Select Committee on Environmental Audit Sixth Report


Appendix to the Report

GOVERNMENT RESPONSE TO THE FOURTH REPORT FROM THE ENVIRONMENTAL AUDIT COMMITTEE, 1999-2000, HC 76, THE PRE-BUDGET REPORT 1999: PESTICIDES,

  AGGREGATES AND THE CLIMATE CHANGE LEVY

1. The Government welcomes the Committee's 4th Report and responds to the Committee's individual recommendations as set out below.

    (a)  In principle the Committee remains in favour of introducing a pesticides tax as part of a package of measures designed to internalise external environment costs. We acknowledge the current economic plight of the farming industry, but are convinced that a tax could be introduced in a manner which minimises its adverse economic impact and yet encourages substantial reductions in pesticides use - for example, by hypothecating the revenues. However, we consider that further work needs to be done to research and prepare for the introduction of a tax.

2. The Government remains committed to its policy of minimising the environmental impacts of pesticides use while ensuring adequate crop protection. In line with the 1997 Statement of Intent on environmental taxation, the Government is considering a tax alongside other measures such as regulation and voluntary action.

3. The Ecotec research provided a very useful contribution to the Government's consideration of the role of a tax in achieving its policy of minimising the environmental impacts of pesticides use. The Government has also carefully considered the many detailed responses to the consultation exercise which followed the publication of this report.

4. The Government has not ruled out a tax on the use of pesticides, and indeed believes that a tax could, in conjunction with other measures, be a useful tool in addressing the environmental impacts of pesticides. However the Government is currently exploring with the agrochemical industry whether its objectives could be better achieved through a partnership approach with the industry. The British Agrochemicals Association have been asked to further develop their initial voluntary proposals and submit a formal package of measure by mid-April. There will then be an opportunity for all interested parties to express their views on the proposed measures and their effectiveness in tackling the environmental impacts of pesticides use, and the Government would welcome the views of the Committee. Progress will then be considered in the Autumn Pre-Budget Report.

    (b)  We are concerned that although the overall weight of pesticides used may have declined, this may have been declined, this may have been outweighed by the increased toxicity of new formulations and changing patterns of use. There is little information on the quantities of each chemical used within proprietary brands or the extent to which these are biodegradable. We recommend that the Government introduces mandatory reporting by the industry of sales of active ingredients.

5. Between 1986 and 1996 there was a 19% reduction in pesticide tonnage applied (excluding sulphuric acid). This has resulted largely from a continued move to newer, more active compounds applied at lower dose rates, coupled with a tendency in the industry to apply pesticides at lower than recommended dose rates. The rigorous approvals process assesses the risk posed by these compounds and products containing them, taking account of toxicity, application rate, biodegradability and exposure. Approval is not given if the use of a product would lead to an unacceptable risk.

6. Recent Government funded research on aquatic risk indicators, using an approach which is based on the regulatory risk assessment process, has shown continuing reductions in overall risk as a result of the reassessment of older pesticides and introduction of risk management measures such as buffer zones.

7. Official surveys of pesticide usage have been carried out since the early 1970s (earlier for horticultural crops) and are compiled by the Central Science Laboratory. Data relating to the products used and the amount of active ingredients applied to each crop are obtained by personal visits to farmers and growers throughout Great Britain. These surveys are considered to be amongst the most comprehensive in Europe and provide Government with statistically sound data on the patterns of usage highlighting changes over previous surveys. Data based on industry sales would not provide the same degree of detail. For example, it would not provide information on the crop(s) on which the product is to be used or relate directly to usage in any given year. Lastly, it would not reflect regional variations which is important if we are to understand why and when a particular produce is used.

    (c)  There is also a lack of good indicators for assessing the impact of pesticides on the environment, including indirect effects they may have within the ecosystem. We recommend that the Government develops a range of indicators, including on biodiversity, to address this.

8. The Government has been participating in an OECD project aimed at producing pesticide risk indicators for the aquatic environment. The initial testing of the proposed indicators was carried out using UK data generated from the Pesticides Usage Survey and OECD members are currently carrying out their own evaluations. If these are successful the project is likely to extend into the development of similar indicators for risks to the terrestrial environment and to humans.

