CBI calls for tax changes to accelerate net-zero progress

The CBI is calling for an overhaul of government tax policy on environmental taxes to support businesses to achieve net-zero targets

Business plays a crucial role in meeting a net-zero emissions target by 2050, the CBI said, but it will only be able to deliver if it is supported by the right policy frameworks.

‘With the commitment to a net-zero emissions target by 2050, the hosting of the COP26 climate conference later this year, and a commitment to ‘build back better’ after the Covid-19 crisis, the government faces a challenge to clarify how policy will get the UK on track to reach net-zero,’ the CBI said.

The Climate Change Committee (CCC) in 2019 put the annual investment cost at £50bn between 2030 and 2050 to achieve the net-zero target, with most of the investment being delivered by the private sector.

Regulatory frameworks will be key given the pressures on public finances, but fiscal measures, including environmental taxes and tax incentives, can play an important role in driving change.

The CBI is calling for the government to review how the UK tax system could be used to accelerate the reduction of emissions.

In its report, the CBI said: ‘We set out a number of principles to guide the government in ‘greening’ the tax system. Green taxes must be targeted to a pollutant or a polluting behaviour with clear definitions being provided of both and at those points in the value chain where taxes can feasibly drive decisions which will result in lower carbon emissions.

‘Government needs to provide long-term certainty of environmental tax policies to underpin the investment decisions by consumers and businesses; the use of carrots and sticks by the government should be balanced to drive change.’

The CBI also recommends three key areas the government should focus on to accelerate business progress towards net-zero:

  • a quicker uptake of zero emission vehicles (via a company car tax (benefits in kind (BiK)); 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 (SBA), and VAT on energy saving materials); and
  • innovation in industrial emissions reduction (via maximising the deployment of research and development (R&D) tax credit).

The report stressed that the government should make it absolutely clear that R&D tax credit applies to innovative, sustainable, cleantech solutions. Expenses incurred in relation to the piloting and development of installations, eg, in respect of the development of hydrogen power, carbon storage, clean heat, etc, should qualify for the tax credit.

In the long-term, more certainty is needed around transport and emissions taxation. A complete review into the future of fuel duty must be conducted and it is important that long-term certainty is provided by the government on the approach to carbon taxation in the UK.

Most importantly, climate change policy frameworks must support long-term confidence for investment. The CBI is calling for the government to publish a tax policy roadmap which places achieving net-zero by 2050 at its core.

CBI report, Greening the tax system – how tax policy could support net-zero


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