MPs call for tax breaks to stimulate green investment

The Environmental Audit Committee (EAC) of MPs is calling for VAT reductions to encourage energy efficiency, the use of recycled materials, and repair services

The cross-party EAC warns that if the economic recovery from covid-19 is not used as an opportunity to 'grow back better', climate change and biodiversity collapse may deliver an even greater crisis.

The latest EAC report calls for the government to front-load its investment in areas such as energy efficiency, the circular economy, climate adaptation and nature recovery, to counter rising unemployment by creating green jobs. The EAC heard that this investment will provide economic multipliers in terms of jobs and improved productivity and will offer wider benefits such as cleaner air and warmer homes.

In addition to promoting specific sectors, wider tax changes could offer a 'reset' to design an economy fit for net-zero Britain.

The EAC believes that this should include VAT reductions to repair services and items that have been recycled to encourage a circular economy. VAT reductions on energy efficiency upgrades in homes and tax incentives to encourage more take-up of ultra-low emission vehicles could make greener options more attractive to consumers. The government should also consider applying carbon taxes in areas across the economy.

The EAC has specific recommendations for investment and tax breaks in green transport, homes and energy efficiency.

The Green Homes Grant must be overhauled and given a multi-year extension if it is to meet the government’s target of issuing 600,000 vouchers.

‘The hydrogen strategy is long-overdue, and its publication cannot come soon enough to offer incentives for the private sector to invest in hydrogen production, which could play a key role in the low-carbon energy mix,’ committee members said.

The government should begin scoping work on a carbon tax to incentivise low-carbon changes across the whole economy. The EAC is also calling on the government to investigate the merits of carbon border adjustments, to accompany work on a carbon tax, as one way of addressing carbon leakage.

Environmental Audit Committee chair, Philip Dunne MP, said: ‘The Covid-19 crisis must be treated as a wake-up call. It is a symptom of a growing ecological emergency. The economic recovery will shape our national economy for decades to come, and it is crucial that tackling climate change and restoring nature is at its core.

‘A tax system fit for net-zero Britain is key. It will encourage innovation, give confidence to the sector and support companies to make the low-carbon transition.

‘There are endless initiatives that can lead to a greener future and the Chancellor should use his upcoming Budget statement to start this process. Boosting energy efficiency of homes by reducing VAT on retrofits can spur growth in low-carbon manufacturing.

‘The funding allocated to the Green Homes Grant should be rolled over to meet the target to issue 600,000 vouchers. The electric vehicle transition must be accelerated with further tax incentives to encourage take up.’

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