Select Committee on Environmental Audit Second Report


Memorandum from English Nature


  1.1  English Nature is the statutory body that champions the conservation and enhancement of the wildlife and natural features of England. We do this by:

    —  advising—Government, other agencies, local authorities, interest groups, business, communities, individuals.

    —  regulating—activities affecting the special nature conservation sites in England.

    —  enabling—helping others to manage land for nature conservation, through grants, projects and information.

    —  enthusing—advocating nature conservation for all and biodiversity as a key test of sustainable development.

  1.2  In fulfilling our statutory duties, we:

    —  establish and manage National Nature Reserves;

    —  notify and safeguard Sites of Special Scientific Interest (SSSIs);

    —  advocate to government departments and others effective policies for nature conservation;

    —  disseminate guidance and advice about nature conservation; and

    —  promote research relevant to nature conservation.

  1.3  Through the Joint Nature Conservation Committee, English Nature works with sister organisations in Scotland, Wales and Northern Ireland to advise Government on UK and international nature conservation issues.

  1.4  English Nature has consistently advised Government Departments and the Environmental Audit Committee on green taxation issues since the 1997 Statement of Intent. We have taken a particular interest in those measures most affecting nature conservation, and have participated in Departmental steering groups on pesticides, water abstraction and land use planning.

  1.5  This submission is made having just received the pre-budget report. We will submit more detailed comments on this report to HM Treasury in due course.


  We support the significant progress that Government has made in this area since 1997, including the implementation of a number of important measures;

  We welcome the references to the role of tax breaks and other measures, alongside environmental taxes, as set out in the pre-budget report. We hope that this will lead to the development of innovative measures which will provide the necessary environmental incentives while dealing with wider social and economic concerns.

  The detailed consideration of each individual proposal has helped ensure that only sensible and practical tax instruments are taken forward. However, this measure-by-measure approach needs to be accompanied by a more strategic and comprehensive evaluation of the role of economic instruments in a number of policy areas;

  It is essential that the measures implemented to date are not thought of as completing the environmental tax agenda. A number of further areas need to be considered to ensure a comprehensive approach. We are disappointed that the pre-budget report makes little or no reference to consideration of these issues in the future;

  We suggest the need for formal revision of the Statement of Intent, so that it includes a list of environmental policy objectives, and related environmental tax measures that are being, or need to be, considered further.

  We recognise that environmental tax measures need to be administratively simple. However, the key environmental objectives should not be compromised by this requirement.


  3.1  The 1997 Statement of Intent was important in defining a step-change in the Government's approach to environmental taxation. It led to the development of an agenda of measures for consideration, especially in relation to water pollution, transport, waste and energy. It is also the case that the tone of the budget has changed in recent years. Although we would like to see more emphasis on sustainable development issues, it is at least the case that budgets tend to include commitments to these principles and a chapter on environmental measures. We also welcome the issuing of guidance to Government Departments on sustainable development as part of the Spending Review.

  3.2  We welcome the statement in the pre-budget report, first made in the Green Technology Challenge consultation, which refers to circumstances where alternative measures such as tax breaks may be needed where practical problems or other considerations make it difficult to implement environmental tax measures. This suggests a pragmatic approach similar to that adopted in other European countries. We hope that in the future this will lead to consideration of innovative and practical policy measures, for example those that combine "carrot" and "stick" incentives.

  3.3  We also welcome the more pragmatic approach taken in recent years to the hypothecation issue. We recognise that formal hypothecation might not be necessary, and can cause problems in terms of public finance management, but it is important that the public can make a mental link between, for example, funds raised by the road fuel escalator and more investment in sustainable transport.

  3.4  Although some potential measures fell by the wayside after further consideration, the Government has made significant progress since 1997 on a number of key environmental measures. In particular we support the progress made in the following areas:

    —  The implementation of the Climate Change Levy, in the face of significant political opposition from some quarters;

    —  The progress made in some areas of road transport incentives, including vehicle excise duty reform for cars, company car tax reform, and incentives differentiating cleaner fuel types;

    —  The recognition of the environmental impacts of pesticides and the commitment to further action in this area;

    —  The careful consideration of whether environmental tax proposals would work in practice before committing to a new measure, since it is in no-one's interest for a poorly designed policy to be implemented.

