Examination of Witnesses (Questions 60-78)|
WEDNESDAY 14 NOVEMBER 2001
60. And do you share that view?
(Ms Willis) Yes, I do. I think that it is sometimes
difficult with Treasury processes, because they are not always
as transparent as they could be; that is something that we have
been talking to them about. But in terms of the research base
then I think that there is plenty of work out there, it is a case
of using what there is out there, but I would share Chris's view
61. Thank you. And noting in your submission,
which was very nice and concise, thank you, you were talking about
the Treasury should see resource productivity as a key driver,
we mentioned this a little bit earlier, but, you were talking
about work is being done, how soon do you think we are actually
going to see those indicators and those targets being announced,
in terms of resource productivity?
(Ms Willis) It is hard to say, before the Performance
and Innovation Unit's report has been published, but we are very
much looking to the Treasury to implement the findings of the
PIU's report, and one of the key issues that they will have to
take forward is resource productivity indicators and targets,
and indeed the policies to meet those targets; so the Treasury,
along with the DTI, would be one of the lead Departments in doing
that. And, in terms of the timing on that, obviously, it will
take a while to develop, but we think that it is urgent that they
do address this and that they do not lose the momentum that has
been created by the PIU.
62. And what sort of indicators would you like
(Ms Willis) The Green Alliance has worked with the
DTI on this issue, actually, and we held a conference with the
DTI in February to look at what indicators of resource productivity
were being put forward by the different stakeholder groups, both
by business and by NGOs and by Government. And we think that there
is a need, perhaps, in the same way that the Government's sustainable
development strategy has indicators, we believe that there might
be a need for some very general headline indicators about the
resource productivity of the UK economy, but then also you will
need some very specific indicators to cover productivity of certain
resources, like toxic chemicals, for example, where a very small
amount, in mass terms, can have a very significant impact. This
is not a simple issue, by any means, there is a need to go carefully,
but we think that the whole concept of resource productivity could
be a really important environmental driver.
63. You talked a bit earlier about the transparency
of the Spending Review 2000 programme, and, clearly, if we are
going to audit effectively Departments, there has got to be some
consistency. How effective do you think the Treasury have been
in ensuring consistency, in terms of departmental submissions
under the Spending Review? I am also interested perhaps to have
your comments on the types of pro formas and material they expect
Departments to submit. Do you think that it is easy to put together
joined-up targets across Government Departments in the context
of the approach that they have taken; they seemed to be a little
reluctant to talk to us on that, and they are suggesting the Green
Ministers' Committee and the reporting process there is an effective
area to deal with environmental concerns. What is your perspective?
(Ms Willis) Looking at the last spending round, you
asked how consistent the Treasury was with each Department; the
answer to that is, we do not know, because it was a process that
went on behind closed doors, so it is hard to say. But if I can
turn to how things are shaping up for the next spending round,
firstly, the point about transparency is one that we made quite
forcibly with the Treasury, and they have recently announced that
they would release the guidance that they have given to Departments
on how the Departments should integrate sustainable development
into their bids, and we very much welcome that and we think it
is an important step forward, not least because NGOs and your
Committee, in fact, can then use that to scrutinise the process.
I think that there is a need to standardise the process and for
each Department to have clear requirements about how it integrates
sustainable development into the spending round, but I would also
say that it is as much a political question, of ensuring that
sustainable development is something that the Secretaries of State
get quizzed on, when they are quizzed on their spending round
bids, that they are asked to justify their bids in terms of sustainable
development, in relation to the sustainable development strategy.
So we very much welcome having the guidance and having that on
paper, and we very much hope that that is accompanied by an iterative
process of dialogue between the Departments and the Treasury.
64. How much information are you getting out
from Departments that are not classically considered to be those
engaging in environmental issues? Presumably, you get quite a
significant amount of information from DEFRA, and indeed from
Treasury; what about the MoD?
(Ms Willis) It really depends on which Departments
we work with, and to a certain extent it depends on which Departments
we choose to put pressure on and we choose to seek meetings with
Ministers with, and so on. So there is dialogue on the spending
round going on at the moment with DEFRA, we hope with DCMS, with
the DTI and other Departments, but there are some that we do not
focus on, including the MoD, and perhaps they should come to us,
and we would welcome it if they did, but we have to think about
where we focus our efforts.
