APPENDIX 8
Memorandum from the CBI
CONTRIBUTION OF BUDGET TO ENVIRONMENTAL PROTECTION
A sustainable development policy should address
economic growth as well as social and environmental issues. Policy
should therefore be sensitive to the need to compete internationally,
upon which business expansion and the creation of jobs depend.
[An extract from Budget 2000:
Sustainable development .
. . means looking at the economic, social and environmental impact
of policies, and meeting the four objectives:
— social
progress which meets the needs of everyone;
— effective protection of the environment;
— prudent use of natural resources; and
— maintenance of high levels of growth and employment.]
We feel the Budget could have made a greater
contribution towards sustainable development, both in terms of
environmental protection and ensuring sustainable economic growth.
The Chancellor has not made the most of his
opportunity to render Government environmental policy measures
more cost-effective in terms of emission savings, and more sensitive
to the imperatives of business competitiveness. An example of
such a missed opportunity is the failure to extend the eligibility
for negotiated agreements under the Climate Change Levy to more
sectors and businesses.
There are five main areas in which we feel the
Budget has attempted to address sustainable development issues.
With the exception of emissions trading, these attempts have not
matched business expectations. Our views on these five areas are
outlined below.
CLIMATE CHANGE
LEVY
The changes made to the Climate Change Levy
were insufficient. They did not go far enough in reducing the
impact of the levy on business competitiveness, and making it
a more cost-effective instrument for reducing emissions. The welcome,
but limited improvements included:
— a lower rate of levy for Liquid Petroleum
Gas (LPG);
— favourable treatment for Northern
Irleand in the form of a temporary exemption for natural gas in
Northern Ireland for up to five years;
— some extension of the technologies
covered by the enhanced capital allowances schemes for firms making
energy saving investments;
— a transitional 50 per cent discount
on the levy for horticulture firms for five years.
The first three changes to the levy, listed
above, improve its environmental impact. The lower rate of the
levy for LPG, will discourage a switch from this fuel to more
environmentally damaging fuels. Similarly, a temporary exemption
for natural gas in Northern Ireland (which is what the CBI had
called for, in view of the significantly higher energy prices
in the Province) will reduce the use of "dirtier" fuels
for power generation in this region.
The increase in the number of technologies qualifying
for enhanced capital allowances, from five to eight technologies,
is also a welcome step in the right direction. However, it does
not go far enough. We would have liked the number of qualifying
technologies to be much higher, and particularly to have included
glazing and building services controls.
The wider the scope of the enhanced capital
allowance scheme, the higher the potential for the application
of energy efficient technologies will be. The extension of this
measure will therefore increase potential for emissions reduction,
and stimulate the energy efficiency products and services markets.
The last of the above-mentioned changes, referring
to the discount for the horticulture sector, does make the levy
less damaging to business competitivenesss, but is a drop in the
ocean with respect to what needs to be addressed.
Firstly, it is not clear whether this 50 per
cent discount is in return for an energy efficiency target, but
if so the size and duration of the discount is less than that
for energy intensive sectors signing negotiated agreements—ie
80 per cent for 10 years. Secondly, and most importantly, there
are a large number of other sectors that are also energy intensive,
which have as yet been excluded from any sort of negotiated agreement
scheme, and thus the chance to earn a rebate, under the levy.
These latter industries are expected to face significant damage
from the levy to their competitiveness.
Further, a continued focus on Integrated Pollution
Prevention and Control (IPPC) as the basis for determining eligibility
for inclusion in a negotiated agreement threatens to discriminate
between firms within sectors and to exclude other sectors, which
are significant for the economy, notably manufacturing. We have
argued that any sector or group of companies which is willing
and able to sign up to a negotiated agreement, subject to a threshold
of total energy use, should be eligible for a rebate on the lines
of those now being offered to 10 of the largest energy intensive
sectors.
