Tax reform must prioritise energy cuts

23rd November 2015

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Alexandra Jenner

Responses to a review of energy efficiency taxes reveal strong ambition to retain environmental benefits as the central aim of a new system.

The Treasury's consultation, which closed on 9 November, proposed that businesses should be covered by a single tax and reporting scheme rather than the existing overlapping policies, which include the carbon reduction commitment (CRC), energy savings opportunity scheme (ESOS) and the climate change levy (CCL). The Treasury's stated aim is that a revised system would cut costs for government and businesses and protect energy-intensive businesses. It would also support productivity by improving incentives for energy efficiency and carbon reduction.

IEMA supports the principle of the consultation, but wants any replacement tax and reporting scheme to have carbon reduction as its central aim, against which all policies should be transparently assessed. The new system should reduce overall carbon emissions beyond the combined levels projected for existing policies, a principle that 90% of IEMA members supported in a recent poll.

Support for clear environmental objectives in the new system also came from the Chartered Institute of Taxation (CIOT), which said that the direction of environmental tax policy ought to be clarified after all the changes made in recent years. Businesses would benefit from a single coherent climate tax as long as it is simpler to administer, understand and pay, it said.

"However, for it to remain an environmental tax there must be clear environmental objectives," said John Cullinane, CIOT's tax policy director. "We seem to be moving from green taxes that try to reduce energy use to them becoming just another revenue-raising mechanism."

The Electrical Contractors Association welcomed less administration and greater clarity, but said energy saving and reduction incentives should be retained in any new system.

IEMA has also asked for a reformed system to be durable and give business long-term certainty. A major part of the administrative burden an organisation experiences with any system is in preparing for it, IEMA's policy and engagement lead Nick Blyth, pointed out.

Manufacturers trade body EEF, meanwhile, wants the new system to demonstrate either a lower cost, a reduction in administrative burden or improved energy efficiency for businesses.

Richard Warren, senior energy and environment policy adviser, said many businesses did not trust the government to maintain incentive schemes. He pointed to the CRC, which was originally designed with features to incentivise businesses. But these were subsequently cancelled, while the tax element was retained. "What's to say if fiscal circumstances demanded it, they wouldn't do the same again?" he said.


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