The government raised £40.8bn through ‘green taxes’ last year, just six per cent of the £633bn raised through taxes overall, according to law firm Pinsent Masons.
Over the last decade, the money raked in by green taxes has only risen 19 per cent which has clashed with the 53 per cent surge in taxes as a whole.
Head of tax at Pinsent Masons, Jason Collins, said that revenue from environmental taxes remains low and the freezing of key ‘green’ taxes in the government’s budget means it will likely continue to fall.
The government has shown a willingness to shape behaviour using taxation, such as the Soft Drinks Levy, but has not yet begun to do this for the 2050 net-zero target, the law firm said.
With polluting investments being increasingly scrutinised by consumers and shareholders, the law firm added that more needs to be done to disincentivise carbon funding and encourage green investment.
The government has begun mulling reform to Air Passenger Duty (APD), involving cuts on domestic flights and adding extra bands so charges are more closely linked with the emissions created.
However, it is not yet clear whether the government has plans to use this reform to raise extra revenue from APD.
“Taxation will play a vital role in driving the UK to its net-zero target. The shrinking share of revenue brought in by green taxes is evidence that the government isn’t yet doing enough to discourage polluting behaviour,” Collins added.
Alongside low green tax revenue, Pinsent Masons found that the government gave back only £2.9bn in green tax breaks last year, representing just 7 per cent of the amount raised by green taxes.
The current approach to environmental taxes is ‘not enough stick and not enough carrot’, according to Collins, and fails to give businesses a strong incentive push for environmentally friendly investments.
To commit to climate-positive investments, businesses need certainty over the future of taxation and tax reliefs for environmental issues in the coming years as the net-zero deadline gets nearer, Collins continued.
“The recent cuts to electric vehicle grants is just another example of the government choosing not to incentivise consumers to make green decisions. Over time that kind of decision will make it significantly harder to hit the 2050 target.
“Tax policy needs a wholesale change to help achieve net-zero. The government needs to address the imbalance between taxes and tax reliefs to not only penalise polluters but reward businesses that invest in green technology to get the UK closer to carbon neutrality.”