Inside Business

IoD’s green corporation tax plan is an idea whose time has come

In practice it would take some working out but a carrot to incentivise reducing emissions is a fine idea. The obvious corollary is the stick of higher taxes for heavy carbon-emitters, writes James Moore

Sunday 15 May 2022 22:30 BST
The government has a stated commitment of getting Britain to net zero by 2050. So how do we get there?
The government has a stated commitment of getting Britain to net zero by 2050. So how do we get there? (Getty/The Independent)

It’s not unknown for the Institute of Directors (IoD) to come up with worthwhile proposals, but the business group’s latest is of sufficient worth to raise a question: why on earth hasn’t someone already thought of this?

The IoD’s big idea is tinged a fine shade of green: it is to introduce a lower rate of corporation tax for companies that achieve net zero, with the laudable aim of ensuring that the UK meets its national climate-change target by the 2050 deadline.

Getting to net zero – which has its flaws as a concept, but let’s run with it – will obviously require buy-in from the business community. The latter will have to do a considerable amount of work and, most likely, invest a considerable amount of money.

Trouble is, having announced its grand target to great fanfare, the government’s policy response has been lacking to say the least. This is not exactly surprising, it having taken on the personality of its feckless leader.

However, back to the IoD, which says there are many small and medium-sized enterprises (SMEs) that are supportive and quite keen to get started. They’re just unsure as to how to go about it.

It is clear that the current frosty business climate doesn’t help. Net zero is inevitably going to take second place in preference to survival for any business, all the more as frosty looks very much like becoming several degrees below freezing before too long. A number of highly reputable forecasters have lately been predicting that UK plc will enter recession, perhaps as soon as this year.

Still, there’s nothing like an incentive to concentrate minds – even (especially) in the midst of a downturn.

Of course, perhaps one reason why no one has so far suggested this is that while the idea looks marvellous on paper, there are practicalities to consider, and they go beyond defining what net zero actually is in practice.

How to assess whether or not a company has done what’s necessary to qualify for the lower tax rate would be one. How to discourage cheating once you’ve done that would be another.

Incentives are a fine way to encourage good behaviour, but they can be an equally effective motivator to play it dirty.

Greenwashing is already rife in the business community, purely in pursuit of good PR. It isn’t hard to imagine what might happen if you add a financial incentive to the mix.

Credit to the IoD for addressing some of these issues. It recognises that such a plan will take time to formulate and then put into effect, calling first for an explicit statement of what businesses need to achieve from the government, and then for the development of a framework for carbon footprint accounting.

Given the time – and more to the point, the will – these challenges are not insurmountable. On the contrary. If the UK government is to achieve its ambition, they are exactly the sort of things it ought to be working on now.

As for policing it, it needn’t be so hard. Properly regulated auditors (which is another issue the government needs to get on top of, but that’s one for another day) should be able to handle big companies, at least initially.

Smaller companies would self-declare as they do now. If you back the regime with fines, and demands for back taxes, claim a couple of scalps early on and let HM Revenue & Customs keep some of the enforcement revenue to fund oversight, you deal with that issue.

The IoD won’t say this – it’s a business group, duh – but the obvious corollary of such carrot is a stick. That would be a higher rate of tax for heavy emitters, foot-draggers and backsliders. This makes sense as part of a roadmap to net zero, too.

Otherwise, the group is to be commended for putting forward a thoroughly good idea. It’s probably too good for the current administration, which prefers stomping its little feet on culture-war issues and sacking civil servants to meaningfully improving life in Britain.

But there’s surely something here for a future government with a genuine interest in good policy, regardless of hue, to run with.

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