Select Committee on Environmental Audit Second Report


Supplementary memorandum from HM Treasury (Environmental Audit Committee, Minutes of Evidence, 363-ii, 2001-02)

1.   What research has the Treasury carried out during the last two years in support of its environmental tax strategy?

  The use and development of environmental taxation is informed by research carried out by or for a number of Government departments. Research undertaken over the last few years that has played a role in underpinning the development of environmental taxes includes the following:

Transport Taxes

  Lorry track and environmental costs: National Economic Research Associates, April 2000—for DETR (used to inform the changes made to the lorry VED system)

  Green Fuel Challenge: DETR, February 2001 (assessment of bids for reduced rates of duty for biodiesel and road fuel gases)

  Encouraging transport modal shift: Open University, June 2001—for Inland Revenue and DTLR (changes to the personal tax system to encourage more environmentally friendly forms of transport)

  UK road transport emissions projections: National Environmental Technology Centre, January 2000 (with supplementary modelling for more recent Budget measures)—for DTLR (provides information on the impacts of fuel duty differentials)

Landfill Tax

  Review of the landfill tax: Enviros, November 2001—for DEFRA

Aggregates Levy

  Environmental costs of aggregate extraction Phase 1: London Economics, April 1998—for DETR

  Environmental costs of aggregate extraction Phase 2: London Economics, January 1999—for DETR

  Consultation on design of a levy: HM Customs & Excise, June 1998

Climate Change Levy

  Economic Instruments and the Business Use of Energy: Lord Marshall Task Force, October 1998—published by HM Treasury

  Consultation on design of the levy: HM Customs & Excise, March 1999


  Design of a tax or charge scheme for pesticides: Ecotec, University of Hertfordshire, Central Science Laboratory, Eftec and the University of Newcastle upon Tyne, March 1999—for DETR

  The potential cost and effectiveness of voluntary measures in reducing the environmental impact of pesticides: EFTEC, January 2001—for DETR

Urban Regeneration

  Fiscal incentives for urban housing: exploring the options: KPMG, June 1999—for the Urban Task Force

  Towards an Urban Renaissance: Urban Task Force, June 1999

  Fiscal incentives for coalfield regeneration: Segal Quince Wicksteed, December 2001—for DETR

Water Pollution

  Economic instruments for water pollution discharges: Environmental Resources Management, April 1999—for DETR

2.   What research has the Treasury carried out on resource productivity indicators?

  The Performance and Innovation Unit published its report Resource productivity: making more with less in November 2001. The PIU's recommendations (Annex K) include the following:

    —  DEFRA to develop simple proxy measures of resource productivity for the short term; and

    —  DEFRA to develop more detailed measures and more refined measurement techniques relating to resource productivity in the longer term.

  The PIU recommended that DTI and ONS should also be involved in this work. DEFRA are currently in the process of setting up an inter-Departmental group to take forward the PIU's recommendations. HM Treasury will be involved in this group. DEFRA propose to develop work on resource productivity indicators by building on the existing indicators of sustainable development, as recommended by the PIU. The work will also need to consider how best to develop more rigorous measures of resource productivity in the longer term.

3.   Whether the agreement in Marrakech might have any impact on the UK emissions trading scheme?

  The design of the UK Emissions Trading Scheme has been undertaken with close consideration of negotiations on the international mechanisms. The outcome of the 7th Conference of the Parties in Marrakech will only have a limited impact on the UK Scheme.

  In anticipation of international agreement at Marrakech, several details of the UK Registry design, including the exact format of the serial numbers to identify allowances and the process for cancelling transfers that fail the international verification process, were left open. Now these decisions have been made, these processes will be incorporated into the design of the UK Registry.

  We also anticipate impacts on the UK Registry up to the start of the first Kyoto Commitment period. These include alterations to allow it to cope with managing the UK's National Account, interacting with other Registries and incorporating Assigned Amount Units and Project Credits from the Joint Implementation and Clean Development Mechanism.

  The Government of course, welcomes international agreements which encourage other nations to participate in emissions trading schemes.

