Supplementary memorandum from Her Majesty's
Treasury in response to written questions from the Committee |
1. [Q336] The Committee would be grateful
if the Government could provide further clarification of its criterion
that voluntary proposals should produce benefits "proportionate
to what a tax might yield".
Richard Caborn, former Minister for the Regions,
Regeneration and Planning, set out four criteria by which any
voluntary package would be assessed in a speech to the Quarry
Products Association (QPA) in May 1998, namely that it should
credible in tackling the impacts
of aggregates extraction;
deliverable across the industry;
permanent in application and benefit
(as a tax would be); and
proportionate to what a tax might
yield, taking all relevant factors into account.
The use of the term "proportionate"
indicated that an assessment would need to be made of the effects
of the package in reducing and mitigating the environmental impacts
of aggregates quarrying, taking into account the fact that the
effects of a voluntary package could be quite different to those
arising from a tax. For example, a voluntary approach would not
have the same impact as a tax in reducing demand but would focus
on local environmental action in quarrying areas and generic action
at the national level (such as research and standard setting).
Does the Government agree with Professor
Pearce's conclusion that the only intelligble way of interpreting
this is that the voluntary package should reduce the externality
by the same amount, or more, than the tax?
As indicated above, there are a number of factors
the Government will take into account in assessing the impacts
of the voluntary package. This is also true of the tax option,
which would be compared not only against the predicted impacts
of the voluntary package, but also against the criteria set out
in the Government's Statement of Intent on environmental taxation.
If this is so, what is the government's
estimate of the size of the reduction in cost externalities which
an aggregates tax would bring about?
It is not possible to give an estimate at this
stage of the expected change in the environmental externalities
brought about by an aggregates tax. The effects would depend on
a number of factors, including the rate of the tax, its scope,
the response of firms and consumers to its introduction and the
use made of any tax revenues.
Given the Minister's statement that
the objective of an aggregates tax would be to increase recycling,
will comparison between the OPA's proposals and the tax in fact
be limited to their relative effectiveness in increasing recycling?
The Government considers that greater use of
recycled and secondary aggregates has an important role to play
in meeting the economy's need for aggregates. However, the comparison
between the QPA's proposals and a tax option must of course consider
wider environmental and economic impacts, as well as any direct
impact on recycling.
2. [Q366] Given the likelihood of low
and falling energy prices and the extent to which this will mask
the effect of the Climate Change Levy, have Ministers made a decision
over the identification of the Levy on consumers' bills?
The Financial Secretary to the Treasury announced
on 26th November in response to a question in the House [column
255W] that suppliers will be required to show the amount of climate
change levy on invoices if they wish to be eligible for bad debt
3. [Q377 and Q378] Exactly which alternative
definitions to IPPC coverage did the Government consider as a
determinant of `energy intensive'? Is any other EU Member State
using the IPPC criteria to define energy intensive?
The Government has considered a wide range of
possible alternatives to the IPPC Directive as the definition
for determining eligibility for a negotiated agreement, including:
proposals put forward by various
the alternatives set out in Lord
Marshall's report on the role of economic instruments and the
business use of energy;
and the criteria used in other countries.
Details of the energy tax regimes in other countries
are set out in Annex B to Lord Mashall's report. As that report
demnstrates, the structure of these energy tax regimes varies
considerably between countries, reflecting differing national
circumstances. There are also a number of energy tax proposals
under development at present. None of the regimes currently in
operation in EU countries determine eligibility by sole reference
to the sectors covered by the IPPC Directive, although there is
a considerable degree of overlap between those sectors given special
treatment in other EU countries and those sectors covered by the
IPPC Directive in the UK.
[Q402] Mr Timms' answer indicates that a
significant proportion of the extra £100 million to be allocated
from Levy revenues for capital allowances will be directed to
the manufacturing sector. It could be argued that this will decease
the effectiveness of the funding as companies already benefiting
from an 80 per cent rebate will receive a further alleviation
of their exposure to the Climate Change Levy for investments that
EU law and agreement with the Government require them to be making.
4. What consideration has been given to
the idea that the £100 million worth of capital allowances
should be reserved for industry and business outside the negotiated
agreements? (Or at least, for companies within negotiated sectors
to be eligible only for those investments which will take them
beyond their agreed targets?)
The refinements to the levy made in the Pre-Budget
Reportincluding the proposed introduction of a system of
enhanced capital allowances for energy saving investmentsfed
into the ongoing discussions between the Government and the trade
associations representing energy intensive sectors, and are helping
in setting challenging targets for improving energy efficiency
in these sectors.