  3.5  However, we advocate the need now for a more strategic and comprehensive approach to environmental taxation. These issues are discussed in sections three and four below.


  4.1  Our comments in section three indicate the coverage of environmental tax measures to date, with some developments in most areas of environmental concern. In our view, however, the detailed consideration of individual proposals needs to be accompanied by a more strategic approach to the overall contribution that incentive design can make to an improved environment. We highlight three examples below:

  4.1.1  Agriculture. In addition to the need to reform production-based subsidies, it is generally recognised that there are widespread pollution costs relating to intensive agricultural practices. These need to be addressed alongside voluntary approaches and rewards for the positive land management work that farmers undertake. These impacts relate to pesticides, nutrient applications and water abstraction, for example. The approach taken by Government has been to look in detail, but separately, at incentive measures relating to pesticides and water abstraction, though not nutrient pollution. In each case it decided not to proceed with the environmental tax measure at this stage. One factor in these debates was the view that the incentive effect of the measure, when considered on its own, may have been weak. We believe there would be merit in looking at these options from a strategic perspective, with a view to their potential effectiveness as a package in changing price signals in favour of more sustainable agriculture. This package should include fair rewards for positive management.

  4.1.2  Waste. We note the implementation of the Landfill Tax and the accelerating tax rate, and the decision to proceed with a permit trading system for local authorities. While this suggests significant progress in this area, the policy approach is focused primarily on the need to meet our commitments under the Landfill Directive. In our view this has skewed the policy design. A more strategic approach would seek to change behaviour in terms of the waste hierarchy as a whole. Specifically, there is a need to reduce waste going to incineration as well as landfill and we recommend that this be considered in the future. We need an environmental tax approach which focuses on targets relevant to the waste hierarchy as a whole.

  4.1.3  Road transport. We noted above the considerable progress that has been made in relation to certain incentives in this area. However, recent experience suggests an unconvincing strategy based primarily on encouraging cleaner fuel and vehicles, and some investment in sustainable transport alternatives. While we support these important developments, the incentives need to go wider than that, to include demand management objectives. While recognising the political difficulties with the road fuel escalator, we believe there remains a need for a gradual, long term price signal to encourage users to reduce their least necessary road journeys. In the debate last year, the fuel escalator was at one point packaged purely as a revenue raising measure, and its future has not been discussed in this year's pre-budget report. Apart from the incentive effect, an opportunity for raising funds for investment in sustainable transport alternatives is being missed.


  5.1  While Government can demonstrate some progress in many areas of environmental policy, it is not yet demonstrating a fully comprehensive approach. English Nature has recently suggested a number of areas which merit consideration for environmental incentive measures, though further research would be needed in each case before deciding the policy approach: these areas include peat extraction, and diffuse source nutrient pollution. Other areas that may merit attention include marine pollution, and further measures on air pollution for nature conservation objectives. Other environmental agencies have made different suggestions, such as a floodplain levy. We are disappointed that the pre-budget report makes little or no reference to consideration of these issues in the future. Having made progress in a number of significant areas such as the Climate Change Levy, the Government needs to demonstrate that it does not consider the environmental tax agenda to be a "finished job".

  5.2  Now that the 1997 Statement is into its "second term", it is also necessary to think beyond new tax instruments, towards the greening of the existing tax measures. Incentives to reduce peat extraction stalled partly, as we understand it, because it was felt that a specific tax would not be worth the public administration costs. The question then is whether existing tax measures such as VAT can be manipulated to address these specific issues and to encourage more sustainable behaviour across the economy. There seems to be little interest in this area to date, despite a recent EC consultation on the subject. Yet such an approach is likely to be needed to meet the ambitious objectives set out in the recent report on Resource Productivity. Personal and business tax allowances in relation to land management is another area that could usefully be reviewed, as there seem to be examples where the tax allowances relate to public policy objectives that are now out of date.

  5.3  We recommend that Budget 2002 includes a formal revision to the 1997 Statement of Intent. This revision should set out a comprehensive list of environmental policy objectives for environmental tax strategy to address; this should amount to a vision of the behaviour changes that are needed for a more sustainable society. Against these the Government could set out those measures it has implemented, those it has rejected, those it is currently considering, and those that it needs to consider in future.