4.   The outcome of any further work the Treasury might undertake on the scope for an incinerator tax.

  Waste that is incinerated is not subject to the landfill tax. If work is undertaken on the potential scope for a tax on incineration, the Treasury will let the committee know of the results as appropriate and in accordance with normal practices.

5.   What is the role of the Treasury in co-ordinating work on resource productivity indicators? Specifically:

    —  What level of staff resources have the Office for National Statistics and the Treasury devoted to the development of resource productivity indicators?

  This is primarily a responsibility of the ONS. Within the ONS the Environmental Accounts Branch, which has 3.5 posts, is responsible for the development of accounts which link environmental and economic data.

  The Treasury does not have any staff specifically dedicated to developing resource productivity indicators, but maintains an overview of work under way in other Departments including ONS, DEFRA and DTI.

    —  What outputs (in terms of papers and proposals) have the Office for National Statistics and the Treasury produced in this area?

  This is primarily a responsibility of the ONS.

  Products that the ONS is developing include simple indicators of resource productivity. Measures of Gross Value Added (GVA) per tonne of CO2 directly emitted by each industrial sector are already available and are updated annually—indicators for 2000 will be available in June 2002. The ONS team is also working to develop measures of GVA per unit of primary and delivered energy based on new data provided by the DTI; the first set of indicators using this data are expected by July 2002. A third indicator that is under development is GVA per tonne of waste arising. This will involve the integration of waste survey data from DEFRA and the Environment Agency with the economic data in the National Accounts. It is expected that a set of indicators, relating to 1998-99, will be available by the middle of 2002.

  Summary indicators of emissions per unit of GVA, and estimates of resource productivity taken from the Wuppertal Institute report, prepared for DEFRA, were published in the National Accounts Blue Book in September 2001.

    —  When will the Wuppertal Institute report which we understand DEFRA has had in draft for some time be published?

  The report is the responsibility of DEFRA. DEFRA commissioned the Wuppertal Institute to undertake research to produce indicators of resource use and efficiency by main sector and by broad resource group, to include as indicators for sustainable development in the UK, to fulfil the commitment set out in the "Quality of Life Counts". DEFRA worked closely with ONS on the project and ONS will be updating the material flow account for the UK which was also produced as part of the project.

  Publication of the report is a matter for DEFRA. It is understood that a summary of the report will be available on the DEFRA website shortly. Copies of the complete report will be available on request.

    —  What other research undertaken by other departments is the Treasury aware of in this area?

  Research undertaken by other departments is a matter of their responsibility.

  DTI has undertaken a number of activities including:

    —  hosting jointly with the Green Alliance a major high-level conference on developing resource productivity metrics at the national and company levels in February 2001;

    —  sponsoring a programme of seminars organised by the Green Alliance looking at the policy framework required to deliver radical improvements in resource productivity. As part of this programme. DTI will be hosting a seminar on environmental limits and carrying capacity in the context of goal setting and identifying priorities for improving material resource productivity.

  DEFRA has recently published the results of research conducted by the University of Edinburgh ("Sustainable Prosperity: Measuring Resource Efficiency—Report to DETR", I Moffat, N Hanley, S Allen Fundingsland, 2000) into the strengths and weaknesses of different approaches to measuring resource productivity. The report commissioned by the Sustainable Development Unit and involving DTI, identifies and describes relevant measures of resource use efficiency with a critical assessment of the measures, including an assessment of whether they can be used to identify targets, and an evaluation of their usefulness for policy-making.

6.   When does the Treasury expect to be able to incorporate a set of resource productivity indicators within the Pre-Budget Report?

  The Government will consider how best to use and publish resource productivity indicators as they become established.

7.   In a few specific cases the Treasury has successfully used differential rates of duty and VAT to alter behaviour—for example, in the area of fuel duties and energy-saving installations. Has the Treasury carried out any research right across the whole range of products and services available, to identify the scope for promoting more sustainable goods and services through differential rates of duty and VAT?

  The Government was able to introduce a reduced rate of VAT on the installation of certain energy-saving materials by a professional contractor in Budget 2000, on the basis of Annex H of the EC Sixth VAT Directive, which allows Member States to introduce reduced rates on service related to "housing provided as part of a social policy". In this case the reduced rate was introduced to further the Government's social policy of reducing health problems caused by insufficiently heated homes.

