The role of tax in getting to net zero
By Susan Cattell, Head of Tax Technical Policy
25 April 2022
Susan Cattell explains that tax can be a vital part of the package of measures needed to deliver net zero – but what is needed from the UK Government is a clear overarching tax strategy to support the transition.
The UK’s Net Zero Strategy
In 2019 the UK put into legislation a requirement to bring all its greenhouse gas emissions to net zero by 2050. This is a very ambitious target. Ahead of the COP26 conference in November 2021 the UK Government published its strategy for Decarbonising Transport and its Net Zero Strategy: Build Back Greener, setting out plans for how this ambitious target is to be achieved.
The role of tax in getting to net zero
ICAS has issued a briefing paper on the role of tax in getting to net zero. Tax can be highly effective at changing behaviour and has long been used as a mechanism for discouraging certain types of environmentally damaging behaviour and encouraging ‘green’ investment. Landfill Tax is a clear example of the stick approach; on the carrot side there have been various capital allowances for investment in ‘green’ plant and machinery.
Tax certainly cannot do everything, but it can be a vital part of the package of measures needed to deliver net zero. What is missing from the Government – and from the October 2021 Net Zero Strategy - is any clear overarching tax strategy to support the transition.
How might tax support the delivery of net zero?
The briefing paper considers how tax might help to deliver the ambitious net zero target – and looks at some of the constraints around using tax, and some pitfalls to be avoided. Given the behavioural changes (intended or otherwise) which are driven by tax, it would at least be helpful if the tax system did not encourage or facilitate behaviour and business practices which are at odds with the Government’s environmental goals.
ICAS calls for a UK tax roadmap to net zero
ICAS would like to see the Government issue an environmental tax roadmap or strategy. In the absence of such a roadmap, individuals and businesses are likely to find it difficult to plan ahead for the tax changes and costs which will arise as part of the implementation of the Net Zero Strategy. It may also be difficult for the Government to ensure that tax policy is closely aligned with the development of new green technologies and supporting infrastructure.
The Scottish Government
The Scottish Government has its own Climate Change Plan and has put into legislation an even more ambitious target of reaching net zero by 2045. The Framework for Tax 2021, in the chapter on strategic objectives, refers to tax policy as having a crucial role in tackling climate change. However, the Scottish Government’s approach to using tax to reach net zero is constrained because only certain taxing powers have been devolved. The paper reviews some of the options under consideration in Scotland.
ICAS supports cooperation and joint work between Westminster and the devolved administrations on net zero policy and implementation, wherever possible.
ICAS and sustainability
The paper concludes with a brief overview of recent ICAS work on sustainability beyond the tax arena. This includes the publication of a report setting out the necessary conditions for the reporting of high quality sustainability information.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which operational and technical issues are discussed, and we raise problems being encountered by Members. We welcome input from Members to inform our work; email tax@icas.com to share your insights and feedback.