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Budget 2021: Where were the green tax measures?

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Lucy Webb scoured the Budget documents for taxes or tax reliefs to encourage sustainable transport, renewable energy, or insulation of homes and businesses.

28th Oct 2021
Tax Writer
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With the COP26 summit in Glasgow imminent, and hot on the heels of the government’s Net Zero Review, the Autumn Budget was a perfect opportunity to announce new or “greener” tax measures to support a decarbonising economy.

While the Budget red book mentioned various green investment initiatives – including the Net Zero Innovation Portfolio, investment into the offshore wind sector, and the issue of green gilts and NS&I green savings bonds – only a few of the green investments referenced in Budget documents were actually new announcements.

Despite the red book’s claims that the country will be “building back greener”, there was also nothing substantial to find in terms of green tax measures. Instead, we saw policies that were very questionable when considering a target of net-zero greenhouse gas emissions by 2050.

Not green at all

Take the Chancellor’s announcements regarding air passenger duty (APD). From April 2023, there will be a new reduced domestic band for flights within the UK, representing a 50% cut in domestic APD which should benefit around 9 million passengers in 2023/24.

On the flip side, a new ultra-long-haul APD band will be introduced to cover destinations with capitals located over 5,500 miles from London. This will start at £94 for economy flights of over 5,500 miles and will be levied at £200 for flights in other classes of travel.

Given the undeniable need to find more sustainable travel solutions, these changes to APD are surprising, as less than 5% of passengers are expected to pay more following these changes.

Jason Collins, chair of the CIOT’s Climate Change Working Group, said: “While a higher rate of APD for ultra-long-haul flights may help to better link the rate of tax paid with emissions produced, the risk of having a lower rate of APD for domestic flights is that it will encourage more consumers to choose air over other modes of transport.

“This, in turn, could lead to more carbon emissions being generated and could put the UK’s net-zero targets at risk, though we note that £180 million has been earmarked to start the development of commercial-scale UK sustainable aviation fuel plants, which may form part of the decarbonisation strategy for the aviation sector.

No fuel duty increase

The Autumn Budget also announced that fuel duty would be frozen for the 2022/23 tax year, being the twelfth consecutive year that fuel duty has been frozen.

Aside from the fact that this measure is expected to cost an estimated £1.5 billion from 2022/23, from a green perspective this move is confusing, as it does nothing to incentivise people towards adopting more environmentally friendly means of transport, such as electric cars.

Micro greens

There were a few, very small, “green” announcements to be found in the Budget within the business rates section.

As detailed in the Budget’s policy costings document, there will be relief for property improvements, giving 12 months of 100% business rates relief on qualifying improvements to existing properties from 1 April 2023 to 31 March 2028.

Eligible plant and machinery used in onsite renewable energy generation and storage will also be exempt from business rates, with 100% relief for eligible heat networks that have their own business rates bill. These measures will apply from 1 April 2023 to 31 March 2035.

Are these changes enough? Put simply, no. There is a real and urgent need to take action on climate issues, and from a tax perspective, this Budget really missed the mark.

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