‘Not enough stick and not enough carrot’: green taxes fall to 6% of takings

‘Wholesale change’ in tax policy is required for the county to reach net zero, with greater effort required to hit polluters and reward green investment, according to an analysis.

The UK Government raised only £40.8bn through environmental taxes and charges last year, the analysis by law firm Pinsent Masons has found – just 6% out of the £633bn raised through taxes overall.

The figure is down from 8% of government income a decade ago, the amount brought in having risen only 19% since 2009/10 compared to a 53% increase in taxes overall. The company has considered the sum of fuel duties, air passenger duty, landfill tax, carbon price support, climate change levy, aggregates and levy, vehicle excise duty and the EU emissions trading system (ETS).

Jason Collins, Pinsent Masons’ head of tax, said that the freezing of key policies such as the level of fuel duty and carbon price support indicates that green revenue will continue to fall, providing insufficient stimulus for investment and decarbonisation. It could be made worse by the prospect of cutting air passenger duty on domestic flights – a “backwards step in terms of encouraging climate friendly behaviour” according to the firm.

“The statistics suggest that far from making progress in using tax policy to reduce polluting activity, the UK has been going backwards. Taxation will play a vital role in driving the UK to its net zero target. The shrinking share of revenue brought in by green taxes is evidence that the government isn’t yet doing enough to discourage polluting behaviour,” Collins added.

However, the Treasury’s looming Net Zero Review may see this pattern reversed, and correct what Pinsent Masons sees as the error of providing insufficient green tax breaks. These account for only £2.9bn, or 7% of the total, a proportion that has fallen from 12% since 2015/16.

In all, the current approach offers “not enough stick and not enough carrot”, said Collins, adding that the ‘super incentive’ for capital investment in the last Budget could have been better targeted at environmental ends.

“Tax policy needs a wholesale change to help achieve net-zero. The government needs to address the imbalance between taxes and tax reliefs to not only penalise polluters but reward businesses that invest in green technology to get the UK closer to carbon neutrality. The recent cuts to electric vehicle grants is just another example of the government choosing not to incentivise consumers to make green decisions. Over time that kind of decision will make it significantly harder to hit the 2050 target,” said Collins.

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