Introduce £120 carbon tax: note

Central fiscal result

-£40.0bn - Net fiscal impact in 2028-29

Low case: -£90.0bn. High case: -£10.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Models introduce £120 carbon tax by 2028-29.
• Baseline is current policy or published departmental plans.
• Central case uses published party or official anchors where available.
• Wider manifesto interactions are excluded unless stated.

Affected population

• Affected units are people, firms, households or providers depending on policy.
• Direct exposure follows the manifesto or government target group.
• Indirect exposure includes suppliers, workers, consumers and taxpayers.
• Weakest counts are widened in the low and high cases.

Gross impact

• Published anchor or scenario central is +£40.0bn in 2028-29.
• Gross costs or receipts are adjusted for behaviour and delivery risk.
• Tax, benefit or procurement offsets are separated in the fiscal build-up.
• The range is deliberately wider where implementation detail is thin.

Fiscal build-up, central case

• Gross tax or receipt yield: -£50.0bn
• Behavioural and avoidance response: +£8.0bn
• Administration and compliance cost: +£0.1bn
• Other tax-base interactions: +£1.9bn

Central net impact: -£40.0bn in 2028-29.

Behaviour and pass-through

• Low case assumes stronger delivery or receipts than central.
• Central case applies moderate behavioural leakage and pass-through.
• High case allows weaker delivery, larger take-up or higher costs.
• Output effects follow incidence, capacity and investment channels.
• Distributional gains do not automatically imply GDP gains.

Phasing

• 2026-27: -£4.0bn. Phased implementation and take-up.
• 2027-28: -£22.0bn. Phased implementation and take-up.
• 2028-29: -£40.0bn. Phased implementation and take-up.
• 2029-30: -£40.0bn. Phased implementation and take-up.

Main source groups

• Andersson, "Carbon Taxes and CO2 Emissions" (American Economic Journal: Economic Policy, 2019): Sweden’s carbon tax reduced emissions while maintaining economic growth, but institutional context mattered; supports carbon-pricing benefits with design caveats.
• Institute for Fiscal Studies, "Green Party manifesto: a reaction" (2024): IFS judged Green tax and spending plans very large and difficult to deliver at claimed yields; supports sceptical revenue and behavioural assumptions.
• Local Government Association, "Green Party manifesto summary" (2024): Used to define the pledge wording, policy scope and implementation scenario being modelled.
• Metcalf and Stock, "The Macroeconomic Impact of Europe’s Carbon Taxes" (NBER, 2020): European carbon taxes show limited adverse macro effects in studied cases, partly depending on recycling; relevant to output and inflation risk.
• Nordhaus, "Climate Change: The Ultimate Challenge for Economics" (American Economic Review, 2019): Climate change creates large external costs, but policy must balance abatement, innovation and costs; relevant to carbon and green-investment policy.
• HMRC, "Direct effects of illustrative tax changes" (2025): HMRC publishes direct-effect tax-change estimates but warns large reforms are not simple linear scalings; anchors tax-yield scale and supports wider uncertainty ranges.
• Climate Change Committee, "The Seventh Carbon Budget" (2025): CCC advice shows decarbonisation needs stronger policy but also careful handling of distributional costs; useful context for carbon-price design and household compensation.
• Green Party of England and Wales, "Manifesto for a Fairer, Greener Country" (2024): The manifesto defines the tax, spending, climate, housing and public-service proposals modelled here; used to define the scenario, not as an official costing.