Select Committee on Environmental Audit Minutes of Evidence

Examination of witnesses (Questions 1-19)




  1. Good afternoon, Minister, and thank you for coming to see us so quickly after the Budget. We appreciate that. Perhaps it is a little less hectic a time than it was before the Budget from your point of view. Is there anything you would like to say by way of a short introductory statement before we begin asking questions?

  (Mr Timms) Thank you, Chairman, for your invitation. I would like to say a few words at the outset. First of all I would like to introduce the two officials who are with me. Clive Maxwell on my right is the Head of the Environment and Transport Tax Team in the Treasury and has appeared before the Committee before, and on my left is John Hall who is an economist in that team. Sustainable development continues of course to be a Government priority. The view that economic development needs to be consistent with safeguarding the environment is a major concern for us and we have continued to deliver on that priority throughout the Budget of last week. I just wanted to draw attention to two or three of the elements that were in the Budget which may be of particular interest to the Committee. We have moved further in using the tax system to stimulate the development of innovative environmental technologies on 1 April as part of the Climate Change Levy package. We will be publishing a list of over a thousand energy saving products that qualify for enhanced capital allowances. Secondly, through the Green Fuel Challenge, the outcome of which we announced in the Budget, there will be tax incentives to encourage road fuel gases, bio-diesel for the first time, pilot projects on bio-ethanol, bio-gas, methanol and, I think perhaps most significantly for the long term, hydrogen as well as those incentives available during the course of this year. Thirdly, as the next step in encouraging greater investment in environmental technologies, and I hope the Committee will feel able to welcome the Green Technology Challenge that was announced in the Budget, both the Green Fuel Challenge and the Green Technology Challenge provide significant new opportunities to encourage the most innovative and environmentally beneficial technologies. It is worth reminding the Committee that the other parts of the Climate Change Levy package, including the levy itself, will be coming into force as planned on 1 April and will deliver really significant CO2 emissions savings. We estimate now that the whole package plus the Emissions Trading Programme will realise a saving of at least seven million tonnes of CO2 emissions in a year by 2010, so that is a very big contribution to meeting our objectives. The Carbon Trust, with its remit to support energy efficiency, to support the development of low carbon technologies, will start up its work, providing a big incentive to business to make energy efficient investments. There are a number of other elements. The package on pesticides, the package on urban regeneration, our challenge to the waste industry to meet demanding targets for allocating a bigger share of landfill tax credits to sustainable waste management projects—all of those are in the Budget and you may want to raise some of them with me. I suppose the point I want to emphasise in concluding this brief introduction is that the Budget has notched up a number of significant milestones in our pursuit of sustainable development and I will be delighted to discuss any aspects of that or any of the other policy initiatives we have in hand that the Committee would wish to raise with me.

  2. Thank you very much for being brief, if fairly comprehensive. Just to be absolutely clear, you were drawing our attention to things which were in the Budget?
  (Mr Timms) Yes.

  3. There was nothing absolutely new there?
  (Mr Timms) No.

  Chairman: It is simply drawing out things which were already announced. Thank you very much indeed. We would like to start off with the happy chance of the Prime Minister talking about the environment the day before the Budget and I know Ms Russell would like to come in on that.

Christine Russell

  4. The Prime Minister last Tuesday in his speech on the environment concentrated on the grim scenarios facing us in Britain and the world and yet only a day later the Chancellor in his Budget was making available £1.7 billion to motorists and hauliers. I just would like to know how you can say on the one hand that we are putting sustainable development at the centre of our policies and the Treasury is committed to green policies and yet the following day we get this announcement of £1.7 billion to motorists and hauliers.
  (Mr Timms) I think I can make that claim on a pretty sound basis, on the basis of the full programme of the measures that were in the Budget. Of course we announced in November a number of proposals for consultation on the transport front and we confirmed those in the Budget last week. It is worth making the point of course that there were within the £1.7 billion package some very advantageous measures from an environmental point of view. The incentive for ultra low sulphur petrol was clearly environmentally advantageous. The £100 million fund for modernisation in road haulage contains a number of very significant elements which will be environmentally beneficial, including £30 million in support of environmental adaptations for lorries, so I would not accept for a moment that there is any contradiction between that package and the environmentally sustainable development commitments that we have been developing and progressing in the Treasury over the last four years.

