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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