south-facing roofs that have the £10,000 or so to invest in photovoltaic cells that many clients could do far worse with their money. Anyone signing up for the scheme will get a return of 7-10 per cent on their investment, allowing for inflation, according to the Government, and payments are fixed to the RPI by statute for 25 years.
Nomura Code, part of the Japanese investment bank, has examined if the proposition stacks up and it backs up the Government’s rosy interpretation of what you can get out of the system. You not only get free energy but you also get paid for generating it – not a bad hedge if you are a pensioner worried about energy inflation. The downside is that a future Government might move the goalposts, as VCT investors looking at solar energy farms are finding out to their cost.
John Greenwood is editor of Corporate Adviser