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How should government adapt the tax system to reach net zero?

Watch live as we discuss with @DavidGauke @jamesmurray_ldn @ChiefExecCCC, Amanda Tickel @DeloitteUK and @gemmatetlow

Livestream here ➡️instituteforgovernment.org.uk/events/net-zer…

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Amanda Tickel @DeloitteUK starts us off by giving an overview of some of the many different tax measures relating to net zero in the UK and how these compare to other countries ...

On EVs highlights Norway's VAT incentives, France's more generous grants system, and US income tax credit system

On R&D - UK R&D incentives not focused on net zero and little new in the budget. Elsewhere R&D regimes being used more widely - for eg. Horizon Europe in the EU, build back better proposals in the US

On carbon pricing - UK prices some sectors through the UK ETS

But other EU countries have additional carbon prices on some sectors and the EU is proposing a carbon border adjustment mechanism which would put an additional charge on carbon intensive imports

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@ChiefExecCCC says this is a particularly interesting moment with the net zero strategies being published.

Tax reforms are inevitable as revenues from environmental taxes and transport taxes - particularly fuel duty and VED

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... as revenues from environmental taxes and transport taxes *decline*

@ChiefExecCCC Carbon pricing has an important role to play but is regressive

Have been promised action on one important issue - policy costs on electricity vs gas

@ChiefExecCCC Should be a wholesale review of carbon pricing and the tax system but not politically appealing and HMT ducked this in net zero review

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@ChiefExecCCC This could potentially be a time to consider a carbon tax and rebate or dividend to minimise regressive impacts.

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@ChiefExecCCC Aggregate cost of achieving net zero to the economy is now quite low because its a upfront cost but then new technologies more efficient

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@ChiefExecCCC But major challenge is no one experiences the aggregate cost - different sectors will experience transition differently

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@ChiefExecCCC Need to start thinking about tax changes for net zero and building a case for it now, doesn't feel like that is happening at the moment

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@DavidGauke Big challenge is that there isn't a willingness to say to public that transition will have costs and require substantial behaviour change

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@DavidGauke Danger is that if you fail to do this you end up with ineffective or inefficient policies and will not have a coherent approach to tax and net zero

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@jamesmurray_ldn discussion needs to also include question of growth - net zero investment can also be a way to grow the economy and boost tax revenue.

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@jamesmurray_ldn Budget did not include investment on the level required

And tax signals were not consistent either - on cutting APD on domestic flights for example

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Q: Is there scope for common ground between parties on the message to the public about costs and behavioural change?

@DavidGauke that would potentially be useful but does carry political risk

@jamesmurray_ldn lots of call for collaborative working but we have politics because there is disagreement about how to handle these big challenges and that is an important role of the opposition

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Q: @instituteforgov has called for a net zero tax strategy that goes beyond just the environmental taxes - is that something you think would be important?

instituteforgovernment.org.uk/publications/n…

@ChiefExecCCC would love to see that but not convinced we will

Hope that when we get to the inevitable tax reforms coming we don't fall into the trap of just trying to plug holes rather than doing something more fundamental

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@ChiefExecCCC But thinks given size of revenue from fuel duty will need to do something strategic

In an ideal world we would be looking across the piece at the signals we send on the consumption of fossil fuels and coming up with something better

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@ChiefExecCCC Possible to use carbon pricing in a way that is not regressive if we do it in a strategic way and make sure regressive impacts are managed well

Hopes this is being discussed in HMT and need more discussions like this about net zero and tax

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Q: How explicit do parties need to be going into the next election about their net zero tax strategy?

@DavidGauke Thinks there is a sizeable portion of the electorate at the next election who wants to vote for a party taking climate change seriously...

...And question is whether you need to have a tax strategy to be seen as serious on climate change.

Will we see a fundamental change in political debate over the next few years that puts pressure on parties to set out their tax strategies?

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Audience q: does the move towards EVs shift transport revenue from central to local govt (eg congestion charges)

@ChiefExecCCC Could but not sure it will. This is why we need strategic reform and a clearer sense of how HMT expects to raise money from transport

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Audience q - Govt seems keener on ETS than carbon tax - is one better?

@DavidGauke Fundamentally do the same thing - price carbon

But perhaps one advantage for govt is that an ETS is less transparent - passed on to the consumer through business and so less visible

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@ChiefExecCCC Thought hard about this and was a lively discussion when left the EU ETS

Advantage of carbon tax is that they are so clear and transparent...

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... But went for ETS for various reasons - one was that it gives more certainty to investors and business because it is longer term - not changed at every budget by the chancellor

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Audience q: Is public really as supportive of changes needed for net zero as currently suggested?

@jamesmurray_ldn thinks what people want from his discussions is a comprehensive and credible plan for the transition

Focus on benefits through growth also important

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@ChiefExecCCC polling not always that helpful

But citizens assembly was really interesting and in general they were supportive of all the things needed to get to net zero but had the luxury of it being explained to them in detail and that's what we're not doing at the moment

@ChiefExecCCC govt outlook set out in net zero reviews is to ask business to make these changes - perfectly valid but if it doesn't work we're going to have to come back to these discussions about who pays and will need a better discussion with the public

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Audience q: Will UK cooperate with EU on CBAM or are the politics too difficult?

@DavidGauke Strong case for cooperation with the EU and CBAM has certain political advantages in reassuring that reductions here will not be offset abroad but costs will be passed on to consumers

Audience q: is there a check the Treasury has to use to assess the impact of new taxes or reliefs on net zero?

@ChiefExecCCC No there isn't and CCC has been advocating a net zero test for all policy

@ChiefExecCCC Over the last few weeks has become more convinced that it would be good if HMT would publish their thinking/impact assessment of the carbon implications

HMT needs to be better and more transparent about how the decisions they are taking relate to net zero

That's all we've got time for

Thank you to our panellists for joining us and for all the questions from the audience

If you missed it a recording will be available soon ➡️
instituteforgovernment.org.uk/events/net-zer…