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
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
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
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
- 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
- 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
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 concernwater
resourcesseem 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
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
(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
- 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
(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 measuressuch as the Home Energy
Efficiency Scheme and a reduced rate of VAT on energy saving materialswhich
will improve energy efficiency in the domestic sector.
- The lack of formal consultation on key aspects
of the schemesuch 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 Governmentand
especially the Department of Trade and Industryto 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
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 changeand specifically meeting
out Kyoto targetsrequires 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
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 savingsfrom the levy and the Negotiated Agreementsof
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
- 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
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
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
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
(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.
(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 moneyie. the optimum combination
of whole life costs and quality to meet the user's requirementwhich
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
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
(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
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.