9. Within the UK, the Government has funded additional work to refine the aquatic indicator so that it might be used to show changes over time in the area sprayed with pesticides falling into different risk categories. The methodology is closely related to that used in regulatory risk assessment. The approach looks promising and has been endorsed by the UK Pesticides Forum. It is intended that additional research will be commissioned this year to address risks to the terrestrial environment.

10. As the Committee noted, MAFF has recently published "Towards Sustainable Agriculture —A pilot set of indicators". The document reports a wide range of indicators with a number relating to pesticides, including pesticide levels in rivers and groundwater, quantities of active ingredients used, spray area treated with pesticides and residues in food. Biodiversity is addressed through an indicator showing changes in populations of twenty species of farmland birds. A headline indicator based on the populations of certain species including these farmland birds is included in the UK Sustainable Development Strategy.

    (d)  We are concerned at the extent of environmental damage which might have already occurred as a result of pesticide use and the speed with which this may be continuing. In view of the current uncertainties in assessing these effects, we recommend strongly that the precautionary principle should be applied.

11. The rigorous approvals process already in place prevents the use of products which pose unacceptable risks to the environment. However this cannot eliminate all risks. The Government's approach to the precautionary principle is set out in the sustainable development strategy and the Government's pesticide minimisation policy can be seen in this context.

    (e)  We find it unacceptable that the Government has not itself conducted any evaluation of the environmental costs and benefits associated with pesticide use. We regard this as a major weakness in their approach, in marked contrast to the emphasis placed on such a study in the case of aggregates. A further weakness is the apparent lack of research on the precise economic impacts of a tax together with ameliorating measures.

12. The Government is committed to proceeding on the basis of sound evidence. This requires detailed research, careful planning and extensive consultation. A number of research studies relating to the use of pesticides have been commissioned by the Government.

13. In order to estimate the value the public attaches to the environmental damage associated with pesticides, it would be necessary to isolate the effects of pesticides from the effects of other changes in agricultural practice such as the use of autumn-sown arable crops and the decline of mixed arable/animal husbandry farm systems. In particular, it would be necessary to have access to dose-response functions which define the changes to the eco-system attributable to unit changes in pesticide application. Establishment of such functions, however, is complicated in the case of pesticides by:

  • the sheer number of pesticides in use (a dose-response function would be required for each pesticide product or active ingredient, as each has individual properties which will influence the type and risk of environmental impact);
  • the fact that the same pesticide product will have different impacts depending on the sensitivity of the receiving environment;
  • the fact that different types of application will influence the type and risk of the environmental impact;
  • the wide range of receptors to which pesticides present a potential risk;
  • the potential for synergistic effects.

14. Even if scientifically robust dose-response functions were available to establish the link between pesticide use and environmental impacts, the wide range of potential environmental effects would require a large number of separate valuation exercises to establish the welfare loss to society. Also, valuation methods cannot properly capture some of the environmental impacts associated with pesticide use such as effects on biodiversity. Unlike the situation in other policy areas, therefore, it was not possible to commission a study which would generate monetary values for the effects of pesticides on each of the different receptors in each medium.

15. Instead, the Government worked very closely with English Nature and the Environment Agency to collate all of the available evidence on the environmental impacts of pesticide use. This evidence is summarised in a joint paper which was published as Annex A1 to the Government commissioned Ecotec report. Ecotec also conducted a review of the literature on the external costs of pesticides use (as is recognised in para 14 of the EAC report).

16. In terms of economic impacts, Ecotec conducted a significant amount of work investigating the potential impacts of a tax on different sectors of the economy and set out different ways in which the impacts could be ameliorated. The consultation following the publication of this research also sought views on possible measures to complement an economic instrument.

    (f)  We consider that the weight of evidence suggests that there is considerable scope for further cost-effective reductions in pesticides use, benefiting both the farmer through reduced purchases, and the water consumer, through reduced capital expenditure and operating costs incurred by the water industry.

