VAT cut for green UK businesses could aid COVID-19 recovery

Lucy Harley-McKeown
·3-min read
Wider tax changes could offer a 'reset' to design an economy fit for net-zero Britain. Photo: Carlos Barria/Reuters
Wider tax changes could offer a 'reset' to design an economy fit for net-zero Britain. Photo: Carlos Barria/Reuters

VAT reductions to encourage energy efficiency, the use of recycled materials, and repair services are among recommendations the Environmental Audit Committee (EAC) has made in a new report.

The 90-page report on how to "grow back better" after COVID-19 looks at how the UK can create a greener, healthier and more resilient economy and looks at steps taken to bolster the UK's public finances so far.

The cross-party EAC warns that if the economic recovery from COVID-19 is not used as an opportunity for change, climate change and biodiversity collapse may deliver an even greater crisis.

It says that in addition to promoting specific sectors, wider tax changes could offer a "reset" to design an economy fit for net-zero Britain.

The EAC believes that this should include VAT reductions to repair services and items that have been recycled to encourage a circular economy. VAT reductions on energy efficiency upgrades in homes and tax incentives to encourage more take-up of ultra-low emission vehicles could make greener options more attractive to consumers.

The government should also look wider and consider applying carbon taxes in areas across the economy, it says adding that it should front-load investment in areas including energy efficiency, the circular economy, climate adaptation and nature recovery, providing a green jobs boost to counter unemployment.

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It makes a case for establishing clear and ambitious statutory targets for the state of nature, waste minimisation, water quality and air quality under the environment bill once enacted.

Following on from the government's introduction of Green Home Grants last year, the EAC recommends that the government should introduce embodied carbon targets for the construction of new homes, so as to increase demand for low carbon materials. This would stimulate growth in low-emission manufacturing of traditional, local materials and promoting the use of new low carbon materials, it says.

"The Green Homes Grant must be overhauled and given a multi-year extension if it is to meet the government’s target of issuing 600,000 vouchers," the report argues.

EAC chairman Philip Dunne said: “The COVID-19 crisis must be treated as a wake-up call. It is a symptom of a growing ecological emergency. The economic recovery will shape our national economy for decades to come, and it is crucial that tackling climate change and restoring nature is at its core.

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“A tax system fit for net-zero Britain is key. It will encourage innovation, give confidence to the sector and support companies to make the low-carbon transition."

Alongside other recommendations about fiscal incentives to initiate change, the EAC takes aim at the Bank of England, suggesting it should align its quantitative easing programme with the Paris Agreement.

It says its monetary policy remit should include both nature and climate impacts, and any continuation of the COVID-19 Corporate Financing Facility (CCFF) should require climate related financial disclosures.

The report follows another influential government-commissioned study released earlier this month which found that fundamental change in how we think about and approach economics is needed if we are to reverse biodiversity loss and protect and enhance our prosperity.

The global review on the Economics of Biodiversity by Professor Partha Dasgupta presented the first comprehensive economic framework of its kind for biodiversity. It calls for an urgent and transformative change in how we think, act and measure economic success to protect and enhance our prosperity and the natural world.

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