Questions for Government to answer over future of green taxation

Yesterday’s surprise announcement that the Chancellor is to remove the Climate Change Levy exemption for renewable energy poses questions about the future of environmental taxation which the Government needs to address, says the Chartered Institute of Taxation (CIOT).

The Institute is calling on the Government to produce a ‘roadmap’ setting out its plans for the future of environmental taxes, to help the renewable energy industry and business in general to take long-term investment decisions.

John Brewis, Chair of the CIOT’s Environmental Taxes Working Group, said:

“The Climate Change Levy was introduced as an “environmental tax” – intended to change polluting behaviours and to assist in meeting the UK’s obligations for reduced carbon emissions.  The exemption encourages use of renewable sources of energy over traditional carbon fuels. The removal of the exemption effectively serves to tax good behaviour and push CCL’s status as an environmental tax towards being just another revenue raising tax – on energy.

“The complexities arising for both suppliers and business customers may be more than suggested in the announcement, and additional energy costs to businesses will either have to be absorbed or, more likely, passed on through higher prices.”

In addition to changes to the Climate Change Levy, the Government yesterday announced a review of other green taxes faced by businesses and an end to the commitment to increase environmental taxes' share of government revenue.

John Brewis commented:

“This looks like a significant shift in government policy.  The announcement that the Government intends to consult in the Autumn over simplification of energy taxation is welcome.

“To be fully effective, it is important that government gives people confidence that environmental tax incentives will be in place for a long period. This is key to changing people’s behaviour.  That is why the CIOT is calling on the Government to put in place an Environmental Tax Framework, or roadmap, for the rest of the Parliament, along the lines of the business taxes roadmap adopted in the last Parliament.  Businesses and consumers need certainty and clarity on these measures.”