17. The Government also believes there is scope for further cost-effective reductions in pesticide use and is currently trying to identify the best way of stimulating such reductions. The Ecotec research suggests that a tax could (in conjunction with complementary measures) be a useful tool in achieving reductions in pesticide use. The Government is also exploring with the agrochemical industry whether its objectives could be better achieved through a partnership approach.

    (g)  Current proposals for banding a pesticides tax to increase its environmental effectiveness may not adequately reflect the impact different chemicals have on biodiversity. The lack of date on the amount of active ingredients used contributes to the difficulties. The Government should carry out further research on this and take the opportunity to learn from other European Union states which have already introduced similar measures.

18. The Government invited views on the banding system proposed by Ecotec as part of the consultation exercise. The responses demonstrated a general presumption in favour of the banded system, although there were some concerns about the exact design and how it would work in practice. The Government has carefully considered the issues raised by all of these responses.

19. When considering any new initiative, it is important to draw on the experience of other countries. The Government therefore keeps the developments in countries with practical experience of pesticide taxes/charges under constant review.

20. The Committee's comment about a lack of data on the amount of active ingredients is addressed by the Government's response to recommendation (b) above.

    (h)  We are astonished and disappointed that the Government has decided to drop from this year's budget a pesticides tax without even making the industry's alternative proposals public for consultation and discussion. But we welcome the government's clarification in response to our written concerns that a pesticides tax is still on the long-term agenda. We hope that this situation does not reduce the priority given to the further work we have indicated to be necessary.

21. As the Committee notes, the Government has not ruled out a tax on the use of pesticides. Indeed, the November 1999 Pre Budget Report stated that the Government believed that a tax or charge could be a useful tool, in conjunction with other measures, in addressing the environmental impacts of pesticides. However, in line with the 1997 Statement of Intent on environmental taxation, the Government is exploring with the agrochemical industry whether its objectives can be better achieved through a partnership approach between the Government and industry.

22. As stated in the Government's response to the Committee's recommendation (a), the British Agrochemicals Association have been asked to further develop their initial voluntary proposals and submit a formal package of measures by mid-April. There will then be an opportunity for all interested parties to express their views on the proposed measures.

    (i)  After almost two years of research, the 1999 Budget announced the abandonment of work on charges for sources of water pollution. With the dropping of a pesticides tax, dormant proposals for taxing fertiliser use may also fall off the agenda. The Government's plans to implement the 'polluter pays' principle in a major area of environmental concern—water resources—seem therefore to have come to nothing. We regard this as a significant failure in its commitment to place the environment at the heart of government and to pursue sustainable development.

23. The Government has not ruled out a tax on the use of pesticides.

24. The Government did not introduce a national tax on water pollution as research commissioned by DETR suggested that a national tax or charge would not be as effective as the investment programmes of the Periodic Review in securing further targeted improvements in water quality. The Government will shortly be publishing a consultation paper which will consider whether trading in abstraction licences or charges on abstraction licences could deliver more efficient water use and environmental improvements.

25. The link between fertiliser use and environmental damage varies considerably according to the geology of land and the method of application. In many cases, the use of organic manure is also responsible for the majority of the problem. The Department of the Environment, Transport and the Regions is shortly to let a contract on assessing the cost-effectiveness of Nitrate Vulnerable Zone measures in reducing nitrogen use.

On proposals for an aggregates tax

    (j)  All quarrying despoils the countryside, and any policy with sustainable development at its heart would minimise it. The current proposal for a tax on primary aggregates would, over a period of years, shift the balance towards the greater use of recycled secondary material and also towards refurbishment rather than new build. The evidence suggests that there is scope for both these aims to be realised, and thus for construction to become more environmentally sustainable.

26. The Government agrees with the Committee that the extraction and transportation of primary aggregates imposes a number of environmental costs on individuals and firms in society more generally, and has therefore decided to introduce an aggregates levy. This will being about environmental benefits by making the price of aggregates better reflect environmental costs, and encourage greater use of recycled waste materials. The environmental benefits of the levy will be enhanced further by using some of the levy revenues in a 'Sustainability Fund' specifically aimed at reducing local environmental costs. The Government will be consulting shortly on how best to target the use of the fund.

