Addressing subsidies which have a detrimental
impact on the environment
20. In their third report the Government Panel on
Sustainable Development drew attention to the way subsidies, tax
exemptions and government expenditure on infrastructure create
incentives or directly create adverse impacts on the environment.
They particularly drew attention to agricultural production related
subsidies, the tax regime and financing of the energy and transport
sectors, and quoted an estimate for environmentally damaging subsidies
of £20 billion.
In its response to this report in December 1997 the Government
accepted that it should draw up aims and principles for the future
use of subsidies and noted that subsidies were under review as
part of the Comprehensive Spending Review.
In addition to this the Chancellor said, in June 1998, shortly
before the completion of the Review, that "before allocations
are made from the Comprehensive Spending Review, departments will
have to demonstrate how they propose to root out unjustified subsidies".
The Treasury's explanation of this in evidence was that a subsidy
with adverse environmental impact could be justified but would
be considered unjustified if its environmental cost was greater
than its economic and/or social benefit.
We note that in the light of the debate over valuing environmental
costs it must be difficult in actual cases to weigh this up precisely.
We therefore consider it is particularly important that considerations
of the justification for subsidies should be made explicit and
open to public scrutiny.
21. We found little evidence in the report of the
Comprehensive Spending Review, and in the subsequent Public Service
Agreements, of a general effort to address unjustified subsidies,
although there was reference to efforts to reform some subsidies:
to press for reform of the Common Agricultural Policy and to reform
the system of industrial subsidies to businesses to ensure that
the tax-payer gets value for money.
The Chief Secretary assured us that the Review had looked carefully
at the three areas identified by the Panel and he accepted that
in some of these areas there are unfair subsidies. However, he
did not then list them or show how they were to be rooted out,
choosing rather to highlight examples of particular Government
commitments its objective to reform the Common Agricultural
Policy; on energy, its consideration of the Marshall Report on
economic instruments and the business use of energy, funding for
energy efficiency schemes and announcement of the nonfossil
fuel order; and on transport, the scaling back of roads expenditure
in the Trunk Roads Review.
22. We note that the Chief Secretary's list addresses
some of the subsidies which make up the estimate of £20 billion
quoted by the Panel and that most of the others are on the Government's
agenda through other initiatives.
For example, measures are being considered or implemented to address
implicit transport subsidies in the Integrated Transport White
Paper, company cars in the tax proposals in the Pre-Budget Report
1998, and free medical treatment and the cost of dealing with
road traffic accidents is being partially addressed through the
Road Traffic (NHS Charges) Bill. The implicit subsidy from
not charging for water according to its use has been the subject
of consultation by the Department of the Environment, Transport
and the Regions and is the subject of the Water Industry Bill.
23. We conclude that although the Government did
not formally use the Comprehensive Spending Review to tackle subsidies
which have an adverse environmental impact it is none-the-less
considering action to address many of them. We welcome this and
look forward to being able to see real progress on removing these
24 British Government Panel on Sustainable Development
Third Report, January 1997 Back
Government Response to the Third Annual Report of the Government's
Panel on Sustainable Development, December 1997 Back
HC Deb 11 June 1998 col 1198 Back
Ev p1 Back
Op. Cit. p24 Back
Environmentally Damaging Subsidies in the United Kingdom, Maddison
et al, European Environment, Vol 7, pp 110 - 117 (1997) Back
Water charging in England and Wales - A new approach March 1998
and Government Decisions following consultation November 1998 Back