Taxing Times: With the Economy Unravelling, We Need a Budget for the Green New Deal

The UK budget is set to be delivered on Wednesday in a context of extraordinary volatility. As an already precarious global economy attempts to navigate the threat of coronavirus, which has now surpassed 100,000 cases, the stock market has plunged by a near-unprecedented 7.5%.

Meanwhile, fuelled by escalating tensions surrounding an oil price war between Russia and Saudi Arabia, and coupled with a demand shock, crude oil experienced its most dramatic fall since the Gulf War.

Twelve years on from a financial crisis so severe that its impacts are still felt today, and with just a decade left to halve global emissions, now is the time to act at the scale and pace necessary to safeguard a planet fit for life. The last time a major recession struck the global economy, the British left was ill-prepared – unable to articulate a compelling narrative to explain the causes of the crisis, or rally behind a clear and sufficiently ambitious plan for dealing with its repercussions, allowing the consensus that there was no alternative to austerity to solidify. 

Critically, the last recession was also a missed opportunity for using a step-change in public investment to decarbonise and stimulate a sputtering economy, using the kind of policies that form the heart of a Green New Deal – a plan for a transformative, strategic programme of public investment to decarbonise the economy while ensuring economic justice. At a time of historically low borrowing costs for government, and on the brink of a global recession, a Green New Deal based on a transformative increase in public investment is common sense.

To be genuinely transformative, the Green New Deal should be more than a proposal to decarbonise the economy as it currently operates. Rather, it should be a clear plan that recognises the urgency of a more fundamental reorganisation of the economy, away from environmentally destructive, carbon intensive and extractive systems and activities, and toward an economic model that is just and sustainable by design. The Green New Deal as envisioned by Common Wealth, for example, calls for the repurposing of the core economic institutions currently driving climate crisis, alongside deep inequality, and which must be transformed together to address climate change in the longterm. 

The Johnson government has made clear – at least rhetorically – it intends to ‘level up’ areas outside of London and the South East, and signalled it remains committed to meeting the current 2050 net zero target. Actually achieving these outcomes will be no small feat; to do so, the budget should feature a comprehensive set of credible measures to tackle all forms of inequality, and ambitious plans for investment in just decarbonisation and green industry. For example, new IPPR analysis shows that hitting even the 2050 target will require an extra £33bn of investment annually.

However, changes trailed ahead of Wednesday’s budget appear to fall far short of meeting the challenge ahead, with likely environmental policies comprising additional charges on single-use plastics, and an end to the decade-long fuel duty freeze. But discrete, consumption focussed tweaks simply will not cut it. A systems crisis demands a systems response, and overhauling the design of the tax system will be central to this, as part of a multi-pronged approach to delivering a Green New Deal. 

Tax is fundamentally political, shaping how our economy functions, and whose interests it prioritises; its design should therefore reflect the values and priorities of a society. Tax is an immensely powerful tool for shaping our collective behaviour and for redistributing wealth throughout the economy to ensure vital societal and environmental needs are met. 

The current UK tax system fails to sufficiently address levels of income and wealth inequality in both its design and its outcomes, while also failing to adequately inhibit destructive activity, like carbon emissions or value-extractive corporate behaviour. The suite of UK environmental taxes in particular favour flat schedules, meaning the rate is the same for everyone regardless of income, and apply to consumption.

This need not be the case. Rather, tax can be harnessed to pursue redistributive justice while rapidly eliminating carbon from the economy. The tax system can be used to firmly reorient the economy away from extractive behaviour and carbon-intensive production and consumption toward green, low-carbon, productive activity that supports a society in which all can flourish. It can also be a system that is progressive by design, integrating justice and the reduction of inequality as key outcomes. 

Finally – and with particular importance for the UK – tax must operate on the basis of global solidarity. If the UK and its network of Overseas Territories and Crown Dependencies were treated as a single entity, the UK would rank first in terms of financial secrecy and offshore financial activities, which include its vast web of tax havens. Similarly, the slashing of the UK corporate tax rate from 28% to 18% since 2010 has facilitated a global race to the bottom. These trends must be reversed to ensure countries throughout the world – particularly those that have contributed the least to the climate crisis while disproportionately shouldering its impacts – are able to govern their domestic tax systems to support a global Green New Deal.

Tomorrow’s budget seems unlikely to meet these significant challenges, but in contrast with the response to 2008, the government should recognise this moment of intense economic uncertainty as a symptom of a fundamentally ailing economy, and counter the damage of another crisis with a bold plan for investment in decarbonising the economy while delivering economic and social justice: a Green New Deal. The extreme option in the current moment is not systems change, but to continue down an increasingly fracturing status quo fuelling irreversible climate and environmental collapse.  

Adrienne Buller is a senior research fellow at Common Wealth, with a focus on the green new deal. Miriam Brett is director of research and advocacy at Common Wealth.