  5. Minister, you particularly mentioned transport and I would like to focus on two aspects of transport policy. The first is that you mentioned the large increase in public money going into transport, but quite a large amount, I think £60 billion, is actually going into road schemes. Is that really sustainable development? For instance, have you done an assessment of whether or not that £60 billion could result in even more traffic on our roads? Have you done those assessments?
  (Mr Timms) From memory, and I have not got these figures in front of me, I think you are right, that the £180 billion package over the next ten years for major investment in transport, which I think is going to be a very important programme of investment that we need to ensure takes place, divides roughly a third/a third/a third between road, rail and local transport improvements. Clearly the other two-thirds I guess are of fairly obvious and direct environmental benefit but I would hope that the programme of investment in roads would have significant environmental benefits as well. Certainly, if we can be successful in reducing congestion, there are significant environmental benefits. There are obvious benefits from the construction of by-passes in particular locations that people feel very strongly about. I think that that element of the £180 billion package is going to be good news from an environmental perspective as well. We are expecting growth in road transport to continue over the coming years. The figure I have in mind for between now and 2010 is about 17 per cent increase that we are expecting in road transport, so of course it is very important that we continue to see improvements in vehicle engine technology so that the engines that are powering all these vehicles are doing less environmental damage than has been the case in the past. That is one of the reasons why the Green Fuel Challenge has been so important and some of the ideas that have emerged from that. There are other things that we need to do as well to make sure that the growth in transport that we expect to see does not have the damaging environmental impact that it could have if we did not make sure that that was not the case.

  6. In that response you have conceded that mileage is likely to increase, but the question I was trying to ask was, has the Treasury actually done an environmental appraisal of the likely impact of that £1.7 billion tax give-away to motorists and hauliers that was announced in the Budget? Has there actually been an environmental appraisal of that amount, like, for instance, how much will the carbon emissions go up?
  (Mr Timms) So we are going back to the discussion we were having a moment ago about the Budget package rather than the £180 billion package?

  7. Yes.
  (Mr Timms) Indeed we have. In table 6.2 in the Budget Red Book, which no doubt we will make a number of references to this afternoon, there is data addressing that directly. For example, the entry under road fuel duty differentials sets out what we expect from the differential for ULSP, the increase—and this catches the point that you are particularly raising with me—in carbon dioxide emissions arising from the real reductions in duty on ultra low sulphur diesel and ultra low sulphur petrol, the impact of the temporary cut in unleaded petrol duty as well, so we have and it has been published, as I know the Committee would wish us to, in the Budget Red Book.

Mr Gerrard

  8. In the evidence that we took on the Pre-Budget report we got a number of comments from several different organisations who said that they really did not think that the Treasury had any overall strategy for environmental tax policy, that it was all a bit piecemeal with ad hoc decisions on individual cases. Do you think that is fair comment?
  (Mr Timms) No, I do not. We set out the principles that we felt should be applied to environmental taxation right at the start of this Government. The statement of principles published in July 1997 referred in particular to the benefits of shifting the burden of taxation from good things like employment to bad things like pollution, and having set out that statement of our vision I think we have been pretty effective in pursuing that vision into practical application in a large number of areas. I think that has been a pretty effective vision translated into action. I think it has been the right direction to move in as well.

