Tax Day: Treasury will review controversial proposals for aviation duties

The Treasury has provided more than 30 updates to tax rules in the UK, but has stopped short of providing VAT breaks for energy-efficient and resource-efficient materials and business models that many had hoped for.

The scale and level of the changes announced for the green economy is likely to be underwhelming for many

The scale and level of the changes announced for the green economy is likely to be underwhelming for many

Green groups had hoped that Chancellor Rishi Sunak would use the string of updates to tax rules, announced today (23 March), to cut VAT rates for products and services in sectors including building energy efficiency, solar power and reuse and repair.

Instead, the final paper includes zero specific mentions of “energy” or “climate”. There are still several announcements for the green economy – although most concern further consultations, future announcements and scrapped plans rather than new rules effective immediately.

The paper confirms that the UK Government will publish a consultation on proposed changes to Air Passenger Duty (APD) that have proven unpopular across the green economy. The proposals entail an increase in APD for long-haul flights from economy tickets to private change, but a decrease in APD for domestic flights, or a reduced or zero rate for the return leg of short-haul flights abroad.

The Treasury’s paper also states that the UK is scrapping plans for a Carbon Emissions Tax after a consultation that closed last September. Its justification is the fact that the UK is implementing a domestic Emissions Trading Scheme (ETS), given that Brexit has seen the nation exit the EU’s ETS. The ETS was confirmed through the Energy White Paper last year but businesses have continued to call for more information on long-term price trajectories and which organisations are covered.

There are more questions than answers on VAT, meanwhile. The paper confirms that it will not take proposed changes to VAT grouping any further. VAT grouping is part of the reason that products like building materials specifically intended to energy efficiency are priced the same as general building materials, for example.

The paper also states that the Government will publish the results of a consultation on VAT value shifting later this year. This could lead to new rules to mandate methods of apportionment of consideration when items with different VAT liabilities are supplied together for a single price. It additionally floats the idea of VAT breaks for the public sector but states that confirmation will not come until later this year.

Resource management

While the terms “climate” and “energy” are not used, the paper does refer to waste and resource management several times.

It confirms that higher taxes on aggregate removed during construction projects could be on the horizon. Waste from construction, demolition and excavations accounts for some 59% of all waste produced in the UK each year by weight, but recycling rates have remained high since 2010.

The paper also confirms the Government’s intention to review aspects of the Landfill Tax, first introduced in 1996. Rate increases for April 2020 were confirmed back in 2018 but the Treasury has heard evidence that further changes may be necessary if the UK is to meet its long-term environmental targets – given that it is currently off-track. Reviews could be grouped in with the string of consultations on the Resources and Waste Strategy. 

Green economy reaction 

The head of the Zero Carbon Campaign, Hannah Dillon, said that the Treasury has "missed the opportunity to underpin its legislated climate goal with meaningful action" in today's announcements.

Dillon said: "The Government should be focusing on making greener choices cheaper and more accessible, rather than incentivising polluting behaviour. Proposals to reduce domestic APD send the wrong signal to industry and consumers and undermine faith that all Government departments are committed to achieving net-zero."

Sarah George



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