CBI urges Osborne to reform UK carbon taxes

The CBI will today urge Chancellor George Osborne to use next month's budget to fundamentally reform the UK's green tax regime, calling on him to scrap the Carbon Reduction Commitment (CRC) and replace it with an expansion of the Climate Change Levy (CCL) scheme and the introduction of mandatory carbon reporting rules.

Writing in a letter to Osborne accompanied by a formal budget submission, CBI Director-General John Cridland advised the Chancellor to merge the CRC and the CCL in order to simplify the emission reporting requirements faced by businesses.

"The CRC as it now stands does not deliver an effective and proportionate mix of the financial, reputational and reporting drivers required, adding complexity and confusion when businesses desperately need simplicity and clarity," the letter states. "The CBI proposes to simplify the policy landscape and reduce the burden on business by replacing the CRC with a reformed Climate Change Levy (CCL) in tandem with Mandatory Carbon Reporting."

The CBI has been campaigning since late 2010 for the government to ditch the CRC, after Osborne changed the scheme to remove an incentive element that promised payments to those firms that delivered the greatest improvements in energy efficiency.

The move led to complaints that the government had turned the complex scheme into a stealth tax, prompting the CBI to call for the adoption of a simpler corporate carbon tax and the implementation of government proposals, still currently under consideration, for a new mandatory reporting regime that would require large firms to publicly disclose their greenhouse gas emissions.

The letter represents the clearest call yet for the government to scrap the CRC and will crank up pressure on the government to deliver on its long-standing promise to simplify the regulations governing the scheme.

It also follows thinly-veiled criticism by the CBI of the Chancellor's approach to green issues and his decision last autumn to characterise environmental policies as "burden" on businesses, as well as frustration with the government's handling of changes to policies such as the feed-in tariff and the Green Deal.

In addition to calls to scrap the CRC, the letter contains a raft of recommendations which, if enacted, could have a major impact on green businesses and environmental policy.

Most notably the CBI signals conditional support for government plans to increase the level of environmental taxation, arguing that green levies "have an important role to play not only in supporting the government's green agenda but also in encouraging business growth and unlocking investment in the UK".

"Business has a number of priorities for environmental taxation, which include the need to ensure that taxes work in a co-ordinated manner, provide the certainty that is essential for business investment, and deliver government objectives without unduly harming business competitiveness," the letter states, adding that the government should use the upcoming budget to ensure Air Passenger Duty rises in line with inflation.

It also calls on Osborne to provide more details on how the Treasury plans to the support the government's imminent Green Deal energy efficiency scheme, arguing that having promised £200m of incentives to support the roll out of the scheme a "sensible approach" would be "to create an incentive similar to the boiler "scrappage" scheme in 2010".

The budget submission contains a range of further wider recommendations, many of which are not explicitly related to green businesses and projects but would have an impact on them if adopted.

Most notably the CBI is calling for a series of measures designed to promote investment in infrastructure, including tax breaks and planning reforms that would benefit many low carbon projects.

For example, the submission notes 25 per cent of projected infrastructure investment for the water and flood management sector, 30 per cent for the waste sector, and 30 per cent for the energy sector does not currently qualify for capital allowances.

It argues that the capital allowance system should be urgently reformed to promote greater infrastructure investment, while efforts should also be undertaken to streamline the planning system and accelerate the infrastructure plans outlined in the government's national policy statements.

The proposals are likely to be welcomed by large low carbon infrastructure projects such as wind farms, nuclear power plants, and high speed rail links, although in a move that is likely to anger environmental groups the CBI also stresses that it would like to see greater support for new road-building and airport expansion programmes.