65. I accept what you say. My concern is that
single Government Departments, or one or two Government Departments,
are taking issues forward and we are not spreading the message
across the organisation; and that is the direction of my question.
I think your answer is a classic, really.
(Mr Hewett) In terms of the Spending Review, it is
probably too early to say, because, in a sense, this guidance
is new, it is the first time we have seen such guidance come from
the Treasury, so this spending round is a real opportunity for
NGOs, and I think for your Committee, to do just that and to talk
to the Departments who do not generally get asked about the environment,
and say, `okay, here's this guidance; what have you done about
it?' and that would be a really useful thing for this Committee
to be able to do. Another interesting thing, which is in the guidance,
which contrasts the way that the environmental assessment, of
taxation has run so far in the Budget, is it specifically says
they want Departments to assess where their bids may have a negative
effect on some sustainable development indicators as well as a
positive. Previously, as you will know, the green section of the
Budget report has generally only looked at the positive side,
has only said `well, these green taxes help the environment here',
they have never really got on the bad side and said, `okay, what
if cutting this fuel tax had a bad effect on environmental targets,'
so that is something which we were picking up on, as well.
66. You heard the answers the CBI gave earlier,
and they clearly wanted to give the Committee the impression that
they were not against environmental taxes but they wanted environmental
taxes that did what they set out to achieve; you may have a view
about that. But reading your submission and listening to your
answers, one might portray the Green Alliance as having sort of
a hair-shirt mentality, you know, `the more miserable people are
the better things are, let's tax everything,' perhaps I am being
unfair, but you are in favour of all taxes that are proposed as
long as they have got the word `environment' written into them,
and if they are not working that is because we are not taxing
them high enough. What would you say to that?
(Mr Hewett) I think it is very important and, I think,
the lessons of the Fuel Duty Escalator, the one very important
lesson from that was that green tax reform has to be a revenue-neutral
process, we are not talking about just whacking on taxes, on energy
and waste, you have to remove taxes from somewhere else in the
economy, or use the revenue, to subsidise waste minimisation,
or energy efficiency, or some activity which will help companies
deal with those taxes. So that is the first point. The second
point. I suppose one of the best examples of environmental tax
in this country has been the landfill tax; there have been problems
about the credits scheme, but I think it is generally agreed,
including by business organisations, that the landfill tax is
effective, but, to be more effective and to create a genuine recycling
industry, a materials recovery industry in this country, compared
with what we have in Europe, we do need to increase it, and that
has come from the Advisory Committee on Business and the Environment,
as well as environmental organisations. So that is where you start
to look at the reverse of the argument; in terms of increasing
the competitiveness of our green industries, we actually need
to increase the landfill tax and use the revenue to subsidise
recycling or to cut other taxes.
67. You are making the point about landfill
tax, but the general point I was making is that an argument the
CBI would say is that there is not sufficient rigour in what the
Government is doing, it uses the word `environment' in order to
gain credit on issues, and possibly in order to get money in,
rather than to achieve the outcomes it sets out to achieve. It
could also be said that there is a lack of rigour in some of the
things that you say, because you want this general environmental
improvement to occur but you are not particularly analytical about
whether particular proposals actually meet their objectives or
not, in some cases maybe they do meet the objectives, but there
is not a great deal of analysis about whether it does or whether
it does not. I realise that this is a very brief summation, but
there is a statement about a really important issue, which is
completely unqualified, in your document, "We see no environmental
justification for exempting nuclear energy from the Levy."
All very well and good for what it says, but it does not say a
lot, does it, that you do not see any?
(Ms Willis) Can I answer that question generally,
and, Chris, you might want to come in on that specific point.
To answer that question generally, I think that we are discussing
environmental taxation here, that is why we have put forward what
progress we think there could be on an environmental tax; for
each of the fiscal measures we think should be introduced, there
is a package of measures and a strategy to accompany them, so
it is not like we are just kind of taxing randomly, in isolation.
I would also say that you can have tax incentives, as well as
increased taxes. But I think the overriding point here is that
the aim ofthis is where environmental taxation is different
from income tax, you do not tax people's jobs because you want
them to work less, the point of income tax is that it is a revenue-raiser.
