Examination of Witnesses (Questions 1
- 19)
TUESDAY 4 APRIL 2000
MR STEPHEN
TIMMS MP, MR
JOHN HALL
AND MS
HEATHER MASSIE
Chairman
1. Good morning, Minister, we are delighted
to see you again. Before we begin questioning you on the Budget,
is there anything by way of a short statement you would like to
add to what has already been said?
(Mr Timms) Thank you, Chairman, for your
invitation and your warm welcome. I will say a few words, if I
may, firstly, to introduce the two officials who are accompanying
me. On my left is John Hall of the Environment Tax Team at the
Treasury; and, on my right, Heather Massie from the Excise Policy
Group from Customs & Excise, who was with me last time I came.
I would like, first, to put on record my welcome for the Committee's
Fourth Report which contained, I think, a number of valuable recommendations
on taking forward our environmental tax agenda—I am grateful
for that. We are committed to building a sustainable future with
economic development taking place in a way that protects our environment.
Members of the Committee will of course have seen how we have
moved the environmental tax measures forward in the Budget last
month. The Budget last year included the biggest ever package
of environmental tax measures to be introduced in the UK, and
this year we have delivered on a number of the announcements from
last year—specifically on the Climate Change Levy, on company
car tax reform, on graduated vehicle excise duty for new cars,
and the first of the five-pre-announced increases in landfill
tax. We also this year announced a number of new environmental
measures: the introduction of an aggregates levy to tackle the
environmental cost of quarrying, and also to encourage recycling;
we have extended the reduced rate of VAT for energy saving materials
installed in the home; we have introduced an incentive for the
take-up of ultra-low sulphur petrol; and extended the availability
of the reduced rate of car vehicle excise duty for small engined
vehicles. There are a lot of new measures as well, and I hope
the Committee will feel able to welcome this continuing ambition
for our environmental tax work, and I am looking forward to this
opportunity of answering the Committee's questions and hearing
the Committee's proposals on how we should move things forward
from here.
Chairman: We certainly welcome the positive
aspects of the Government's Budget. As you say, it did in some
areas significantly add on to the very big progress made in the
Budget of the previous year. We would like, first of all, to look
at the overall environmental impact of all the Budget measures,
not just the environmental ones.
Mr Gerrard
2. In the Budget Report on tables 6.1 and 6.2
there are a list of various environmental tax measures and policy
objectives which we assume aims to represent all of the Budget
measures that have an environmental impact. One change in the
Budget which does not appear in those tables at all is the reduction
in air passenger duty. Is that because the Government does not
think that will have any environmental impact?
(Mr Timms) What we have aimed to do in table 6.2 (which
we have adapted so it is easier to read on the web and have made
a number of other improvements as well, including adding some
more of the information that the Committee has asked for in the
past) we have aimed to provide quantified estimates where it is
possible to do so. On air passenger duty, given that the rate
of increase of air passenger traffic in Europe at the moment is
about 9 per cent a year, we do not think that the change in air
passenger usage is going to make a very significant quantifiable
difference to feature in the figures on this table.
3. Would it perhaps be clearer then to say so
in the Budget Report, if the view is that it will not make a difference,
rather than just leave it to be assumed that that is the view?
(Mr Timms) What we have said is that everything, where
we can quantify the impact sensibly, is in the table—so,
by default, the measures that are not we do not think we can sensibly
put figures on. That is the background to the particular air passenger
duty—because traffic at the moment is growing so quickly
anyway.
4. Has there been any assessment of possible
environmental impacts of the very rapid changes going on in electronic
commerce?
(Mr Timms) I have been speaking to a conference this
morning about what is happening in electronic commerce. I am not
aware of any quantitative work that has been done looking at the
environmental impact. In quantitative terms clearly we are looking
at what might happen, but I am not aware of any quantitative work
we have commissioned or have seen.
5. There are obviously some of the main budgetary
measures that were mentioned earlier in the Report, before we
get to tables 6.1 and 6.2, which are essentially about promoting
economic growth. Is it not possible some of those might well have
quite significant environmental impacts? They may be difficult
to quantify, but if all that we do in the tables is mention things
that are quantifiable are we not leaving gaps on some of the ones
where perhaps quantifying might be difficult but there is still
the possibility of significant impact?
(Mr Timms) What we have aimed to do with table 6.2
is put in all the measures which we think can be quantified, and
where there is a significant impact. Clearly there are other things
happening which could well have an impact and, as you rightly
say, we are promoting economic growth and wanting to continue
to do that but to do it in a sustainable way. The relationship
between economic growth and the environment is not a straightforward
one—it could well be changing over time and lots of kinds
of economic development is helpful to the environment. I would
go back to the point I made at the outset that all of the Budget
measures which can be sensibly quantified we have put into table
6.2.
6. I think we have discussed previously on earlier
Budgets the question of whether we should attempt to move towards
trying to get a single measure of the overall environmental impact
of the budgetary proposals. Is the Government still interested
in that, or is that something which the Government has abandoned
in an attempt to produce a single measure?
