Recommendation 4

Tax impact assessments do not sufficiently recognise the potential for every tax measure to affect progress towards environmental objectives. The exchequer departments’ current definition of environmental taxes covers just four taxes with specific environmental objectives. Other established tax measures can have significant environmental impacts, such as fuel duty and Air Passenger Duty which both increase the cost of polluting forms of travel. Tax changes announced in Budget 2021 may also impact on the environment significantly. The new temporary 130% super deduction on Corporation Tax, worth £25 billion, could encourage investment which harms the environment as there are no environmental restrictions on eligible companies. The exchequer departments rarely quantify in tax information and impact notes the environmental impact they expect from tax changes intended to alter behaviour. This prevents effective scrutiny of the environmental impact when Parliament considers tax changes. Recommendation: From the next budget, HM Treasury should: • assess the environmental impact of every tax change considered; and • publish the expected environmental impact for each tax measure in the budget, including the extent of behavioural change, alongside forecasts for tax receipts.