Select Committee on Environmental Audit Minutes of Evidence

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 be:

    —  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 relief.

  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 industry groups;

    —  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 Report—including the proposed introduction of a system of enhanced capital allowances for energy saving investments—fed 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.


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 opportunity?

  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 occasion.


  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 Partnerships UK?

  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 reviews—which led to the setting up of OGC and PUK respectively—had 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.

February 2000

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