Select Committee on Environmental Audit Fourth Report


Appendix 1

GOVERNMENT RESPONSE TO THE COMMITTEE'S
EIGHTH REPORT, SESSION 1998-99, ON THE 1999 BUDGET

The Government welcomes the Committee's Eighth report. The Government's responses to the Committee's individual recommendations are set out below.

Progress on proposed environmental taxes

    (a)  Overall we endorse the view expressed by the Government itself, those providing oral evidence to the Committee and others, that the measures announced in the Budget 1999 amount to it being the A greenest ever Budget.

The Government welcomes the Committee's endorsement of the last Budget as the greenest ever. The environmental tax reforms in the 1999 Budget demonstrate the Government's commitment to ensuring economic growth takes place in a sustainable way which respects the environment while ensuring social progress and is fair to future generations. In particular, the measures were aimed at:

encouraging energy efficiency and tackling climate change;

improving local air quality and supporting the integrated transport strategy;

encouraging sustainable waste management.

    (b)  We have not seen evidence that alters our view that the case for the climate change levy and the aggregates tax has been made, with both measures providing the potential to achieve very real environmental improvements. We therefore urge the Government to stand by its commitments to these measures.

The Government welcomes the Committee's continued support for the climate change levy and the Committee's recognition of the potential of this measure to deliver real environmental benefits.

The climate change levy is an important part of the Government's strategy to reduce emissions of greenhouse gases from the business sector, and the Government remains committed to their view that all sectors of the economy must play their part in helping to tackle the threat of global climate change. The Government aims to publish a draft national climate change programme, for consultation later this year.

As the Committee recognises, a number of decisions on the design and administration of the climate change levy remain to be taken. The Government has made clear that these will take full account of responses to the formal consultation on the design of the levy conducted earlier in the year by HM Customs and Excise, as well as of other representations from business and other organisations.

The Government has expressed its commitment to work with business and other interested parties to design the levy in a way that maximises the environmental benefits whilst safeguarding international competitiveness.

The Government believes that there is a case, in principle, for a tax on the extraction of aggregates. However, before coming to a final decision on whether to introduce a tax, the Government has made clear that it will first pursue the possibility of an enhanced package of voluntary measures with the quarrying industry. The Government welcomed the initial package of measures put forward by the Quarry Products Association (QPA) in November 1998, but considers that this initial proposal for a voluntary package falls well short of what is justified by the environmental costs of quarrying.

A revised package of voluntary measures has recently been submitted by the QPA and the Government is considering these proposals carefully. It is expected that progress will be reviewed in the 1999 Pre-Budget Report.

The Government's progress in shifting the burden of taxation from 'goods' to 'bads'

    (c)  We welcome the commitments the Government has made to environmental tax measures which now demonstrate its will to deliver against the Statement of Intent on Environmental Taxation. We consider there is likely to be scope for a further round of reform in the next Parliament and that a good way to prepare for that would be to task a Green Tax Commission with reviewing the progress made and making recommendations for the future.

The Committee's recognition that the measures in the 1999 Budget demonstrate the Government's commitment to developing environmental taxation in line with the Statement of Intent is welcomed. The Government is also committed to progressing the environmental tax agenda in an open and consultative way, listening to the views of all interested parties and trying to build consensus where possible on the best way forward.

The Government notes the Committee's view on a Green Tax Commission, and will continue to keep the case under review. See the Government response to the EAC's report on the Pre-Budget Report: July 1998.

The Government's pursuit of environmentally sustainable growth

    (d)  The very positive developments in the work of the Office for National Statistics on environmental accounts and the measurement of resource productivity will in due course provide a firm basis for analysing historical impacts of the economy on the environment. We consider it is this historical analysis and related predictive modelling that is required in the Treasury's key economic planning documents, the Pre-Budget Report and the Budget, to show the compatibility of the Government's economic policies with its commitment to sustainable development.

The Government is pleased to see the Committee's welcome for the ONS Environmental Accounts, which for the first time also appeared in this year's National Accounts "Blue Book". Economic growth is one of many important determinants of environmental trends. The relationship between economic growth and the environment is not straightforward and could well be changing over time, especially as Government policies focus increasingly on delivering the economic, environmental and social objectives of sustainable development. Experience with economic modelling suggests that this relationship is so uncertain as to be unlikely to yield any useful information about the relationship between growth and the environment.

Across Government there is a range of projections of environmental trends. For instance, the Air Quality Strategy contains projections of air pollution and the climate change consultation document included projections of emissions of greenhouse gases. The Government sees no merit in duplicating in the Pre-Budget and Budget reports material which is already published in the relevant documents.

    (e)  We recognise the complexity of the work being undertaken by the Office for National Statistics and the even greater difficulty involved in modelling these relationships for predictive purposes. However, we stress again that it is important for the Government to start using what is becoming available as well as indicating where progress is being made towards better information for the future. We recommend that the Treasury should present environmental impacts separately from social issues in their own chapter in the Budget report. This chapter should address historical trends and predictions based on expected growth and the environmental implications of general economic policy; and it should include the material already presented on proposals for environmental taxes and other measures to address the need for decoupling growth from environmental degradation.

As the Committee is no doubt aware, the Office for National Statistics 1999 United Kingdom National Accounts—the "Blue Book"—included for the first time a set of environmental accounts. These provide information on the environmental impact of economic activity in the industrial, commercial and domestic sectors and build upon the environmental accounts published in May 1998. Their inclusion in the Blue Book signals the Government's intention to publish the accounts on an annual basis.

These accounts are still being developed and the Government will continue to look for ways to improve the presentation of environmental data, including in the Pre-Budget Report, Financial Statement and Budget Report, and other documents. The Government welcomes the Committee's suggestions in this regard, whilst attempting to avoid duplication with other Government documents.