(Mr Timms) I do not think we have changed our view
on this. I think we have had discussions when I was last here
about whether there ought to be a figure for the proportion of
tax revenue which is environmental tax, and that might be thought
of as a way of doing what you have just outlined. I think my problem
with that is that it is not clear whether that is something we
would wish to increase or to decrease; because we hope that the
effect of our tax changes is that undesirable activity will reduce
and, therefore, the proportion of environmental tax take will
reduce. I do not think that is a helpful indicator, and that is
why we have not used it. If the Committee thought there were other
ways of establishing a single indicator which would tell the story
that needs to be told then I would be very glad to look at those.
We certainly do not have a single indicator at the moment that
we think would do that job.
7. Is that something the Office of National
Statistics is still working on, or not?
(Mr Timms) They are publishing some data, are they
not, and they are doing that annually I think. What I would say
is, it is not a target that sensibly, in our view, can be used
as something we want to deliver some value to. In terms of reporting
information, the ONS will continue to do that.
8. You mentioned in one of your earlier answers
the commitment to sustainability and the point that that involves
balancing environmental, social and economic interests. There
does seem to be quite a lot of discussion in some of the earlier
chapters of the Budget Report about financial and human capital
stocks but not very much about environmental capital, and what
is happening when we are clearly not at a point of sustainability
yet. Is that something which ought perhaps to be shown rather
more clearly?
(Mr Timms) I would certainly be interested in any
views the Committee might have about the way we present the information
we have: whether there is enough here; whether it is in the right
form; or whether we should be presenting things rather differently.
I hope the Committee would acknowledge that we have each year
made changes to address the points that the Committee has made
to us about the Budget presentation. We do have here in the Red
Book a chapter entirely devoted to protecting the environment—that
is an innovation, and is one I welcome and I think the Committee
will as well. There is, of course, a range of other Government
publications addressing the sustainability question—the
indicators in particular published recently by DETR. I think there
is now a very good and rich set of information being published
on this, including in the Budget Book; but if there are specific
things the Committee feels ought to be set out in the Red Book
then I would be very happy to take those proposals away and look
at them for the next time.
9. Do you feel that the Treasury is actually
giving sufficient weight to environmental considerations, compared
with what the DTI has done in developing a sustainable development
strategy? Do you think the Treasury matches up to that?
(Mr Timms) Yes, I do. I think that is evident by the
fact that there is a chapter in the Red Book devoted to the topic.
I think it is clear as well from the prominence of environmental
matters in the Chancellor's Budget Statement a couple of weeks
ago. It is a very important matter for us; it is one that is occupying
a very large proportion of Treasury time and attention -quite
rightly; and we are working very, very closely with the DETR and
other Departments across government in taking this in a joined-up
way. I certainly think we are matching what is happening elsewhere,
yes.
Mr Chaytor
10. Minister, on this general question of the
relationship between a fiscal policy and a sustainability policy,
one of the very interesting initiatives that was introduced two
years ago was the establishment of a code for fiscal stability.
The code has five criteria, of transparency, stability, responsibility,
fairness and efficiency. There was a little debate at that time
as to whether sustainability ought to be one of those criteria,
that is, the sixth criteria within the code for fiscal stability.
I would like to ask if any further thought has been given to this?
What are your views as to whether this is something that may be
discussed in the future and could have practical advantages to
lock in the concept of sustainability at the heart of fiscal policy?
(Mr Timms) That is not a matter I have given very
much thought to since I arrived at the Treasury last July. I am
not sure I do see sustainability as an issue of stability. Of
course, at the time that the code was being set out the statement
of intent on environmental taxation was also being set out, and
that set down the principles that we are adopting in this area,
which we have maintained and adhered to in the period since then.
I think that was a very clear commitment to what we were trying
to do on this point and delivering on that in quite an impressive
way since then.
Chairman
11. Minister, you say you welcome the Committee's
views on how you present your material. I do agree that in the
two successive editions of the Budget, Budget 1999 and 2000, you
have improved each year what you have set out. We were very critical
to begin with, with the paucity of material which has improved.
(Mr Timms) We are getting there!
12. You are getting there but I think you need
further substantial pushing, if I may say so. What concerns us
about table 6.2, which my colleague, Mr Gerrard, referred to,
is its limited nature. You say things are there because they are
quantifiable; but some of the things which are there are not quantified.
To say the reduced rate of VAT reduces emissions of CO2 is not
quantification—that is merely making a general statement.
What this really is is a table looking at specific environmental
measures. What we want is a more comprehensive approach which
looks at the Budget as a whole (and I agree there are problems
with quantification which have been referred to) and looks at
the effect as a whole on the environment. To what extent can you
enlarge on this and look at the Budget in the round and its environmental
implications?
(Mr Timms) I am not sure we can go much further than
we have gone. As you say, the heart of the problem is one of quantification.
All the measures that have a significant effect and a quantifiable
effect are in the table. I think to go further than this would
take us into the realms of speculation and there would not be
a clear answer to the question the Committee is asking. I do not
think it would be right for us to attempt to publish one.
