Supplementary Memorandum from HM Treasury
CLIMATE CHANGE
LEVY
1. Since the April hearing, the Government
has had useful discussions with the European Commission concerning
the state aid applications associated with the climate change
levy package. No major problems have emerged with our applications
yet. The Government believes that there are strong arguments supporting
our applications—not least that the climate change levy
will help the UK, and therefore the EU, meet its Kyoto emissions
target.
2. The Commission is currently reviewing
its guidelines on approving state aid for environmental protection
measures. The Government has been active in participating in this
consultation process, and anticipates that a revised set of state
aid guidelines will be made available in the near future.
3. The £100 million cost of enhanced
capital allowances which the Financial Secretary mentioned in
April represents the cost to the Exchequer through the expected
reduction in tax receipts in 2001-02. You asked about the cost
in resource accounting terms. However, tax receipts are outside
resource accounting rules by virtue of Section 1.5.3h and Annex
2 of the Resource Accounting Manual. Tax flows are therefore accounted
for on a cash basis and I am afraid that the requested figure
is not available.
PESTICIDES
4. As you know, the Crop Protection Association
released their full proposals for consultation in April. The Government
has welcomed comments from all interested parties on these proposed
measures and their effectiveness in tackling the environmental
impacts of pesticide use. The Government would be particularly
interested in the views of the Committee on this proposed package.
I cannot, however, disclose details of the original BAA proposals,
as these were supplied on a confidential basis.
5. DETR officials sent a letter to over
300 individuals and organisations inviting comments on the proposals
of the Crop Protection Association (formerly the British Agrochemicals
Association). To encourage as wide a participation as possible
in this consultation, these proposals can also be obtained through
DETR's web-site.[1]
This contains a formal invitation to comment and asks respondents
to assess how the proposals match up to a number of criteria relating
to environmental performance, practicality, timing and cost-effectiveness.
6. Once the consultation period closes,
the Government will carefully consider all the responses and hopes
to be in a position to report on the progress which has been made
in the autumn Pre-Budget Report.
AGGREGATES
7. As you are aware, the Financial Secretary
had not seen Simon Van der Byl's memorandum to the Environmental
Audit Committee before he gave evidence on 4 April. Having had
a chance to read it, the Financial Secretary wrote to Mr Van der
Byl on 12 April responding to the misleading assertions made in
his memorandum. The Financial Secretary's letter was copied to
Mr Horam, and I enclose a further copy of it (see Annex 1).
8. The Budget costed the 0.1 percentage
point reduction in employer national insurance contributions at
£350 million for 2002-03. Since then, the Government Actuary's
Department have revised this figure to £360 million.
9. The £385 million revenues raised
by the aggregates levy were calculated as the product of demand
for primary aggregates of 240 million tonnes multiplied by the
tax rate of £1.60 per tonne.
10. Figures for 1999 will not be available
until next year. But the 1998 update in the recently published
UK Minerals yearbook shows production in Great Britain was 218
million tonnes. Added to the 22 million tonnes extracted in Northern
Ireland in 1998, this sums to 240 million tonnes. Aggregates production
was also 240 million tonnes in 1997.
11. Obviously, future trends in primary
aggregates production will depend on demand from the construction
sector, general trends in the economy and the ability of firms
to increase their use of recycled and waste aggregates.
12. The Chancellor announced in the March
Budget that a Sustainability Fund would be set up which would
aim to deliver environmental improvements to the local communities
affected by aggregates extraction. This is a firm announcement.
The Government will be consulting on the objectives of this Fund
shortly and the form and size of the fund will depend on the outcome
of this exercise. The Government hopes to report on progress in
the Pre-Budget Report.
ENVIRONMENTAL APPRAISALS
13. The Government has a clear commitment
to the appraisal of environmental tax measures, as shown in Tables
6.1 and 6.2 of the March Budget. Once introduced, the environmental
impact of tax measures will be evaluated, and we plan to show
this information in updated versions of the tables. For example,
Table 6.1 in the March Budget showed that the estimated carbon
savings from the operation of the fuel duty escalator from 1996
to 1999 was between 1 and 2.5 million tonnes by 2010.
VAT ON ENERGY
SAVING MATERIALS
14. In Budget 2000, the Chancellor announced
an extension of the reduced rate of VAT on the installation of
energy saving materials under Annex H of the EC Sixth VAT Directive.
This Annex allows a reduced rate for the "supply, construction,
renovation and alteration of housing provided as part of a social
policy". As the Financial Secretary said at the Committee
hearing, this decision was made possible by the Commission taking
a more relaxed view of what constituted a "social policy"
than in the recent past.
15. In particular, the Commission had always
interpreted "social policy" as meaning that the supplies
in question could only be made to the less well off. Therefore,
a reduced rate for the installation of energy saving materials
in all homes (ie not just those of the less well off) did
not count as a social policy.
16. However, in late 1999 they conceded
that they could not dictate to Member States what their social
policies should be. In the light of increasing evidence of a link
between old, cold homes and deaths from cardiovascular disease,
the Chancellor extended this reduced VAT rate to all domestic
installations of Energy Saving Materials in Budget 2000. This
is consistent with the Government's social policy of tackling
fuel poverty.
17. In his evidence to the Committee, the
Financial Secretary referred to a recent study, currently at the
draft report stage, in this area. It arises from the Joseph Rowntree
funded project on Housing, Poverty and Excess Winter Deaths by
the London School of Hygiene and Tropical Medicine.
18. Britain has an excess of winter deaths,
which is proportionately greater than in most other countries
of continental Europe and Scandinavia. Much of the seasonal increase
is due to a rise in cardiovascular death and the report looked
at whether vulnerability to winter death is related to housing
quality and socio-economic status. The method involved analysis
of 80,331 deaths from cardiovascular disease in England 1986-1996,
linked by postcode of residence to data from the 1991 English
House Condition Survey.
19. The results suggest that indoor temperature
and markers of thermal efficiency of dwellings, including property
age, are associated with increased vulnerability to winter death
from cardiovascular disease. The report also concluded that substantial
public health benefits can be expected from measures which improve
the thermal efficiency of homes and the affordability of heating
them.
20. The final report will be available within
the next few weeks. We can let you have a copy of the draft report
now, if that would be helpful.
21. Turning to your request for some additional
information on developments since the hearing with the Financial
Secretary, Commissioner Bolkestein has assured the Paymaster General,
following her letter of 21 March pressing the case for a reduced
rate of VAT for DIY energy saving materials, that he will consider
her suggestion when looking at the possibility of proposing amendments
to Annex H.
22. As the Paymaster General made clear
during Standing Committee on the Finance Bill, "the issue
is not closed as far as the Government are concerned. We have
not succeeded in our persuasive attempts, but we will continue
to deploy those arguments and others that we develop to make the
case for applying the reduced rate to DIY materials".
July 2000
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