Net zero and the Loch Ness monster tax bill

On 17 May 2023, the Supreme Court decided that electricity company SSE could claim tax allowances for its Glendoe hydroelectric scheme, discharging water into Loch Ness. The project was officially opened by Queen Elizabeth II in June 2009, so this decision represents nearly 14 years of wrangling. And its implications go way beyond the tax allowances issues on which the court ruled.

The case itself turned on the particular use of the words “tunnel” and “aqueduct” in the context of their inclusion in lists of items that did not enjoy tax allowances, and the court decided that the project’s meaning of those words was separate to and narrower than the lists’ meanings of them and so could benefit from the allowances.

Although it is good that a company providing renewable energy is not having to pay millions in additional taxes for building such a beneficial project, it is a pity that it took so long to resolve and had to go all the way to the Supreme Court.

This illustrates a wider issue, though – if we are serious about net zero, shouldn’t the whole of government, including HMRC, be under a duty to work towards it? There is no such duty at present, and HMRC pursued its case over several years despite losing at the first-tier tribunal in 2017.

If we are serious about net zero, shouldn’t the whole of government, including HMRC, be under a duty to work towards it? There is no such duty at present

This is not such a hare-brained idea as there are parallels that can be drawn upon. The Natural Environment and Rural Communities Act 2006 puts a duty on public authorities (and HMRC was originally specifically mentioned) to conserve biodiversity in exercising their functions. This duty was widened at the start of this year by the Environment Act 2021 to conserve “and enhance” biodiversity, and guidance on this duty was published on 17 May 2023.

In policy terms, the government commissioned Chris Skidmore MP to carry out an independent review of net zero, and he reported in January of this year. Skidmore recommended that the government “should introduce a statutory duty for local authorities to take account of the UK’s net zero targets”.

Finally, the Levelling Up and Regeneration Bill, which is introducing a replacement for environmental impact assessment, obliges steps to be taken if a project would impact on the delivery of government-specified environmental outcomes.

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I suggest we take the lead from these three elements and combine them into one super-obligation. Here’s my recommendation to out-Skidmore Skidmore: the government should introduce a statutory duty for all public authorities (not just local authorities) to consider the impact of the carrying-out of their functions on achieving net zero, and if there would be an impact, propose mitigation or compensation to offset it. This would impact on the private sector as well, because public sector decision-making would fall under this duty, just as it does with the nature recovery duty, and so private sector applicants would be incentivised to avoid negative decisions because their projects impact on achieving net zero.

If the government is serious about achieving net zero – and there is no reason to believe otherwise – then aligning all its manifestations in that direction is surely desirable and possibly even necessary. The government’s revised document setting out how it expects to achieve the sixth carbon budget (2033-37) – the first having been found to be unlawful by the court – still only achieves 97% of the savings required through quantifiable measures.

Many of the unquantified measures are in the direction of an obligation to take net zero into account in decision-making, such as “68 – future buildings to be zero carbon ready”, “139 – bids for government spending to be assessed according to climate impact”, and “141 – net zero to be a key consideration in national procurement policy”. Why not just have a single, simple overarching obligation?

To maximise the chance of achieving net zero by the target date of 2050, there will have to be a push for every part of government to play a role in cutting greenhouse gas emissions.

Would introducing such an overarching legal requirement have sorted out the dispute between SSE and HMRC? Perhaps not, although given any uncertainty perhaps HMRC should have erred on the side of achieving net zero.

Angus Walker is a partner at BDB Pitmans