Select Committee on Environmental Audit Eighth Report


EIGHTH REPORT

The Environmental Audit Committee has agreed to the following Report:—

Summary of conclusions and recommendations

1. The Committee's conclusions and recommendations are listed below:

Progress on proposed environmental taxes

The Government's progress in shifting the burden of taxation from 'goods' to 'bads'

      (c)  We welcome the commitments the Government has made to environmental tax measures which now demonstrate its will to deliver against the Statement of Intent on Environmental Taxation. We consider there is likely to be scope for a further round of reform in the next Parliament and that a good way to prepare for that would be to task a Green Tax Commission with reviewing the progress made and making recommendations for the future. [paragraph 24]

The Government's pursuit of environmentally sustainable growth

      (d)  The very positive developments in the work of the Office for National Statistics on environmental accounts and the measurement of resource productivity will in due course provide a firm basis for analysing historical impacts of the economy on the environment. We consider it is this historical analysis and related predictive modelling that is required in the Treasury's key economic planning documents, the Pre-Budget Report and the Budget, to show the compatibility of the Government's economic policies with its commitment to sustainable development. [paragraph 33]

      (e)  We recognise the complexity of the work being undertaken by the Office for National Statistics and the even greater difficulty involved in modelling these relationships for predictive purposes. However, we stress again that it is important for the Government to start using what is becoming available as well as indicating where progress is being made towards better information for the future. We recommend that the Treasury should present environmental impacts separately from social issues in their own chapter in the Budget report. This chapter should address historical trends and predictions based on expected growth and the environmental implications of general economic policy; and it should include the material already presented on proposals for environmental taxes and other measures to address the need for decoupling growth from environmental degradation. [paragraph 34]

Appraisal of tax measures

      (f)  As with other fields of Government policy making, there is room still for improvement in the environmental appraisal of budget measures in accordance with the Government's guidance and the procedures outlined in this report. [paragraph 77]

      (g)  When appraising the case for an environmental tax measure the Government should not be over-reliant on identifying a rate for the tax that it is hoped will deliver a perfect market in the good. It is most important for the appraisal work to determine the outcome wanted, do the work necessary to identify likely behavioural responses, include positive complementary measures as an integral part of the appraisal and consider the incidence of the measure and distributional implications. [paragraph 78]

      (h)  The Government should recognise the value of consultation on possible environmental budget measures for smaller changes as well as larger ones and where it has not consulted on the measure it should explain this decision as a matter of routine. [paragraph 79]

      (i)  The Government should make a proper commitment to undertake full ex post appraisals of all Budget measures, and should report the intention and the likely timing of the review for each new or substantially amended measure when it is introduced. [paragraph 80]

      (j)  The Government should ensure that the environmental assessment table in its Budget and Pre-Budget Reports includes the baseline against which the policy change is being considered, the predicted outcome without the policy measure and the predicted outcome with the policy measure. For smaller measures the predicted outcome may be couched in terms of the likely scale of the impact. This summary information should be fully referenced to more detailed supporting information, including an intermediate level, accessible publication setting out the key elements of the appraisal approach, results and conclusions and, where appropriate, a detailed technical paper.

    [paragraph 81]

      (k)  There should be a periodic independent evaluation of the Government's approach to appraisal of Budget measures, and this could potentially be a part of the remit of a Green Tax Commission. [paragraph 82]

Introduction

2. Since it was established in November 1997 the Environmental Audit Committee has taken evidence on each of the Government's Pre-Budget Reports and Budgets. The Committee's last report on the question of the Government's approach to integrating environmental considerations into its economic and fiscal policy was on the Pre-Budget Report 1998[1], and the Government's response to that report appears here as Appendix 1.[2]

3. This inquiry addressed the Government's progress against the Committee's recommendations in its report on the Pre-Budget Report 1998; and the adequacy of the Government's appraisal of its environmental tax measures in the Budget Report 1999[3] and the value of, and methods to be used for, review by the Government of the actual impact of environmental tax measures. In particular it reports on the Government's progress in:

  • developing environmental taxes;
  • shifting the burden of taxation from 'goods' to 'bads';
  • pursuing environmentally sustainable growth;

and it addresses how the Government should be appraising tax measures to ensure that they contribute to the pursuit of environmentally sustainable growth.

