COMPANIES that achieve net zero should benefit from a lower corporation tax rate than those that have not achieved that target business leaders have said.

The Institute of Directors said the Government could use the introduction of the new rate to encourage firms to support the official drive for the UK to cut emissions to zero, net of amounts absorbed by 2050.

The organisation said there is currently a lack of effective incentives and support for small and medium sized businesses to achieve net zero themselves.  

Kitty Ussher, chief economist at the IoDnstitute of Directors and report author, said:

“Since the government introduced its net zero target, there has been no structured policy initiative designed to increase the number of smaller businesses taking their own action. Instead, support for SMEs to decarbonise has fundamentally relied on firms making an active decision to seek it out,” said Kitty Ussher, IoD chief economist.

She added: “Our own research shows that business leaders are keen to understand what they need to do, but there is uncertainty around the short-term business case for change, particularly given other pressing calls on their organisation’s available time and resources in the here-and-now.”

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The IoD reckons the introduction of a lower corporation tax rate for businesses that achieve net zero would provide a clear incentive for all businesses to make the desired change.

It observed: “This recommendation does not necessarily require a greater use of taxpayer resources or, conversely, that taxes necessarily rise for other firms.  What is important is that there is a wedge between the two to act as a clear financial incentive to achieve the desired change.”

The IoD said the Government should also be explicit that it wants every business to achieve net zero in its operations. Ministers should develop a methodology for carbon footprint accounting to allow firms to keep records of, and report on, their progress towards net zero.

The IoD wants the Government to complete an assessment of the suitability of support available for firms to become net zero and to consider introducing additional measures. These could include the development of a recognised kitemark scheme for companies to signal their progress on the path to net zero. 

In a policy paper published today the IoD observes: “In some parts of the private sector, deliberate policy action by government is causing business leaders to change their behaviour.”

By way of example, it notes that asset managers and large listed businesses are now required to consider and report on the climate impact of their actions.

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The paper says: “Large energy users have long been required to pay the climate change levy and work within the confines of the emissions trading scheme, as well as being encouraged to enter into climate change agreements to progressively reduce their emissions.”