  However, the EC Sixth VAT Directive restricts the extent to which the Government can use differential rates of VAT to promote other environmentally sustainable goods and services. For example, Annex H does not permit a reduced rate of VAT for DIY installation of energy-saving materials. Consequently the Government has not carried out research across all products and services on the potential environmental benefits of differential rates of VAT.

  The Government has pressed the European Commission to bring forward early legislative proposals which would allow differential rates of VAT to be introduced under European Community law. This is due to be considered as part of the EC review of reduced VAT rates currently scheduled for 2002-03. Any change would require the unanimous approval of Member States.

  The Government has continued to consider the scope for using differential levels of fuel duty to achieve environmental objectives.

8.   What is the outturn cost, at this point in the financial year, of the Enchanced Capital Allowance scheme which forms part of the Climate Change Levy Scheme?

  It is not currently possible to determine the outturn cost of the ECA scheme because of the way in which tax returns are made. Companies claim all relevant allowances on their tax returns. The tax returns themselves are only submitted following the end of the financial year. There is therefore a substantial lag between qualifying expenditure being committed and the claim by companies for the relevant capital allowances. It will also take further time for Inland Revenue to analyse the claims made by companies in their tax returns. The Government will therefore also be collecting information about the take-up of technologies through alternative sources.

9.   Can the Treasury confirm Mr Boateng's assertion that the R&D tax credit proposals for large businesses will have associated environmental objectives and criteria built into it?

  The R&D tax credit's objective is to raise the level of UK R&D, leading to improved quality of life and competitiveness. R&D promotes the development of new and cleaner technology, and so as well as stimulating economic growth, the R&D tax credit will support environmentally beneficial research, consistent with the Government's environmental objectives.

10.   Was the R&D tax credit proposal for large businesses screened for environmental impacts? If so, what was the result?

  The immediate environmental impact of the R&D tax credit is expected to be minimal, since R&D activity is not characteristically energy intensive or polluting. As well as stimulating economic growth, the R&D tax credit will encourage environmentally beneficial research and development.

11.   The second Green Ministers Report (November 2000) stated that all departments should screen all policies for environmental impacts and also maintain a record of the outcome of each screening in case questions arise at a later date about what factors were considered. It also suggested that it was up to departments to choose whether to make this record publicly available [paragraph 4.9]. Can the Treasury set out how it is complying with this requirement?

  In line with guidance on good policy making, the Treasury and revenue departments consider the environmental impacts of all tax policy decisions and where they are significant will undertake a full environmental appraisal. The results of any appraisals showing significant environmental impacts are published in Table 6.2. In addition, for those policy decisions with significant environmental impacts where a regulatory impact assessment (RIA) is published and there is a significant environmental impact, a statement of the environmental impact is included in the RIA.

  The Government believes that it has identified all tax policy measures decisions with significant environment impacts.

12.   Can the Treasury please list the "starter sheets" which were completed for the Pre-Budget Report 2001 and indicate for each the results of screening for "other impacts"?

  "Starter sheets" are an internal policy-making and management tool to ensure that policy development is recorded and monitored effectively. They are completed for potential new Budget measures. As with other advice provided for policy-making, they are not made public.

  As described in response to Question 11, potential environmental impacts are taken into account in the policy-making process. Officials involved in policy-making use their own discretion to decide whether environmental appraisal is required, and only where a Budget measure serves an environmental purpose or has significant environmental impact is a full appraisal of that impact undertaken—consistent with advice set out in "Policy appraisal and the environment", published by DEFRA. The level of resources devoted to each appraisal should be proportionate to the policy or programme.

  Examples of environmental appraisal of measures introduced in Budget 2001 include the Green Fuel Challenge, available on the DEFRA website, and the environmental benefits of the ULSP differential, published in Table 6.2 of the Budget 2001 document As shown in this and previous policy work, such as with the fuel duty escalator, the Government carefully considers the environmental impact of all Budget measures and has set out the impact of measures on the environment, whether these be positive or negative, in Budget documentation.

