Environmental Taxes in the UK: A Detailed Taxation Report for LSBM210

This report provides an overview of environmental taxes in the UK, focusing on their rationale, types, and associated incentives. The introduction highlights how environmental taxes encourage environmentally responsive business practices, mentioning different levies and potential exemptions. The report then discusses the rationale for using environmental taxes, emphasizing their role in correcting market failures and internalizing environmental costs. Various types of environmental taxes are examined, including the Climate Change Levy, Carbon Price Support rates, Landfill Tax, and Aggregate Levy. Tax incentives used in the UK, particularly Research and Development (R&D) incentives, are also discussed. The report concludes with recommendations for the UK government's tax policy, such as setting up deposit refund schemes and imposing plastic bag taxes. The report references various academic sources to support its analysis.

Running head: TAXATION
Taxation
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Name of the University
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Table of Contents
Introduction:...............................................................................................................................2
Rationale for using environmental taxes:...................................................................................2
Types of environmental taxes:...................................................................................................3
Tax incentives used in UK:........................................................................................................4
Research and development R&D incentives:.........................................................................4
Recommendations to UK government on tax policy:................................................................4
Conclusion:................................................................................................................................5
References:.................................................................................................................................6

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Introduction:
The environmental taxes simply encourages a business to function in a highly
environmental responsive manner. There are different types of levies and arrangements for
different magnitude of business. A business might acquire relief or exemption from certain
type of taxes. For example a business may make use of large amount of energy owing to the
nature of business. If they are small business which do not make use of huge amount of
energy. A business may get relief if they buy energy effective technology for their business
(Moutinho et al., 2019). The environmental challenges are increasing weight on governments
to discover ways of reducing the environmental damage whereas reducing the harmful
economic growth. Government presently has wide range of tools at their disposal that
includes regulation, information programmes, innovation polices, environmental subsidies
and environmental taxes. Henceforth, the taxes are considered as the vital portion of this
toolkit.
The present report is based on understanding the rationale of ecological levies and
assessing the types of environmental taxes (Fairbrother, 2019). The report would also
understand the tax incentives that is used in UK and also recommending additional measure
to be introduced by the UK government through tax policy to address the issues.
Rationale for using environmental taxes:
The taxes can be uses to directly address the failure of markets in order to take on the
environmental impact into consideration by incorporating the effects in prices (Andreoni
2019). The environmental prices with the help of taxation provides consumer and business
with the flexibility of determining how the best use can be made to reduce the environmental
footprint. This helps in enabling the lowest cost solution by providing incentives for
innovation and minimizing the need for government to make attempt to “pick winners”.

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The environmental taxes directly addresses the market failure which causes the
market to simply ignore the environmental effects. A better designed environmental tax helps
in increasing the price for a good or activity to reflect the costs involved in environmental
effect that is imposed on others. The cost involved in harm to others represents an externality
which is internalised in market prices. This helps in making sure that consumers and firms
considers these costs in decision making.
Types of environmental taxes:
There are certain types of environmental taxes which is discussed below;
1: Climate Change Levy: The CCL is paid whichever on the central taxes and carbon price
support rates (Oueslati, 2015). These type of taxes is paid on the gas, electricity and concrete
fuel such as coal, lignite, coke and petroleum coke.
2: Carbon Price support rates: The CPS rate inspires business to make lower use of carbon
technology for generating electricity. A business pays the CPS rate tax for gas, LPG, coal and
additional types of solid fossil fuels. The CPS rates of CCL is mainly used by the proprietors
to pay the electricity generating stations and operatives of collective heat as well as power
CHP stations (Grdinić, Klun and Kotnik 2015). There are certain types of types of supplies
that are not required to pay CPS which includes small producers, “stand-by-generators” and
“generating stations” in Northern Island.
3: Landfill Tax: Under this an individual pays taxes on top of the regular landfill fees if the
business eliminates the waste by using the landfill sites. These type of taxes is paid on the
weight and a business normally pays the taxes on the lower rate on the inactive waste.
4: Aggregate Levy: This type of taxes is levied on sand, gravel and rocks which either is
been excavated from ground, searched from the UK sea waters or imported.

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Tax incentives used in UK:
Research and development R&D incentives:
The small and medium scale enterprise are permitted to get deduction that is
equivalent to 230% of the eligible expenses on R&D during the year in which it has occurred,
that can be surrendered for the cash payment by companies which is trading at a loss and has
not yet started to trade (Santos, 2017). In order to counter the abuse of R&D regime, the
government has decided to bring a regulation in “Finance Bill 2020” so that it can limit the
total cash payment which a loss producing small and medium scale enterprise is receiving
during the tax year to three times a business’s overall PAYE and NIC tax obligation. Large
businesses are usually granted with the R&D beyond the line credit of 12% of their eligible
expenditure.
Recommendations to UK government on tax policy:
A landfill tax was introduced by the government in UK during the year in 1996 in
order to reflect the cost involved in environmental refilling and also reducing the waste
generation as well as boost recycling. Another recommendation can be made to UK
government is setting up the deposit refund scheme to lower the packaging pollution.
Introducing the deposit refund scheme for liquid refreshment packing would help in
collecting the not reusable as well as refillable glass and plastic bottles (Berbel et al., 2019).
This scheme can be promoted by contribution from close co-operation among the
government, civil society, shops and the liquid refreshment industry. After introducing the
beverage packing the government should offer tax incentives to producers and importers so
that they can actively participate in the deposit refund scheme.
Imposing plastic bags tax in UK is another way of introducing environmental tax
policy. Under this scheme a levy on plastics bags during the point of sale should be made

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(Pitrone, 2015). This will help in reducing the overall consumption of plastics bags and
would adversely create an impact on the plastics bags that litter on the landscape.
Conclusion:
The taxes on environment plays a vital role in addressing the environmental
challenges. These taxes are only effective if they are adequately designed and it is levied
closely to environmentally damaging pollutants or activity which is possible. The revenues
produced from these taxes can be used to assist in financial consolidation or can be used to
lower the other rate of taxes. Environmental taxes results in distributional concerns however
it is best to address through other policy tools.

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References:
Andreoni, V., 2019. Environmental taxes: Drivers behind the revenue collected. Journal of
cleaner production, 221, pp.17-26.
Berbel, J., Borrego-Marin, M., Exposito, A., Giannoccaro, G., Montilla-Lopez, N.M. and
Roseta-Palma, C., 2019. Analysis of irrigation water tariffs and taxes in Europe. Water
Policy, 21(4), pp.806-825.
Fairbrother, M., 2019. When will people pay to pollute? Environmental taxes, political trust
and experimental evidence from Britain. British Journal of Political Science, 49(2), pp.661-
682.
Grdinić, M., Klun, M. and Kotnik, Z., 2015. Environmental Taxation: New Evidence for
Energy Taxes. International Public Administration Review, 13(3-4).
Moutinho, V., Madaleno, M. and Robaina, M., 2017. The economic and environmental
efficiency assessment in EU cross-country: Evidence from DEA and quantile regression
approach. Ecological Indicators, 78, pp.85-97.
Oueslati, W., 2015. Growth and welfare effects of environmental tax reform and public
spending policy. Economic Modelling, 45, pp.1-13.
Pitrone, F., 2015. Would Environmental Taxes by Any Other Name Smell Sweet?. WU
International Taxation Research Paper Series, (2015-03).
Santos, G., 2017. Road transport and CO2 emissions: What are the challenges?. Transport
Policy, 59, pp.71-74.