Treasury hijacks funds meant for green causes

Hundreds of millions of pounds raised from electricity bills to help develop renewable energy are being diverted to the Treasury, creating a new " stealth tax".

So far, the Treasury has taken £210m from the so-called NFFO Fund, while only £60m has been spent on renewable energy.

By 2010, the fund is expected to have raised as much as £1bn, which is likely to be taken by the Treasury for general spending. The process is based on the fund being a "hereditary revenue of the Crown" along with income arising from the Crown's traditional rights to treasure trove, swans and sturgeons.

A former environment minister, Michael Meacher, has condemned the move as "perverse and illicit", referring to "the predator of Whitehall" . He said: "The use to which this money is put should be determined by the purpose for which it was levied in the first place."

The discovery comes as Britain faces gas and power shortages this winter and the climate change conference in Montreal grinds to an inconclusive end. The UK's emissions of greenhouse gases are rising steeply and the UK is expected barely to meet its Kyoto protocol target for CO2 reductions. If the £1bn were spent on renewable energy, it could displace a major coal-burning power station and significantly help the Government to meet its emissions targets.

Since it was set up in 2002, the NFFO (Non-Fossil Fuel Obligation) fund has raised £321m from consumers' electricity bills - more than £13 for every household in England and Wales. Of that, the Treasury has so far taken £210m. Just £60m has been spent on capital grants for offshore windpower installations, leaving a balance of £51m.

The Department of Trade and Industry has confirmed that once the money is in what is known as the Consolidated Fund, it belongs to the Treasury. "It is the policy of the Government that we do not hypothecate revenue, so once the funds are transferred that is it," said the DTI's renewables policy adviser, Alex King.

The Treasury took a first tranche of £60m in 2004, as it was allowed to do under a one-off provision in the Sustainable Energy Act 2003. However the power regulator Ofgem, which administers the fund, has now revealed that on 20 September it paid a further £150m to the Treasury.

"Further funding was paid to Her Majesty's Treasury under the Civil List Act 1952," said an Ofgem spokesman. "As receipts of levy surplus are regarded as hereditary revenues of the Crown, it is intended that annual transfers to the Treasury will continue, in accordance with the 1952 Act."

The Civil List Act 1952 states that "hereditary revenues of the Crown" are to be paid into the Treasury's Consolidated Fund. The nature of these revenues is not specified, however Halsbury's Laws of England, written by Lord Hailsham in 1932, states that the hereditary revenues of the Crown include revenues from Crown lands, and other revenues from treasure trove, fines, forfeitures and "prerogative rights relating to royal mines, royal fish and swans". It is not clear on what basis the NFFO fund could be so regarded.

The Energy minister, Malcolm Wicks, failed to mention the transfer of funds in a written answer on 12 September, in response to a parliamentary question by Bill Wiggin MP, the Conservative environment spokesman. Instead he said the estimated "size of the fund" would be £500m by 2008. This figure, which does not account for the 20 September transfer or other subsequent transfers, was thus wrong.

"I am astonished," said Mr Wiggin, when presented with the facts. "Did the minister know he would transfer the money out a week later? He must have done. I suspect his officials could have tried harder to ensure that I knew what was going on. I find it hard to believe he has control over his department if this is what is going on. Either that or he did know and did not want me to know, which is not acceptable in a parliamentary written answer."

The director of Greenpeace, Stephen Tindale, said: "This sounds like a scandal in the making. Money raised from consumers for renewable energy must be spent on renewables - not on general expenditure. This is enough money to make Britain the world leader in offshore wind power, and that is how we believe it should be used."

Mike Childs, of Friends of the Earth, said: "This money has been raised for renewables and that's how it should be spent, for example, to bring on a new generation of renewable technologies such as wave and tidal power."