13.   Are "starter sheets" completed for all policy documents released by the Treasury—whether or not they form part of the Budget or Pre-Budget documentation (eg the consultation document on Large Business Taxation released in July 2001)? If not, what mechanism is there for screening such proposals?

  Starter sheets are completed for all major items of policy that are likely to result in legislation—whether the legislation is via the Finance Bill, regulations or other programme bills. Measures which are subject to consultation but have a significant environmental impact should be fully appraised, in line with DEFRA guidance on appraising environmental impacts. In line with the Cabinet Office Guidance on written consultations, the Treasury and revenue departments aim to produce draft impact assessments, where appropriate, alongside the consultation documents they produce. These include regulatory impact assessments, environmental impact assessments and equality impact assessments. Central Units within the departments screen draft consultation documents to ensure policy makers have considered these impacts at the consultation stage.

14.   The Committee would be grateful if the Financial Secretary could provide the criteria which he will use to evaluate the effectiveness of the voluntary package for reducing pesticides.

  The voluntary package for reducing the environmental impact of pesticide use is overseen by a group drawn from a range of stakeholders, under an independent chairman. The steering group is monitoring the implementation of the package, and will provide a first progress report to Ministers in advance of Budget 2002. The Government will evaluate whether the package is being fully and satisfactorily implemented. This evaluation will include examining the uptake of the measures within the package, the coverage they have achieved, their effectiveness in delivering environmental improvements and the cost of delivering these improvements. The Government maintains the option of a pesticides tax, should the voluntary package not deliver benefits above and beyond those that would result from a tax.

15.   Will the Treasury publish its evaluation of the effectiveness of the voluntary package?

  The Government will publish its conclusions on the effectiveness of the voluntary package as part of the Budget.

16.   Will the cross-governmental Sustainable Development Unit within DEFRA be involved in evaluating the departmental sustainable development reports? If not, who will evaluate them, and what expertise and training do they have in this area?

  The Sustainable Development Unit within DEFRA will not be involved in evaluating the Sustainable Development Reports; their role is carried out earlier on in the review assisting departments to prepare the reports. The spending review is a Treasury exercise and analysis of all departmental reports will be carried out by Treasury Ministers and officials. The SDRs will be evaluated by the Treasury's Environment, Food and Rural Affairs team in conjunction with relevant teams in the Treasury's Public Services Directorate. The Treasury Teams involved in analysing the reports have a close working knowledge of their department's policies and the EFRA team co-ordinate the Treasury's sustainable development policy in SR2002.

17.   The latest Greening Government report (Volume 2, November 2001) states that the Treasury has not yet introduced a raising awareness strategy among its staff, and that the only training provided on sustainable development is as part of reception training for all new entrants. Could the Financial Secretary clarify whether this is still the case?

  HM Treasury have not yet introduced an awareness raising strategy among its staff. However, as part of our environmental management system, which will be in place by July 2002 and certified to ISO14001 by the end of the year, we expect to have a strategy in place early next year and to have implemented that strategy by July 2002.

  In November 2001, Treasury hosted a joint (Customs, Inland Revenue and Cabinet Office) Sustainable Development Forum for Senior Managers. The Financial Secretary made the opening address and explained the role of Green Ministers and the importance of integrating sustainable development into the work of our departments. A senior Treasury official (Lucy de Groot) explained the importance of incorporating sustainable development into SR2002 and drew attention to the published Ministerial Sustainable Development Guidance. Delegates were reminded that all Departments have a contribution to make to sustainable development and this should be reflected in their Spending Review proposals.

18.   The published environmental guidance on the Spending Review refers to the main guidance where departments may wish to set shared targets. In view of the potential importance of shared targets for sustainable development in order to identify new alternative policy instruments and joined up ways of working, we would be grateful if you could provide a copy of the relevant part of the main guidance which deals with shared targets.

  We are unable to provide the EAC with the relevant part of the main guidance that deals with shared targets as it is a confidential internal document intended for use by finance divisions in Government departments.

January 2001

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