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UK Should Tie Tax To Environment, Says Adviser

by Robert Lee, for, London

23 January 2007

The UK's Chancellor should reward Marks and Spencer and other companies with a cut in corporation tax if they succeed in becoming carbon-neutral, according to tax experts at PKF Accountants & business advisers.

PKF has suggested cutting corporation tax from 30% to 25% for companies that are certifiably carbon-neutral. Such a cut would have saved M&S GBP37.5 million on its 2006 tax bill, had the firm achieved the stated aim of its GBP200 million five-year plan to cut energy consumption, stop sending waste to landfill and stock more products made from recycled materials.

The companies in the 100 Group of Finance Directors, which draws its members from the largest UK companies, could eventually save an estimated GBP2 billion in tax each year, says PKF.

“Business is tired of being harangued over its environmental performance by a Government that has increased its tax burden and the level of red tape but given no financial incentive to improve”, said Peter Penneycard, National Director of Tax at PKF.

“M&S is leading the way by announcing this step without any incentive but how many other companies will follow suit and do more than the minimum in terms of complying with environmental legislation? Rightly or wrongly, business tends to see the cost rather than benefits side of environmental protection and the Government needs to offer more incentives to encourage companies to invest as M&S has done.

“As there are currently very few companies in the UK that are carbon-neutral, the cut would cost the Government virtually nothing initially, but it would give Britain’s businesses something to aim for – a clear incentive to invest. As some companies achieve carbon-neutral status there may be a fall in tax revenues but this would have a minimal impact as the lower tax rate would attract more green corporate investors to the UK. Alternatively, the Government could raise the corporation tax rate for those companies that don’t take up the challenge.

“Obviously, most energy generation companies would find it near impossible to become carbon neutral in the medium term but there is no reason why they could not be given specific tax incentives geared to the amount of renewable energy they produce: the EU is likely to be supportive of such state aid.

“The Chancellor has already sent a message to house owners by announcing a stamp duty land tax exemption for carbon-neutral houses. It is time for him to send a clear message to the UK’s companies”.

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