Creating green growth
This year will see the UK host COP26, where parties from around the world will gather together to find ways to work towards the goal of a low-carbon future. The UK government itself must accelerate the reduction of carbon emissions in order to hit the country's climate target by 2050. The desire to reach these goals has been further fuelled by the coronavirus (COVID-19) pandemic, with many people urging governments to 'build back better' and businesses assessing their own roles in the 'Green Industrial Revolution'. For this to happen, the government will need to deliver fundamental change to help the UK meet its net-zero target while aiding an economic recovery. Chancellor Rishi Sunak has already laid out some steps towards creating a greener economy. Here, we take a look at what could be done to drive these ambitions further.
Committing to green growth
In the 2021 Budget the Chancellor made a number of commitments to green growth. This included the first ever UK Infrastructure Bank, which will have an initial capitalisation of £12 billion and will invest in green public and private projects.
The Chancellor also unveiled a retail savings product to give UK savers the chance to support green projects to sit alongside a Sovereign Green Bond that was announced last year. Mr Sunak also committed investment to offshore wind, with funding for new port infrastructure to build the next generation of projects in Teesside and Humberside.
The Confederation of British Industry (CBI) has urged the government to go further in order to encourage the green industrial revolution.
It says that greening the tax system must go beyond simply looking at different environmental taxes – transport, pollution and energy taxes – as one-offs. Instead it should deliver fundamental change with a holistic, coherent tax plan to help the UK meet its net-zero target.
The CBI has put forward guiding tax principles to work towards this, including:
Polluter pays – in simple terms, green taxes should be targeted to a pollutant or a polluting behaviour, especially when there are viable low-carbon alternatives. Taxes should be designed to introduce a price signal into the supply chain to promote alternative, less environmentally damaging behaviour by making alternative options more economically viable.
'Carrot and stick' – in line with the 'polluter pays' principle, the government should tax a 'bad', such as generating pollution, but also reward a 'good', such as actions that will reduce pollution. Incentives should continue to be offered, particularly when we are seeking to grow the demand that can help fuel a green recovery from the pandemic.
Greenhouse gas hierarchy – taxation must focus on incentivising carbon reduction ahead of carbon offsetting. Offsetting allows businesses and consumers to continue with a carbon producing behaviour in a way that will potentially slow a step change in a sustainable reduction of the carbon emissions.
A Just Transition – it is important that tax policies are designed in a way that the costs of the net-zero transition do not fall unfairly on those least able to pay for them. This is vital not only for fairness but also to maintain public acceptance of the actions needed to achieve net-zero.
International co-operation – the UK must fully utilise its leadership role at COP26 and the G7 in imploring other countries to bring forward their plans to cut emissions and set net-zero targets. For example, collaborating on carbon pricing by linking the UK and EU Emissions Trading Systems.
Bumps in the road
However, the UK government has also come in for criticism for cutting electric vehicle grants by £500 while continuing to freeze fuel duties of petrol and diesel vehicles. The Department for Transport will now provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. This is a reduction from the previous £3,000 available for vehicles costing up to £50,000.
The government says this means the funding will last longer and be available to more drivers. However, critics say the cut in grants sends the wrong message, while the fuel duty freeze highlights the challenge facing the government as it seeks to assist the post-COVID recovery whilst also building back better.
How we can help
As the push towards a greener economy takes shape, tax laws may change while new funding streams become available for eligible businesses and projects. As your accountants we can help with both your tax and finance requirements: please contact us.