Negotiated agreements are a more certain way
of ensuring energy savings and hence emissions reductions, than
the direct application of a tax or levy. Therefore the extension
of eligibility for agreements would not only address competitiveness
issues, but also make for a more effective environment policy.
Another worrying aspect of the CCL, are suggestions
in the Budget, that where arrangements for rebates and reliefs
have been secured, these may still be subject to uncertainty given
the need to check they are compatible with EU State Aids guidance
on environmental taxation (currently being redrafted). We have
already raised this concern with the UK Government and will be
pursuing it further.
The Budget has made it clear that arrangements
for rebates and reliefs from the CCL need to square with EU State
Aids guidance (now under review). It is important that the European
Commission's guidelines should recognise the long term nature
of the commitment companies will assume to earn a rebate, and
the investment needed to fulfil it.
EMISSIONS TRADING
The Budget had a welcome announcement that the
Government sees merit in some financial incentive for companies
to take on binding absolute emissions targets that generate additional
reductions in greenhouse gas emissions.
Government recognition of the potential benefits
to the UK of having a trading scheme up and running as soon as
possible was also very welcome. The CBI-ACBE Emissions Trading
Group has made strong representations for these commitments. Further
work will now be needed on the form that the financial incentives
should take and on other details important for the final design
and operation of the scheme.
An emissions trading scheme has the potential
to reduce UK greenhouse gas emissions significantly over time.
By incentivising those companies with low abatement costs to reduce
their emissions beyond a specified target and therefore sell excess
permits to companies with high abatement costs, a trading scheme
will encourage business to take the least cost route to emissions
reduction.
As a policy tool, it has the capacity to encourage
business creativity and innovation and to stimulate the market
for low carbon technologies. In terms of sustainable development,
a trading scheme could provide significant environmental gains
whilst ensuring that business is able to continue fulfilling its
primary role, as a creator of wealth and jobs.
TRANSPORT
We welcome the decision to permit the general
use of 44 tonne lorries, a position the CBI has long campaigned
for, as a significant contribution to sustainable distribution.
The introduction of 44 tonne lorries will lead to fewer overall
lorry trips increasing efficiency within the haulage industry
whilst at the same time reducing the environmental impact of essential
freight traffic.
However, we are disappointed that there was
no announcement of measures to offset the potential adverse effects
on rail freight. Whilst the majority of freight will continue
to be moved by road, rail freight has a valuable role to play
in contributing to sustainable distribution. We believe there
should be a commitment to exploring fiscal measures to encourage
the use and development of rail freight where wider environmental
and social benefits cannot be captured through commercial pricing
mechanisms.
The decision not to increase fuel duty rates
above inflation was also welcome. We believe this is not only
right in the face of recent increases in the price of diesel but
that the previous policy of an automotive fuel duty escalator
was putting an unbearable strain on the competitiveness of the
haulage industry vis-a-vis foreign operators.
We believe the continued use of fuel duties
to reduce emissions from distributors would be ineffective—past
experience has shown this to be the case. Freight operators are
essential road users and would still need to transport goods even
if fuel duties were increased.
The lowering of Vehicle Excise Duty (VED) rates
also has potential environmental benefits by encouraging the use
of heavier lorries. This will reduce the number of trips and lead
to better axle configurations with less damage to roads and bridges.
However, hauliers still face one of the highest VED rates in Europe,
which continue to undermine the competitive position of UK hauliers,
potentially leading to more foreign operators on UK roads and
therefore offsetting any environmental benefits.
We are concerned about the changes to company
car taxation and vehicle excise duty for cars registered after
31 March 2000. The Treasury has failed to produce a full economic
and environmental impact assessment of the proposals. Changes
to company car taxation could lead to significant distributional
impacts as those who currently receive the full business mileage
discount face large tax increases. Taxation rates based on crude
bands could lead to distortions to the car market as well as confusion
amongst customers faced with two systems of taxation.
Overall, there is a need for greater awareness
in the Treasury of the developments in motor vehicle technology.