The Government is presently consulting on the
design of the enhanced capital allowances scheme, but has made
clear the intention for the enhanced capital allowances scheme
to be open to all firms of all sizes in all sectors.
VAT ON ENERGY
EU experimental scheme for reduction VAT rates
on labour intensive services
5. [Q414] The EU proposal in question
is indeed aimed at increasing employment in the EU but nevertheless
presents an opportunity to achieve a stated Government goal in
another area with the legal certainty that seemed to be the only
barrier to action. What prevents the Government from taking this
Under the terms of this experiment, EC law does
not permit a reduced rate for the do-it-yourself installation
of energy saving materials.
We note the UK has applied for a
reduced rate for building renovation and repair on behalf of the
Isle of Man. When was this application notified to the Commission?
Has the UK indicated interest in applying for a reduced rate for
any other service and/or on any other territorial basis?
The UK notified the Commission of the Isle of
Man's wish to apply a reduced rate of VAT on the supply of building
renovation and repair services on the Island on 29 October 1999.
The UK has yet to respond to Lord Rogers' Report on Urban Regeneration
and has reserved its position.
Now that the 1 November 1999 deadline
for notifications has passed is the UK now barred from applying
for a reduced rate for the installation of energy efficiency measures,
or any other services, under this proposal?
Any decision on the use of an experimental reduced
rate in the UK can only be taken by the Chancellor in the context
of future Budgets.
6. [Q413 and Q415-418] The Minister
undertook to write to the Committee regarding Ministerial communications
with "EU partners and the Commission" seeking a reduced
rate of VAT for a broader range of energy saving installations
than currently exists. How many letters on this subject have Treasury
Ministers sent to (i) the Commission and (ii) counterparts in
otheer Member States? In how many meetings between Treasury Ministers
and representatives of either member states or the Commission,
and at how many Ecofin meetings has this been raised by UK ministers?
The Paymaster General (then the Financial Secretary)
wrote to the Commission in September 1998. She outlined the scope
of the reduced rate for energy saving materials which the UK had
just introduced and suggested that other Member States might wish
to consider changes to current Community law to allow a reduced
rate to apply to all energy saving materials in a wider range
of circumstances (for example, do-it-yourself installation). The
Commission replied suggesting that the UK should raise this point
during the forthcoming review of reduced rates. The review is
expected this year.
The Paymaster General has raised energy saving
materials in bilateral discussions with Commissioner Bolkestein.
And officials at Customs have written to the Commission several
times and have also discussed this with the Commission on one
7. The Government is committed to considering
the incorporation of sustainable development into the aims and
objectives of all new bodies. When will Treasury be meeting this
commitment with regard to the Office of Government Commerce and
The Chief Secretary's memorandum on Government
Procurement, was submitted to the Committee on 30 November 1999.
This sets out how the Office of Government Commerce (OGC) and
Partnerships UK (PUK) are expected to operate in relation to environmental
matters, including sustainable development. As the memorandum
explains, neither the Gershon nor Bates reviewswhich led
to the setting up of OGC and PUK respectivelyhad a remit
on environmental matters. The reviews were concerned with the
structure and organisation of government procurement to achieve
value for money. The joint Treasury/DETR note sets out the policy
framework within which environmental issues can be addressed,
and it is within that framework that the OGC and PUK will operate.
On the question of how these arrangements are
to be reflected in specific responsibilities and objectives, DETR
will continue to take the lead in providing technical knowhow
and guidance on environmental matters. OGC and PUK will, within
their own specific responsibilities for government procurement,
be able to consider what more might be done to get DETR's messages
across. As the Chief Secretary's memorandum points out, it is
not possible to be more precise about how the two bodies will
operate until the key structures and objectives are agreed and
in place and the bodies are up and running. The Chief Secretary's
covering letter to the memorandum explained that he would consider
what more could be said to the Committee, and the need for a follow-up
memorandum, at that time.
The Gershon review identified energy purchases
as an area where the aggregation of requirements might produce
significant savings. If energy procurement is to be centralised
in this way will the Government's target to achieve 10 per cent
of electricity from renewable sources be reflected?
The OGC will be discussing with departments,
as part of its structural and organisational remit, how to take
forward the Gershon review's findings on the aggregation of energy
purchases. Any initiatives resulting from these discussions will
need to reflect the Government's targets for achieving energy
from renewable sources.