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Budget 2021 | PwC comments on environmental taxes, APD and green incentives


PwC comments on environmental taxes, APD and green incentives - 

Jayne Harrold, environmental tax leader at PwC, said:

“With COP26 around the corner and the Net Zero Strategy released last week, it is surprising to see that the Chancellor did not present more of a ‘green focused' budget. He could have used environmental tax measures like carbon taxes to help drive a shift in behaviour, but it is possible he is holding back on these topics for COP26. Consultation on reform of carbon pricing through the emissions trading scheme was undertaken earlier in the year, and the Red Book does confirm that the Government is committed to carbon pricing as a tool to drive decarbonisation and intends to publish more later in 2021. Bearing in mind that it is already the end of October we think that those announcements might be being held back for COP26.

Freezing fuel duty, carbon price support and reform of Air Passenger Duty with a 50% cut to domestic flights from April 2023, and a new ultra long haul band to tackle emissions from flights over 5,500 miles illuminate the conflict between achieving environmental objectives and balancing impacts on the economy.

“The Chancellor took the chance to use the UK’s exit from the EU to reform elements of the tax system that he felt needed to be changed for policy or simplification reasons. The reduced rate of VAT for energy saving materials installed in residential properties falls into a similar category. Installation of energy saving materials normally forms part of a wider package of works which prevents the VAT relief from applying. The Chancellor seems to have missed an opportunity to reform the rules to reduce the cost of improving the energy efficiency of existing housing stock. Reducing the cost by allowing the 5% VAT rate to apply more often would help drive adoption by householders, and allow the recently announced pot of grant funding for installation of low carbon heating systems to stretch further.

Buried within the releases today is the announcement of some tweaks to be made to the primary legislation governing the new plastic packaging tax. With only five months left before plastic packaging tax is due to go live, we had hoped for release of more detailed secondary legislation together with today’s announcements. This will set out the crucial operational detail that affected businesses need to know in order to implement, report the tax and hold all the evidence required by HMRC. Further delays will create uncertainty in planning for these large implementation projects and squeeze the time available for the project to be completed.”    

Amal Larhlid, ESG tax leader at PwC, said:
“In today’s speech, the Chancellor has tried to strike the right balance between setting out a recovery plan for the UK and pushing forward the green agenda. Whilst we saw a freeze on fuel duty to aid household spending, as well as a reduction in Air Passenger Duty (APD) rates for domestic return flights, the Chancellor has focused on spending levers as a way of working towards achieving Net Zero commitments in the UK.

“The emphasis was centred around investment in ‘green industries of the future’ to the tune of £30bn which complements the commitments already published within the BEIS Net Zero Strategy. However, with no other major tax related announcements related to the climate agenda it is likely that we will see further announcements being made as part of COP26.”

“The Chancellor continues to prepare the economy for the transition to Net Zero through the use of grants and funding by announcing £620m for public charging and an increasing capital support to £817m for the electrification of UK vehicles and their supply chains. However, the continued freeze on fuel duty highlights the conflicts and the short term challenges which need to be overcome to avoid damaging climate change.”


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