Government needs to work with the industry in encouraging these
developments and building them into its overall policy on sustainable
development. For example, there needs to be more recognition from
Government for recent reductions in emissions from new cars—the
SMMT figures show average emission from new cars in 1999 to be
2.2 per cent lower than 1998. Similarly, Governmental policy needs
to acknowledge recent improvements in diesel fuel.
We support the Government's objectives of providing
alternatives to the car and improving the condition and operation
of our road network by eg targeting congestion "hot spots".
The £280 million additional expenditure is a welcome step
forward but only a commitment to higher, sustained levels of investment
in transport, in conjunction with other policies on transport,
will begin to soften the link between increased car use and economic
growth and lead to the sustainable transport system we all understand
to be necessary.
PROPOSED AGGREGATES
LEVY
The CBI was deeply disappointed at the Chancellor's
announcement of his intention to introduce an aggregates levy.
We remain fundamentally opposed to the levy, which fails to meet
the test of a sound environmental economic instrument and indicates
that the Government has lost touch with the real purpose of such
fiscal measures. Moreover, the Government has missed a golden
opportunity to forge a constructive partnership with the industry
in this key area that would have delivered substantial improvements
to the environment.
It is particularly disappointing that the tax
will fail to differentiate between the good and the bad; it offers
no incentive to move to more sustainable methods of mineral operation
or production. It simply does not encourage good operators and
discourage the bad. It seems indeed that the Sustainability Fund
actually pays for poor performance by buying out those who have
failed to meet their past commitments.
The levy contrasts greatly with the industry's
offer, through the Quarry Products Association, of a range of
measures that would have hastened the move to more sustainable
practices and direct improvements to the environment, building
on the commitments made. Several of these have in fact already
been delivered by a number of leading players on SSSIs, ISO14001
and National Parks.
There are two reasons cited in support of the
tax, the Sustainability Fund and recycling. The Sustainability
Fund offers a small contribution to the local environment and
barely gives the levy credibility, compared to the benefits that
could have been achieved through the more direct and wide ranging
approach that offered a combination of both voluntary action and
direct regulation. The effect on recycling is likely to be minimal,
given the existing high level of recycling in the construction
sector and the presence of the Landfill Tax and is not supported
by any clear analysis or evidence of its effect.
The cost on the construction industry, borne
by industry and the public sector alike, is both substantial and
likely to have an impact on the amount of capital investment and
infrastructure that can be delivered from an often fixed level
of investment. Although the offsetting of NI contributions is
intended to render the tax neutral, its effect will be disproportionate
on the construction sector and will act to undermine capital investment
in UK plc.
The two year lead in time is no consolation
for what is essentially a poor decision; and all of this will
be needed to ensure that the adverse effects of the levy are minimised,
although some of these clearly cannot be altogether avoided.
VAT REDUCTION FOR
ENERGY SAVING
MATERIALS
The Budget announced a cut in the rate of VAT
on energy saving materials. This will make it cheaper for people
to insulate their homes, and so has the potential to cut down
energy use in the domestic sector. We welcome this policy as it
is likely to reduce overall CO2 emissions, but we would like its
coverage extended beyond the domestic sector.
We have long been asking Government to reduce
VAT on energy efficiency products and services to be no higher
than that levied on energy consumption, for business as well as
the domestic sector.
Retaining the current differential sends a perverse
environmental signal to the marketplace at precisely the time
when Government has set itself ambitious goals for cutting emissions
of greenhouse gases.
Furthermore, it is vital to provide more "carrots"
for small and medium sized companies in encouraging them to save
energy. The "stick" being proposed by Government at
present, namely the Climate Change Levy, is not likely to be a
large enough incentive for smaller, less energy intensive companies,
to cut their energy use.
Reducing VAT on energy efficiency products and
services would not only reduce the use of energy, and hence emissions,
it would stimulate the markets for energy efficiency products
and services. This policy measure, if implemented, would therefore
benefit the environment and be good for business.
March 2000
| 
