Out-Law News 2 min. read

Autumn Statement: tax reform must align with UK’s net zero agenda, say experts

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UK tax policy must be calibrated with the government’s plans to achieve a transition to a ‘net zero’ emissions economy by 2050, a tax expert has said.

Penny Simmons of Pinsent Masons was commenting after a series of climate change-related tax announcements were announced by UK chancellor Jeremy Hunt in his autumn statement on Thursday.

Reiterating calls she made earlier this year, where she said “UK tax policy urgently needs reviewing to manage the significant fiscal risks of the economy’s net zero transition and support both the UK’s transition and global endeavours to combat climate change”, Simmons said “there is a risk that if tax policy and decarbonisation are considered in silos, the UK will either be left with a gaping hole in its public finances in future or that progress towards net zero targets will be slower than necessary”.

One of the changes announced was the government’s plan to introduce vehicle excise duty (VED) on electric cars, vans and motorcycles from April 2025. The Treasury said the move “will ensure that all road users begin to pay a fair tax contribution as the take up of electric vehicles continues to accelerate”. VED already applies to petrol and diesel vehicles.

Peter Feehan of Pinsent Masons, who specialises in projects concerning the electrification of mobility, said: “Today's electric vehicles tax announcement has in many ways been a question of 'when?' rather than 'if' and indeed will be seen as inevitable. Whether this affects the impetus of increased electric vehicle sales remains to be seen. Original equipment manufacturers will be concerned as to whether this impacts already falling sales.”

“However, the missed opportunity is devising measures which utilise the additional revenue from duty to support much needed electric vehicles charging infrastructure in the UK. Perhaps the silver lining is that the benefits to company car drivers remain, which could be a recognition by the government of the importance of this sector to achieving the government’s transition to net-zero transport,” he said.

The UK government pledged to increase its investment of public funds in support of the development of new electric vehicle charging infrastructure earlier this year, as part of a new electric vehicle infrastructure strategy. At the time it said the Local Electric Vehicle Infrastructure (LEVI) Fund would provide a total of £450 million of public funds “to facilitate the rollout of larger-scale chargepoint infrastructure projects”.

In a paper detailing the new autumn statement measures announced by the chancellor, the Treasury said it plans to legislate next spring, via a new Finance Bill, to extend the first year allowance for electric vehicle chargepoints. The 100% allowance will be extended to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes, it said.

Other climate-related tax changes announced by the Treasury include a “rebalancing” of the climate change levy (CCL) rates. This includes plans to increase the CCL on gas to the same rate as that which applies to electricity in 2024-25.

In a report earlier this year, the Climate Change Committee (CCC) urged the government to undertake a net zero tax review to establish how the tax system can best support the transition to net zero.

The CCC, which provide independent advice to parliament on tackling climate change, specifically recommended a review of motoring taxation. It said some form of road pricing should be introduced whereby drivers, of any vehicle type, are charged for how much they drive, as well as possibly when and where they drive.

Penny Simmons said: "The announcement in relation to electric vehicles tax should form part of a wider review into the taxation of motoring to ensure that the UK’s tax system is fit for a net zero economy. A comprehensive review of motoring taxation is essential to ensure that the UK can sufficiently replace reducing tax receipts from fuel duty as the UK’s transition to the use of electric vehicles accelerates."

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