UK Treasury Collects £52.5 Billion from Environmental Taxes in 2023

According to the latest Office for National Statistics (ONS) data, the UK's environmental and climate-related taxes have rebounded to pre-pandemic levels, generating a substantial £52.5 billion in 2023, a nearly 5% increase from the previous year.

The recent ONS report, released yesterday, categorizes these taxes into three main sectors: energy, transport, pollution, and resources. It includes revenue from various levies such as Fuel Duty, Air Passenger Duty, and the UK Emissions Trading Scheme (ETS). The ONS employs an internationally recognized definition of environmental taxes to mitigate adverse ecological impacts directly. Notably, this definition excludes charges incentivizing positive environmental actions, like clean air zone fees or the single-use plastic bag levy. However, this may be subject to future revision.

In 2023, the bulk of these tax revenues, about 75%, came from energy-related taxes, with transport taxes contributing 22.5% and pollution and resource levies making up 2.4% of the total. Despite the freeze on Fuel Duty for over a decade and repeated postponements of increases by various Chancellors, it remained the largest source of environmental tax revenue, accounting for 63.2% within the energy category. The ETS and Renewable Energy Obligations collectively contributed another 33.5%.

However, there was a decline in total revenue from taxes on pollution and resources since 2022, driven by a decrease in the UK's Landfill Tax and the Aggregates Levy, which overshadowed gains from the Plastics Packaging Tax.

On a household level, the average environmental tax contribution rose from £575 in 2020 to £623 in 2021. Yet, as a percentage of the UK's gross domestic product (GDP) and total tax revenue, environmental tax income has remained relatively constant in recent years, stabilizing after a drop from the levels recorded between 2009 and 2019.

Steve Gough, CEO of Valpak, the UK's largest packaging recycling regulations compliance scheme owned by Reconomy, highlighted that these figures indicate a return to pre-pandemic levels for UK environmental tax revenues. 

He advocates that environmental taxes and levies could significantly boost the UK's development of a sustainable, circular, and net-zero economy.

"As demand and consumption will only keep rising, increasing circularity where waste is reduced and conserving finite resources will be key to meaningfully reducing the amount of CO2 produced by economic consumption and reaching net zero targets in a cost-effective way," he said.

"Government policy is one lever to achieve this while we hope that embedding long-term positive behaviours from businesses in the UK will further support more efficient resource management. Businesses that are prepared to embed circularity at the heart of their model can drive positive environmental change, reduce costs such as taxation, and lay the foundation for future, sustainable economic growth."