The Treasury cannot explain how it will manage declines in tax revenues worth GBP37bn from fossil fuels as the UK shifts to a clean economy, MPs have warned.
A report from the influential parliamentary public accounts committee also warned that the Treasury had not set out how the tax system was going to help the government meet the target to cut emissions to “net zero” by 2050.
With just six months until the UK hosts the crucial UN Cop26 climate summit, the committee’s chair, Meg Hillier, warned that the Treasury and HM Revenue and Customs (HMRC) needed to “catch up fast” in the face of the climate storm.
Meeting the net zero goal to curb global temperature rises and tackle the climate crisis requires cutting emissions as close to zero as possible and offsetting any remaining pollution with steps such as planting trees.
It will mean significant shifts in how people live their lives in the next few years, including ending sales of new petrol and diesel cars by 2030 and shifting to electric vehicles – which will eat into the GBP28bn a year in fuel duty revenues.
The committee said the Treasury had told the MPs the government did not have a plan for the reduction in tax revenue on fossil fuels and greenhouse gases, which, in addition to fuel duty, includes GBP9bn of other taxes.
The report also warned that immediate priorities have also often outweighed action needed to support long term environmental objectives, for example the freeze in fuel duty to help with the cost of living.
And with just four taxes defined as environmental taxation, the Treasury and HMRC do not sufficiently assess the green impacts of taxes such as fuel duty or air passenger duty, the report said.
The committee called for the Treasury to set out a clear vision of how it would help the UK achieve net zero, before Cop26 in November in Glasgow.
The Treasury should also set out a timetable for consulting on options for replacing fuel duty and other fossil fuel-based taxes, it said.
And from the next budget the Treasury should assess the environmental impact of every tax change considered and publish the green impacts of all measures in the budget, it urged.
The committee’s report said tax was an important tool for pursuing the government’s environmental goals. But it warned of a lack of leadership and coordination and said the exchequer departments had taken a “very limited view of the role of tax so far”, adding that HMRC had not done enough to evaluate how taxes changed behaviour.
The MPs called for the Treasury to be clear and transparent on the role tax will play in the shift to net zero so taxpayers can make informed decisions and other government departments could plan.
Hillier said: “The economic revolution required to abandon fossil fuels and reach net zero must be the greatest coordinated ask, of governments around the globe, in history.
“But the UK government has been blithely issuing ever more ambitious climate targets for years now, with no sign of a roadmap to reach any of them.
“The departments in charge seem stuck in a bygone era, with little sign of the innovative thinking needed to achieve all this.
“Every week brings reports of some climate record disturbingly broken – the hottest year, the hottest decade, warming seas rising faster than we feared, carbon emissions raging even as the economy takes more faltering steps.
“Now we are six months from hosting the next major global climate summit and the climate storm is breaking all around us. HMRC and HM Treasury need to catch up fast.”