Wednesday 17 February 2021

Carbon taxes and VAT reform to build a greener Britain

Carbon taxes and VAT reform to build a greener Britain

Tax reform for a net zero Britain is the priority post the pandemic, says the Chairman of the Environmental Audit Committee (EAC), outlining their vision for green growth.

Green transport, VAT reductions to drive energy efficiency and green finance are some of the recommendations in the latest EAC report.

Chairman Philip Dunne MP said: “A tax system fit for net zero Britain is key. It will encourage innovation, give confidence to the sector and support companies to make the low-carbon transition."

The report calls for ‘growing back better’ after the pandemic and the need to put ‘nature and net zero at the heart of the economic recovery’.

It states the need for government investment in areas such as energy efficiency, the circular economy, nature recovery and the need to create green jobs to battle rising unemployment.

“There will be no vaccine against runaway climate change and it is our responsibility now, using the opportunity of the economic recovery, to set the UK on track for net zero.”  Philip Dunne MP

Its key points include:

VAT reductions

The committee argues that wider tax changes could help shape an economy fit for a net zero Britain and that this should include VAT reductions to repair services and items that have been recycled, encouraging a circular economy.

The report also calls for VAT reductions on energy efficiency upgrades in homes and tax incentives to motivate consumers to adopt ultra-low emission vehicles.

Green finance

The EAC recommends that the Bank of England take steps towards battling climate change.

One of these was changing the COVID-19 Corporate Financing Facility (CCFF), which buys short-term debt from large businesses affected by the pandemic. The report stated companies should publish climate-related financial disclosures in line with the Green Finance Strategy if they are to continue to receive support.

The committee believe these climate-related financial disclosures should be used by the government to encourage companies to set plans aligned with the Paris Agreement.


The EAC claims air pollution levels have led to higher COVID-19 mortality rates. It has called for more long-term investment in public transport and the improvement of travel infrastructure to make walking and cycling more accessible in towns and cities.

The report suggests the UK will require eight Gigafactories to supply the upcoming demands for electric vehicle and battery production and the need for increased investment.

Home and energy efficiency

The committee recommends the introduction of carbon targets for the building of new homes, encouraging a higher demand for low-carbon materials and lowering the amount of emissions produced from the manufacturing of traditional materials.

According to the report, the Green Homes Grant must be revisited and extended to meet the government’s target of 600,000 vouchers being issued.


The report presses for the release of the UK’s hydrogen strategy; providing an incentive for the private sector to invest in hydrogen production.

As a further incentive, the EAC believe the government should begin to draw up a carbon tax and consider the positive impacts of carbon border adjustments, which would tax imported goods based on their carbon footprint with the aim of limiting emissions leakage.

Investment in nature

The report explains the importance of nature recovery and that it must become an integral part of the government’s infrastructure plans. It states an increased investment in nature recovery would protect UK wildlife and create thousands of jobs as a by-product.

The EAC recommends the government trial a ‘National Nature Service’ that provides training and employment for those working on environmental improvement.

Mr Dunne added: “The COVID-19 crisis must be treated as a wake-up call. It is a symptom of a growing ecological emergency. The economic recovery will shape our national economy for decades to come and it is crucial that tackling climate change and restoring nature is at its core."

In response to the report, a government spokesperson said: “We’re committed to building back better and greener from the pandemic, which is why the Prime Minister’s Ten Point Plan will put the UK at the forefront of the global green industrial revolution and create hundreds of thousands of green jobs, while the Treasury’s Net Zero Review is examining how the transition to net zero should be funded.

“We continue to bring forward bold measures to cut emissions, with plans to invest £9 billion in improving the energy efficiency of buildings forming part of our wider commitment to end our contribution to climate change by 2050.”

Written by

Bruna Pinhoni

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