New tax incentives will not boost environmental protection

The Treasury’s proposed tax incentives for investing in pollution control will have far too narrow a scope to genuinely boost environmental protection, environmental industry organisations have warned.

The restrictions have been highlighted by the Environmental Industries Commission (EIC), and are detailed in the annexes to the government’s pre-budget statement, entitled The Green Technology Challenge.

The Challenge was originally announced in the 2001 budget. The idea was to provide 100% first year capital allowances against mainstream industry investments in innovative environmental protection technologies. This move was to replace the normal tax write-down for capital goods, which is spread over a number of years, with the intention of helping to reduce the financial barriers to investment and allow companies to search out the most cost-effective solution to pollution problems.

However, the tax break has now been restricted to allowances for energy efficient technologies, clean fuels and vehicles – which are already supported separately by the Treasury, and a new allowance for reducing water use and improving water quality.

“The Treasury is backtracking by being far too restrictive, thereby missing an opportunity to support investment in innovative environmental solutions to tackle many of the key environmental challenges Britain faces,” said Adrian Wilkes, Chair of the EIC. “Only one new source of pollution is addressed. It is vital that the Treasury extends this measure to support the development of the best solutions across the environmental agenda.”

“Many countries across the world use fiscal incentives to promote investment by industry in environmental protection,” added Wilkes. “By restricting the green technology challenge to just a few areas the Treasury will put the UK at a disadvantage with international competitors in the race to dominate the rapidly expanding world environmental technology and services market.”

The EIC instanced the Dutch Government’s scheme, in place since 1991, which covers broad-ranging technologies that deal with pollutants ranging from particulates and hydrocarbon pollutants in soil to dioxins and heavy metal in dust emissions. It also pointed out that Germany provides outright grants for pollution investments by industry. The UK currently has just 4.4% of the world market for environmental technologies, which currently stands at an estimated US$335 billion (£233 billion) and is forecast by the OECD to grow to US$640 billion (£446 billion) a year by 2010.

A spokesman told edie that the EIC had very much hoped that the government would opt for something like the Dutch model, in which all environmental areas are examined and scored so that the most pressing areas are dealt with. “If we had to pick areas we would like to have seen included, control of air pollution would be one,” said the spokesman. “It also doesn’t cover cleaning up of polluted land, for which there are already some tax breaks, but why not? And it doesn’t cover recycling, something we are terrible at, which doesn’t seem sensible.”

He noted that the narrower the definitions, the less money the tax break would cost the government, adding: “It doesn’t do what it says on the tin any more. It does not provide a boost to environmental technologies as a whole. It is very much narrower than we anticipated.”

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