As the host of the recently held 26th United Nations Conference of the Parties on Climate Change (COP26), the United Kingdom has the opportunity to demonstrate its leadership in taking decisive steps to achieve a deep economic transformation and decarbonization.In addition, the UK government’s recently released 2050 Net Zero Emissions Strategy laid the foundation for the development of a publicly guided rapid decarbonization and shared prosperity plan, and emphasized ‘We really need to reduce our dependence on hydrocarbons as soon as possible.
However, despite domestic climate targets and international commitments, the UK continues to provide a number of tax breaks for domestic fossil fuel production and consumption. Over the past five years, the value of UK support for fossil fuels has increased by an average of approximately £12 billion per year.
The findings of this report show that although the UK is part of the Paris Agreement on Climate Change in December 2015, the level of support for fossil fuels in the UK tax system has not been significantly reduced. Although the overall level of domestic support in 2020 will fall from £17 billion to £10.5 billion-21 (based on actual calculations), this includes a reduction of £2.3 billion in direct budget transfers rather than changes in tax relief, as well as 2019-20 and 2020-21 The £2 billion between them is related to the sharp economic contraction caused by the Covid-19 pandemic.
Judging from the data before the pandemic, fossil fuel support actually fell by 4.5 billion pounds between 2015 and 2019, but about half of this year’s decline was due to direct budget transfers (usually used for coal mine decommissioning costs and different ). Since 2015, tax credits for fossil fuels-representing a continuing feature of the tax system-have actually fallen by 15% before the pandemic, from £14.7 billion in 2015 to £12.5 billion in 2019 (the 2020 21 prices). During this period, apart from announcing the plan to reduce red diesel eligibility starting in April 2022, no major measures have been withdrawn, which shows that the government has not taken meaningful action to align its tax and subsidy system with climate targets. And on the contrary, it supports the continuation of harmful environmental behaviors. Careful consideration should be given to eliminating subsidies, especially consumer subsidies that affect low-income families. It is essential that as subsidies are eliminated, policies are formulated to reduce the impact on those who cannot afford the change.
In the face of climate and environmental crises and the short period of time to avoid collapse, it has become increasingly clear that the current speed and scale of operations will not bring about a safe future. Instead, we need to make a deep transformation in the design and operation of the economy. This will require structural policy changes and gradual changes in public investment. Taxation can play an important role in providing services for increased borrowing in a sustainable manner. But it is crucial that by combining the dual goals of the Green New Deal — ensuring economic and climate justice — the reimagined UK tax system can play a central role in promoting a more equitable distribution of wealth, while at the same time shifting economic activity away from High carbon production and consumption. The phasing out of support for British fossil fuels needs to be part of a coherent strategy to ensure an orderly, fair and rapid transition.
To this end, the report puts forward a series of principles and recommendations for implementing such tax reforms. This report is based on the principles of a climate-just taxation system jointly developed by the UK Revenue and Justice Office and other non-governmental organization partners, and proposes three overall recommendations:
1. Change the definition to change the argument
The British government currently relies on narrow definitions ‘“Subsidies” conceal the scale of effective fossil fuel subsidies. The UK Treasury must reassess its current definition and align it with a more comprehensive approach to determining fossil fuel subsidies; a method that combines tax breaks, subsidies and support, recognizes Choosing not to levy tax through reductions or exemptions is an option to subsidize its use.
2. Start subsidies and support for the rapid phase-out of fossil fuels
In accordance with the UK’s G7 pledge to end all subsidies by 2025, the government should formulate a comprehensive road map to immediately reduce significantly and quickly eliminate fossil fuel subsidies in the next few years. A core pillar of a climate-just tax system should be to protect low-income households and marginalized communities from higher costs after being phased out, such as through income recovery. This tax change should become part of a broader green industry strategy, guiding future green industries and nurturing green infrastructure.
3. Designing a tax system suitable for the future: as a transition to the new operating model of the Ministry of Finance
In accordance with the recommendations of the Climate Change Commission (CCC), the UK Ministry of Finance recently issued a net zero review report, which aims to study how households, businesses and governments contribute to the transformation; determine a fair transition mechanism, consider economic growth opportunities and evaluate The trade-offs of different measures. On this basis, the government should expand the scope of responsibility of the net zero team to cover the fair transition of all Treasury policies (including the tax system and resource decisions affecting other departments). This dedicated just transition team should report directly to the Prime Minister, and should monitor progress in responding to CCC recommendations, aligning with the Paris Agreement, and working closely with the existing Cabinet Committee and the BEIS Council dedicated to climate and net zero. It is recommended that ministers How to reduce emissions in the most advanced way. It can also help strengthen democratic accountability by providing regular updates to the parliament (and the final tax and spending decisions made by the parliament based on this recommendation). Finally, it can support broader cross-agency coordination by establishing a Green Finance Action Task Force (GFAT), including the Bank of England, CCC, and other ministries.
In addition, the report also proposed a number of specific measures for tax relief, including:
- Reduce domestic value-added tax rates for fuel and electricity
The British government should phase out this relief while providing transitional support to families, such as ‘Payment of climate dividends and measures that enable them to switch to clean heating alternatives. The abolition of some consumer subsidies, especially the 3.6 billion pounds of household heating value-added tax relief, must be designed very carefully, especially in the context of rising energy price ceilings (this limits the maximum price that producers can charge for energy). The relief can protect low-income households from the full costs of ginas and electricity price increases, especially since direct income support measures such as winter fuel payments have been fixed between £100 and £300 depending on the situation since 2000/01. As consumer subsidies are phased out, the income earned must be used to support low-income households and ensure that they are properly protected during the transition to affordable clean heating.
- “Relief for Producers of Fences
Oil and gas corporate income tax relief subsidizes fossil fuel companies, allowing them to deduct the cost of decommissioning old infrastructure and capital expenditures for new plants and machinery from taxable profits, thereby reducing taxes and potentially leading to tax refunds.The government should immediately cancel subsidies for any new fossil projects and apply ‘The polluter pays decommissioning principle, and accelerates the fair transition plan of North Sea workers to zero-carbon work.
- Bundled Oil Project (Industrial Relief)
Since eligible industrial uses usually do not cause carbon emissions, the exemption is reasonable in principle, although the government should strengthen monitoring of potentially harmful environmental impacts, even if it is not directly related to emissions. In addition, due to the risk of fraud– ‘“Bundled oil” is used illegally, for example as a fuel burned-when the government begins to phase out other relief uses of carbon emissions, the government will need to strengthen supervision of this relief.
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