Examination of Witnesses (Questions 185-199)
9 FEBRUARY 2005
JOHN HEALEY
MP, MS FIONA
JAMES AND
MR PAUL
O'SULLIVAN
Q185 Chairman: Thank you all very much
for coming. We are always pleased to see you, Minister, and we
are grateful for your time. Can I begin by asking some questions
about the "shifting the burden" agenda and, in particular,
whether you think the fact that revenue from environmental taxes,
which has now fallen to its lowest level for 12 years, suggests
that the "shifting the burden" agenda has not worked
terribly well?
John Healey: By all means, Chairman.
Can I just introduce Fiona James, who is head of our environmental
branch of public services within the Treasury?
Q186 Chairman: Whom we have met before.
John Healey: And Paul O'Sullivan,
who I think the Committee may also have met before, who heads
up our environmental and transport taxation team. If one wants
to make some sort of judgment about the seriousness with which
the Government takes the use of economic instruments, including
taxation, to help the environment, or indeed the progress that
the country is making with these, I am not sure that a crude measure
of the burden of taxation that is derived from those taxes that
are classified as environmental taxes is the best way of measuring
that. I say that for two principal reasons. The primary purpose
of environmental taxation is not to raise revenue. The principal
purpose of environmental taxation is to change behaviour or to
provide certain strong signals to the markets because we will
get a response from that. That means, in some ways, quite evidently
if an environmental tax is successful then you would expect the
revenues from that tax base to decline over time. A measure that
simply looks at the burden of taxation also fails to pick up some
important uses of fiscal measures, such as duty differentials,
which we have used to encourage, for instance, the universal adoption
of ultra-low sulphur diesel, or indeed what we are now putting
in place on biofuels. So I think that it is a starting point,
but a measure of the burden of taxation down to environmental
taxes actually raises more questions than it settles; although
it is perhaps one way into a broader discussion about the use
of environmental taxation as part of the range of economic instruments
in which we in the Treasury are interested.
Q187 Chairman: We are familiar with this
argument. It is one that is described as simplistic by other organisations.
Obviously the logical conclusion of that is that if you have a
really successful environmental tax, it yields nothing. I am not
sure that we are wholly convinced by your argument.
John Healey: I might say that
the environmental organisations could put this point to you. Simply
looking at the burden of taxation of those taxes that fall into
the category of environmental taxation is simplistic in itself.
It does not, for instance, capture any of the reforms we have
made to company car tax. That is a fiscal reform directly designed
to achieve an environmental end; in other words, reduce the contribution
of emissions from that form of road transport. It is a form of
income tax, in effect—company car tax does not fall into
this category of environmental taxation—yet we reckon that
last year it probably delivered about 0.2 million tonnes of emissions
savings of carbon. In those terms, I would suggest to you, Mr
Ainsworth, that there is not a simple and easy measure of this.
It is quite a sophisticated and complex area; but one needs to
be aware of just what is left out from any picture that is painted
by what is designated as environmental taxes.
Q188 Chairman: I think that is a fair
point, but the fact that you get £31 billion a year from
fuel duty suggests that it is not the whole story, does it not?
John Healey: If one wanted to
look at the proportion of total taxation that fuel duty contributes
to, in a sense that is another question. If one is interested
in the effect and the impact, the environmental benefits that
come from any particular measures, including in taxation, then
I think that the focus for attention needs to go beyond those
fairly simplistic measures.
Q189 Chairman: Do you think that the
fact that we have higher fuel duties here than they do in, for
example, the United States has any effect on the choices that
people make when they come to buy cars? We have more fuel-efficient
cars in Britain and in Europe generally than they do in the States,
where fuel duties are much lower. Do you think there is a cause
and effect there?
John Healey: It is difficult to
be categorical about the causation in fields like this, because
people's purchasing decisions, particularly with something like
a car, are made up of a number of different factors. However,
I suspect that there is a greater degree of awareness about the
environment; a greater degree of awareness about the value of
fuel-efficient engines in cars; and probably a combination of
being aware of the costs of running a car. Certainly in this country
the modifications that many manufacturers have made to engine
technology that is producing more efficient engines and cars is
probably part of the picture as to why, in this country, we perhaps
tend on average to have more fuel-efficient cars than they do
in the States.
Q190 Chairman: So it is having an environmental
effect; it is having an environmental benefit, and yet it is yielding
£31 billion. This seems to me to drive a coach and horses—no
pun intended!—through the argument that environmental taxes,
if successful, reduce to nothing. Or is fuel duty not an environmental
tax?
John Healey: According to the
Office of National Statistics, fuel duty is one of the six principal
taxes. It is classified as an environmental tax, which adds to
the figure of £33.6 billion in the last year which is the
take from so-called environmental taxes. Clearly the fuel duty
has been around for some time, probably before the notion of environmental
tax was actually invented. It clearly makes a very significant
contribution to the overall public finances. However, if one looks
at some of the other environmental tax measures that are part
of the definition, things on which I think this Committee and
the Government would have no disagreement are specifically environmental
taxes—climate change levy, aggregates levy. Those are indeed
designed for environmental purposes, not to raise revenue. The
revenue that we are raising from those has been redistributed
so that they are broadly neutral to the Treasury.