    (k)  We applaud the efforts of the Quarry Products Association to devise a satisfactory voluntary scheme of self-regulation. Like the Government, we believe that this could be improved further, and we would propose that companies participating in an approved scheme, and delivering satisfactorily, should be exempted totally from a tax. There should still be a tax, however, both to ensure adherence to the scheme and encourage recycling and refurbishment. Any revenue from the tax should be hypothecated to generate funds to address local environmental impacts.

27. The Government is grateful for the work the QPA has done over the past 18 months is developing voluntary proposals to reduce the environmental costs of quarrying. The exercise has demonstrated the Government is willing to consider alternatives to a tax that will deliver equivalent environmental benefits.

28. Like the Committee, the Government did not believe that the voluntary package put forward at the time of the Pre-Budget Report went far enough. Although the Government has had further extensive discussions with the QPA since the Pre-Budget Report, there has been little improvement to the package on offer. The QPA also attached conditions relating to Government procurement which would have been inconsistent with EU procurement directives and UK competition policy and therefore could have been open to legal challenge. The Government therefore decided to introduce an aggregates levy, and return all revenues back to business through a cut in employer NICs, and a ring-fenced 'Sustainability Fund' aimed at delivering local environmental benefits to areas subject to the environmental costs of quarrying, as recommended by the Committee.

    (l)  The Government has shown a lack of clarity in the approach to an aggregates tax, both as regards the objectives of the tax and what it has demanded of the industry. We also think that it should make stronger efforts to build a consensus on the issues.

29. Since the initial announcement in July 1997 that work was to be undertaken on the environmental costs associated with quarrying, the Government has maintained a clear and consistent approach to the aggregates levy.

30. The consultation document issues by Customs and Excise in June 1998 made it clear that the main objective of any aggregates tax would be to ensure that the environmental impacts of aggregates production, not already addressed by regulation, are more fully reflected in prices. Such a tax would also encourage recycling of aggregates. A tax would support the Government's desire to shift the burden of taxation from "goods" to "bads", in line with the statement of intent.

31. In the 1998 Pre-Budget Report, the Government announced that it would also give careful consideration to alternative proposals made by the industry which would secure equivalent or greater benefits than a tax. In the November 1999 Pre-Budget Report, the Government welcomed the QPA's voluntary package of environmental measures but considered that it fell short of what was necessary to address the overall environmental and economic effects of quarrying. The Government therefore announced that it was minded to introduce a tax in the next Budget unless further improvements to the package could be made.

32. Although the Government has had further extensive discussions with the QPA since the Pre-Budget Report, there has been little improvement to the package on offer. The QPA also attached conditions relating to Government procurement which would have been inconsistent with EU procurement directives and UK competition policy and therefore could have been open to legal challenge. The Government therefore decided to introduce an aggregates levy.

    (m)  Within finite limits there does appear to be considerable scope for increases in the recycling of core Construction and Demolition waste and other secondary waste. The Government should set more challenging targets for each category of waste as part of its current review of this area.

33. The current targets in Minerals Policy Guidance (MPG6) will be re-assessed as part of the review of MPG6 and it is likely that more challenging targets will be set. The available evidence suggests that current targets are being achieved.

    (n)  The Government should promote more actively imaginative complementary proposals and initiatives to increase the use of recycled materials. These should include reviewing regulatory requirements which prevent the use of recycled materials, developing new quality standards with appropriate specifications and further research on their potential use.

34. The Government has and is carrying out many initiatives to encourage and promote the use of recycled aggregate. These include:

  • supporting the development of a Quality Control Protocol prepared for the production of recycled aggregate, published earlier this year;
  • changing the specification for highways to allow greater use of suitable materials as recycled aggregates to take full effect from autumn 2000;
  • running a trial aggregates advisory service to provide information on the efficient use of all aggregates and on the use of recycled aggregates, and inviting expressions of interest in running a permanent service;
  • publishing good practice guidance on controlling the environmental effects of recycle and secondary aggregates production (February 2000);
  • supporting in partnership with industry demonstration projects to show how recycled aggregate can be used, for example, a current project is using incinerator ash for the construction of a road in north London;
  • funding with others a Reclaimed and Recycled Construction Materials Handbook published in 1999);
  • supporting the development and publication in 1998 of BRE Digest 433 "Recycled Aggregates"; and
  • holding workshops, seminars and exhibitions to encourage greater use of recycled aggregates, most recently, for example, a workshop on the use recycled aggregate in Nottingham on 3 April 2000.

