UK Business Urges Environmental Taxes Review

by Robert Lee, Tax-News.com, London

18 June 2012

The Confederation of British Industry (CBI) has called on the UK government to commission an independent review of environmental taxes, arguing that such taxes can stimulate business investment and private sector growth while cutting the environmental impact of business activity.

The claim comes in a new report from the CBI, "Solving a Taxing Puzzle: Making environmental taxes work for business". Currently, environmental taxation accounts for almost 8% of the government's total tax revenue. 12 environmental taxes are now in place, compared with just four in 1989. Research by the CBI found that while individual taxes such as Landfill Tax and Vehicle Excise Duty are well regarded, others such as Air Passenger Duty (APD) and the Carbon Reduction Commitment (CRC), are viewed much more negatively.

A survey of over 70 of the CBI's members for the report highlighted disillusion with the current environmental tax landscape. Those questioned believe that the current combination of taxes do not work well together, are unnecessarily complex and are a drag on business competitiveness. The CBI has therefore concluded that business requires a more strategic environmental tax framework in which the full potential of the taxes can be fully realized. An effective coordinated response across government is also seen as necessary.

Ian McCafferty, CBI Chief Economic Adviser, said: “With the number of environmental taxes on the increase and proving to be a major revenue raiser for Government, it’s essential that we take stock of the successes and failures from a business perspective. 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.”

The CBI is urging that an independent body such as the Committee on Climate Change or the Office for Tax Simplification carry out an urgent review of all environmental taxes. But in the longer-term, the CBI recommends that the government takes a more joined-up and strategic approach to its environmental taxation policies.

The report sets out six fundamental business guidelines for any new or changed environmental tax. The guidelines are as follows: to have a clear purpose and definition; to take strategic fit into account; to be designed with simplicity at their core; to offer comprehensive communication and advice; to provide certainty to businesses; and to ensure a strong, ongoing justification.

Rhian Kelly, CBI Director for Business Environment policy, commented: “The current uncoordinated approach to environmental taxes is not working for business. An independent review of environmental taxes has become an urgent priority. 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.”

In a separate response to the Department of Energy and Climate Change’s (DECC) Consultation on a Simplified CRC Energy Efficiency Scheme, the CBI also calls on the government to scrap the CRC and implement mandatory carbon reporting. The CBI's own research shows that the CRC is the most poorly regarded tax, and indicates that it is not working to encourage business energy efficiency. The CBI feels that it has become an overcomplicated revenue-raising instrument, which is simply being written off as a cost of doing business in the UK.

Kelly added: "The CRC has become a tax that pretends to be green and does nothing to strengthen the business case to invest in energy efficiency. We urge the government to recognize that this policy is past the point of no return – it should be scrapped, and its reporting elements replaced with mandatory carbon reporting.”