The government is accused of failing to lay the ground for a low carbon economy, according to a new report by think tank Green Alliance, which urges the Treasury to publish a tax road map for net zero. [1]

A clear and coherent tax plan is needed to help households and businesses plan and to stimulate investment in green skills and technology, while avoiding a fiscal hole of billions of pounds of lost revenue.

Fuel duty, which currently raises around £30 billion per year, is highlighted as one of the most significant “fiscal risks” that needs to be addressed as the switch to electric vehicles will see tax revenue from diesel and petrol vehicles dry up over the next couple of decades.

This follows Chancellor Jeremy Hunt’s autumn statement last week, which set out to address the poor state of public finances with tax rises and spending cuts of up £54 billion. The statement included plans to introduce vehicle excise duty (VED) on electric vehicles for the first time by 2025.

The report also urges the government to do more to address perverse tax incentives that do not support sustainable consumer choices and to apply a net zero test to all new tax changes to ensure they don’t undermine decarbonisation or harm the natural environment.

Zoe Avison, policy analyst at Green Alliance, said:
“If the chancellor thought he had a fiscal black hole to fix last week, he’s got a bigger problem coming down the line. Our current tax system is geared around fossil fuels and as we switch to cleaner alternatives those revenues will dry up. Households and businesses also urgently need to know how the tax system will change so they can prepare and invest in the technologies of the future. Announcing changes to Vehicle Excise Duty from 2025 shows the government is starting to consider these issues, but they must now set out a full road map to make our tax system fit for net zero.”

Jill Rutter, Senior Fellow at the Institute for Government (IfG), said:
“The tax system needs to support not undermine the route to net zero – and the clearer that path is from the start, the more it will smooth transition. So we fully endorse Green Alliance’s proposal for a tax roadmap – which builds on proposals we made in our own report, Net zero and the tax system, last year and on earlier ideas for a more strategic approach to tax policy.”

Note to editors

Green Alliance
Green Alliance is a charity and independent think tank, focused on ambitious leadership for the environment. With a track record of over 40 years, Green Alliance has worked with the most influential leaders from the NGO, business, academic and political communities. Our work generates new thinking and dialogue, and has increased political action and support for environmental solutions in the UK.

[1] Green Alliance, A green tax road map for the future, November 2022