Budget 2021: Green Agenda Failure

Budget 2021: Green Agenda Failure

I must admit that I was very surprised at the almost complete lack of any green focused measures in the recent budget from the Chancellor, especially as it was delivered with COP26 about to start. So, I’ve had a little think and have a few ideas as to how you might remedy the situation.

Budget 2021: What minor green measures were announced?

To paraphrase Paul Daniels, ‘not a lot’ is the answer. The only green fiscal incentive that I could see was a miserly £30bn of funding being allocated to the government’s net zero plans, but precisely when was not made clear, just a vague “our future plans….”. Green bonds, green finance, wind investment and innovation were mentioned, but no concrete environmental measures.

However, Mr Sunak on 3rd November announced that the government’s planned to move towards making it mandatory for firms to set out “a clear and deliverable plan” on how they will decarbonise and transition to net zero; with a claim that the UK will become “the first ever net zero aligned financial centre”. But how and when, were missing from his statement.

Green Agenda Failure: Yo-Yo measures

I would argue that the 50% reduction to air passenger duty (APD) rates for domestic flights, the freezes in fuel duty, carbon price support rates and aggregates levy are all backward steps toward net zero.

However, the business rate exemptions and reliefs for eligible green technologies and plant to support the decarbonisation of non-domestic buildings is a welcome change. Until now, both the public sector and businesses faced higher business rates where they had installed solar panels on their buildings. The government is also pressing ahead with the plastic packaging tax and it did announce a new rate of APD for ultra-long-haul flights.

Green Agenda: Transport is critical

As the number of petrol and diesel vehicles decline, we are going to see a large hole in tax revenue as fuel duty revenues decrease. The fuel duty currently brings in around £28bn per annum. Whilst electric vehicles (EVs) are seen as helping to lower carbon emissions there is currently no sign from the government as to how it will replace that £28bn loss of tax revenue.

The Chancellor’s ‘build back greener’ agenda includes plans to improve infrastructure for EVs (charging points), public transport and funding for zero emission buses. The elephant in the room, however, is how will he raise the funds to pay for this infrastructure and replace lost revenues from fuel duties.

Time for Rishi to make brave decisions

In tackling a global climate emergency, it is clear we are going to have to be braver. The current approach of tweaking the current taxation system and bolting on quick fixes is not going to deliver a carbon neutral future. The government could “do better” by replacing the income-based system of taxation introduced over 200 years ago with one that meets the changing drivers and motivators of behaviour.

Taxes inherently create a disincentive to use or create whatever is being taxed. Thus, the majority want to tax ‘sins’ such as cigarettes, alcohol, and carbon. The tax system can also be used to reward good behaviour of recycling, using renewable energy, using carbon neutral forms of transport, buying products with a low carbon footprint. It is entirely conceivable that, if the tax system were to be overhauled and updated, carbon-based taxes would have a much greater role to play.

Green Agenda: Encouragements work better than a big stick

An obvious move is to lower VAT and the climate change levy on no-carbon energy. The government could also reward those individuals that are carbon neutral, or even carbon negative. The following “good” behaviours could be within the remit of a carbon incentive scheme:

• Power purchasing agreements that sourcing renewable energy only
• Installing solar panels on homes
• A lower rate of corporation tax for “green” businesses
• A lower rate of income tax for people working for environmentally friendly businesses
• Charging EVs at low demand rather than peak demand

Green Agenda Failure: How will the market react?

In the end, it is more likely to be the markets that will force the change towards a net zero future, not the government through the tax system. Not because the government is impotent in this regard, it simply has too many other issues with which it must deal and numerous challenges aside from a total overhaul of the tax system.

Markets tend to act quickly whereas government and policies generally lag behind. Even when the policy intent is clear, implementation and the reaction of the voters can be an issue that slows down change as clearly evidenced by the recent budget.

Tax Accountant’s view

My view on the Autumn Budget from a green taxes’ perspective is “could do better”. It is abundantly clear that this is not an easy task and if the government is truly committed to a low carbon future it will need to stop tinkering round the edges of the current tax system and undertake a full overhaul.