SMEs and environmental taxation

This source preferred by Sukanya Ayatakshi Endow

Authors: Ayatakshi, S.

Start date: 6 September 2010

More than 99% of all businesses in the UK can be categorised as small and medium sized enterprises (SMEs). SMEs account for more than 70% of total pollution. Given their large impact on the environment and a dominant presence in the UK economy it remains to be seen how SMEs are coping with the ‘challenges’ of environmental taxation.

Environmental taxation as an economic instrument for the control of climate change is widely favored as it gives a choice to the polluter to pollute and pay increased taxes or reduce polluting behaviour. Behaviour change is a key concern of the use of any environmentally related instrument such as taxes. However, for SMEs, limited resources of time, money and expertise often result in a gap between attitudes and behaviour. Past studies have shown that SMEs have pro-environmental attitudes but they do not get translated into positive environmental behaviour because of lack of understanding and resources. Also the SME owner-manager is seen as a key decision maker in the business and his /her attitude largely determines the path the business follows.

The aim of the study is to understand the impact of environmental taxation on SMEs in UK. As SMEs are remarkably different from larger businesses in terms of the organisational structure, resources etc they have different needs and constraints. Most SMEs operate in sectors that are liable to environmental taxes such as manufacture, transport etc. The study uses Input-Output analysis to identify the high energy users thereby using that as proxy of being subject to high environmental taxes. The methodology is mixed. Survey and interviews with SME owner-managers have been undertaken to determine their attitudes towards climate change issues and environmental taxation.

Justification for using IO: The use of I-O analysis highlights the sectors vulnerable to increased taxes and assuming that most businesses cannot pass on those taxes to their consumers therefore any increase in the taxes will result in a direct cost effect to the businesses. Therefore it is in their interest to be involved in the discussion of environmental taxes but if behaviour change incurs higher expenses then it is likely that the particular business will carry on with its polluting behaviour.

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