Treasury criticised for lack of tax climate plan

The Public Accounts Committee (PAC) has published a report criticising HM Treasury (HMT) and HM Revenue & Customs (HMRC) on their lack of a clear plan as to how tax revenues will help the government achieve its environmental objective of having net zero emissions by 2050.

• The government has an objective for the country to become net zero in terms of greenhouse gas emissions by 2050.
• The UK is also hosting the UN Climate Change Conference (COP26) in November 2021, so is expected to be taking a lead in the fight against climate change.
• It is widely recognised that the Tax System will play a large part in meeting the net-zero initiative (Net-Zero).

With these points in mind, PAC undertook a review of the role that the tax system should play in both raising revenues to fund Net-Zero and also in modifying behaviours that damage the environment.

The PAC's report makes following conclusions and recommendations:

• HMT has yet to set out how the tax system can help the government achieve the UK’s Net Zero target.
  • It should aim to become an exemplar finance department in supporting environmental goals and by COP26, set out a clear vision of how it will work to help the UK achieve Net-Zero.
• HMT cannot explain how it will manage declining revenues from consumption of fossil fuels, worth £37 billion in 2019–20.
  • By the next budget, it should set out a timetable for how it will consult on options for replacing declining revenues from fossil fuels including fuel duty (worth £28 billion in 2019-20) and ensure it plans for sufficiently early and broad consultation with different parts of society, particularly with the government’s levelling-up agenda in mind.
• Immediate priorities have often outweighed action needed to support long-term environmental objectives.
  • HMT should consider the pros and cons of publishing a roadmap that signals a clear trajectory to taxpayers for how tax measures will be deployed to contribute to Net-Zero. Inform the PAC of this before the next budget.
• Tax impact assessments do not sufficiently recognise the potential for every tax measure to affect progress towards environmental objectives.
  • From the next budget, HMT should assess the environmental impact of every tax change considered; and publish the expected environmental impact for each tax measure in the budget.
• HMRC has not done enough to evaluate how tax measures with environmental objectives have changed behaviour. 
  • HMRC should ensure that it has sufficient information to assess whether environmental taxes are achieving their objectives and whether they are having wider impacts, including unwanted behaviour change.
• HMT and HMRC seem to view the consequences of environmental taxes as the responsibility of other government departments. 
  • The exchequer departments need to consider and describe the expected impact of taxes on other departments’ responsibilities for environmental objectives and by Autumn 2021, agree with other departments robust approaches for assessing and monitoring the effect of tax measures on the government’s environmental goals.

Meg Hillier MP, Chair of the PAC said,

"The UK government has been blithely issuing ever more ambitious climate targets for years now, with no sign of a roadmap to reach any of them. The departments in charge seem stuck in a bygone era, with little sign of the innovative thinking needed to achieve all this.......HMRC and HMT need to catch up fast."

Many of the recommendations target the next budget as a time to start implementation.

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External links

Environmental Tax Measures Report