Environmental taxation is very different, the point of environmental
taxation is to change behaviour, so people are only subject to
an environmental tax to the extent to which they are not changing
their behaviour and improving the environment. If they improve
their environmental performance, they pay less tax; if an environmental
tax is designed properly, that is how it works. So, of course,
there are problems with transition, and we understand the business
point of view here, and there are difficulties in transition and
there are difficulties in the short term; but we have to look
at the long-term goals and we have to look at a tax system which
will encourage environmental improvements and discourage damage
to the environment and discourage unnecessary resource use and
68. I listened carefully to that, but I am just
following on from my colleague's point, and I think he made quite
a candid point, which is that there is a danger that people will
see Government introducing new types of taxation, which it claims
have essentially an environmental basis behind them, and yet most
people, deep down, may suspect that, actually, it is just a way
of raising revenue and that the environmental name is a fig-leaf;
and if people start to believe that about one particular environmental
tax, the danger is that it could give all types of environmental
taxation a bad name. Which is why I was very interested in the
comment Mr Hewett made, that, if I heard you right, I think you
said green tax reform has to be a revenue-neutral process in order
to be credible, I think that was the spirit of what you were saying?
(Mr Hewett) Yes.
69. So, I think, just to emphasise my colleague's
point and support it, you have got to be very careful with this,
because as soon as you start to come up with environmental tax
`A' there is a danger that people just see it as another way of
Government trying to raise revenue. And I think you have to be
conscious of that all the time, whenever you make some kind of
proposal, because otherwise you give the whole idea, you tarnish
the concept, as it were?
(Ms Willis) If I can just quickly follow up on Chris's
point. I cannot speak for all environmental groups, obviously,
but I would say that nearly all environmental groups that are
putting forward suggestions for environmental tax reform are stressing
very much that it should be revenue-neutral, and that the revenue
should be recycled in ways which actually also work to change
behaviour, to reduce environmental impacts, and, to that extent,
I think, we both agree with you absolutely, that you cannot use
environment as a stealth tax.
70. Neither the Climate Change Levy nor the
Fuel Duty Escalator would be revenue-neutral though?
(Mr Hewett) The Climate Change Levy proposals are
Chairman: Not really; they are meant to be.
71. It is meant to be neutral. But is there
not a fear here amongst environmental groups that you are running
away from the real issue and that perhaps you should be arguing
for hypothecated green taxes, so that if you raise money from
one polluter, or a bad, or whatever, you say this is going to
address that problem, is that not a more honest approach?
(Mr Hewett) I think the best formula for a green tax
proposal is roughly what has happened with the landfill tax and
what has happened with the Climate Change Levy, which is, the
majority of the revenues which are raised go back to cut another
business tax, at the moment, it has been primarily employers'
National Insurance contributions, and a proportion of the revenues
are used to stimulate environmentally preferable behaviour, energy
efficiency, Enhanced Capital Allowances for CHP, or waste minimisation,
whatever those issues may be. But, I think, rather than necessarily
always having a completely hypothecated tax, there is a mix. But,
revenue-neutral, there is no additional tax burden on the economy
from the Climate Change Levy package.
72. Yes, but the trade-off for reducing National
Insurance contributions usually go to industries which employ
very few people anyway.
(Mr Hewett) Yes, revenue-neutral across the entire
Chairman: And, secondly, the amount of subsidy
for positive environmental development is quite meagre, that is
what concerns industry.
73. If I can just pick up on that, I think,
the problem is, something can be revenue-neutral across the whole
of the revenue base but it is very difficult for Government to
present to, for example, a section of the revenue base, namely
industry, and say, `this is an environmental tax; it's okay, you
have to pay it, but it's revenue-neutral, somebody else, in another
sector, is benefiting from this.' Now that has been the essential
difficulty with the Climate Change Levy, in that the manufacturing
companies are saying to us, `we are paying additional taxes, we
are energy-efficient and we have done all we can to improve our
energy efficiency, and yet we are still having to pay this additional
(Mr Hewett) The evidence generally is, from all the
Government's best practice programmes, that actually most of manufacturing
industry is not as energy-efficient as they could possibly be,
there are more cost-effective measures which they can make, have
not made because it does not get over the hurdles of investment
payback, it does make the money, it does not make as much money
as some other things; if the price of energy is greater then it
will then make more money. So, in a sense, it does stimulate more
behaviour change, and we heard that from one of the CBI witnesses,
he acknowledged that the Climate Change Levy has put energy efficiency
and CO2 reduction on the agenda of a lot of businesses where it
was not there before. So that, to me, is evidence that the Climate
Change Levy does work.
