The Institute of Directors (IoD) has published new data demonstrating that firms that currently have no plan to become net zero would be significantly more likely to do so if it would reduce their corporation tax bill.

Two-thirds of SMEs who currently have no plan to achieve net zero say they would either be ‘much more likely’ (32%) or ‘a bit more likely’ (32%) to do so if it resulted in a lower corporation tax bill.

The same survey showed that less than three in ten SMEs (28%) currently have a plan to achieve net zero, insufficient to achieve the national goal. Independent research by Sage shows that 44% of commercial carbon emissions come from these smaller businesses.

Kitty Ussher, Chief Economist at the Institute of Directors said, “Corporation tax is the tool to shift the dial on net zero among SMEs. Because government policy has so far focussed on the larger emitters, only a very small proportion of SMEs currently have a plan to hit net zero. They tell us that the main reason is the lack of a clear business case, which is a particular problem for individual firms where energy is only a small part of their total costs. Yet, taken together, smaller companies account for nearly half of total industrial emissions. We cannot meet our carbon goals without them.”

The IoD says the scheme could work in a very simple way: when firms prepare their financial accounts, they would also assess their carbon footprint and pay the appropriate tax rate on their profits depending on the result.

Kitty Ussher concluded, “We therefore urge the government to announce its intention to proceed down this route, and to start work on the necessary differential in rates in line with the prevailing conditions and to elicit the necessary response.”

Further detail on the IoD’s proposals can be found in its policy paper, ‘The Green Incentive: how to put net zero at the heart of business planning’.

Photo: Kitty Ussher, Chief Economist at the Institute of Directors.