CBI calls for ‘fundamental change’ to UK tax system to achieve climate change goals

One of the UK’s most influential business groups has called for the government to deliver wholesale changes to the country’s tax regime in order to hit its 2050 net zero target.

The CBI said that instead of making changes to individual taxes, ministers should instead pursue “fundamental change with a holistic, coherent tax plan”.

It added that the government should work closely with business and the private sector to deliver the changes necessary to hit its climate change targets.

The government’s “Tax Day”, when it launches a series of consultations on tax changes, is expected to happen on 23 March.

It comes a few weeks after a Budget which many critics thought was short on commitments that would help drive the UK’s shift to a carbon neutral economy.

Failure to end the freeze on fuel duty for the eleventh straight year, as well as this morning’s announcement that the government is mulling scrapping air passenger duty on domestic flights, have led to fears that the government’s green push could be running out of steam.

But, said CBI chief economist Rain Newton-Smith, Chancellor Rishi Sunak now has the “perfect opportunity” to “fire the starting pistol on the Green Industrial Revolution with a net zero tax system”.

‘Polluter pays’ should be at heart of new system

The CBI has set out nine principles which it says should guide the development of a new tax system.

At the heart of this is the “polluter pays” principle: that green taxes should be targeted to a pollutant or a polluting behaviour, especially when there are viable low-carbon alternatives.

This means developing taxes which introduce a price signal into the supply chain to promote alternative, less environmentally damaging behaviour by making alternative options more economically viable.

The CBI said that the government should also not be afraid to use a carrot and stick: rewarding behaviour that reduces pollution and punishing that which increases it.

It also said that policies should be designed so that they do not fall unfairly on those least able to pay for them.

Newton-Smith said: “A tax system which discourages polluting behaviours and rewards greener alternatives is critical to unlocking the right kind of investments.

“It must put carbon reduction above carbon off-setting to send the right signals. And it must ensure that the shift to net zero is a ‘Just Transition’, meaning the cost does not fall to those least able to pay.”

Jason Collins, head of tax at Pinsent Masons, welcomed the CBI’s proposals. “The Government is now committed to net zero by 2050 but not enough movement has been made on the tax front over last decade to encourage businesses and individuals in the right direction”, he said.

“Activity in environmental taxes and green tax incentives has been marginal at best, window dressing at worst.

“Last week’s Budget was yet another missed opportunity, with freezes on key green taxes such as fuel duty and carbon price support.”

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