4. The report draws on the Government's response to our Fourth Report, a memorandum from the Department of the Environment, Transport and the Regions on environmental appraisal of the fuel duty escalator, a memorandum from the Office for National Statistics on their work on the measurement of revenues from environmental taxes and progress in the development of an environmental accounts satellite to the National Accounts, and other memoranda submitted to the Committee by government advisory bodies and non-governmental organisations. These are listed in the List of Appendices to the Minutes of Evidence.

5. The Committee took oral evidence immediately after the Budget 1999 from: Patricia Hewitt, MP, Economic Secretary to the Treasury, Dr Terry Barker of Cambridge Econometrics, Mr Ed Mayo of the New Economics Foundation and Mr Chris Hewett of the Institute of Public Policy Research (IPPR). It took further oral evidence from Professor Stephen Smith of the Centre for Social and Economic Research on the Global Environment (CSERGE); and Dr Dominic Hogg and Dr Stefan Speck of environmental consultants, ECOTEC, on the environmental appraisal of tax measures.

6. We were grateful for the specialist advice offered to us in this inquiry by Dr Paul Ekins and Mr Chris Hewett.

Progress on proposed environmental taxes

7. In our report on the Pre-Budget Report 1998 we made a number of recommendations for the 1999 budget, with a view to prompting the Government to pursue further its commitment to achieve a shift from taxing 'goods' to taxing 'bads'. We were pleased to see that the Government addressed the majority of these recommendations in the Budget Report 1999, as set out in Figure 1.


Figure 1: Developments in respect of the Committee's recommendations on individual tax measures
MeasureCommittee recommendation1 Budget 992 & Government response to the Committee's report3
Water pollutionWe urge the Government to publish the results of its work on taxing fertilisers, pesticides and point sources of water pollution and to make clear the current stage in its thinking (paragraph 47). On a pesticides tax, Budget 99 announced further consultation, based on a published report of an appraisal of the possible design and impact for a tax or charge.
On a tax or charge on water pollution, Budget 99 announced that following the emerging results from its research the Government did not intend to introduce a national tax or charge, with improvements instead coming through the regulatory system.
On a tax on the use of chemical fertilisers, Budget 99 was silent. The Government response says it will consider carefully developments on pesticides because of the similarity of the issues with a view to deciding whether to undertake further work on a possible tax on fertilisers.
Extraction of aggregates In response to a request from Government Ministers the Quarry Products Association put forward, in November 1998, a ten-point plan to deal with the environmental impacts of quarrying. It is encouraging that an industry can produce such a significant package of environmental measures in the face of the threat of taxation, but we would urge the Government to address the matter with care (paragraph 43). Budget 99 announced the Government's intention to introduce an aggregates tax if industry could not commit to an improved package of voluntary measures.
Landfill taxBudget 99 announced an escalator in the standard rate of landfill tax of £1 a tonne each year, from April 2000 until at least 2004.
Energy efficiencyWe look forward to the announcement of a decision, to give a clear signal on the long term direction of policy, in line with Lord Marshall's conclusions on the business use of energy (paragraph 36). Budget 99 announced that a Climate Change Levy would be introduced from April 2001. The design of the levy follows many of the recommendations of Lord Marshall, with consultation on some aspects launched at the time of the Budget. The revenue from the levy is to be recycled to business through a cut of ½ per cent in the main rate of employer national insurance contributions.
Vehicle excise duty (VED) We urge the Government to introduce the graduated reduced vehicle excise duty on cars in the 1999 Budget (paragraph 49). Budget 99 announced:- a new, lower VED rate for cars with engines up to 1100cc, of £100 compared to the standard rate of £155, with effect from 1 July 1999;
- a graduated VED system for new cars based on their CO2 emissions, with effect from autumn 2000; and
- a doubling of the maximum discount on VED for low emission lorries and buses to £1000.
Road fuel dutiesWe urge the Government to set out its intentions on future rates of duty on road fuel gases (paragraph 50). Budget 99 announced a 29 per cent reduction in the duty on road fuel gases. It was silent on the question of the rate in the future. The Government response draws attention to the commitment to maintain the duty differential with diesel fuel over the lifetime of the Parliament.
Bus fuel duty rebate We urge the Government to release its consultation paper on Bus Fuel Duty Rebate and in the forthcoming Budget to make a commitment to introduce the resulting changes in the following Budget (paragraph 51). The Bus Fuel Duty Rebate was increased by the Government to match the changes in fuel duty in Budget 99. The Government response states that the consultation document "will be issued shortly".
Company car taxation We urge the Government to address the perverse incentive to travel more miles, which exists under the company car taxation system (paragraph 53). Budget 99 announced a reform to Company Car taxation with effect from April 2002, with the charge based on the car's list price and CO2 emissions. In the meantime discounts based on business mileage are being reduced.
Green transport plans We urge the Government to address the tax disincentive to adopting Green Transport Plans (paragraph 52). Budget 99 announced the removal of tax charges on Green Transport benefits provided by employers to employees, to encourage the adoption of Green Transport Plans.
Sources:
1. Environmental Audit Committee, report on the Pre-Budget Report 1998 Op. cit.
2. Budget 99 Op. Cit.
3. Government response to the Committee's report on the Pre-Budget Report 1998, published as Appendix I to this report
The 1999 budget addressed the overwhelming majority of the Committee's recommendations on particular tax measures.

