Memorandum from The Environment Agency
SUMMARY
The Agency welcomes the environmental measures
addressed by the Chancellor, and at the amount of space given
to the environment in the published report.
The development of a more green taxation system
needs to be given greater direction, for example by use of a green
taxation commission or forum.
The Agency would strongly encourage the Chancellor
to introduce both the pesticide tax and the aggregates tax. In
both cases the impact on the industries affected could be ameliorated.
There are a number of more specific proposals
discussed in more detail below.
THE ENVIRONMENT
AGENCY'S
APPROACH TO
THE BUDGET
PROCESS
The Agency is a strong supporter of the prospects
for the taxation system to contribute to both sustainable development
in general, and to environment management in particular. Economic
instruments are an important addition to the portfolio of policy
tools available to regulatory agencies to deliver a better environment
in an economically efficient way.
In particular, they can give additional and
continuous incentives to firms and individuals to go beyond regulatory
baselines and become more conscious of how they use the environment.
The Agency has shown itself willing to look
in an open manner at how this portfolio approach can work. A significant
example is the way that Agency has worked to ensure that the Integrated
Pollution Prevention & Control (IPPC) Directive can work with
both the climate change levy and carbon trading. In addition,
with its overview of the state of the environment and of the wider
policy options required to deliver a better environment, the Agency
is in a position to make a significant input to any such process.
In the longer term, the Agency would wish to
see a situation where users of the environment had to pay for
the burden they place on the environment, in terms of both resources
and emissions, and not simply the costs of regulation.
OVERVIEW OF
THE PRE-BUDGET
REPORT
The report had a number of very important aspects
for the environment, which the Agency welcomes.
— A number of environmental measures
were confirmed. In particular the climate change levy, together
with the negotiated agreements on energy efficiency, will make
a major contribution to climate change policy.
— There was a clear analysis of the
environmental impact of some of the budget measures. In the longer
term we would like to see this extended to the totality of the
budget. Any budget measure which may have an impact on decisions
made by individuals and companies can have an impact on the environment.
Many of these will be uncertain, but that in itself does not mean
that environmental analysis is not possible or informative.
— The discussion of Sustainable Development
within Chapter two of the report, "Delivering Macro-economic
Stability," shows that the environment, and social well-being,
are integral to economic development.
— This report made a significant step
forward by extending the commitment to earmark some of the revenues
from certain taxes (both the climate change levy and transport
taxes) to specific projects. This builds on the experience of
the landfill tax, which shows the positive benefits of incorporating
both taxation and expenditure in the same measure.
There are a number of areas where the Agency
would press for further development.
— The proposals are still presented
as a series of individual proposals. In order to make a reality
of the Government's commitment to "shifting taxes from goods
to bads," a more strategic overview and direction is needed.
The Agency would therefore strongly urge that this be addressed
more systematically. Some form of forum or commission on green
taxes would make a major contribution to making this shift. This
would also maintain the momentum behind green taxes, and prevent
it running out of steam.
— There has been a tendency to look
at the tax or charge on its own, without analysing it as one measure
among a portfolio of measures open to the environmental authorities.
The report is clear about the need to see economic instruments
in this wider context. This needs to be reflected in the analysis
of the measures, which should also look systematically at such
issues as the other measures which can be used in conjunction
with the tax or charge, including the use of some or all of the
revenues of the tax.
— The principles by which the Chancellor
will judge green taxes seem to have been made more restrictive
than in previous statements. In particular we were concerned that
the report introduced a principle that "environmental policies
must not threaten the competitiveness of UK business." Clearly
competitiveness of the UK as a whole is a major consideration,
but in certain cases it may be legitimate to threaten competitiveness
of individual industries, if the environmental costs are substantial.
In addition, there are specific proposals where
the Agency would wish to see further development, which are discussed
further below.
COMMENT ON
SOME OF
THE CHANCELLOR'S
SPECIFIC PROPOSALS
The Agency welcomes in particular the confirmation
of the climate change levy. The Agency has been involved very
pro-actively with the DETR in ensuring that the levy and the negotiated
agreements will work in harmony with the IPPC Directive. We have
also offered our assistance to the DETR to help them evaluate
the proposals for energy efficiency that industry is making to
the DETR, and in the longer term administration and review of
the agreements. The Agency also welcomes the positive developments
in the taxation of vehicles and fuel.
There are a number of proposals that remain
in the pipeline, where the Agency would wish the Chancellor to
make a positive decision to introduce a pesticides tax and an
aggregates tax.
A pesticides tax could make a substantial contribution
to environmental protection, if it is introduced as part of a
wider portfolio of tools available to the Agency. By itself the
tax might give all users of pesticides an incentive to reduce
their usage, or to manage their usage in a more sustainable way.
A tax with some element of banding based on toxicity would send
some signals about the relative impact of different pesticides
on the environment.
However on its own, and without some measure
of hypothecation, the tax is unlikely to be environmentally effective,
and may only impose burdens without environmental gain. Therefore
the Agency would support using the revenues from the tax to make
it easier for pesticide users to reduce their impact on the environment.
In particular the revenues could be used in the following ways:
— Education and information programmes,
which could be used to help agricultural and other users of pesticides
to develop more environmentally friendly ways of addressing pest
control.
— As a form of indirect charge for
the regulation of pesticides in the environment—at present
direct dischargers pay for regulation through the Environment
Agency's "charges for discharges." At present, there
is no similar scheme for indirect discharges. Funds from the tax
could fill this gap.
— As a means of paying for the application
of the groundwater regulations. The alternative means of funding
the regulations would be to charge 30,000 farm businesses individually
for the regulations, which would be a more burdensome and inefficient
approach.
In a similar way, the aggregates tax would form
a welcome part of the portfolio of controls on minerals extraction.
Again it would give a continuous incentive to producers to reduce
the impact of their operations on the wider environment, across
the country. Moreover it would increase the price of virgin aggregates
relative to secondary aggregates. This would send a strong price
signal to the users of aggregates to move more rapidly to using
secondary aggregates where they were a real alternative.
The report did indicate some areas where further
measures are possible. For example, the Agency is involved in
discussions with the DETR about economic instruments for water
abstraction. However the Agency was disappointed that there was
not a more clear steer about future opportunities in the use of
economic instruments in urban regeneration and planning, and in
the control of waste. While we wholeheartedly endorse the proposals
to include these issues in future consultation papers, we also
believe that a more systematic overview of the totality of green
taxation is needed. Therefore we believe that these measures should
also be taken forward in the deliberations of a green tax forum
or commission.
Finally, while the Chancellor has rejected a
national scheme of incentive charges for water discharges, the
Agency believes that there may be considerable scope for local
incentive charges. The Agency would like to be able to explore
this more fully. This would mean allowing the Agency's charges
go beyond simply recovering the costs we incur in regulation.
CONCLUSIONS
The Pre-Budget Report gives us an opportunity
to look across the whole field of economic instruments. There
are very welcome moves to bring the environment into the heart
of the economy. However there are still significant steps needed:
— We need to look more systematically
at making the taxation system more sustainable.
— We need to develop new instruments
as part of a systematic evaluation of the portfolio of tools available
to us in environmental management.
November 1999
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