    (o)  The revision of the Minerals Policy Guidance (MPG6) offers, in particular, a major opportunity to overhaul the policy and regulatory framework governing mining and it will be essential for the Government to place sustainable development at the heart of the new guidance.

35. The review of MPG6 will be fundamental and comprehensive and will be based on the three pillars of sustainable development, ie to meet social and economic needs while properly protecting the environment.

    (p)  Insofar as the public sector is responsible for 40 per cent of all aggregate consumption, the Government has a major role to play in helping the country move towards a sustainable aggregates policy through the procurement policies and specifications it adopts. The Government's new procurement arrangements, in particular for Partnerships UK to improve PPP and PFI, should have objectives cast with this in mind.

36. Answered together with point (w) below.

    (q)  In view of the importance which the Financial Secretary placed on recycling as the primary objective of the tax, we found it extraordinary that he did not have any recent date on the use of aggregates and the extend of recycling and was only able to quote 1990 estimates. In this respect government has entirely failed to implement the monitoring arrangements which MPG6 was meant to put in place.

37. It is extremely difficult to collect reliable figures. For example, construction and demolition waste arises at a vast number of sites that are usually temporary. The 1990 figures were the best estimates at the time. Since then a better system for the collection of the data has been developed and a national survey of construction and demolition waste is currently underway, involving DETR, the Environment Agency and industry. Preliminary results should become available in June.

    (r)  We were concerned at the absence of better research information on the environmental impact of aggregates extraction on Sites of Special Scientific Interest.

38. English Nature have been asked by DETR to produce for the first time a definitive list of all SSSIs at locations with planning permission for mineral development (both active and dormant). A basic list should be available within the next month or two. A full assessment by EN of those sites where active mineral working, including aggregate working is damaging, or has potential to damage, the relevant scientific interest, is expected in the autumn.

On the Climate Change Levy

    (s)  The Committee endorses the principle of introducing a tax in order to reduce carbon emissions and meet our Kyoto commitments. The changes introduced in the Pre-Budget Report appear broadly in accord with previous recommendations we have made and render the levy more environmentally effective whilst protecting UK competitiveness. However, we remain concerned at some aspects of the Government's approach, including:
  • the evident and significant difficulties cited by witnesses which have largely resulted from the early and fundamental decision to implement the tax as a downstream measure in order to exempt the domestic sector.

39. The Government welcomes the Committee's support for developments in the climate change levy and believes that the announcements in Budget 2000 will further enhance its environmental effectiveness while protecting the competitiveness of UK industry.

40. The Government commissioned Lord Marshall to report on economic instruments and the business use of energy. The decision to implement climate change levy at the point of supply to the final consumer was taken following that consultation. The Government has held to its objective of fully exempting the domestic sector in order not to add to the significant problem of fuel poverty which affects nearly 5 million households in the UK. Government has other measures—such as the Home Energy Efficiency Scheme and a reduced rate of VAT on energy saving materials—which will improve energy efficiency in the domestic sector.

  • The lack of formal consultation on key aspects of the scheme—such as the decision to use the European Directive on Integrated Pollution Prevention and Control (IPPC) as a criterion for energy efficiency.Answered with:

  • The suitability of the IPPC criterion as a measure of eligibility for rebates, and the failure of the Government—and especially the Department of Trade and Industry—to take a more pro-active role in producing an alternative definition which commands wider support.

41. The Government developed the climate change levy in an open and consultative manner and has undertaken extensive consultation across the range of those with an interest in the climate change programme: through Lord Marshall's Report; via the Customs and Excise consultation; and specifically on the draft legislative clauses, on energy efficiency measure and on combined heat and power systems. Many of the opinions put forward during consultation have been reflected in the refinements made.

