ICAEW.com works better with JavaScript enabled.

TAX NEWS

Net Zero Tax Review expected in 2023

Article

Published: 13 Jul 2022 Update History

Climate Change Committee calls on HM Treasury to establish how the tax system can best support the transition to Net Zero.

Every year before the end of June, the Climate Change Committee (CCC) reports to Parliament on its assessment of the Government’s performance and progress towards achieving Net Zero by 2050.

This year’s report asks HM Treasury to consider a Net Zero Tax Review to establish how the tax system can best support the transition to Net Zero.

This would involve correcting distortions that often penalise low-carbon technologies and ensuring that the significant consumer savings from using many low-carbon technologies are also widely enjoyed. This is scheduled for 2023, so a consultation is anticipated next year.

The report itself is lengthy – 619 pages in total – which makes it more difficult to pinpoint exactly where action is currently being focussed and where more emphasis is needed. Its main concern is the risk of failing to achieve the Net Zero goal and identifying the areas where risk is greatest, suggesting possible actions the government could take.

The CCC reiterates its recommendation from its COP26 report that a Net Zero Tax Review should also address any preferential tax treatments that could be considered a fossil fuel subsidy.

The report also flags some key considerations when looking to plug the significant hole in public finances that could arise from the transition to electric vehicles (EVs). The CCC assesses that some form of road-pricing will be necessary to avoid this being subsidised through general taxation. Without developing options at an early stage, the report highlights the risk that:

  • drivers could assume that EV driving will always be tax-free; and
  • there may be a perception that EVs were tax-free when richer consumers could afford them, but will be taxed once they are available to the mass market.

Meanwhile, work is already underway to consider a Carbon Border Adjustment Mechanism to help prevent carbon leakage. The report also recommends consulting on mandatory minimum climate related standards on some imported manufactured goods and energy.

Read more from the Tax Faculty on the development of tax policy to support Net Zero:

ICAEW Know-How from the Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty
The future of tax after COVID

As digital technologies transform society, the UK government is grappling with balancing the books while ensuring its tax system is fit for purpose. Join us as we take a look at the issues and challenges facing the tax system.

Read more

More from the Tax Faculty

Latest news
Making tax digital image
TAXwire

Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly enewsletter

Practical guidance
Cover
TAXline

Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.

Technical support
Tax Faculty image
Webinars

Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.