Autumn Budget and Spending Review 2021 Tax and the green agenda

Tax and the green agenda

Background

With COP26 starting next week there has been a lot of speculation over the last year about what measures the government and the Chancellor have up its sleeve – were any rabbits going to pulled out of hats in the Budget in order to impress the rest of the world that the UK is one of the leading countries in combatting climate change. Well if any rabbits are going to pop their heads above the brim, they are not carrying any draft tax legislation with them. That’s not to say that the Budget doesn’t include some – arguably significant - net zero announcements in other areas, but, given that taxation is a good driver of behaviour change, some lobbies may be disappointed by the very limited number of climate based tax initiatives.

Transport

Accounting for 32% if the UK’s domestic emissions, the government’s plans include further funding to support the improvement of EV charging infrastructure around the UK and broaden green public transport, but this is at odds with HMRC’s recently announced view that leaves EVs incurring more VAT than petrol or diesel cars.

Motorists and hauliers will welcome the freeze in fuel duty at a cost to the government of £8B per annum. When this loss of revenue is added to the anticipated future revenue losses from the nation’s uptake of EVs, it will be interesting to see how the resulting hole in treasury funds will be refilled –other taxes coming down the pipeline perhaps.

A similar approach appears to have been taken with APD where domestic flights are to benefit from a lower rate from April 2023. In fairness, APD has never been a significant fund raiser but has consistently been held up as a behavior changing environmental tax, but the measure announced by the Chancellor appears to encourage domestic air travel rather than encourage greener forms of transport.

The environment

Resource taxes in the UK (in particular landfill tax and aggregates levy) remain frozen. But new taxes are on the horizon and are already presenting some sectors with difficulties. Plastic Packaging Tax is to be introduced with effect from 1 April 2022 and the closer we get to that date, the more difficulties it seems to present. The green gas levy will be introduced at the same time and even though this will impact relatively few businesses, it too will require utilities to examine their systems and design a mechanism to account for the tax.

Energy

The carbon price support (‘CPS’) rate of climate change levy will remain frozen. CPS helps ensure a minimum price of carbon in the UK and this has remained at £18 per tonne of carbon dioxide for several years. Commentators will argue that this is too low and should be increased significantly if the UK is to meet its net zero targets, but it seems the government has focused instead, on maintaining the carbon price using the UK emissions trading scheme (UK ETS). This has only recently been introduced following the expulsion of the UK from the EU ETS after Brexit, but indications are that it will be a useful lever in coming years.

Implications for business

Environmental taxation in the UK and elsewhere, continues to be a complicated, patchwork of measures, most of which have the potential to affect all businesses in the UK – either directly or indirectly. In this Budget, the government appears to have focused its climate change efforts on non-tax initiatives rather than appear to increase the tax burden in a post pandemic environment. But many believe that behaviour changing tax has an important role in tackling climate change and could also be designed to help fill the gaps left in treasury funds created by the tax changes outlined above. It seems unlikely, therefore, that any government motivated to reach challenging emission reduction targets can avoid broader use of these taxes in the future. All businesses would be well advised to consider what their current environmental tax burden is in anticipation of this increasing in the future.

If you would like more information or have any environmental tax queries, please call 0330 12477 40 or contact Mike Trotman mike.trotman@centurionvat.com


For the avoidance of doubt, the content recorded in this news article does not constitute formal advice and we do not guarantee the accuracy of any information provided at the time of reading. It is always recommended that you seek professional advice before acting on any of the news articles or information included.