42. The IPPC Directive has a clear rationale in that the sites covered by the Directive have to operate in an energy-efficient manner which other non-IPPC sites are not subject to. This definition covers the main energy-intensive sectors exposed to international competition and around 60 per cent of all the energy used in manufacturing.

43. In the Pre-Budget report, the Government announced that it remained willing to consider alternative definitions for eligibility which would target relief at energy intensive sectors exposed to international competition. But that any alternative definition would have to have a clear rational, provide legal certainty, administrative simplicity and be consistent with EU State Aids rules.

44. A number of proposals have been received since the Pre-Budget Report and the Government has assessed them carefully against the criteria listed in it. The Government takes the view that none submitted to date satisfies all of the criteria set out in the pre-Budget Report. Eligibility for the negotiated agreements will therefore continue to be defined as installations with processes covered by Parts A1 and A2 of the IPPC Regulations.

45. A final consultation paper on the IPPC Regulations will be issued shortly by DETR. As part of these wider consultations, the Government will consider which processes currently covered by part B of the Regulations should, given their environmental effects, be more appropriately regulated under part A2.

  • The fact that the Levy has had to be introduced and refined before the Climate Change Strategy is published, and that the inter-relationship of the Levy to other policies is unclear. It is therefore difficult to assess what part it plays in the overall savings which will be required to meet out Kyoto commitment and the Government's own target of a 20 per cent reduction on carbon dioxide.

46. The draft Climate Change Programme was published on 9th March. The climate change levy forms part of, and has developed alongside, the Climate Change Programme. The Government believes it would have been wrong to wait for publication of the draft Programme before beginning to take action on climate change. Indeed, there was no need to wait for the draft Programme to know that every sector would have a part to play in reducing emissions of greenhouse gases, and to begin planning how this would be achieved. Climate change—and specifically meeting out Kyoto targets—requires immediate action. The draft Climate Change Programme puts us on track to meet those targets and moves us towards achieving the Government's long-term aim of a 20 per cent reduction in carbon emissions.

47. The Government has also been taking forward policies achieve carbon savings in other sectors. For example, fuel duties for transport related emissions and the Home Energy Efficiency Scheme in the domestic sector.

  • The Government's failure to explain in the Pre-Budget Report significant changes in the extent of the carbon savings forecast.

48. The Government has responded to the Committee's request for publishing further information in the Budget and PBR documentation. Budget 2000 went even further to set out clearly the estimated benefits of all environmental measures.

49. Carbon savings figures have been updated as design of the ley has been established and the Government now expects to see total savings—from the levy and the Negotiated Agreements—of at least 5MtC a year by 2010. Firming up details of agreements with the energy intensive sectors has made it possible to give a more complete estimate of their associated environmental benefits and these savings are now expected to be 2.5MtC by 2010. In addition, the consultation exercise on the energy efficiency measures has now been completed. These measures will save at least an additional 0.5MtC a year by 2010, bringing savings from levy package to at least 2.5MtC.

  • The full extent of the reduced liability on offer to the energy intensive sectors, in view of the fact that implementation of the IPPC directive would in any case have required them to make all cost effective savings.

50. The Government recognises the case for giving special treatment to energy intensive sectors because of their high energy costs and their exposure to international competition. Negotiated Agreements include demanding and explicit energy efficiency targets which will produced carbon savings well above what would have happened through IPPC alone. Carbon savings from sectors covered by these agreements are expected to be at least 2.5 MtC a year by 2010, making a significant contribution towards meeting our Kyoto targets.

  • The feasibility of the Government negotiating and managing agreements with up to 60 industry sectors, sub-sectors and trade associations in the timetable available, especially when reliable data may not be available for many of these.

51. The Government has made good progress on the Negotiated Agreements. The Government has already reached Memoranda of understanding with the 10 major energy intensives and these will be translated into full Negotiated Agreements shortly. Government expects to reach heads of agreement with smaller eligible energy intensives over coming months, and to translate these quickly into full agreements over the summer.

