AAT writes to COP26 President about the environment and tax policy

In November, the UK will host COP26 – the next UN conference on climate change in Glasgow. Ahead of that, Phil Hall, AAT Head of Public Affairs & Public Policy, has written to COP26 President Rt. Hon. Alok Sharma MP calling for more coherent policies on the environment.

Re: Tax Policy & the Environment

Ahead of COP26 this November, the Association of Accounting Technicians (AAT) believes that the British Government should take action to enhance its environmental credentials and make a more positive impact to reducing environmental damage, by making changes to a number of areas of tax policy that currently appear to contradict its commitment to reaching net zero by 2050.

Aviation tax reform

Recent Government proposals to reduce Air Passenger Duty (APD) on UK domestic flights greatly weaken government policy on seeking to reach “net zero” by 2050, fly in the face of a wealth of national and international evidence about the damaging impact of short-haul flights and seriously undermine the UK’s credibility ahead of COP26. AAT has set out its objections to this unacceptable suggestion in its response to the recent HM Treasury consultation on the subject.

Plastic packaging tax

More than 40% of the world’s plastic is used for packaging. Reducing plastic packaging, therefore, has the potential to substantially reduce plastic usage overall and is very much supported by AAT. Both the 2019 and 2020 Government consultation documents on this subject refer to the UK’s Plastic Packaging Tax as “ambitious” and “world-leading” as do Government Ministers whenever discussing the concept.

However, according to EY analysis for the Plastics Federation, more than half of all plastic in the UK already meets the 30% threshold. Most leading brands, retailers, and packaging companies have already committed to higher average recycled content across all plastic packaging. For example, Coca Cola has committed to 50%-100% in small bottles and 100% in larger bottles by the end of this year. Likewise, the EU, Australia and Canada all appear to be going much further and faster than the UK. How can the UK Plastic Packaging Tax be considered world-leading or ambitious when so many manufacturers and other countries have gone further?  

Government should therefore take effective action by increasing the proposed 30% threshold to ensure the tax is genuinely “world-leading” ideally by setting out a roadmap for reform e.g. 40% by 2025, 50% by 2030 and so on. More information on this recommendation is available here:

• Plastic Packaging and Tax Policy

Deposit return scheme

AAT was naturally disappointed by the latest delay to a plans for a Deposit Return Scheme given its support for an “all-in” DRS paying at least 20p per can/bottle as planned for Scotland. Delaying until 2024 means it will have taken 8 years to introduce the scheme from when first announced. This is a far from ideal timescale given the pressing nature of the problem and the damage to the environment that will have occurred during that period. AAT would like to see the previous timetable of 2023 reinstated but should that genuinely not prove possible, it is essential that this further delay is utilised to comprehensively study the possibility of a digital DRS rather than a traditional reverse vending machine model. This has been trialled in Northern Ireland, is being examined by the Welsh Government, is already being progressed by a Digital DRS Industry Group of material and drink producers and retailers including Ocado, Diageo, Co-op and Danone. The merits of a digital DRS are clearly set out in the recent Environmental Audit Committee correspondence to your colleague, DEFRA Minister Rebecca Pow MP, in May 2021 available here: https://committees.parliament.uk/publications/5968/documents/67668/default/

VAT on renewables

There are a number of seemingly contradictory tax decisions that whilst raising some revenue, actively discourage the greening of the British economy. Perhaps the most notable recent example of this was the October 2019 decision to increase VAT from 5% to 20% on numerous low carbon items, including domestic wind turbine systems and heat pumps, whilst VAT on coal provided to residential properties remained at 5%. The EU can no longer be held responsible for tying Government’s hands in relation to VAT rates and so changes should be promptly implemented to reflect both the net zero commitment and common sense.

Tax policy in general

Many would agree that no new taxes, regulations, or tax policy changes should be introduced if they are  incompatible with the Government’s commitment to reach net zero by 2050. Policy officials are already required to identify and assess the sustainable development impacts of their policy options and have been so for several years. However, the Sustainable Development Impact Test proforma used by civil servants has not been updated in more than a decade and could certainly be made more robust with a view to reducing or eliminating policies that contradict environmental objectives.

As you recently stated, “…we have the enormous responsibility, shared by each and every one of us, to protect the planet from a crisis of our own making.” In relation to the above areas of tax policy, we do not appear to be taking that responsibility as seriously as we should.

Phil Hall is AAT's Head of Public Affairs and Public Policy.