The Chancellor is under pressure from Conservative MPs to cut taxes at the upcoming Budget. With the cost of living hitting families and growth stagnant, reductions in personal and business taxes can address our most significant economic challenges. But Jeremy Hunt would be wise to include tax cuts that also boost clean technologies and tackle climate change. A green-tinged Budget would help deliver economic growth, leave more money in people’s pockets, and show voters that the Tories mean business on the environment.
Green tax cuts would bring political rewards for the Conservatives, as well as environmental benefits. At the end of last year, the Government achieved a major milestone on climate change. But not enough of the public noticed. Official statistics confirmed that the UK is now halfway to its goal of reaching net zero emissions by 2050. Even more significantly, we have halved our emissions while growing our economy by nearly 80%. A green Budget would give the Chancellor another opportunity to shout about one of the government’s most substantial policy achievements and show the party has a plan to finish the job.
As well as enabling the party to celebrate its record, it would also showcase a distinctively Conservative approach to tackling climate change, which the Tories can use to challenge Labour’s green prosperity plan. Rather than spending billions more of taxpayers’ money on green projects or setting up nationalised energy companies, the Conservatives can demonstrate the potential for tax cuts to incentivise more households and businesses to invest private capital in going green.
Crucial to the Conservatives’ electoral fortunes later this year will be making people feel better off financially. Accelerating green investment boosts incomes and growth. Recent analysis by CBI Economics and The Data City showed how the Net Zero economy, made up of industries like renewable energy, grew by 9% last year, with an overall value to the economy of £74bn. It also found that green jobs attract a £10,000 salary premium compared to the UK average. Green tax cuts would help the Net Zero economy expand further.
But although tax cuts to boost green investment would be welcome, this does not mean throwing out the fiscal rulebook. Despite achieving a record budget surplus for January and government borrowing costs falling with lower inflation, sluggish growth forecasts are expected to limit the Chancellor’s room to announce big tax cuts in the Budget. We must be realistic and responsible. But there are three targeted, lost-cost tax cuts the Chancellor could announce to cut the costs for households of going green and unleash investment, while underscoring the party’s environmental credentials ahead of the election.
First, the UK still has the leakiest housing stock in western Europe, meaning we burn more gas than we need to for heating our homes. The Chancellor should cut stamp duty on homes with high energy efficiency ratings, giving an incentive to homeowners to improve their properties’ energy efficiency before putting them on the market and to new buyers to retrofit insulation within two years of moving in.
Second, the UK sits near the bottom of the league table in Europe for heat pump installations. The Chancellor should lower domestic electricity prices by rebalancing the levies for environmental and social policies, which currently fall overwhelmingly on electricity. By shifting some of them on to gas bills and covering some costs out of general taxes, he could make heat pumps powered by clean British renewables much more affordable to run compared to gas boilers and boost their uptake.
Third, he should end the unfairness of differential VAT rates for electric vehicle charging. Currently motorists who don’t have driveways, often on lower incomes, have to pay 20% VAT on electricity to recharge their cars at public charging stations, while those with off-street parking enjoy the lower 5% VAT rate. The rates should be equalised to 5%, making electric cars a cheaper option for more households.
A green Budget with some of these measures could show the Conservative Party’s ongoing commitments to climate action and enable them to communicate a positive environmental message to voters ahead of the election.
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