Tax reform for climate justice: are we ready for it?

This post is by Sara Hall, head of movement and partnerships at Tax Justice UK

The climate crisis is intensifying and the Covid-19 pandemic has exacerbated existing levels of inequality in the UK. This highlights the urgent need for a just and green recovery and, more specifically, for the tax and climate justice agendas to go hand-in-hand. But we need to get our act together quickly to make sure they do.

Making the link between progressive taxation and funding a green recovery
Many economists and activists, in the UK and across the world, have been highlighting how tackling inequality should go hand and hand with action on climate justice. Writing for the Sunrise Movement in the US, Nobel prize winning economist Joseph Stiglitz has made a compelling case that reforming tax could be an easy way to raise money for a ‘green new deal’ while increasing economic efficiency. He suggests taxing dirty industries; a broad range of taxes on pollution and financial transactions; closing tax loopholes and ensuring that income from work and wealth is taxed at the same rate. He estimates that all of this would provide trillions of dollars over the next ten years, money that could be spent to fight the climate emergency. Taxes are, of course, just one way of funding the green transition – cheap government borrowing is going to play a central role in funding the investment that’s needed.

A Tax Justice Network paper by Laura Merrill adds to the evidence on taxes, estimating that: “Global revenue gains from the removal of subsidies and the efficient taxation of fossil fuels could be around US$2.8 trillion to governments or equivalent to 3.8 per cent of GDP.” Oxfam has also called for governments to consider wealth taxes, luxury carbon taxes and wider progressive carbon pricing in addition to essential measures to shift energy supply rapidly to sustainable, renewable sources at a fair cost to ordinary people.

There are doubtless lessons the UK could learn from these analyses, and commentators here are beginning to point out that progressive taxation could target the UK’s entrenched wealth inequality, while meeting the country’s climate commitments and delivering a green recovery.

One of the recommendations in the investment section of the recent Reset report by the APPG on the green new deal, in fact, was to rebalance the tax system to tax wealth more. “Bringing taxes on wealth in line with taxes on income”, it suggested, “would help to reduce inequality and underpin increased investment in public services.” A more equitable tax system, in other words, could play a key role in funding the green recovery.

Tax rises are on the cards, but we must get them right
These calls for a better approach to taxation come at a time when we know that tax rises are on the cards. Chancellor Rishi Sunak has hinted they might be needed and the Institute of Fiscal Studies has suggested rises of over £40 billion are “all but inevitable’” in the medium term. 

The UK is in a unique position to be bold and ambitious in firmly connecting up the dots between climate and tax justice in the UK: in January it will embark on a new independent trajectory as ‘global Britain’ and will take up the presidency of the G7, as well as hosting the UN COP26 climate summit in Glasgow.

It’s therefore great to see some initial work being done to explicitly connect the tax and climate agendas in the UK. Examples include Green Alliance’s TransformTax project and the work Common Wealth and the New Economics Foundation are doing on redesigning tax for a just, green recovery.

A more equitable tax system will be popular with the public, but there are threats
At Tax Justice UK, we are advocating for a fair and effective tax system that benefits everyone. This includes taxing wealth at least at the level of income. Our award-nominated research with Survation and the University of Sheffield found that 74 per cent of people want to see wealth taxed more including, perhaps surprisingly, 64 per cent of Conservative voters. Separate research by Demos and by the LSE and University of Warwick Wealth Tax Commission made similar findings.

But that doesn’t mean it is going to happen: other players in this space are certainly advancing their agendas. For instance, the right wing Centre for Policy Studies recently released a report calling for tax cuts for businesses and share traders, reducing income tax for the highest earners and VAT increases for everyone. And news reports suggest Amazon will pay almost nothing under the new digital services tax while also being part of a panel, described as ‘secretive’, set up by the Cabinet Office to help shape public sector procurement.

Other reports have highlighted that the fossil fuel industry has been meeting UK ministers behind closed doors to discuss the COP26 talks, and it is unlikely they will be arguing to end the subsidies and tax breaks they currently receive. At the same time, in response to the pandemic, it is estimated that G20 countries have used at least $181.43 billion of public money to support fossil fuel companies without any conditionality attached. This public money has taken many forms and includes – but is by no means limited to – tax breaks.

To counter these threats, we believe it is vital that we continue joining up the climate and justice agendas. Next year, as the UK hosts the global climate summit and embarks on a green industrial revolution, is the right time in the UK to advance the case for people and the planet to prosper over corporate profit.

The Tax Justice Network has published a series of papers and a podcast on climate and tax justice and hosting a global conference on 10 and 11  December to discuss how to pay for the climate transition.

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