Select Committee on Environmental Audit Second Report



1. In June 1997, the Government issued a "Statement of Intent on Environmental Taxation" as part of its first budget.[1] That statement committed the Government to "explore the scope for using the tax system to deliver environmental objectives as one instrument, in combination with others like regulation and voluntary action. Over time, the Government will aim to reform the tax system to increase incentives to reduce environmental damage. That will shift the burden of tax from "goods" to "bads"; encourage innovation in meeting higher environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone." At that time, as a new instrument of Parliamentary scrutiny covering the environmental impacts of all departments' operations and policies, the Environmental Audit Committee identified this statement from the Treasury as a key agenda on which progress should be audited.[2]

2. During 1997 and 1998, the Government suggested a number of areas where environmental taxes could be introduced—such as energy, quarrying, water abstraction, fertiliser use, and pesticide use—and carried out detailed research on a number of these. In addition, the last Parliament saw the Government introduce major changes to company car taxation and Vehicle Excise Duty (VED), and more subtle changes in fuel duty differentials, to incorporate environmental objectives and bring about behavioural changes.

3. There are long lead times involved in such initiatives, and the new environmental policy instruments which are now being implemented—including the Climate Change Levy, the Aggregates Levy, and the UK Emissions Trading Scheme—stem largely from initiatives begun in 1997 and 1998. We have consistently welcomed the progress which has been achieved, though there have been areas where we have been disappointed too—such as the failure to introduce a pesticides tax, and to address the perverse incentives relating to new development on greenfield and brownfield sites.

4. Against this background, the Pre­Budget Report (PBR) 2001—the first budgetary statement of this new Parliament—offered an opportunity for the Government, at the start of its second term, to re­affirm its commitment to environmental tax reform. In this report we examine the PBR in respect of the Government's commitment to the environment and sustainable development, and consider a range of related issues—including those relating to the current Spending Review.[3] Many of these issues were the subject of an ongoing dialogue between our predecessors and the Treasury: we have taken full opportunity to follow­up on them where appropriate.[4]

Pre­Budget Report 2001

5. The Government's Pre-Budget Report was published on 27 November 2001. We and many others hoped that the Government would use this occasion to set out a renewed commitment to tackling sustainable development and the environment head-on within its mainstream tax and spending policies. We were therefore disappointed that the Chancellor only devoted a few lines in his speech to environmental issues:

"The cause of the environment also reminds us of how closely our lives are bound up with what happens in the world. In the 21st century, as we now know, the global environment is the local environment. To stem the tide of global warming the Deputy Prime Minister is leading the pressure for new international agreements, and because these issues are also central to our Budget and spending review, we are consulting from today on a total of 10 new environmental measures. They include additional tax relief for businesses investing in environmentally friendly technologies, and new tax incentives to encourage the fuels and the vehicles of the future—all the measures reflecting Britain's commitment to energy efficiency, innovation and conservation and to playing our part in safeguarding the environment". [5]

6. The 2001 Pre­Budget documentation itself set out three 'key developments' in taking forward the Government's strategic approach to sustainable development:

  • further tax incentives for low­carbon vehicles and fuels (including Powering Future Vehicles, a consultation on future road vehicles and fuels);
  • the Green Technology Challenge, extending the system of enhanced capital allowances for selected technologies in three areas (energy­saving, cleaner fuels and vehicles, and water)
  • the Spending Review 2002, in which the Government "affirmed its commitment to sustainable development".

The Government also announced a number of other measures and consultations, such as lorry road use charging, and the development and uptake of cleaner vans.[6]

7. Changes to fuel duties to achieve environmental aims have been a regular, though important, feature of budgetary policy for many years. The debate on future road vehicles and their power sources was initiated in the Pre­Budget Report 2000. Similarly, the Green Technology Challenge was announced in the previous Budget and a consultation issued in July 2001. As for the Spending Review, we have impressed upon the Government since 1998 the need to integrate environmental aims into the process from the start and see this through to demonstrable outcomes. (We discuss later in this report some of the concerns we still have on this score.) Thus none of these three 'key developments', however welcome, were new.

8. The Financial Secretary, when he gave evidence to us in December 2001, repeated the Chancellor's assertion that the Government had launched consultations on ten environmental measures, and asserted that, as a package, that was "not insignificant".[7] But we have had some difficulty in identifying more than six or seven consultations announced within the 2001 Pre­Budget documentation, and our analysis in table 1 of the 'ten consultations' suggests that in most cases the measures only build upon announcements already made in PBR 2000 or Budget 2001. 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.

9. We have in the past raised with the Treasury on numerous occasions the possibility of developing measures to assess progress on the Government's programme of environmental tax reform. The Government has consistently expressed some ambivalence on the use of such measures—including the measure included in the UK Environmental Accounts 2000 (published by the Office for National Statistics) which shows revenues from environmental taxes as a proportion of total taxes. We note that the latest data shows that this measure has shown a sudden and significant decline in 2000, after some eight years of almost continuous increase.[8]

10. We discuss below a number of specific areas which we raised with the Financial Secretary or where we have followed-up on outstanding concerns. Following this we consider some of the more general issues which underpin these concerns—the Treasury's role in supporting an environmental tax strategy, resource productivity issues, the Spending Review 2002, and the transparency of Government data.

1   The Statement of Intent on Environmental Taxation was issued in July 1997 as an annex to one of the Budget press releases. It is reprinted at Appendix II (p xx) in the Third Report from the Environmental Audit Committee (EAC), Session 1997-98, on The Pre-Budget Report: Government response and follow-up, HC 985. Back

2   First Report from the EAC, Session 1997-98, on The Pre-Budget Report, HC 547. The EAC has since regularly reported on Pre-Budget and Budget Statements. See the following reports:

Third Report, Session 1997-98, on The Pre-Budget Report: Government response and follow-up, HC 985

Fourth Report, Session 1998-99, on The Pre-Budget Report 1998, HC 93

Eighth Report, Session 1998-99, on The Budget 1999: Environmental Implications, HC 326

Fourth Report, Session 1999-2000, on The Pre-Budget Report 1999: Pesticides, Aggregates and the Climate Change Levy, HC 76

Sixth Report, Session 1999-2000, on Budget 2000 and the Environment, HC 404

Second Report, Session 2000-01, on The Pre-Budget Report 2000: Fuelling the Debate, HC 71. Back

3   EAC took oral evidence from Paul Boateng, the Financial Secretary, HM Treasury, and from the Confederation of British Industry, Friends of the Earth, the Green Alliance and the Institute of Public Policy Research. It also received memoranda from a range of organisations which are printed in the appendices to this Report. These include a supplementary memorandum provided by Mr Boateng in response to questions arising from the oral evidence he gave. Back

4   In March 2001, EAC took oral evidence from Mr Stephen Timms, the then Financial Secretary, HM Treasury. This evidence, together with a supplementary memorandum from the Treasury is printed in Minutes of Evidence, Session 2000-01, HC 333-i (Hereafter "HC 333-i; 2000-01"). Two further supplementary memoranda relating to this session, one from the Department for the Environment, Transport and the Regions and one from HM Treasury, are printed here as Appendices 1 and 2. Back

5   HC Deb. Vol. 375, 27 November 2001, col. 829. Back

6   For these three key developments and other measures, see 2001 Press Notice HMT 2, Protecting the environment, today and for the future, 27 November 2001. Back

7   Q. 161. Back

8   UK Environmental Accounts 2001, Office for National Statistics, table 13.8. Back

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