  9. An issue we have discussed before is that, when the Treasury is looking at the environmental impacts of taxation, really you ought to be looking across the board, not simply at taxation which has got a specific or explicit environmental intent. Looking at table 6.2 again, all it seems to cover again this year is the taxes which are explicitly environmental rather than looking broadly across the board, which is surely what a strategic approach ought to do?
  (Mr Timms) What we have aimed to include in that table is not only things that have an environmental purpose, although certainly all of those are there, but also anything that will have a significant environmental impact. Both categories of those are covered in the table. I would want to pursue the discussion with the Committee about all this because each time I come we do have a discussion about appraisal and the way we present this information. What I want to affirm is my view that we have made a great deal of progress, analysing and presenting the environmental impact of Budget measures. We do have after all a chapter dedicated now to that in the Budget documentation each time. I think it is worth reminding the Committee that there was nothing even resembling that in the documentation before the election. I hope the Committee would accept as well that having started to present this information in the Budget documentation we have improved it as we have gone along, not least in response to requests that this Committee has made. There is much more quantification of environmental impacts now. There is more detail on the methodology, on the sources that we have drawn on, and so I think I would want to defend the approach that we have taken. I would not have thought it would be helpful to seek to include in that table 6.2, for example, the widening of the 10p tax band, just to pluck out one other element of the Budget. I do not know how one would meaningfully attach an environmental impact to a measure of that kind. The last thing I would want to see is the documentation cluttered up with a great long list of measures alongside each one of which it said, "No noticeable impact". By restricting that table to things that do have a significant impact and things that have an environmental motivation we are presenting the information in the most effective possible way, but if there are further changes that the Committee would like to see then I would be very happy to discuss those.

  10. I think it is more that we would like to feel confident that where something is not included in that table there has been some assessment and some objective measure to say yes, this is simply a minor impact, rather than just being asked to take that for granted. It is perhaps something we can come back to later on. I would like to ask about one or two specifics. The Climate Change Levy and Aggregates tax are examples of environmental taxes that have been introduced on the basis of being revenue neutral. Is that an approach that is going to be maintained in the future? Is there an overall policy, say, that environmental taxes should be revenue neutral rather than being seen as a source of raising revenue?
  (Mr Timms) That approach certainly is consistent with the statement of principles of July 1997, that what we wanted to do was not to change the amount with these measures but to shift the burden of taxation towards pollution. The fact that in both the cases you have identified we have been able to introduce the measures in a revenue neutral way from the Treasury's point of view helps to establish the credibility of those measures as environmental measures.

  11. On this question of shifting the burden, again an issue we have discussed before is measurement and appraisal. Both ONS and environmental economists have talked about sustainability gaps, and we ought to be looking for some objective way of trying to measure progress. Has anything more been done in conjunction with ONS to try and develop measures?
  (Mr Timms) I notice that ONS figures do show that environmental taxes as a proportion of the total have risen from 8.2 per cent in 1990 to 9.8 per cent in 1999, and from 2.9 per cent of GDP to 3.7 per cent. As I have said before to the Committee, I would not want to set too much store on those figures because one would hope that the revenue from a successful environmental tax would be a diminishing revenue. We have not done further work with ONS on that specifically. Just as a matter of note, however, the proportion has risen appreciably.

  12. Has anything further been done with ONS in terms of trying to get some measures of progress towards sustainability rather than just proportions of taxation?
  (Mr Timms) I am not sure specifically about ONS. We have, as you know, published the indicators on sustainable development, 15 of them, a number of which featured in the public service agreements that were published with the spending review last summer, so there has been quite a lot of detailed work carried out on assessing sustainability. How much of that has been carried out by ONS I am not sure. I am sure you are familiar with the documentation that has been published on that.

  13. You obviously think that we have got to treat these with a bit of care and that there is no simple indicator there which is saying, "This is the direction in which environmental taxes ought to go". It is not that difficult to measure. Presumably you would agree that things like the Climate Change Levy are shifting the burden of taxation. Is it really so difficult to find any measure as to whether the environmental taxes are going in the right direction or not?
  (Mr Timms) I am wondering what sort of measure you have in mind. There is a problem, as I said, about looking at the proportion of taxes coming from environmental measures, although one would prefer that to be dwindling rather than rising, or at least a bit of both, I suppose. If there are any ideas that the Committee has on how one might do that I would be interested to have a look at them.
  (Mr Hall) Some of the specific concerns you may be worrying about with that would be on such things as, within an overall take of fuel duties, if you create fuel duty differentials which incentivise the take-up of cleaner fuels, then they are clearly environmentally beneficial, but it simply would not be reflected in the measure. Some of our other concerns would be things like the enhanced capital allowances for energy saving materials, which again are a way of greening the corporation tax system, although there is no way we could call corporation tax itself a green tax. That applies to a number of measures such as reduced VAT rates for energy saving materials etc.

