PAC urges Treasury to set out net zero vision

The Treasury is being too slow in working up its net zero funding review, Parliament’s Public Accounts Committee (PAC) has warned.

The interim report of the review, which was delayed following its launch in 2019, was published in December 2020 with the final version expected “soon”, according to a report by PAC.

The report also criticises the Treasury for being slow to review how the tax system supports the government’s environmental goals, saying it has yet to set out how it can help government to achieve the UK’s net zero target.

By COP26, which is scheduled to take place in November, the PAC recommends that the Treasury should set out a clear vision of how it will work to help the UK achieve net zero.

“Households and businesses need to understand the overall policy direction and where costs are likely to fall so they can plan accordingly. But HM Treasury has yet to provide a long-term view for taxpayers on the difficult action that will need to be taken to get the UK on the path to net zero.”

The report also says both the Treasury and the HMRC have a “limited understanding” of the environmental impact of the governmen’st four recognised green taxes, one of which is the Carbon Price Support mechanism, because their focus is on the revenue they raise.

The PAC also says HMRC and Treasury have not kept track of the impact of other tax measures with environmental objectives, such as tax reliefs to support energy saving and clean technologies, or the impact of tax measures affecting the consumption of fossil fuels. Environmental assessments should be made for all taxes, the PAC says.

“Given the scale of the climate emergency, HM Treasury and HMRC need to act now. We are concerned that the departments have yet to plan for the impact of the government’s environmental ambitions on tax revenues.”

The committee also expresses disappointment about “silo thinking” within the Treasury on environmental taxation.

It adds that immediate priorities have often outweighed action needed to support long-term environmental objectives, like the freezes in the rate of fuel duty in the 2020 and 2021 Budgets.

Both HMRC and Treasury must be “clear and transparent” on the role that tax will play so that taxpayers can make informed decisions, other government departments can plan and Parliament has the information it needs to hold government to account.

The report also urges the Treasury to aim to become an “exemplar” finance department in supporting the government’s environmental goals like net zero.

Commenting on a new report, Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said: “Aligning all tools of government behind net zero is key to ensuring that the transition takes place as quickly and as cheaply as possible. A tax system out of line with wider governmental goals has been an issue for years, but luckily, the impending Treasury net zero review brings with it the perfect opportunity to put that right.

“Rectifying a tax system that subsidises high carbon heating and favours higher-emitting modes of transport will avoid steeper emissions reductions in other parts of the economy. It will also provide clear market signals to allow the private sector to take on a lot of heavy lifting in cutting carbon, removing costs from state books. A holistic look at the whole system can ensure that changes are made well and made once, capitalising on public backing for polluting products costing more and setting the UK up to hit its world leading carbon targets.”