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:
Lorry track and environmental costs: National
Economic Research Associates, April 2000for 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
Encouraging transport modal shift: Open University,
June 2001for Inland Revenue and DTLR (changes to the personal
tax system to encourage more environmentally friendly forms of
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)
Review of the landfill tax: Enviros, November
Environmental costs of aggregate extraction
Phase 1: London Economics, April 1998for DETR
Environmental costs of aggregate extraction
Phase 2: London Economics, January 1999for 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 1998published
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 1999for
The potential cost and effectiveness of voluntary
measures in reducing the environmental impact of pesticides: EFTEC,
January 2001for DETR
Fiscal incentives for urban housing: exploring
the options: KPMG, June 1999for the Urban Task Force
Towards an Urban Renaissance: Urban Task Force,
Fiscal incentives for coalfield regeneration:
Segal Quince Wicksteed, December 2001for DETR
Economic instruments for water pollution discharges:
Environmental Resources Management, April 1999for 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
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
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 annuallyindicators
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
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 EfficiencyReport 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
behaviourfor 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
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
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
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
"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
undertakenconsistent 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
13. Are "starter sheets" completed
for all policy documents released by the Treasurywhether
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
Starter sheets are completed for all major items
of policy that are likely to result in legislationwhether
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
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
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.