Recommendation 23

The March 2021 Budget does not include any new tax measures with environmental objectives but it does include other tax measures that are likely to have an environmental impact.44 In March 2021 the Office for Budget Responsibility (OBR) said the most significant contributor to the economic recovery measures in the Budget was the introduction of a time-limited 130% capital allowance super deduction from Corporation Tax that will be in place in 2021–22 and 2022–23. The OBR said the deduction provides a very strong incentive to bring investment forward from future periods, supporting economic recovery.45 The deduction is forecast to cost a total of £25 billion in 2021–22 and 2022–23.46 HM Revenue & Customs (HMRC) told us that the capital allowance was available to all businesses in the tax system. We are concerned that the capital allowance is not subject to an environmental or green ‘filter’ and it could lead, for example, to an increase in fossil fuel investments.47