Inconsistencies in UK tax policy? Surely not!

29 November 2016

George Bull

While many people are concerned that tax is becoming more like a political football, and others regret that increasing divisiveness creates an unhealthy environment for the development of new tax measures, there’s no doubt that the UK tax system is consistent with wider government policies. But is it really? 

When we were preparing this week’s tax brief, we didn’t have to look very far before glaring inconsistencies emerged. While some are relatively small, and perhaps pardonable on that account, others are of such enormity that one can only speculate as to how the left hand and the right hand [that’s not a party-political comment – Ed.] of government seem to have become so disconnected.

Let’s start with something fairly well known - tackling climate change for example. As I see it, key elements in what is in reality a very complex problem include:

  • encouraging people to use less energy;
  • facilitating the shift from fossil fuels to renewable energy in electricity generation; and
  • helping people transition from petrol or diesel vehicles to electric vehicles powered by electricity from sustainable sources.

The Autumn Statement introduced a 100 per cent capital allowance for companies investing in electric car charging points, as well as an investment of £80m to support charging infrastructure. That looks like a good way to increase the number of electric vehicles on UK roads. But it’s gloriously inconsistent with the government’s December 2015 reduction in the amount of support it provides to renewable electricity generators. On that point, few people disputed that support for generators would eventually have to be withdrawn and the industry left to stand on its own feet. But the timing of the change was hotly contested.

So why give tax relief for electric car charging points now? On the face of it the answer is obvious: more charging points means less worry for motorists that the batteries in their electric cars will run out before they have finished their journeys. So, notwithstanding the inconsistency, isn’t this new tax relief a great way of encouraging more people to buy electric cars?

This takes us into a completely different area. Who will benefit from this extra tax relief and how much will it be worth? In the notes published with the Autumn Statement, HMRC declared ‘in practice [the new tax relief] impacts only on those businesses with qualifying plant and machinery expenditure above the level of the annual investment allowance of £200,000.’ In other words, very few businesses. And the cost to the Exchequer? ‘Negligible’.

So here we have a new tax relief which can’t be used by many businesses, which will hardly cost the Exchequer a penny but which seems inconsistent with the government’s broader policy on renewable energy.

But it did make a great soundbite on the day. I’m told it’s called greenwashing.

If you would like to discuss any of these points further, please contact George Bull or your usual RSM contact.