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Green tax issues in Budget may not be enough to meet UK's net zero

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Mark Simpson looks at the green tax issues and initiatives announced in the Chancellor’s Spring Budget to try to assess whether they will be enough to reinvigorate the UK’s drive for net zero.

6th Mar 2024
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Both the Government’s slowdown on various green policies in the wake of the Uxbridge and South Ruislip by-election and the Labour Party’s recent reversal of its ambitious National Grid decarbonisation spending plans have cast, in many people’s minds, some doubt over the extent of the UK’s current and future commitment to Net Zero. Whether this doubt is justified would be one of the questions that today’s Budget might, at least in part, help to answer, at least by signalling the Government’s intended direction of travel.

Green tax issues addressed in the Budget speech and supporting Treasury documentation

Car fuel duty

Fuel duty is frozen for another year, with the temporary 5p per litre cut also remaining in place. This arguably reflects the reality that progress in developing an adequate electric vehicle public charging infrastructure to cope with future demand has been very disappointing and is currently on track to be wholly inadequate to cope with a continuing move from petrol and diesel cars to electric vehicles.

It remains to be seen what impact the above factors have on the trend toward driving electric vehicles, and whether investing in an adequate charging network might be a better use of scarce resources than subsidising continuing use of the internal combustion engine.

Green research & development

Not strictly a Budget measure, but announced on Monday, the following measures are designed to encourage research and development expenditure in the sustainable transport sector:

  • £73 million combined government and industry investment for automotive R&D projects in electric vehicle technology, including projects to make next-generation electric vehicles more efficient and competitive and to develop and scale up high-performance battery systems to enhance safety, power density and cost-efficiency.
  • £200 million of joint government and industry investment in aerospace R&D projects, seeking to develop energy-efficient and zero-carbon aircraft technology, covering areas such as engine technology and more efficient wing design.
  • £120 million of increased funding for the Green Industries Growth Accelerator, which includes projects to expand UK supply chains in the offshore wind, carbon capture utilisation and storage and hydrogen sectors as well as to produce fuel for new high-tech nuclear reactors.

This furthers Government policy of concentrating on what the UK is good at, which definitely includes research & development, as both a boost to the UK economy and the drive for Net Zero. It is difficult to argue with the logic of this approach of playing to the UK’s strengths.

Landfill tax measures

In future, landfill tax rate increases will be aligned with movements in the Retail Prices Index.

Funding for the Landfill Communities Fund will be £30.9 million for 2024/25, with the cap on landfill tax relief for operator contributions retained at 5.3%.

Inheritance tax agricultural property relief

From 6 April 2025, up to 100% relief will be available for the environmental management of former agricultural land under a formal government agreement. This supports the Government policy of encouraging the rewilding of agricultural land by offering grants to farmers for change of use.

Oil and gas taxation

Apart from extending the Energy Profits Levy for a further year until 5 April 2029, the Chancellor announced that the current generous investment allowances for oil & gas exploration will be retained. Given that realistically oil and gas usage will continue at some level for the foreseeable future, and current and potential future energy security challenges, I actually see this as a sensible policy, provided it is combined with urgent and sustained work on carbon capture utilisation and storage, as referred to above.

Summary

These measures in general follow the Government's apparent policy of placing the onus on the drive for Net Zero on business rather than the consumer. This has various electoral implications, as well as less tangible effects on public ‘buy in’ to the Net Zero project. Whether it will be sufficient to put the UK drive for Net Zero back on track remains to be seen.

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