Is a green tax reform coming?

15 August 2023
The government has already taken a number of steps to modernise and simplify the UK tax system, with environmental considerations high on the agenda. Some of the green indirect tax measures currently in place include plastic packaging tax (PPT), climate change levy, aggregates levy and landfill tax.

Some experts and campaigners have argued that the UK needs a more ambitious and coherent strategy to achieve its net zero target by 2050. Although the existing green taxes are designed to discourage certain behaviours, many of the these and other potential tax measures may need further support from the government to achieve their full potential. 

For example, PPT, which came into effect on 1 April 2022, aims ‘to provide a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging’. This was intended to create a greater demand for recycled plastic and, in turn, stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration. 

However, industry experts suggest that the UK does not have the reprocessing capacity to recycle much of its own plastic waste, with some estimates suggesting an extra £1bn of capital investment is required to stop the need to export such waste.

HMRC estimated it would receive tax of c.£235m in the first year of PPT. However, industry press reports indicate that the tax generated over £135m in revenue in the first two quarters alone.

If HMRC’s revenue from PPT continues to exceed estimates, this suggests that PPT may not have the intended result of increasing recycling, as recycling should, in principle, reduce the amount of PPT due. Instead, many businesses may be finding it less expensive and burdensome to pay the tax (currently charged at £210.82 per tonne) than to look for alternatives to virgin plastic. 

With economic growth in the UK slowing, the next Budget may focus on incentivising business investment, so we may not see the major green tax reform experts have been calling for until the economy stabilises. In any event, further green taxes introduced by the government need to be part of a coherent policy that successfully stimulates change. Many believe that instead of relying on taxation as a stand-alone solution, the government will need to adopt a two-pronged approach of taxing the goods or practices that have negative environmental effects, while subsidising their alternatives.