  14. But we want to know that they are actually doing what they are designed to do. We want to measure the effects.
  (Mr Hall) Indeed. If you look at the environmental tax take-out as a proportion of revenue it is very difficult to reflect the majority of tax changes within that scenario.
  (Mr Timms) One point which is very important that you have raised is the question of monitoring after implementation what the impact of these measures has been. I think that is going to be an increasing focus of our attention and it is in a number of areas something that we have given a good deal of thought to. For example, the changes on company car tax which we have introduced will shortly be taking effect. The Inland Revenue has done a lot of work on how one can measure what the actual impact of those changes proves to be on the kinds of vehicles being used and the amount that they are driven and so on. With a lot of environmental tax measures like the Climate Change Levy about to take effect, I think this whole area of evaluating the effectiveness of the measures that we have taken is going to be an area of a lot of work and it needs to be so.

  15. So that is something we can expect to see some development on?
  (Mr Timms) Indeed.

  16. You have talked about shifting the burden of taxation from goods to bads and we have just had a Budget that cut the tax on fuel and froze the duties on alcohol and tobacco. Can we assume that that is temporary? I would not for one moment suggest that it is anything to do with an election.
  (Mr Timms) The position on fuel duty was set out in the pre-Budget report of 1999 when the Chancellor cancelled the escalator and said that in future he would make decisions about fuel duties on the basis of the economic, social and environmental considerations at the time. Of course, since then we have had a very big rise in the price of crude oil. Clearly the Chancellor will want to keep these matters under review. On this occasion, what was pre-figured in the Pre-Budget report last November was a careful balance of all those factors influencing the decision.

  Chairman: You mentioned that the Climate Change Levy is coming in next month. We do want to ask you a bit about that.

Mr Loughton

  17. I want to ask about the Energy Tax. You have now signed section 11 agreements for 29 sectors.
  (Mr Timms) Forty now. The number is rising rapidly.

  18. I am delighted to hear it. The Committee is concerned, having looked at this before because, out of the 29 of which I was aware (and it may be the 40), all but the steel sector have opted for relative efficiency targets. It is therefore unclear as to whether they will result in an overall reduction in energy use and carbon emissions. Nine of the 13 efficiency targets show reductions of less than 10 per cent which means that on the face of it what you are trying to achieve appears slightly disappointing, that is, ten per cent for the period 2002-10. What are we actually getting in return for the 80 per cent rebates that are on offer?
  (Mr Timms) We are getting savings in CO2 emissions that we estimate to be at least two and a half million tonnes compared with "business as usual" by 2010. I think that is a very significant contribution to meeting our Kyoto and wider national objectives. I was present at a reception for the Chemical Industries Association recently and I was pleased to note that the Association was taking some pride in the fact that the agreement that it has signed up to will on its own account for almost a million of the two and a half million tonnes. In terms of the scale of the CO2 emissions that we have in the United Kingdom the impact at the margin of the two and a half million tonnes from these agreements is a very significant one. Certainly this whole process has sparked off an enormous amount of very hard work, very careful planning and analysis. I want to put on record my appreciation of the efforts not only by civil servants in the DETR but on the part of all of those in the industry associations who have worked hard on this and in individual companies as well.

  19. But would not many of these agreements have resulted from the IPPC anyway? On your "business as usual" scenario does it include or exclude the impact of IPPC? What are the figures for the IPPC emission savings?
  (Mr Timms) We reckon that IPPC on its own would probably have contributed about 0.5 million, so there is a gain of a full two million tonnes at least from the negotiated agreements.

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