UK Green Tax Revenue Hits Record Low Amid Industry Concerns

The UK's revenues from green taxes have dropped to an all-time low, according to the latest figures released by the Office for National Statistics (ONS). The government took £54.3 billion in green taxes in 2024, a slight drop from £54.6 billion taken in 2023. Green taxes account for just 1.9% of the UK's total economic activity and 5.4% of all taxation — both record lows since the record began in 1997.

The decline is largely attributed to repeated freezes on fuel duty and declining revenue from emissions-based tax systems. The government has frozen fuel duty annually since 2011, and in 2022 reduced the duty by a further 5 pence per litre. These measures, together with reduced revenue from the Emissions Trading Scheme and the Climate Change Levy, have severely impacted the treasury's green revenue streams.

The report also highlights the evident shift of the tax burden from households to industry. Household contributions of environmental taxes fell to £642 in 2022, down from a peak of £763 in 2010. The fall is a sign of policy decisions aimed at shielding households from rising living expenses. Industries, particularly the energy sector, are paying more. Energy companies alone remitted £8.9 billion in environmental duties in 2022, up from £6.5 billion in the previous year.

This growing pressure has concerned businesses, especially the large energy firms, about the rising cost of doing business in the UK. Some consider the current green tax regime makes doing business in their native country economically unfeasible, and hence, they are considering relocating operations to countries with more favorable environmental tax regimes. Due to such pressures, the UK government plans to implement a new tax on imported goods by 2027.

The new levy, the Carbon Border Adjustment Mechanism, would level the playing field by imposing a charge on imports from nations which do not have the same environmental tax. This will protect domestic industries from unlevelled competition and stop carbon leakage—when businesses shift production to nations with lower environmental standards.

Despite the push of the UK towards environmental management, it continues to lag the rest of EU countries in generating revenue through green taxation. Out of 27 member states within the EU, only eight possess a smaller share of GDP as environmental charges raised compared to that of the UK. The aspect has underscored the low reliance of the nation on green tax as both environmental management and taxation means.

The broader green tax discussion in the UK continues apace, walking a tightrope between maintaining business competitiveness and going after climate goals. The government has to balance the risk of revamping tax policy to better align with sustainability goals without taxing industry or families too heavily. With green tax revenues declining, discussion on more effective and equitable policy arrangements has become more intense.

The UK experience highlights the intricacies of leveraging taxation as a means to achieve environmental transformation. Whereas residential relief has taken center stage over the past few years, the growing dependency on contributions from businesses has industry leaders sounding the alarm. Border carbon taxes can be an immediate fix, but one that has long-term viability called into question.

In short, the UK is seeing green tax revenue decline as a result of policy measures that have slowed down environmental levy expansion. Although additional tax pressure is being placed on businesses, this has created competitiveness and relocation issues. With the Carbon Border Adjustment Mechanism in 2027, the government is expecting to create a more balanced and protective economic environment. However, the figures show that the UK is still behind its European peers when it comes to green taxation, a sign that deeper policy alignments are needed to meet both economic and environmental objectives.

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Source: Bloomberg