Can tax policy assist net-zero targets?
A recent CBI report titled ‘Greening The Tax System’ reports on how tax policy could support net-zero. The CBI paper calls for the government to harness the tax system to accelerate net-zero progress by business.
The Climate Change Committee (CCC) in 2019 put the annual investment cost at £50 billion between 2030 and 2050 to achieve the net-zero target, with most of the investment being delivered by the private sector.
The paper highlights that it is crucial for the tax and regulatory systems to be considered holistically and how each element drives the delivery of net-zero.
Complete transparency around environmental taxes is recommended. The report indicates that businesses are concerned there has been a shift from green taxation that is tackling climate change to it becoming just another revenue raising mechanism. The CBI believe that effective environmental taxes should be designed to raise less revenue over time. Environmental taxation should promote the transition to net-zero and as a transitional tax, the main objective should not be to raise revenue.
The CBI set out a number of principles to guide the government in ‘greening’ the tax system. Green taxes are to be targeted to a pollutant or a polluting behaviour and government needs to provide long-term certainty of environmental tax policies to underpin the investment decisions by consumers and businesses.
The paper recommends three key areas the government focus on to accelerate business progress towards net-zero:
- A quicker uptake of zero emission vehicles (via low company car tax, capital allowances, vehicle excise duty and VAT measures)
- More energy efficiency, low carbon heat and use of renewables in buildings (via business rates system, capital allowances, structures and buildings allowance and VAT on energy saving materials)
- Innovation in industrial emissions reduction (via maximising the deployment of R&D tax credit)
Most importantly, climate change policy frameworks must support long-term confidence for investment. The CBI are therefore calling for the government to publish a tax policy roadmap which places achieving net-zero by 2050 at its core.
The full CBI paper by Milda Jardine can be found here.
With HMRC’s lead on carbon net-zero also working alongside the Chartered Institute of Taxation committee on climate change, a new policy direction is anticipated as 2030 draws closer.