Business lobby group the CBI called on the government on Friday to undertake an independent review of its environmental taxes.
Green taxes now make up some 8% of the UK’s tax revenue but many businesses feel that the current system is unnecessarily complex and a burden on competitiveness.
In a new report, Solving a Taxing Puzzle: Making environmental taxes work for business, the CBI outlines the conclusions of in-depth interviews with 70 of its members.
The CBI says that some taxes have been successful – such as the landfill tax and the vehicle excise duty – and when they are, they stimulate business investment, drive growth and reduce the environmental impact.
But as environmental legislation has grown from just four taxes in 1989 to the current 12 now in place, which raise £43.3 billion, the combination of taxes do not now work well together.
“Well-designed, environmental taxes can be a useful tool to help firms improve their environmental performance and unlock significant business investment. However, poorly planned environmental taxes have damaged businesses and made the UK tax system less attractive to would-be investors,” says the CBI’s economic advisor Ian McCafferty.
He says that it is essential that the government stops to take stock of current taxes and the successes and failures from a business perspective.
The existing policy landscape is also preventing environmental taxes from realising their full potential, says the CBI.
Environmental taxes must have a clear purpose and definition, says the CBI, and fit into the wider strategy. They should also be designed to be simple, provide certainty to business and be coupled with comprehensive communication and advice.
“The current uncoordinated approach to environmental taxes is not working for business,” says Rhian Kelly, CBI director for business environment policy. “With a more joined-up approach, environmental taxes could provide certainty for businesses, unlock investment, and reduce the impact on the environment without damaging UK competitiveness.”
An independent review by the Committee on Climate Change or the Office for Tax Simplification should be undertaken forthwith, urges the CBI.
In the meantime, CBI is calling on the government to drop on its Carbon Reduction Commitment (CRC) energy efficiency scheme scheme entirely in favour of mandatory carbon reporting.
In response to the Department of Energy and Climate Change’s (DECC) consultation on the scheme, the CBI says the CRC is the most poorly regarded environmental tax in the business community and has become over complicated after being adapted from its original form to be a revenue-generator for the Treasury.
“The CRC has become a tax that pretends to be green and does nothing to strengthen the business case to invest in energy efficiency,” says Kelly. “It should be scrapped and its reporting elements replaced with mandatory carbon reporting.”
The government’s lack of clarity on green taxes was also criticized earlier this year by the Environmental Audit Committee, which urged the Coalition to develop a green taxation strategy aimed primarily at changing behaviour rather than generating revenue.
For further information:
UK Chancellor’s 2012 Budget boosts fossil fuels (22-Mar)
CBI calls on UK Chancellor to reform green taxes (22-Feb)
UK government chided over stance on ‘green’ taxes (6-Feb)
CBI calls again for mandatory carbon reporting for businesses (6-Jul 2011)
18 June 2012