TAX FEATURE: Green is OK but can it ever work? By Rebecca Benneyworth

Hardly has the ink dried on this year's Finance Act when our thoughts turn to the next round of tax changes, which are now only just over three months away. The retailers start their Christmas displays at mid summer, but before Christmas, we shall see another pre-budget report, setting out the agenda for a number of tax changes.

There has been much discussion and debate over the summer about tax changes which support our national commitment to climate change.

Continued...

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Comments

Greater financial incentives are needed

Brian Gooch | | Permalink

This article well highlights the key issue with environmental taxes - there has to be a significant financial incentive to encourage people to change their behaviour. Taking the cars example, an extra £100 on the cost of running their vehicle is not significant to the majority of 4x4 drivers. It needs to be a much larger cost to start to have an impact on behaviour.

However, ownership of a 4x4 is not in itself the biggest issue, it's actually driving it. A much better disincentive to use/incentive to own a cleaner, more efficient vehicle is to increase the cost of actually using it. This is what the fuel duty escalator (a green tax actually introduced by the Tories) did - steadily increase the tax suffered by drivers on the basis of how much they used their vehicle and how efficient it was. And it evidently did have a financial impact - so much so that a vocal minority held the country to ransom until it was removed.

In terms of vehicle use, the level of behavioural change that is necessary to significantly reduce emissions - by households acquiring more efficient cars when they replace them, running fewer cars per household, and using them less - can only be achieved by substantial increases in taxes on direct use, through a combination of fuel duty and road pricing.

Paul Scholes's picture

Practice what you preach

Paul Scholes | | Permalink

I have been contributing (I think) to a parallel discussion on the taxation of 4X4s with Dan Martin’s article http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=158475&d=786&h=784&f=785

Rebecca’s observations that big businesses has taken to the ECA scheme is interesting and I agree that this has not trickled down to small businesses and I feel that we small business advisors may have had our part to play in this.

When considering their use, there is clearly a physiological gulf between tax incentives for doing something “good” and punitive taxes for doing something “bad”.

We have grown up on the latter and advise on avoidance. With regard to higher tax & NI on company cars for example, avoidance was relatively easy, ie we advised switching to personal ownership rather than perhaps looking at the green alternative. At that time, greener models were thin on the ground; however I tend to feel we would have been embarrassed to even broach the subject of switching from sleek executive to something perhaps a lot cleaner but more utilitarian.

Since then of course big business, both in motor manufacturing and fleet users, have recognised the opportunity and you can now get sleek executive and feel reasonably good about yourself (ish), however I still believe that, at the small end, we are not proactive in firstly making clients aware of the green side and secondly doing the numbers to see whether they would benefit from a switch. How keen are we for example to now look at a switch back to green company cars?

I am wondering if this reluctance comes from us as a group/industry not being that switched on by the “other side”? In other words whilst we practice avoidance of punitive taxes in our own firms we might find it hard to convince a client of the merits of 100% CAs on an Audi A2 1.4tdi when we turn up to the meeting in....well take your pick.

I remember Rebecca and Tim Good lecturing on this when it all hit the scene three years ago, encouraging us to get our clients informed; it was an opportunity for us & clients. However, as I walked through the car park after Tim’s lecture, I was struck by the above physiological conflict and had to chuckle when I passed his Aston Martin.