  6.1  Our comments above on the comprehensiveness also relate to this issue. Overall, the Statement of Intent has been useful in setting out a set of criteria for the Government's consideration of environmental tax options. However, we have some detailed observations on consistency in this section.

  6.2  Wider economic, social and political considerations have, understandably, influenced the outcome of much of the work to date. Examples include the decision to abandon the road fuels escalator, the decision to exempt the domestic sector from the Climate Change Levy which made a more appropriate carbon-based tax more difficult to implement; and the decision to exempt exports from the aggregates levy. We would welcome a more consistent approach to the consideration of these issues. In particular, there is a feeling that environmental tax options have been abandoned without full consideration of alternative accompanying measures that could have dealt with these social concerns. The UK Sustainable Round Table's report on "Economic instruments: not too difficult" makes useful suggestions on this issue.

  6.3  The role of environmental valuation has differed from measure to measure. Valuation is difficult in relation to biodiversity, so we would in any case advocate a cautious approach to its use and merely want to point out that different approaches are being taken. For example, in the pesticides tax research, valuation studies were drawn on to make the general point about environmental damage costs without these being suggested as a basis for the tax rate. In the consideration of water abstraction measures, valuation of damage costs played little part in the debate. With the aggregates levy, however, the valuation estimates provided the rationale for the policy itself and also the tax design and rates.

  6.4  The term "environmental taxation" should in practice be interpreted holistically to cover the whole range of available incentive measures such as tradeable permits, voluntary approaches with incentive back-up, etc. Previously, the policy approach tended to focus too much on environmental taxes as the first option but we note that this seems to have changed with the more recent issues, including water abstraction, climate change and waste. We have no prior preference for a particular type of measure, but the whole range needs to be considered at the outset, especially as some innovative and hybrid approaches may be able to overcome some of the economic and social barriers to environmental taxation.


  7.1  Incentive mechanisms are inherently broad brush approaches that need to be accompanied by other measures to achieve more precise environmental objectives. We recognise the Government's desire to "keep it simple", to avoid administrative costs and perverse effects. Nevertheless, we need to recognise that tax measures focusing on environmental objectives are different from, and may need to be more complex than, general revenue raising taxes. There is the sense that key environmental objectives have sometimes been compromised by the "veto" of administrative simplicity. Examples include the reluctance to implement a carbon based energy tax, and concerns about the banding proposals for the pesticides tax. There is a danger that one ends up with a policy that meets the political objective of "doing something" to meet the environmental problem, but which misses opportunities to deliver the most appropriate incentives.


  8.1  We believe that in most policy areas a balance should be struck between regulatory, fiscal and voluntary measures. These options have different strengths and weaknesses for environmental objectives and a package of measures is often appropriate. Hybrid measures may be useful, such as the voluntary measures, backed up by fiscal incentives, in the Climate Change Levy. We have no general view on the balance between these measures; it will be different from situation to situation. However, the evaluation of each option should be undertaken by reference to other options for achieving the environmental objective. Often, it seems that environmental tax measures are seen as difficult, for example because of the costs they impose on a particular sector. However, these costs should be seen in relation to the cost-effectiveness of alternative policy options, not in relation to no policy at all.

  8.2  We support the development of resource productivity indicators. These could be linked to the list of potential environmental tax options, suggested above as part of a revised statement of intent. There is a need for Government to look again at its fiscal strategy in the light of the Resources Productivity report, with a view to providing incentives for faster progress towards resource productivity improvements, especially in relation to water, waste and land use and management.

  8.3  Environmental accounting has so far focused on emissions and resource use. We would like to see more development of land and habitat accounts, as being suggested in other European countries. We would also like to see better mechanisms for interpreting these indicators alongside GDP data.

  8.4  We recognise the efforts made by HM Treasury in the appraisal of environmental tax measures. We would like to see these developed further, as the appraisal of measures focusing on environmental objectives are bound to show some environmental improvements. It would be helpful if attention could also be devoted to the appraisal of environmental policies in the context of the overall scale of the problem, and the appraisal of those non-environmental policies that are likely to have significant environmental implications.

November 2001

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