What Do the UK Government Plan to Do With Environmental Taxes?

March 25, 2020 Categories: Budget, Tax

The Conservative’s 2019 election manifesto didn’t give much away when it came to the impact their next Budget would have on environmental taxes.

Among the rhetoric, there were very few clear commitments, although that was arguably the case with the other parties, too.

We heard about plastics package taxes, a promise to “prioritise the environment in the next Budget”, and suggestions that infrastructure, science, and research would all receive investment.

On Wednesday 11th March 2020, amid the coronavirus storm, new Chancellor, Rishni Sunak, referenced these earlier promises, and told parliament that the Conservatives would “get things done” and “deliver on promises made to the people”.

The UK’s complicated green history

Since 1990, the UK’s CO2 emissions have declined by roughly 44% to levels last seen during the 1880s. That’s faster than any other major developed country and thanks in no small part to our shift towards renewable energy and lower electricity use.

Despite this, the UK undoubtedly has a rather chequered past when it comes to environmental taxes.

In 1992, the UK agreed to reduce greenhouse gas emissions under the United Nations Framework Convention on Climate Change. Over the decade that followed, vehicle excise duty and company car tax rates became linked to vehicle emissions ratings and a climate change levy was put in place.

Most notably, higher landfill taxes implemented back then have resulted in a massive reduction in landfill volumes in recent years.

The government has since fiddled with other green initiatives, but with little success. An intended increase of VAT on domestic heat and power to the standard rate was quickly withdrawn after significant backlash, and the less we say about the nine-year freeze on fuel duty the better.

Why taxes might be key to solving the problem

Climate change action is big news these days, and there’s subsequently far more pressure on the UK government to act.

In June 2019, the government confirmed its commitment to reach net zero greenhouse gas emissions by 2050. Their official adviser on progress, The Committee on Climate Change (CCC), illustrated the magnitude of this task, claiming that the “required annual rate of emissions reduction for net zero is 50% higher than under the UK’s previous 2050 target and 30% higher than has been achieved on average since 1990”.

The transformation required to meet this target is huge and there’s no escaping the fact that tax policy will be a tool the government has to deploy.

Does the answer lie in the March 2020 budget?

So, what did we learn during Sunak’s first budget?

A raft of green measures were announced, including an investment of over £900 million into nuclear fusion, space, and electric vehicles initiatives. In Sunak’s words, these measures are intended to “deliver green growth and protect the environment”.

Fuel duty will remain frozen, but the Chancellor countered this with a commitment to increase taxes on pollution by raising tax rates for gas and freezing climate change levies on electricity from next month.

But what about the transition to net zero greenhouse gas emissions by 2050? Well, the Budget included a promise to extend the climate change agreement by another two years to support energy-intensive industries. The government will also introduce a new tax on plastic packaging from April 2022 which charges manufacturers £200 per tonne on packaging that contains less than 30% recycled plastic.

Some other environmental highlights from the Budget included:

  • an increase to £1 billion for research and development into the UK’s Energy Innovation programme;
  • taxes cut on clean transport;
  • a £500 million investment to help the rollout of rapid electric vehicle charging hubs;
  • promises to make it cheaper to buy low emission vehicles; and
  • £640 million for a new Nature for Climate fund which would plant roughly 30,000 hectares of trees over the next five years.

Conclusion

The government’s plan is to use these new green initiatives, taxes and deterrents to change behaviour.

This is why taxpayers and businesses are advised to keep an eye on how Sunak’s promises develop. Certainly, if your business has any climate-friendly strategies underway, the promised changes may put you in a favourable position as the years pass.

If you’ve got any questions about the policies, strategies or taxes revealed in the Budget, just get in touch with the Chandlers team, who will be happy to offer some clarity!