The House of Commons Committee of Public Accounts report, Environmental Tax Measures, published today, is savage in its condemnation of the failure of the Government to align its environmental ambitions with the means to achieve them through its fiscal policy:

Tax is an important instrument for pursuing government’s environmental goals, particularly getting to net zero greenhouse gas emissions by 2050. The potential of the tax system in this respect has long been recognised by government, academics and stakeholders, notably the Institute for Fiscal Studies in the Mirrlees Review published in 2011 and more recently the Climate Change Committee. We were therefore concerned that HM Treasury and HM Revenue & Customs (HMRC)—the departments responsible for the strategic oversight and administration of the tax system—have taken a very limited view of the role of tax so far. They could not explain clearly to us how the tax system is used in achieving the government’s environmental goals.

At present HMRC and HM Treasury only recognise four environmental taxes as these are the only ones with specific environmental objectives. They have limited understanding of the environmental impact of these taxes because their management has focussed on the revenue these taxes raise. The departments have not kept track of the impact of other tax measures with environmental objectives, such as tax reliefs to support energy saving and clean technologies, or the impact of tax measures affecting the consumption of fossil fuels. We were encouraged to hear that the departments have started to assess the impact of fuel duty freezes on the environment, but environmental assessments should be made for all taxes.

We see a lack of leadership and coordination, which mirrors findings in our recent reports on Achieving government’s long-term environmental goals and Achieving net zero. The tax system interacts with environmental policy areas which are the responsibility of other government departments. These interactions risk being overlooked without greater monitoring and transparency of tax measures affecting the environment. Given HM Treasury’s cross-government remit, it is disappointing to see silo thinking, which we often see in other Whitehall departments, extending to the Treasury itself. HM Treasury is still considering how tax should fit within a comprehensive programme for funding net zero. It acknowledges that further action is needed to hit the 2050 target.

Given the scale of the climate emergency, HM Treasury and HMRC need to act now. We are concerned that the departments have yet to plan for the impact of the government’s environmental ambitions on tax revenues, including on fuel duty which raised £28 billion in 2019–20 but will decline as people change to electric vehicles. The two departments need to be clear and transparent on the role that tax will play so that: taxpayers can make informed decisions; other government departments can plan; and Parliament has the information it needs to hold government to account. With the UK hosting the UN Climate Change Conference in November 2021 we look to HM treasury to lead by example.

Analysis of press coverage is available here, including the comment by Labour peer Lord Triesman that:  

“Government and regulators now need to create an environment where investors and lenders are rewarded for taking the long-term view. What will ultimately bring down green financing costs is longevity and pipeline security.” Interestingly this echoes comments on the similar gap in climate change mitigation plans across the pond:

An editorial in the Washington Post says of the expected new US climate pledge to cut emissions 50% below 2005 levels by 2030: “Such promises are easy. Making good on them, and on this one in particular, is hard.” Like another recent editorial from the paper, the piece argues for a carbon tax: “What’s missing [from Biden’s proposals] is an economy-wide policy that would cut demand for fossil fuels in every industry in every state. A substantial, steadily rising carbon tax would ensure emissions reductions happened even if some of Mr. Biden’s government-funded green projects failed because it would dampen underlying demand for fossil fuels.”

The publication of this report offers another very targeted opportunity to write to your MP, especially if they are members of the Public Accounts Committee. You could point out how Climate Income with Border Carbon Adjustments would be the ideal fiscal policy to send the right message to producers and consumers on the needed direction of travel and make investment in low emission technology so much more attractive, as the Government has acknowledged:

Placing a price on carbon creates the incentive for emissions to be reduced in a cost effective and technology-neutral way, while mobilising the private sector to invest in emissions reduction technologies and measures. While we recognise the merits of a Carbon Fee and Dividend policy, we do not propose to adopt it at this time.

* Committee of Public Accounts members

Name /Party /Constituency
Meg Hillier MP Labour Hackney South and Shoreditch, Chair
Gareth Bacon MP Conservative Orpington
Kemi Badenoch MP Conservative Saffron Walden
Shaun Bailey MP Conservative West Bromwich West
Olivia Blake MP Labour Sheffield, Hallam
Dan Carden MP Labour Liverpool, Walton
Sir Geoffrey Clifton-Brown MP Conservative The Cotswolds
Barry Gardiner MP Labour Brent North
Peter Grant MP Scottish National Party Glenrothes