Appraisal of tax measures

    (f)  As with other fields of Government policy making, there is still room for improvement in the environmental appraisal of budget measures in accordance with the Government's guidance and the procedures outlined in this report.

The Government's approach to the environmental appraisal of Budget measures was further developed in the Budget 99 report, following in part the EAC's earlier suggestions. Table 5.1 set out the Government's assessment of the possible environmental impact of those budget measures whose aim is primarily environmental or which would have a significant effect on the environment. Rather than undertake unnecessary duplication, the table simply refers the reader to the source of the analysis and modelling for most estimates which are quantifiable.

In addition to the estimated environmental impact, the table also includes draft "headline" indicators of sustainable development, as set out in the November 98 DETR consultation document "Sustainability Counts". These indicators were confirmed in the DETR document "A Better Quality of Life" in May and the Government is in the process of preparing a full set of 150 or so for publication shortly. One of the purposes of the indicators is to convey to the reader often complex environmental issues in a more readily understandable format. Their inclusion in the environmental apprisal table also emphasizes the role of the tax system in underpinning the Government's commitment to sustainable development.

The Government will continue to consider how the presentation and conduct of environmental appraisal of policy measures in the Budget might be further improved.

    (g)  When appraising the case for an environmental tax measure the Government should not be over-reliant on identifying a rate for the tax it is hoped will deliver a perfect market in the good. It is most important for the appraisal work to identify likely behavioural responses, include positive complementary measures as an integral part of the appraisal and consider the incidence of the measure and distributional implications.

The Government has made clear that in pursuing sustainable development, all four objectives — high and stable levels of growth and employment, social progress, environmental protection and the prudent use of natural resources —must progress jointly. The Government's Statement of Intent on environmental taxation makes clear that environmental taxes must meet the general tests of good taxation. This includes taking full account of the distributional implications of potential environmental tax measures.

Government guidance, as set out in "Policy Appraisal and the Environment", states that all impacts on the environment need to be identified when considering alternative policy options, and where possible, attempts should be made to quantify these impacts, taking into account the uncertainties involved in trying to estimate behavioural responses to alternative policy measures. The guidance also makes clear that complementary measures should be included in the appraisal process.

As part of the "Modernising Government" White Paper, action is being taken to produce and deliver an integrated system of impact assessment and appraisal tools in support of sustainable development. These tools should aid policy makers to look at the ways to meet the social, economic and environmental objectives at the same time when developing a policy proposal.

    (h)  The Government should recognise the value of consultation on possible environmental budget measures for smaller changes as well as larger ones and where it has not consulted on the measure it should explain this decision as a matter of routine.

The Government is committed to taking forward the environmental tax agenda in an open and consultative way. Examples of this commitment to consult include:

the Task Force lead by Lord Marshall on the role of economic instruments an the business use of energy;

the consultation document on a graduated vehicle excise duty system for cars to encourage cleaner vehicles published in November 1998;

the research and consultative questions on a possible tax on pesticides, published in March 1999;

views sought on the fundamental reforms to company car taxation announced by the Chancellor in the Budget 99;

the consultation document on the design and administration of the climate change levy published on 9 March;

the publication of the results of the review of the landfill tax; and

the publication of the research into the environmental costs and benefits of aggregates extraction.

The Government believes that this process of consultation is an important part of deciding upon the right policy options and getting their design right. It is the intention of Government to continue to seek the views of interested parties in carrying forward the environmental tax agenda.

    (i)  The Government should make a proper commitment to undertake full ex post appraisals of all Budget measures, and should report the intention and the likely timing of the review for each new or substantially amended measure when it is introduced.

Central Government guidance on environmental appraisal makes clear that monitoring and ex post evaluation are vital components of the environmental appraisal process. Estimates of the environmental effects of a number of tax measures are kept under continual review. The Government would expect to publish an ex post evaluation of its existing environmental tax measures on an annual basis, to complement the appraisal data for proposed new or amended measures which are already included in the Budget. This would present the latest estimates of the environmental effects, derived using the most up to date modelling.

More generally, it must be remembered that many environmental policies are aimed at changing behaviour over the longer term. Many targets for environmental improvement are therefore long term objectives. Whilst the environmental impact estimates are kept under constant review, a clearer picture of the effects of different policies may take time to emerge. Any assessment will also have to reflect the inherent uncertainties in trying to estimate behavioural responses to policy measures.

    (j)  The Government should ensure that the environmental assessment table in its Budget and Pre-Budget Reports includes the baseline against which the policy change is being considered, the predicted outcome without the policy measure and the predicted outcome with the policy measure. For smaller measures the predicted outcome may be couched in terms of the likely scale of the impact. This summary information should be fully referenced to more detailed supporting information, including an intermediate level, accessible publication setting out the key elements of the appraisal approach, results and conclusions and, where appropriate, a detailed technical paper.

The Budget 99 report developed the Government's approach to the environmental appraisal table. It included references to source of the analysis, the policy objective targeted and where the policy background was set out.

The Government will, however, continue to review the options for developing the content and presentation of the environmental assessment table in Budget and Pre-Budget Reports, taking into account the need to avoid duplication with other Government publications. The Committee's suggestions will be considered carefully in preparing future environmental appraisal tables.

    (k)  There should be a periodic independent evaluation of the Government's approach to appraisal of Budget measures, and this could potentially be a part of the remit of a Green Tax Commission.

The Government welcomes the role the Environmental Audit Committee plays in scrutinising the contribution that government departments make to environmental protection. As already noted, the Government will continue to keep the case for a Green Tax Commission under review.


 
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