The role of the Treasury
A new Statement and strategy?
35. The Statement of Intent was originally issued
in May 1997. However, in the PreBudget Report 1999, the
Government restated it but in a slightly revised form which weakened
its strategic flavour. The 1997 version states that "over
time, the Government will aim to reform the tax system",
whereas the 1999 version states that "the Government will
consider using the tax system...on a case by case basis".
In our view, this represents a significant change in emphasis,
and it is noticeable that the Government has consistently referred
to 'on a case by case basis' in subsequent documents.[39]
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.
36. There is also an issue relating to the coverage
of the Statement of Intent. Both Friends of the Earth and the
Green Alliance have argued that the current Statement is too narrow
in focussing only on environmental taxation, and they have called
for a new Statement which covers not only the role of environmental
taxes but also positive tax incentives, wider economic issues,
and in particular the Spending Review process. They also see such
a Statement as an opportunity for the Government to renew its
commitment to this agenda.[40]
37. We agree that environmental protection and sustainable
development should be incorporated properly into all departments'
aims, objectives and targetsnot least those of the Treasuryso
that they form an overarching framework within which all policies
and measures are formulated. This is unfortunately not yet the
case at the Treasury, and in March last year we expressed our
concern to the then Financial Secretary that the one environmentally-related
target in their 1998 Public Service Agreement had been dropped
in 2000.[41] Until the
Treasury embraces environmental protection and sustainable development
more comprehensively, we believe that the Statement of Intent
should remain a satellite document, augmenting the Treasury's
main aims and objectives; and that its focus be kept as sharp
and clear as possible, to underpin the Treasury's approach to
all existing and proposed taxation and fiscal incentives. We consider
that the 1997 text fully supports such an agenda.
Treasury research to support a strategy
38. In discussing specific tax measures earlier in
this report, we have highlighted a wide range of areas where we
would have expected the Treasury to be carrying out work if it
was seriously committed to implementing a tax strategy focussed
on environmental and sustainable development objectives. These
include:
- the scope for simplifying policy instruments
in the energy area;
- research on the cost externalities associated
with the use of pesticides and fertilisers;
- the scope for increasing landfill tax rates and
reviewing the fiscal treatment of inert waste;
- the scope for introducing an incinerator tax;
- research on the effects of abolishing the fundamental
perverse VAT incentive to build on greenfield sites; and
- the provision of greater financial incentives
for businesses to pursue environmental objectives.
39. Our impression is that there is very little public
knowledge of what research the Treasury is in fact carrying out.
This is supported by the comments of the Friends of the Earth
"We are not always clear about what research they are doing...If
Treasury are looking at a particular tax measure, sometimes the
research involved is a public exercise, as with, say, the Aggregates
Levy. In the case of the Green Technology Challenge...they certainly
did research looking at how other countries have implemented such
a measure; we were not aware of that and we certainly have not
seen the results of it...[Their research] tends to be on specific
things. On specific instances...we do know what is going on...In
the generality, no, we do not know what is going on".[42]
40. We asked the Financial Secretary to tell us what
research the Treasury had carried out in the last two years in
support of the Statement of Intent. He could cite only two relatively
minor pieces of work, and promised to provide further information.[43]
The Treasury subsequently sent us a list of the research undertaken.[44]
But much of the work cited dates back to the earlier years of
the last Parliament: relatively little has been done in the last
two years. Moreover, almost all of this work has been carried
out by other departments, and it remains unclear to what extent
the Treasury has overall responsibility for coordinating and initiating
such work. We consider that the extent of Treasury research
undertaken to support the Statement of Intent on Environmental
Taxationboth directly and in coordination with other departmentsis
inadequate; and that the Treasury is failing to provide adequate
leadership and coordination across central Government.
41. We have in the past recommended the creation
of a Green Tax Commission to carry out research on an environmental
tax policy in an inclusive and transparent way. In its responses
to our reports, the Government has remained intransigent, and
Mr Boateng argued vehemently against such a Commission.[45]
We accept Mr Boateng's claim that the Treasury has engaged stakeholders
when developing fiscal responses to the policy issues that have
been identified.[46]
But, as our evidence above makes clear, this tends to happen only
when the Treasury has already identified a specific proposal which
it wishes to develop. What the Treasury does not currently do
is to involve stakeholders one stage earlier. 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.
42. As we concluded earlier, progress on environmental
taxation has at present stalledlargely due to the considerable
opposition to its environmental reforms which the Government has
faced from industry, business, and even at times environmental
organisations. 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.
The increased use of hypothecation might also help to make environmental
taxes and escalators more politically acceptable. 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.
Appraisal of budgetary measures
43. We noted that the previous Financial Secretary
did not address an important issue which we raised in our previous
report on PreBudget 2000namely, that the Government
had failed to carry out a comprehensive evaluation of the environmental
impact of the £1.7 billion handout to road users, but had
only sought to evaluate a few specific measures.[47]
The Treasury's supplementary memorandum acknowledges the absence
of an environmental appraisal of the total effect of the reduction
in fuel duties and VED, and goes on to say that this would be
impossible to calculate.[48]
44. 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
measureslet 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.
