New taxes necessary to reach net zero, warns Treasury

NEW taxes will be needed to make Britain “net zero” in carbon emissions by 2050, the Treasury said yesterday as it opened the door to extra levies on motorists and gas bills.

The £37billion a year raised in taxes linked to driving polluting vehicles will disappear over the next 29 years, meaning other “motoring taxes” must help fill the black hole in public finances.

The Government will also have to pay for some of the half a trillion pounds of public investment to convert to a green economy, again possibly through tax.

Other knock-on effects of net zero include a rise in prices for goods and services that use a lot of carbon, raising the prospect of more expensive petrol, flights and meat. The Government’s most comprehensive plan yet for how to hit its climate change goal of net zero by 2050 included ending the sale of new petrol and diesel cars by 2030, powering the UK with “clean” electricity by 2035 and tripling the number of trees planted. New tax rises would be politically challenging for Boris Johnson, who has already pushed the tax burden to its highest in 70 years.

The Treasury’s stark analysis on the fiscal consequences of the net zero target also suggests that there could be more concern in No11 than in No10 about the financial impact of the target.

The Treasury also said that interest rates could rise if there was a “sus- tained” increase in green investment.

The Government argues that the economic cost of inaction on climate change far outweighs the financial impacts of making the UK economy greener over the next three decades.

Mr Johnson yesterday stressed that market forces were ultimately critical in delivering the change, arguing that the Government and taxpayers cannot solve the problem alone.

The Queen yesterday urged political leaders, businesses and civil society to align in the “shared responsibility” of saving the planet, saying: “I am proud of how the United Kingdom is seeking to secure a sustainable future, yet there is still much more to do.”

Three government documents were

‘I am proud of how the UK is seeking to secure a sustainable future, yet there is still much more to do’

published yesterday: the Net Zero Strategy, the Heat and Buildings Strategy and the Net Zero Review.

The last of those was a Treasury analysis of what – in broad terms – would need to change and how the economy and households would be affected in order to reach net zero.

Addressing the impact on government finances, the document noted “the biggest impact comes from the erosion of tax revenues from fossil fuelrelated activity”.

Last year £37 billion in tax revenue was raised from Fuel Duty and Vehicle Excise Duty, equivalent of 1.7 per cent of GDP. That will start to disappear as petrol cars are phased out.

The analysis said that “motoring taxes will need to keep pace with these changes during the transition”.

The final bill for the switch to green energy will be “well over” £1trillion over 30 years, Paul Johnson, the director of the Institute for Fiscal Studies, told BBC Radio 4 yesterday.

Elsewhere the document said that between 2026 and 2027 more than £600million in investment will be needed. “Most” would come from the private sector, but not all.

Addressing the chance of increased public spending to help the economy to decarbonise, the Treasury analysis raised the possibility of new taxes or other revenue-raising measures.

It said: “If there is to be additional public spending, the Government may need to consider changes to existing taxes and new sources of revenue throughout the transition to deliver net zero sustainably.”

Rishi Sunak, the Chancellor, has repeatedly warned that increases in government spending should not be covered by borrowing, in part owing to concerns about rising interest rates.