As COP26 nears, why is the UK giving a tax break to fossil fuel companies?

In the recent Spring Budget, UK chancellor Rishi Sunak increased corporation tax from 19% to 25% from 2023, stating it was “fair and necessary” to ask businesses to contribute to the economic recovery. But what he took away with one hand, he quietly gave back with the other.

In a move that attracted much less attention, the chancellor also granted businesses an enormous handout by announcing a new ‘super deduction’ tax relief. In practice this means that companies that invest in certain qualifying capital assets will be able to cut their tax bill by up to 25p for every £1 they invest. The subsidy is eye-wateringly expensive: according to HMRC it will cost the government an estimated £29bn over three years, and £12bn in its first year alone. In other words: it amounts to an enormous windfall for corporations, particularly those that have large capital expenditure budgets.

The rationale for this huge tax break is that it will supercharge investment, helping to boost the UK’s sclerotic economy and galvanise the UK’s post-pandemic recovery ahead of a looming hike in corporation tax in 2023. Yet the policy has attracted widespread criticism for rewarding investment that would have happened anyway, such as BT’s infrastructure upgrade that is already in full swing, and for giving an indiscriminate tax break to big businesses – including those which have flourished during the pandemic.

The online retail giant Amazon, which reported a 37% increase in earnings last year, is among those that are set to benefit. Despite being one of the pandemic’s biggest winners, the super deduction will wipe out the taxable profits of Amazon’s UK arm, meaning that it will likely not pay any tax. As well as being wasteful, campaigners believe that such an untargeted use of public money could also create new avenues for tax avoidance.

A fossil fuel sugar rush

The most troubling aspect of the super deduction policy is the impact it could have on fossil fuel investment. In an Environmental Audit Committee meeting after the Budget, Treasury minister Kemi Badenoch explicitly ruled out attaching any green strings or conditions to the new tax break. When pressed on the matter by MPs, Badenoch stated that the government “is not going to strangle our economic recovery with regulation that’s not necessary”.

In the absence of any green conditions, the super deduction leaves the backdoor wide open for a surge of investment in fossil fuel infrastructure at a time when we need to urgently cut emissions and pivot our economy away from polluting fuels. The policy not only lines the pockets of fossil fuel companies at the taxpayer’s expense, it also incentivises further exploration and extraction – locking-in carbon emissions for decades to come.

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Peter Newell Andrew Simms Freddie Daley | Radio Free (2021-11-28T23:31:37+00:00) » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?. Retrieved from https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/.
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" » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?." Peter Newell Andrew Simms Freddie Daley | Radio Free - Tuesday March 16, 2021, https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/
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Peter Newell Andrew Simms Freddie Daley | Radio Free Tuesday March 16, 2021 » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?., viewed 2021-11-28T23:31:37+00:00,<https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/>
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Peter Newell Andrew Simms Freddie Daley | Radio Free - » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?. [Internet]. [Accessed 2021-11-28T23:31:37+00:00]. Available from: https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/
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" » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?." Peter Newell Andrew Simms Freddie Daley | Radio Free - Accessed 2021-11-28T23:31:37+00:00. https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/
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" » As COP26 nears, why is the UK giving a tax break to fossil fuel companies?." Peter Newell Andrew Simms Freddie Daley | Radio Free [Online]. Available: https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/. [Accessed: 2021-11-28T23:31:37+00:00]
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» As COP26 nears, why is the UK giving a tax break to fossil fuel companies? | Peter Newell Andrew Simms Freddie Daley | Radio Free | https://www.radiofree.org/2021/03/16/as-cop26-nears-why-is-the-uk-giving-a-tax-break-to-fossil-fuel-companies/ | 2021-11-28T23:31:37+00:00
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