    (t)  We expect the Government to take prompt action to further the development of an emissions trading system by providing an adequate response to the Emissions Trading Group's proposals which demonstrates to the industrial and upstream power-generation sectors its commitment to making this work. This should necessarily involve further financial incentives which are sufficient for those sectors to commit themselves to the development of a trading system, and, in the longer term, the adoption of absolute carbon targets.

52. As indicated in the draft Climate Change Programme, the Government believes that emissions trading has a key role to play in reducing greenhouse gas emissions. The Government is keen to have an operational trading scheme up and running as soon as possible.

53. The Government welcomes the progress made by the Emissions Trading Group (ETG) in addressing the issues associated with setting up a domestic emissions trading scheme. The work of the group has shown that the early creation of such a scheme could yield significant advantages to the UK, including providing an opportunity for the UK to reduce greenhouse gas emissions in a cost effective way.

54. The Government welcomes the proposals put forward by the ETG on ways to encourage participation in a domestic trading scheme. In particular, the Government sees merit in the case put forward by the ETG that some form of financial incentive will be required for companies to take on binding emissions targets that generate additional emissions reductions. Any incentive would need to be efficient in both economic and environmental terms, have acceptable financial and distributional implications, and be consistent with EU State Aids rules. The Government will continue to work closely with ETG on the development of a domestic trading scheme and the form such a financial incentive might take.

Other aspects of the Government's approach and the Pre-Budget Report 1999

    (u)  The Government's approach to each of the three taxes examined has been markedly different. A green Tax Commission would ensure greater consistency of approach in researching and developing tax proposals and in building consensus between Government, business and industry and environmental advisory bodies and non-governmental organisations.

55. The Government's Statement of Intent on environmental taxation set out a clear strategy for developing environmental tax proposals.

56. The Government has followed a consistent approach in developing tax proposals on aggregates, pesticides and the climate change levy. In each case, the Government has set out its environmental objectives, commissioned external research, and developed the proposals in an open and consultative way.

57. The Government will keep the case for introducing a Green Tax Commission under review but it is not obvious what a Commission would add to existing arrangements. There are already a large number of stake-holder bodies which provide the Government with advice on environmental taxation, such as the UK Round Table on Sustainable Development, the Commission for Integrated Transport and the Trades Unions Sustainable Development Advisory Committee.

    (v)  We were also concerned that the Pre-Budget Report appears to expand and redraft the criteria for environmental taxation included in the original Statement of Intent (HM Treasury, July 1997). In particular, it includes a new requirement that "environmental policies must be based on sound evidence..." ...This requirement would appear to conflict with the precautionary principle, one interpretation of which is that, where uncertainty exists, the most cautious approach should be adopted despite an absence of definitive evidence of harm.

58. There has been no change in the Government's criteria for evaluating proposals for new environmental taxes. The Pre-Budget Report simply elaborated on the principles set out in the 1997 Statement of Intent.

59. Developing practical and effective policies requires detailed research, careful planning and extensive consultation. That is why the Government commissioned the Marshall Report on the industrial use of energy, the London Economics study of the environmental costs of quarrying and the ECOTEC report on pesticides.

60. Whilst uncertainty should not prevent inaction, precautionary action must be based on objective assessments of the costs and benefits of action. The Principle does not mean that we only permit activities if we are sure that serious harm does not arise, or there is proof that the benefits outweigh all the possible risks. That would severely hinder progress towards improvements in the quality of life.

61. A fuller account of government's interpretation of the precautionary principle is set out in the Sustainable Development Strategy.

    (w)  In our view the Treasury has failed to implement the pan-governmental commitment to consider the incorporation of sustainable development into the aims and objectives of all new bodies with regard to the Office of Government Commerce (OGC) and Partnerships UK. We recommend that the Treasury builds environmental objectives in to the aims of the OGC and Partnerships UK and includes a representative of DETR on OGC's proposed Supervisory Board. Answered with:

    (p)  Insofar as the public sector is responsible for 40 per cent of all aggregate consumption, the Government has a major role to play in helping the country move towards a sustainable aggregates policy through the procurement policies and specifications it adopts. The Government's new procurement arrangements, in particular for Partnerships UK to improve PPP and PFI, should have objectives cast with this in mind.

