The UK’s journey towards net zero faces fiscal challenges, prompting the CBI to propose significant tax cuts for green technology firms.
- The CBI advocates for reducing corporation tax for electric car and heat pump firms from 25% to 10%.
- An innovative ‘green innovation credit’ with a 40% tax relief is proposed to boost low carbon tech R&D.
- The business group also suggests a ‘green super-deduction’ at a 120% rate for EV and battery factories.
- These proposals aim to attract global investment and bolster the UK’s green technology landscape.
The Confederation of British Industry (CBI) has made a compelling case for slashing the corporation tax rate for companies committed to producing electric vehicles and heat pumps. Currently set at 25%, the CBI proposes a reduction to just 10%, a move designed to stimulate investment in critical green technologies.
Alongside the tax cut, a ‘green innovation credit’ has been put forward, offering companies a substantial 40% tax relief on investments in low carbon technology research and development. This initiative is intended to drive innovation and encourage businesses to delve deeper into sustainable solutions.
To further incentivise production, the CBI suggests an ‘enhanced green super-deduction’ at a rate of at least 120%. This deduction specifically targets businesses involved in the construction of factories dedicated to electric vehicle and battery manufacturing, aiming to position the UK as a leader in the green industrial revolution.
Rain Newton-Smith, Chief Executive of the CBI, argues that these measures are essential for maintaining the UK’s appeal as an investment hotspot amidst a challenging economic climate. She emphasises that ‘The Budget can provide a tone-setting moment in the Government’s growth mission.’
In financial terms, implementing the proposed 10% corporation tax could cost the Government approximately £238 million annually, while the super-deduction would bear a £389 million price tag. Despite these costs, the CBI believes the long-term benefits will outweigh the immediate fiscal outlay.
Further measures include a suggested reduction in VAT on public electric vehicle (EV) charging from 20% to 5%, representing an additional £33 million cost to the Treasury. The organisation also promotes the elimination of VAT for energy-efficient home improvements, such as double-glazing.
The Institute for Public Policy Research (IPPR) complements these calls by urging for a revision of government borrowing rules. By focusing on the UK’s net worth instead of its debt, the IPPR argues that up to £50 billion could be diverted into essential infrastructure, energy, and healthcare investments, potentially propelling productivity.
Economist Carsten Jung from the IPPR highlights the UK’s entrapment in a ‘low growth trap’ due to historical underinvestment, advocating for a shift towards robust long-term investment strategies. His comments align with the proposed fiscal changes aimed at rejuvenating the economic landscape.
These proposals underscore the urgent need for fiscal strategies that facilitate the UK’s transition to a low-carbon economy.