8. Of the 18 environmental tax measures set out in the Pre-Budget Report 1998[4] as in place or under consideration, the Government has now made further changes and firm commitments to address 12. Three road traffic related measures were not addressed further in the Budget 1999—bus fuel duty rebate was increased in line with increases in duty rates but there has been no progress in reviewing the targeting of the measure, and workplace parking tax and road user charging await transport legislation. Extraction of aggregates and pesticides taxes are still under consideration and one possible measure, water pollution charges, has now been formally dropped. Three other measures thought to have been under discussion were not, however, addressed in the Budget 1999: a tax on fertiliser use, water abstraction charges and efforts to persuade the European Union to allow a reduced rate of VAT on energy saving materials.

9. The Budget was widely received with praise by our witnesses, government advisory groups and non-government organisations for its new measures on environmental taxation, although a number of reservations were expressed about particular aspects of individual measures.[5] Overall we endorse the view expressed by the Government itself,[6] those providing oral evidence to the Committee and others that the measures announced in the Budget 1999 amount to it being the "greenest ever" Budget.

10. Since the Budget the Government has progressed its detailed design work on the Climate Change Levy. A number of companies in energy intensive sectors, which are likely to be particularly affected by the Climate Change Levy, have provided us, other Select Committees and the Government with their views on the implications of the Levy on their business and called for the Government to rethink its position. The Government has also published its draft legislation for an Aggregates Tax and progressed its discussions with the aggregates industry on a possible alternative voluntary arrangement. We have not seen evidence that alters our view that the case for the Climate Change Levy and the Aggregates Tax has been made, with both measures providing the potential to achieve very real environmental improvements. We therefore urge the Government to stand by its commitments to these measures. We have commented on aspects of the design of the Climate Change Levy in our report on Energy Efficiency[7] and the Trade and Industry Committee have also completed an inquiry into the likely impact of the Levy on industry.[8] It will only be possible to judge the outcome of the Government's discussions when it announces its further intentions in the Pre-Budget Report 1999. We do not therefore propose to comment further here on the proposed scope and design of these measures, although the approach the Government has taken to appraising these measures is discussed later in this report.


1   Fourth Report from the Environmental Audit Committee, The Pre-Budget Report 1998, HC93, Session 1998-99, published 16 February 1999, hereafter referred to as the Committee's 'report on the Pre-Budget Report 1998'. The Committee's earlier reports were its First Report, The Pre-Budget Report, HC547, Session 1997-98 and its Third Report, The Pre-Budget Report: Government response and follow-up, HC985, Session 1997-98. Back

2   The Government's response to the Committee's Fourth Report 1998-99 is hereafter referred to as 'the Government's response to the Committee's last report'. Footnotes in this report refer to the letter of the Committee recommendation in the Government response. Back

3   Budget 99, Building a stronger economic future for Britain (Economic and Fiscal Strategy Report and Financial Statement and Budget Report) HC298 (1998-99), March 1999. Back

4   Pre-Budget Report, Steering a stable course for lasting prosperity, Cm 4076, November 1998 Back

5   Q1 and English Nature, the Environment Agency, Friends of the Earth, The Royal Society for the Protection of Birds, Ev pp 79, 80, 89 and 109 respectively. Back

6   HM Treasury 1999 Budget Day Press Notice Number 5.  Back

7   Seventh Report from the Environmental Audit Committee, Energy Efficiency, HC159, 1998-99, published 22 July 1999. Back

8   Ninth Report from the Trade and Industry Committee, The Impact on Industry of the Climate Change Levy HC678 1998-99, published 15 July 1999. Back


 
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