CIOT zero in on Treasury's 'net zero' tax omission

The Government publishes Tax information and impact notes (TIINs)¹ to explain policy objectives together with details of the impact of a tax policy on: the Exchequer; the economy; individuals, households and families; business and civil society organisations; equalities; HMRC and other parts of government; and any other impact.

Occasionally wider environmental impact and carbon assessments are included in TIINs in the final section called ‘other impacts’, though there is no mandatory requirement to show whether environmental impacts have even been considered. The CIOT is calling for the inclusion of ‘environmental impacts’ as a compulsory standalone category for TIINs on all tax policy proposals.

Jason Collins, Chair of CIOT’s Climate Change Working Group, said:

“COP26 showed the urgent and huge breadth of work needed by governments to tackle climate change. The Treasury must harness the power of these tax impact assessments to help the Government develop tax policies that support the achievement of ‘net zero’.

“We are concerned that environmental and climate change risks are treated as an ‘after-thought’ when assessing the impact of a tax policy, and that environmental impacts of taxes are more diverse than those immediately apparent to policymakers.

“It is time for climate and environmental impacts to have their own section in tax information and impact notes. This will ensure that policymakers properly consider such factors in all their decisions.

“This ensures a joined up approach between climate tax policy and wider policy objectives, providing a clear link between tax as a source of revenue and its wider impact in influencing behavioural change. And it will give stakeholders such as tax professionals, campaigners, business and members of the public greater confidence to raise concerns about the environmental impact of tax policies.”

The CIOT made the call for compulsory environmental impacts on TIINs in its submission to the Treasury Committee Inquiry into the Autumn Budget and Spending Review 2021.² It follows the publication of CIOT’s Climate Change Tax Policy Roadmap paper in October 2021³ in which the Institute called on the Government to set out how it plans to use the tax system to help meet its ‘net zero’ ambitions. It is generally agreed that the Government’s Corporate Tax Road Map, published in 2010, was helpful in setting out a clear plan for the intended direction of corporation tax reform at that time, enabling businesses to plan with a better sense of future policy.

The CIOT’s view reflects in general the findings of the National Audit Office’s (NAO) ‘Environmental tax measures - HM Treasury and HM Revenue & Customs’ report published earlier this year.⁴

The Government published its Net Zero Review, an analytical report that uses existing data to explore the key issues as the UK decarbonises. The CIOT is keen to say it welcomes the announcement in that review that the Treasury has formed a 'net zero' directorate for Climate, Energy and Environment. And the CIOT welcomes the Treasury’s commitment to its recent policy to require government departments to include the likely greenhouse gas emissions generated by bids, and their impact on meeting Carbon Budgets and ‘net zero’.⁵

Notes for editors

1. More on impact assessments in tax information and impact notes are here.

2. Treasury Committee Inquiry into the Autumn Budget and Spending Review 2021 - Response by the Chartered Institute of Taxation here.

3. CIOT’s Climate Change Tax Roadmap, published October 2021, is here.

The Institute sets out its principles for such a roadmap in the paper, saying that the Government should aim to ensure that climate tax policy:

• Positions the UK as a global leader in the climate tax agenda, engaging foreign governments and institutions to develop ‘progressive tax policies that support the achievement of net zero’. It should aim to achieve cross-party consensus so that long-term strategy is not left to the mercy of electoral cycles.
• Ensures a joined up approach between climate tax policy and wider policy objectives, providing a clear link between tax as a source of revenue and its wider impact in influencing behavioural change.
• Is upfront about the threats to the UK tax base as decarbonisation leads to changes in taxpayer behaviour and the potential loss of existing revenue streams.
• Is subject to consultation and engagement, so that stakeholders understand the rationale behind climate tax policies and have a greater understanding of what they are being asked to pay for and why.

4. The NAO report Environmental tax measures, published February 2021, stated (in section 1.16):

“When it introduced TIINs, the Government said they would support effective scrutiny by Parliament. Currently the TIINs do not include the information necessary to aid the scrutiny of the environmental impact of tax changes. There is no requirement for the exchequer departments to monitor, and report publicly, on the actual environmental impact of tax changes, and HM Treasury told us that ministers decide what is published on the impact of tax changes. The Chancellor of the Exchequer’s speech at Budget 2020 announced the Plastic Packaging Tax would increase the use of recycled plastic in packaging by 40 per cent – equal to carbon savings of nearly 200,000 tonnes. However, the exchequer departments did not set these as measures of success in the TIIN.”

Among the recommendations in the report are that the exchequer departments should:

• identify and monitor existing tax measures with a significant environmental impact
• clarify and set down their approach to designing, administering and evaluating tax measures with environmental or other policy objectives
• develop clear criteria for prioritising which taxes with an impact on the environment to evaluate, taking into account risks to value for money and the costs of evaluation
• quantify and publish the expected environmental impact of changes to taxes, where significant
• work with other departments to make visible how existing tax measures affect environmental goals
• monitor the long-term impact of government’s environmental goals on tax revenue and ensure these are considered as part of risk management

5. Net Zero Review Final Report - Analysis exploring the key issues as the UK decarbonises -The Treasury