Select Committee on Environmental Audit Minutes of Evidence


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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