62. The Government's procurement policy sets out a definition of value for money—ie. the optimum combination of whole life costs and quality to meet the user's requirement—which provides a helpful basis for taking account of environmental factors in procurement. This policy, together with the framework for greening Government operations, provides the basis for the joint Treasury/DETR note on environmental issues in purchasing. The joint note explains how purchasers can specify requirements in green terms where appropriate and award contracts on the basis of whole life costs rather than lowest price.

63. The inclusion of a reference to sustainability, as a contribution to value for money, in OGC's objectives is being considered. Invitations for cross-Whitehall representation on OGC's Supervisory Board, including an invitation to DETR, have been issues.

    (x)  We consider that the failure to publish an environment impact assessment on the likely effect of abandoning the fuel duty escalator reveals how far Government has to go to place sustainable development at the heart of policy making, and would urge the Government to rectify matters.

64. The Government is committed to appraising the environmental impact of all Budget measures and continues to detail the environmental effects of all measures whose primary aim is environmental in table 6.2 of the Red Book. This includes an appraisal of the road fuel duty escalator.

65. Budget 99 indicated that the emission savings by 2010 from a fuel duty escalator up to and including Budget 2002 would be between 2 and 5 million tonnes of carbon (MtC). The savings in the most recent Budget document of 1 to 2.5 MtC only have the escalator in place up to and including Budget 99, and assumes that fuel duties increase in line with inflation thereafter (this is consistent with the cautious and prudent approach taken to forecasting future fuel duty revenues). Both these policies are measured against a baseline of indexation in all years. The removal of the fuel duty escalator is therefore shown as a reduction in the additional environmental benefits of real increases in fuel duties a baseline of indexation.

    (y)  We urge the Government to publish the full Climate Change Programme and the now infamous DTI energy projections, first promised to us by a minister after the Budget in Marsh 1999.

66. The draft Climate Change Programme was published on 9th March and has been welcomed widely. A final programme will be published in the autumn. The new energy projections were made available by DTI on the same day in "Energy Projections for the UK, Working paper". This was cross-referenced in DETR's document "Climate Change: Draft UK Programme".

    (z)  We were surprised and disappointed that the Financial Secretary was unable to acknowledge the UK's interest in the EU reduced VAT scheme in oral evidence to us. Although primarily targeted at unemployment, we remain of the opinion that the scheme offers an opportunity to apply a reduced rate of VAT to the installation of energy saving measures (albeit not DIY materials) thus providing a way around the barrier of the Sixth VAT Directive.

67. As the Committee will be aware, Budget 2000 announced a widening of the reduced VAT rate of 5% to cover the installation of energy saving materials in all homes from 1st April. This is a Budget measure which is being introduced in Finance Bill 2000. The reduced rate will now apply to installations of insulation, draught stripping, hot water and central heating system controls and solar panels supplied and fitted by a contractor in all homes.

68. The Government introduced both the 1998 reduced rate for grant funded installations of energy saving materials and the wider reduced rate under Annex H of the Sixth VAT Directive which allows a reduced rate for the "supply, construction, renovation and alteration of housing provided as part of a social policy.

69. The Government has had a policy of affordable warmth for all since 1997 which it demonstrated by reducing the VAT rate for fuel and power in September 1997. New research has established a link, for the first time, between older, colder homes with poor thermal efficiency and ill health and excess winter deaths. We believe that we can improve the quality of life for many people by introducing measures which improve the thermal efficiency of homes and the affordability of heating them.

70. The Committee is aware that previously the Commission advised us that they were not satisfied that fitting energy saving materials in all homes was a social rather than an environmental policy. They have now indicated a slightly more relaxed view on Member States' freedom to choose their social policies. Taking advantage of this, and bearing in mind the new findings on colder homes and ill health, we have introduced a wider reduced rate for energy saving materials.





 
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