45. There are longstanding recommendations from previous
reports that the Government should incorporate ex post
appraisals of measures in the PBR, to evaluate the effectiveness
of measures it has introduced and build up data over time.[49]
Indeed, the Government in its response to our Budget 1999 report
stated that it would do so on an annual basis.[50]
In March 2001, Mr Timms again acknowledged that the development
of appraisal and monitoring of fiscal measures was becoming increasingly
important and that we could expect to see progress in this area.[51]
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 PBR, and supported by more detailed information
in supporting the environmental appraisal document we have recommended
above.
46. We do acknowledge the difficulties involved in
monitoring the effectiveness of policy instruments, especially
where a number of policy instruments may have similar impacts.
DEFRA has admitted it will not be in a position to assess whether
reductions in CO2 emissions are due to emissions trading,
Integrated Pollution, Prevention and Control, or the Climate Change
Levy negotiated agreements.[52]
But the implications of this are considerable. The Government
has frequently stated in relation to an environmental tax strategy
that it will use the most appropriate policy mechanism (whether
fiscal, regulatory, or voluntary) on a case by case basis. 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.
Resource Productivity
47. As a result of recommendations made by the Environmental
Audit Committee in the last Parliament, the PreBudget Report
2001 now contains much more information on environmental impacts
in a dedicated chapter on environmental measures. However, earlier
chapters of the Pre-Budget Report 2001 are dominated by the discussion
of economic and social issues: environmental and resource productivity
hardly feature here. It is interesting to note that the Treasury's
ability to highlight a productivity gap compared with major competitors,
and the emphasis now placed upon this in these main chapters,
is only because of the availability of relevant data. There is
a clear need to develop a similar analysis of resource productivity.
48. Progress in this area has been relatively slow,
and only in the energy sector are some resource productivity indicators
currently well established. Much was expected from the DTI's Sustainable
Development Strategy (published in November 2000), yet while this
was strong on the aims and objectives of developing resource productivity
indicators, it contributed little to practical progress. Meanwhile,
DEFRA has commissioned the Wuppertal Institute in Germany to carry
out a study to develop data sets on which resource indicators
could be based. The Office for National Statistics has also been
carrying out a limited amount of work in this area.[53]
More recently, PIU has published a report on this subject. The
objective of this study was to provide a framework for the practical
introduction of resource productivity indicators.[54]
49. We are disappointed that the recent PIU report
does not take us much further forward. In our view, there is little
in it which could not have been written several years ago. We
are also disappointed at the very slow pace of development in
this area and the apparent lack of clear lead responsibility.
It contrasts with the optimism expressed by Rt Hon. Patricia Hewitt
MP, Secretary of State for Trade and Industry on this score.[55]
We are also disappointed that the Treasury itself, together with
the Office for National Statistics (a department and agency of
the Treasury), has not pursued a more active role in developing
resource productivity indicators and incorporating these into
the PreBudget Report. This is an issue which we may well
wish to return to in more detail in due course.
39 Pre-Budget Report 2000, Cm 4917, November 2000,
para 6.13. See also Ev. 10, response to questions 1 and 2, where
the Treasury fails to address adequately EAC's concerns on this
point. Back
40
HC 363-i, pp. 10; 19. Back
41
HC 333-i, Session 2000-01, QQ. 98-99. It is worth noting that
the Treasury did not specifically admit to the fact that the "shifting
the burden" target had been dropped even in their supplementary
memorandum (p. 17). Their response actually suggests that they
do not see "shifting the burden" as a strategic priority. Back
42
Q. 97. Back
43
QQ. 123-126. Back
44
Ev. 14. Back
45
QQ. 122; 125-126. Back
46
Q. 122. Back
47
Second Report from the EAC, on The Pre-Budget Report 2000:
Fuelling the Debate, HC 71, paras 81-82. See also HC 333-i,
Q. 4. Back
48
HC 333-i, Session 2000-01, p. 18 (question 3). Back
49
Eighth Report from the EAC, Session 1998-99, on The Budget
1999: Environmental Implications, HC 326, paras 65-73; 80. Back
50
Fourth Report from the EAC, Session 1999-2000, on The Pre-Budget
Report 1999, HC 76, p. xlvii. Back
51
HC 333-i, QQ. 14; 101, 120. Back
52
Ev. 1. Back
53
Ev. 14 (question 5) sets out the Treasury's view of its role in
coordinating work in this area, together with more background
on some of the research being carried out. Back
54
Performance and Innovation Unit, Making More with Less,
November 2001. Back
55
Minutes of Evidence taken before the EAC, Session 2001-02, on
Departmental Responsibilities for Sustainable Development,
HC 326, QQ. 29-34. Back
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