13. Yes, but on some instances like the one
Mr Gerrard referred to about the air passenger duty it would be
useful to have a statement at least, even if the statement is
simply that in your view it will have no effect, rather than be
left guessing what the effect of various measures might be. Do
you see my point?
(Mr Timms) Yes. My point is that, implicit in the
non-appearance of that and a number of other things in this table,
is our view that there is not a significant quantifiable effect.
14. Can we make it more explicit—what
the consequences will be even if, in your view, they are not significant?
(Mr Timms) You mean you would like a statement in
the table that anything which is not mentioned here does not,
in our view, have a significant quantifiable effect. I am sure
something along those lines could be done.
15. On another quite different point, we had
a very useful seminar with the Environmental and Social Research
Council last week and they produced the results of their ten-year
global environmental change programme, which you may be aware
of, funded by the Government, of course. One point they made there
was that there is very little UK backing for research into renewable
energy technologies. Indeed, the Electricity Association has criticised
the Budget for not increasing the £50 million fund for research
into renewables, which it could well have done. Britain is at
the very bottom of all the developed countries for putting money
into renewable energy research. Yet this is an area where there
is huge potential for world growth, and other countries are getting
well ahead of us. Is this not an area where you as the Green Minister
and the Treasury could take a proactive approach to this and really
do something to boost British technology here?
(Mr Timms) I think we are doing quite a lot to boost
British technology in this area. We see ourselves having two main
roles in supporting renewables generation: firstly, creating the
right environment to encourage renewables, and that includes establishing
the supplier obligation mechanism and introducing the exemption
for renewables from the Climate Change Levy—which I think
is going to have an enormous impact in this area, and a very positive
impact—that is the exemption announced at the time of the
Pre-Budget Report; and the second role we see for Government here
is providing direct funding where that is necessary—and
generally I would expect that to take the form of support for
research into longer term technologies and encouraging demonstration
projects, raising awareness about renewables, looking at related
issues like planning and green certificate trading and so on.
I know the DTI is planning to increase its renewables R&D
programme quite substantially. The figures I have are of £10
million in 1998-99 to £18 million in 2001-02. I think if
you look across the piece of what we are doing in this area we
have taken a number of very important and very effective steps.
Mr Grieve
16. Could I move on to VAT on energy saving
materials. A certain amount of amazement ran through this Committee
when this particular announcement was made. May I say, it is very
specifically welcomed. I hope you will not think it churlish of
me if I do a few enquiries as to how this extraordinary change
has come about—because we recollect specific evidence being
given to this Committee, particularly by Customs & Excise,
indicating it simply was not possible for the United Kingdom to
introduce a reduced rate for the installation of energy saving
materials, and it did not meet the social policy test. I think
it was also indicated that it directly contravened the 6th VAT
Directive. Could you explain how this extraordinary change has
come about in view of the Government's previous statement that
it would be quite impossible to implement?
(Mr Timms) First of all, let me thank you for your
welcome for this announcement, which I very much share. I agree
with you, it is an important step forward. What we have been able
to do is really two-fold—and the fact we are able to make
this announcement in this Budget is entirely consistent with what
we have said before about it: firstly, the European Commission
is taking a more relaxed view about Member States' social policy
approaches than was the case formerly; and, secondly, there is
new research evidence we have been able to take advantage of about
the connections between poor heating in people's homes and health.
By bringing those two together we have been able to make the announcement
that we have done.
17. Was there expert advice obtained; was legal
advice obtained that this was in fact all right?
(Mr Timms) We have certainly talked to the Commission
about it, and we are pretty confident we are not going to have
a difficulty in implementing it.
18. One issue which interested me was, I think
on an earlier occasion when you gave evidence before the Committee
or you certainly made a statement, you rejected the EU experimental
scheme, because you said that the UK had other policy measures
which were more appropriate for addressing employment issues.
Does the VAT cut for social reasons amount to an admission that
current policies for addressing fuel poverty are inadequate?
(Mr Timms) No. We do feel this is an important further
step but there is not any inconsistency, I do not think, between
the fact we have made that announcement now and the fact that
we have always said we do not see this as a job creation initiative.
We made this announcement for social policy reasons.
19. As you know, we have a Pre-Budget inquiry
in this Committee, and the idea behind a Pre-Budget inquiry is
to have an opportunity to exchange views with Government to try
and influence the way in which the Budget is put together, and
that clearly requires a dialogue and an exchange of views. It
is noteworthy that in January (welcome as it may be now in March)
we had not a word about this issue being considered or being capable
of being considered. Is there any reason for that? Looking ahead
to other examples where this might crop up, it would be helpful
to us, I think, to know why it is that this could not have been
discussed at the Pre-budgetary stage?
(Mr Timms) I think we have always made clear we wanted
to go further in this area than we have been able to in the past—indeed,
we still want to go further. The Paymaster General has written
again on Budget Day to Commissioner Bolkestein to press the case
for a reduced rate for DIY energy saving materials. I think I
made it clear when I came before that this is an area where we
wanted to do more but, up until now, we have not been able to
but fortunately now we are. I do not see this as the end of the
story: there is further progress we hope we will be able to make
in due course.
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