Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 60-78)



  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 on that.

  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 to see?
  (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.

David Wright

  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.

Mr Jones

  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 of—this 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 inefficiency.

Mr Francois

  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 revenue-neutral.

  Chairman: Not really; they are meant to be.

Mr Challen

  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 economy.

  Chairman: And, secondly, the amount of subsidy for positive environmental development is quite meagre, that is what concerns industry.

Mr Lucas

  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 tax'?
  (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.

Mr Francois

  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 industry.

  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 from it.


  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.

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