Autumn Budget 2025: Sustainability and tax

9 December 2025

Last updated: 17 December 2025

Katie Close CA and Fiona Donnelly CA
ICAS

As sustainability becomes increasingly more important and the challenges of meeting climate and environmental obligations are ever more pronounced for governments and business, does the Autumn Budget deliver on sustainability measures?

Our members – and future CAs – are well placed to contribute to the efforts required to effect the changes needed. We are encouraged by and look forward to supporting many new fiscal-related sustainability initiatives for Scotland, and beyond. However, the opportunities of using tax policy to support environmental goals remain underutilised. Below we look at some of measures announced in the recent 2025 budget.

Electric Vehicle Excise Duty (eVED)

From April 2028, electric car drivers will pay a new road charge of 3p per mile and hybrid drivers will pay 1.5p per mile. The rates will increase yearly with inflation. The Chancellor called this a long overdue reform of motoring taxation and believes it increases fairness by ensuring electric and hybrid drivers make a contribution equivalent to the fuel duty incurred by petrol and diesel vehicle drivers.

The consultation document proposes that the per mile charge will be calculated by user-supplied mileage reporting and integrated into existing vehicle excise duty processes. There will be no need for trackers. Although this is supposed to simplify the process, the requirement to estimate the mileage for the year ahead and then reconcile this at year end may lead to unexpected balancing payments for motorists (or overpayments).

The consultation on eVED links the introduction of this new tax to congestion and wear and tear on the roads. If congestion and the cost of upkeeping our roads was really a priority for the UK government, we would expect to see more measures aimed at supporting clean public transport.

The eVED is intended to replace some of the lost fuel duty revenue as electric vehicles become more popular. It highlights the tensions between governments needing to maintain revenues from traditional forms of motoring while at the same time, incentivising movement away from petrol and diesel vehicles. The recent opinion from the International Court of Justice that countries could be legally liable for the impact of carbon emissions stresses how governments will come under increasing obligation and scrutiny in meeting their environmental goals. Domestic transport is the largest emitter of greenhouse gases and so a key focus for the UK government in meeting those goals.

Other measures supporting electric vehicle use

The Budget includes various measures for supporting electric vehicle use, including:

Raising the threshold at which new EVs pay the VED Expensive Car Supplement from £40,000 to £50,000.
Investing an additional £100m into public charge points, including funding to support the installation of home and workplace charge points.
Launching a consultation on permitted development rights for cross-pavement EV charging, which will benefit households without driveways.
Introducing a ten-year 100% business rates relief for EV charge points and EV-only forecourts.
One-year extension to 100% First Year Allowances for zero emission cars and electric vehicle charge point infrastructure.
A review of the cost of public electric vehicle charging in 2026 looking at the impact of energy prices.

The emphasis of these budget measures encourages private cars (all be it eVEDs) rather than travel by train, a mode of transport measured to have a lower total carbon footprint, among other advantages. We appreciate that people have diverse needs for transportation so a sustainable solution must comprise a mix of modes of travel that accommodate individual circumstances. For example, cars not trains are more viable for those who live remotely. Trains have a lower total carbon footprint and could be affected by measures (like investment) including improving frequency/reliability of travel on the current rail network infrastructure and extending the freezing of rail fares announced for England to Scotland. Confidence in and better service from the rail network could bring about other carbon reductions, through travellers choosing trains over planes.

Carbon Border Adjustment Mechanism (CBAM)

CBAM is a new tax which targets carbon intensive goods imported into the UK. It will apply from 1 January 2027. It aims to create fairness between the price of carbon intensive goods imported into the UK and those produced in the UK. It applies to aluminium, cement, fertiliser, hydrogen, iron and steel.

CBAM is a welcome policy addition to ensure international trade supports decarbonisation. While we fully acknowledge the complexities of accurately measuring indirect emissions, we support their inclusion in CBAM calculations at the earliest opportunity and ideally before 2029. For efficiency, competitiveness and carbon leakage reasons, we urge UK CBAM to be developed in an interoperable way to EU CBAM as a minimum. With the introduction of CBAM, we suggest a review of the effectiveness of the Energy Intensive Industries (EII) Compensation Scheme. We encourage the development of targeted support to align with decarbonisation measures and support investment in low-carbon technologies.

Investments in green transitions

Programmes like the Forth Green Freeport and the transition of Grangemouth, as well Aberdeen, to move from high-emitting unsustainable sectors to sectors of the future are welcomed. The transition of Aberdeen and Grangemouth involves significant investment to build Scotland’s clean energy future and will create a substantial number of highly skilled jobs. It also recognises that fiscal sustainability must take account of environmental goals and the potential damage that climate change can do to public finances. The plan will also contribute to growing the Scottish economy and Scottish tax base – two key factors in maximising the funding available to Scotland in the block grant.

However, despite the considerable progress this will make, we request the UK government urgently take a strategic view on high emitting sectors in particular and develop and implement sector transition plans, that consider environmental and social matters. This approach wouldn’t only act as a strategic mechanism for growth but also enable better understanding on the pathway to achieve the net zero targets (including interim targets). Like UK government, we have a firm commitment to become net zero. Our goal aligns to Scotland’s targets of net zero by 2045.

Growth, the economy and climate change

Climate change can pose significant challenges to responsible economic growth, but it also provides opportunities to implement sustainable policies that promote innovation and development. A fiscal plan without climate awareness at its heart is fundamentally not a plan of economic resilience and could be inherently risky. It is unsustainable and encourages short-term thinking. We encourage the government to take a more proactive and consistent approach to the role of tax in getting to net zero. Tax policy has more to offer than is currently being utilised in the way of driving environmental behaviours for a sustainable and resilient economy.