Business body calls on Government to scrap CRC and commission environmental tax review

Out-Law News | 18 Jun 2012 | 3:27 pm | 2 min. read

The Government needs to commission an independent review of its existing environmental taxation regime before it follows through on plans to increase revenue generated by such taxes, an influential business group has said.

In a report (22-page / 587KB PDF), the Confederation of British Industry (CBI) said that businesses were becoming "disillusioned" with the "uncoordinated" relationship between existing taxes. It called for an urgent review of the current system by an independent body such as the Committee on Climate Change or Office for Tax Simplification (OTS), with a view to recommending a more "joined-up" approach.

Separately, the CBI asked that the Government replace its Carbon Reduction Commitment (CRC) with a mandatory system of carbon reporting.

The CBI interviewed more than 70 of its members for the new report and found that companies viewed properly implemented environmental taxes as a way of stimulating business investment and driving private sector growth, as well as encouraging companies to consider and reduce their impact on the environment.

However while some individual taxes, such as Landfill Tax and Vehicle Excise Duty, are well regarded; others including Air Passenger Duty (APD) and the CRC were viewed as "over-complex, revenue-raising" instruments.

"With the number of environmental taxes on the increase and proving to be a major revenue raiser for Government, it's essential that we take stock of the successes and failures from a business perspective," said CBI chief economic adviser Ian McCafferty. "Well-designed, environmental taxes can be a useful tool to help firms improve their environmental performance and unlock significant investment. However, poorly planned environmental taxes have damaged businesses and made the UK tax system less attractive to would-be investors."

In its report, the CBI said that any future environmental tax must be simple, provide certainty to businesses and have a "clear and precise" environmental objective. The Government must also consider how the new tax would fit into the existing regime, avoiding any "policy overlap", and carry out a full impact assessment to consider the combined compliance cost to businesses of all policy measures targeting the same policy area.

Combined revenue from environmental taxes came to £43.4 billion, or 8% in total tax revenue, in 2010/11 according to the CBI. This figure has been "steadily increasing" since the mid-1990s, it said. The number of environmental taxes has increased from four in 1989 to the 12 taxes currently in operation.

Of the existing taxes, the report said that the CRC was the most poorly-regarded. The tax had become an "overcomplicated revenue-raising instrument" which was "simply being written off as a cost of doing business in the UK", rather than having a genuine environmental impact.

The CRC is a mandatory scheme aimed at improving energy efficiency and cutting CO2 emissions in large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS). CRC participants must measure and report on their emissions, and purchase allowances to cover their emissions.

A Government consultation aimed at simplifying the CRC and reducing compliance costs for businesses closes today. However, the Chancellor of the Exchequer George Osborne has already vowed to replace the scheme with a new environmental tax if the Department of Energy and Climate Change (DECC) is unable to find "significant administrative savings" as a result of the consultation process. During his March Budget speech, Osborne said that proposals for this new tax would be published in autumn.

In its response to the consultation (4-page / 283KB PDF), the CBI said the Government should introduce "the simplest possible method for collecting the same amount of revenue" estimated to be raised from the CRC. This tax should retain the existing eligibility criteria, but raise revenue through "simple taxation methods" rather than the existing allowance purchase mechanism.

"The CRC has become a tax that pretends to be green and does nothing to strengthen the business case to invest in energy efficiency," CBI environmental policy director Rhian Kelly said. "We urge the Government to recognise that this policy is past the point of no return – it should be scrapped, and its reporting elements replaced with mandatory carbon reporting."