The Confederation of British Industry (CBI) has urged Chancellor Rachel Reeves to deliver significant tax cuts for manufacturers of electric cars, heat pumps and biofuels to accelerate the UK’s path to net zero.
The business group is calling for the corporate tax rate on companies operating in these sectors to be reduced to 10%, down from the current headline rate of 25%.
The CBI is also calling for a range of measures to support green investment, including the “Green Innovation Credit” which offers a 40% tax break for companies investing in low-carbon technology R&D, as well as the “Enhanced Green Super Rebate”. At a rate of no less than 120% for companies that build factories for electric cars and manufacture batteries.
Rain Newton-Smith, CEO of the British Investment Bank, said: These moves would establish the UK as an attractive destination for investment in green technologies, despite the difficult economic environment. “The Budget could provide a tone-setting moment for the government’s mission on growth,” she said, adding that these measures would help boost growth while ensuring economic stability.
The Bank of England estimates that the proposed 10% corporation tax rate for green technology manufacturers would cost the government £238m a year, while the big rebate would come at a price of £389m. In addition, the CBI is seeking to reduce VAT on public electric vehicle charging from 20% to 5%, costing the exchequer £33 million. It also calls for eliminating VAT on home improvements such as double glazing to improve energy efficiency.
The proposals come alongside calls from the Institute for Public Policy Research (IPPR) for changes to borrowing rules, allowing the government to increase public investment by focusing on the UK’s net wealth rather than just its debt. According to the IPPR Institute, this could provide £50 billion of additional borrowing space, which could be channeled into investments in infrastructure, energy and healthcare to boost productivity.
Carsten Young, an economist at IPPR, noted that the UK is stuck in a “low growth trap” due to decades of underinvestment. “The new Labor government was elected on a platform to change that,” he said, urging the Chancellor to shift the focus towards long-term investment.
Ms Reeves has indicated she might be open to reconsidering the government’s borrowing rules, with a view to boosting public and private investment in green technologies. Speaking to the Financial Times, she said: “I hope that in the Budget, the Office for Budget Responsibility will consider not only the short-term impact of boosting capital investment, but also the longer-term impact and catalytic effect of crowding out public sector investment in the private sector.” investment.”
These proposals reflect a growing call for the UK Government to provide the financial and political support needed to drive the transition to a low-carbon economy and achieve its ambitious net zero targets.
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