Examination of witnesses (Questions 1-19)
WEDNESDAY 14 MARCH 2001
MR STEPHEN
TIMMS MP, MR
CLIVE MAXWELL
AND MR
JOHN HALL
Chairman
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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