74. Forgive me, but this is actually right at
the crux of the debate, to some degree. Part of the problem with
the levy is that you can argue that companies could always be
a little bit more energy-efficient perhaps, but actually a lot
of the companies that it was levied on were already relatively
energy-efficient to begin with, because it was quite a proportion
of their costs. So those ones that have been hurt most were already,
by and large, doing quite a lot of work on this anyway. And the
problem is that, at a time when, I think we would all agree, manufacturing
is having a bit of a rough time of it, for a variety of reasons,
this particular taxation, however worthy it was intended to be,
is actually very specifically increasing the pain in particular
areas of the economy that were already under pressure?
(Mr Hewett) I think it is true to say that the businesses
do have opportunities to limit the effect of the Climate Change
Levy, be it through using the capital allowance scheme to invest
in energy-efficiency equipment, using some of the grants that
will be available from the Carbon Trust to improve their equipment,
but the clever companies who want to improve their efficiency
will probably be able to gain from this package because there
will be fiscal incentives from the Government as well as the Levy.
In terms of the energy-intensive industries, they have been primarily
exempted, 80 per cent exemption, and that is a large proportion,
it is by far and away the largest number of the energy-intensive
industries in this country; and any company which falls outside
of that bracket will seek to call itself energy-intensive, and
on any sort of a fair assessment of the definition that is not
the case, it is quite a large proportion of the manufacturing
75. I do not want to detain the Committee too
long on this, but you bring in a tax, you say that the primary
reason for doing it is environmental, there is tremendous scepticism
about whether or not that is true, about whether or not it was
Government looking at a way to raise revenue and saw certain industries
as a target; well, there is, whatever you may think, there is.
But you then bring this in, you then give people 80 per cent off
this thing that you have just introduced, which straightaway complicates
it, then you get great debate about who should and should not
be allowed to negotiate for that 80 per cent, one practical example,
is where the construction products companies are not allowed to
negotiate around that, so you have brought this thing in, for
supposedly worthy reasons, it becomes very complicated, it makes
life very difficult for some companies relative to others, you
have distorted the market and you put manufacturing industry under
pressure. Having done all of that, other people then come up and
say, "Look, we've got another wizard idea for another environmental
tax". This is the point I am trying to make, you have got
to be very careful when you do this, because otherwise you can
damage the entire concept of environmental taxation?
(Mr Hewett) I accept that.
76. You accept that?
(Mr Hewett) I accept that environmental taxes have
to be designed properly. I think the main principle to adhere
to is revenue neutrality across the entire economy, and, of course,
you cannot be revenue-neutral for every single company, because,
in the end, these things are introduced gradually over a period
of time, it is not designed to introduce shocks into the economy,
and I would argue the Climate Change Levy is at a reasonably low
level, particularly compared with some other European countries.
The idea is, we actually try to shift the way the economy works,
the whole point is to change what business is doing, so you have
to have some sort of effects on companies. The best behaviour
change that will induce is improving efficiency, or it will be
signing a renewable energy agreement, so you do not pay any Levy
at all, because that is exempted; there are ways of not paying
the Levy, which are not merely asking the Government to be exempted
77. Thank you very much indeed. I think we will
have to draw our session to a close. But let me ask you just one
question on a completely different subject, taking you away from
taxation for a change, which is the reorganisation of the Government
and the splitting up of the old John Prescott. DETR Ministry.
You say, you, Mr Hewett, have recently written: ". . . the
symbolism of splitting apart DETR appears to point towards a return
to failed policies on road building." What exactly did you
mean by that?
(Mr Hewett) I think, one of the arguments for the
creation of the DETR in the first place was to bring Environment
and Transport together, which would lead to policies which were
inextricably linked, and symbolically shift transport policy in
a more sustainable direction. I think it is pretty obvious that
that has failed.
78. It has failed?
(Mr Hewett) I think that has failed, when Government
policy is moving away from a sustainable transport policy. There
was a high water mark with the White Paper, the White Paper on
Integrated Transport Policy, in 1998; since then the Government
has clearly shifted away from sustainable transport policy. I
think DEFRA has a test, really; if you argue that one of the reasons
for DEFRA to be created was to merge agricultural policy and,
environmental policy, there is a question-mark, can that sort
of Whitehall restructuring do it, or will we see the same failures
that we saw in transport policy.
Chairman: Thank you very much indeed; and thank
you both very much indeed for giving your evidence, it was a very
interesting and vigorous session.