Select Committee on Environmental Audit Second Report


The Environmental Audit Committee has agreed to the following Report:

Pre-Budget Report 2001: A New Agenda?

List of Conclusions and Recommendations

Pre-Budget Report 2001

1.    We conclude that few of the environmental measures contained in Pre-Budget Report 2001 are significantly new. While we fully accept the importance of incremental developments in some areas, we are disappointed that the Government has not begun this Parliament with a more imaginative and creative approach to the environmental agenda to match the commitment made in 1997. (Paragraph 8)

Specific environmental tax areas

2.    We are concerned about the extent to which confusion and inefficiency can result from the growing complexity of policy instruments in the energy sector. The Government might therefore wish to explore the scope for rationalising these instruments over time. (Paragraph 12)

3.    We are concerned at the potential overlap between schemes for Enhanced Capital Allowances, and recommend that the Treasury should rationalise them to avoid confusion and unnecessary complexity. (Paragraph 13)

4.    We note that no reasons have ever been given by the Government for its decision to shelve the introduction of a pesticides tax and adopt instead industry proposals for a package of self-regulatory measures. As part of its evaluation of progress in this area for Budget 2002, the Government should set out why it considers a 'partnership' approach with industry is a more suitable policy instrument than a tax. (Paragraph 16)

5.    We recommend that the Government publish both progress reports on the voluntary pesticides partnership approach as soon as possible in order to inform public debate on this issue. (Paragraph 19)

6.    We recommend that the Government carries out its own study to quantify the cost externalities associated with the use of pesticides and fertilisers. In addition, it should clarify where it stands on the 'polluter pays' principle in relation to pesticides and fertilisers. (Paragraph 21)

7.    The Treasury must take advantage of the widespread consensus among both industry and environmental groups that the rate of the landfill tax should be radically increased, and the Government should not wait until 2004 to do so. To maintain appropriate differentials and prevent incineration becoming an easy option, the Treasury should explore the scope for introducing an incinerator tax. (Paragraph 25)

8.    When setting a much higher rate for the landfill tax, the Treasury must also review the fiscal treatment of inert waste, and the extent to which it acts as a perverse incentive to landfill rather than re­use secondary material. (Paragraph 27)

9.    We recommend that the Treasury, as a matter of some urgency, carry out research on the impact of removing the perverse fiscal incentive to build on greenfield sites. (Paragraph 32)

10.    The Government will need to offer greater financial incentives to businesses than those provided by Enhanced Capital Allowances, if it is to promote effectively greater investment in environment­friendly technologies. (Paragraph 33)

11.    We urge the Government to reconsider the focus of the R&D tax credit scheme for larger companies and orientate it more specifically on environmental objectives. (Paragraph 34)

The role of the Treasury

12.    We regret the fact that the Treasury has retreated from a strategic commitment to environmental tax reform, by diluting the language used in the original Statement of Intent. Together with other factors discussed below, it suggests that the Treasury's approach is indeed ad hoc. (Paragraph 35)

13.    We consider that the extent of Treasury research undertaken to support the Statement of Intent on Environmental Taxation—both directly and in coordination with other departments—is inadequate; and that the Treasury is failing to provide adequate leadership and coordination across central Government. (Paragraph 40)

14.    As the Government has consistently refused to countenance the option of a Green Tax Commission, the Treasury should involve stakeholders in systematically identifying possible areas where environmental tax proposals could be developed. To provide public accountability for such an approach and a strategy to support the Statement of Intent, it should publish a short annual report setting out the key issues arising from stakeholder dialogues, the outcomes of research undertaken, and its proposals for the future. (Paragraph 41)

15.    If the Government is to regain the initiative on environmental tax reform, it will need to make a convincing case for the benefits of such a strategy. Increased environmental awareness and understanding among the public will be crucial. (Paragraph 42)

16.    As we have pointed out before, leadership is crucial, and we believe that there is much more the Treasury and the Chancellor could do to promote this agenda. (Paragraph 42)

17.    We are concerned at the extent to which table 7.2 (previously table 6.2) of the Pre­Budget Report 2001 still fails to capture comprehensively the impact even of environmental measures—let alone the 'mainstream' measures contained in earlier chapters. We recommend that the Treasury provides a detailed environmental appraisal as a supporting document for all future Pre-Budget Reports. This should set out in more detail the basis for the summary appraisal figures included in the main report, and the methodology and assumptions used to calculate them. It should also contain an analysis of any other measures (or combinations of measures) in the Pre-Budget Report which the Treasury believes may have significant environmental impact but which it has been unable to calculate. (Paragraph 44)

18.    We recommend that the Government should fulfill its commitment to incorporate systematic ex post appraisals within future Pre­Budget Reports. Data should be incorporated in summary form within the Pre-Budget Report, and supported by more detailed information in supporting the environmental appraisal document we have recommended above. (Paragraph 45)

19.    We find it difficult to understand how the Government can decide what is the most appropriate policy mechanism, if it is not able to assess the effect of different policy instruments. We urge the Government to clarify how it proposes to develop appraisal and monitoring systems on a more comprehensive basis. (Paragraph 46)

Spending Review 2002

20.    We expect to receive copies of the sustainable development reports submitted by departments as part of Spending Review 2002, so as to be able to audit them in line with our remit from the House. (Paragraph 51)

21.    If the Treasury continues to insist on keeping secret the sustainable development reports submitted by departments, then it must—at the very least—agree to allow the National Audit Office to audit these reports and report the results to this Committee. (Paragraph 52)

22.    If the Sustainable Development Unit is indeed a cross­governmental resource (as the Government have previously argued) then it should be involved in evaluating the sustainable development reports submitted by departments as part of their Spending Review bid. Otherwise, there is a clear need for a central Sustainable Development Unit to provide just such expertise. (Paragraph 53)

23.    We recommend that the Treasury should establish an internal unit which is adequately resourced and staffed so as to evaluate the sustainable development reports submitted by departments as part of Spending Review 2002. Such a unit could also encompass other responsibilities—in line with earlier recommendations in this report—such as the responsibility for environmental taxes, for developing resource productivity indicators, for monitoring the adequacy of environmental appraisal in new policy proposals, and for coordinating a more strategic approach to research and development in all these areas. (Paragraph 55)

24.    We are deeply perturbed at the negative approach adopted in the environmental guidance for Spending Review 2002 to sustainable development targets. This conflicts directly with evidence given to us by the Secretary of State for Trade and Industry who told us that she expected to see a lot more targets relating to sustainable development as a result of this Spending Review. (Paragraph 56)

25.    We strongly regret the refusal of the Treasury to provide us with the Spending Review main guidance. This contrasts markedly with its readiness to make public the environmental guidance, and vividly demonstrates that the Treasury will only share what it does not value or consider important. (Paragraph 57)

Transparency of figures in budgets and spending reviews

  1. The difficulties we have had in tracing monies demonstrate in our view a desperate need for greater clarity in the presentation of figures. We therefore recommend that the Treasury develops and includes in future PBRs, Budgets, and Spending White Papers, a consistent and comprehensive table which sets out in an easily intelligible form funding sources for environmentally related policies, and the manner in which moneys are recycled. (Paragraph 63)

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Prepared 12 February 2002