New report calls for amendment to super deduction to drive green investment

A new report from the IET, Policy Connect and the All-Party Parliamentary Group for Manufacturing is calling for a low carbon eligibility criterion for the super-deduction tax incentive to drive green investment and help achieve net zero carbon manufacturing. The super-deduction should also be extended until 2030.

The government’s Industrial Decarbonisation and Net Zero Strategies set out a roadmap to net zero by 2050, including the commitment to reduce greenhouse gas emissions from heavy industry by 78% in 2035 compared to 1990 levels.

The commitment in law to these decarbonisation goals requires every policy lever to be pulled. Supporting the manufacturing sector as it tackles the net zero challenge is an important lever as it currently counts for 15% of UK’s emissions.

The report says existing tools can be better targeted to help businesses embed net zero practices. The government should use Capital Allowances in their various forms to ensure businesses are investing in green technologies.

The super-deduction, R&D tax credits and other existing incentives offer great opportunities for manufacturers to revitalise their assets and plants, but without the right targeting, the UK will miss a once-in-a-lifetime opportunity to ensure that any new capital investment is low carbon.

The government should:

1. Extend the existing super deduction tax relief from 2023 to 2030, to give businesses time to use these allowances strategically to meet the potentially higher initial cost of greener technologies.
2. Introduce a low-carbon eligibility criterion for all tax reliefs and allowances, to create the culture to introduce and exploit low- or zero-carbon technologies.

Plant machinery and assets can have a lifespan of up to 25 years. If the 2035 and 2050 targets are to be met, there is no time to lose to drive investment in low-carbon technologies.

The return on investment will be three-fold: generating income on low-carbon technologies, creating a culture of introducing and exploiting low-carbon technologies and preparing the sector well in advance of the net zero targets.

Steve Evans, Chair of the IET’s Manufacturing Policy Panel said: “Together, digitalisation and sustainability are the two most powerful forces that we are going to see in manufacturing over the next decade. Joint and synergistic action on both is now urgent and vital. We can’t afford to have separate digital and sustainability strategies.

“To deliver the ambitious C02 reduction target of 12MT as set out in the Government’s Decarbonisation Strategy, will require a gigantic effort from both digital and sustainability problem-solvers, on an industrial scale. Politicians and policymakers can help too by ensuring manufacturers have the business and financial support they need.”