Q191 Chairman: Let us step back a little
and look at where we go now with the statement of intent. That
was published some time ago. You have done a number of things,
and we have commented on the success or failure, in our opinion,
of those to date. Do you have any new initiatives in mind to take
forward that agenda, or has it run its course?
John Healey: Where are we going?
You are quite right: the statement of intent was published in
1997; the framework or the principal approach we take to the economic
instruments was published alongside the Pre-Budget Report in 2002.
What both stressed was that the development, introduction, and
then review of environmental taxes and economic instruments have
to be a process. The first point to make is that we are following
that sort of approach, so that we now have thoroughgoing reviews
of some of the most significant environmental programmes since
the climate change programme—the renewables obligation,
the climate change levy, the aggregates levy. I think that this
Committee would expect us to do that, having put these quite significant
policy measures or tax measures in place—to try to assess
the impact. On the latter two—the climate change levy and
the aggregates levy—we will be publishing the major results
of the evaluations alongside the Budget, as a sort of progress
report. That may or may not throw up issues that we may want to
consider, or other policymakers such as yourselves may want to
consider, about reforming those. Then specifically in the pipeline
there are a series of other environmental-related fiscal measures
that we are developing: the green landlord scheme; the biofuels
obligation as a potential contribution to raising the levels of
biofuels in this country; enhanced capital allowances for waste;
and the options that may be available to us to deal with some
of the problems caused by diffused water pollution. Those are
four specific examples of economic instruments that are indeed
under consideration or in the pipeline.
Q192 Chairman: At some point do you think
it would be worth pulling all this together and having a statement
of intent revisited, to capture it and, from the Government's
point of view, to explain what it has achieved? At the moment
it seems that it is progressing, but it is progressing on a lot
of different fronts that are not being pulled together into a
coherent re-statement of intent.
John Healey: One of the first
things I started work on—and I had a heavy hand in the drafting
of the PBR 2002 document—was very much an update of the
1997 statement of intent. Whether or not there is a case for something
similar to that in the near future—I am open to hearing
the arguments on that—but in many ways the format we have
now established, particularly for the Budget documentation in
the main Budget book, and the Pre-Budget Report, devotes a whole
chapter, Chapter 7, to precisely that sort of progress check and
reporting twice a year. In many ways, that perhaps serves the
sort of purpose which I think you are seeking for such a report.
Q193 Mr Challen: Looking at the percentage
fall in environmental taxation in the last five years, it seems
mainly due to the freeze on fuel duties, and we are continuing
with that freeze. Do you accept then that petrol prices are now
substantially lower in real terms than they were five years ago?
John Healey: They are lower in
real terms, I believe, compared to the year 2000, yes.
Q194 Mr Challen: Has any kind of formal
appraisal of the costs and benefits of this reduction taken place,
in environmental terms?
John Healey: We have some estimates
of the broad impact on emissions from road transport, given price
and duty changes. Broadly speaking, an increase of ½p per
litre above inflation would see a reduction in emissions of around
35 kilotonnes of carbon.
Q195 Mr Challen: We have also seen a
freeze on the climate change levy in the last five years. Has
that been kept down, as it were, for competitive reasons, or because
of a fear of another public outcry, or at least a lot of squealing
from business?
John Healey: The climate change
levy was only introduced in 2001, of course, so it has not been
in place for five years. In the early years, we took the view
that it was sensible, as a new measure, to let it settle down.
What happens in every Budget is precisely what happened last year,
namely that the Chancellor, when he comes to take these decisions
finally, tries to weigh up a balance of competing pressures and
factors. In this case it may be arguments that are put by some
for raising or revalorising the rate of the climate change levy;
on the other hand, there are those who say, "This could have
an effect on the competitive position of some of our industry,
and we are concerned about that". Those are judgments that
the Chancellor has to make on a Budget-by-Budget basis.
Q196 Mr Challen: Do you think we are
getting the message across that prices have, in real terms, come
down—to the public or to business? I know that in some cases
businesses do feel that prices have gone up considerably but,
at least with fuel duties, are we getting the message across that
in fact prices have come down in real terms?
John Healey: I think that if you
and I were in a pub on the outskirts of Leeds, chatting to people
we came up against in a bar there, there would probably be very
little awareness of that. I think the perception generally is—erroneously—that
the cost of motoring has continued to rise, as has the real cost
of fuel. The general cost of motoring has been broadly constant
for nearly a quarter of a century, and has edged down recently.
I think that, despite the decisions that the Chancellor has taken
specifically on fuel duty since the year 2000, there would probably
be a perception generally that it continued to go up.
Q197 Mr Challen: It sounds a bit like
the Government is leaving getting the message across to chance.
Testing the water to see how something might go down in public
and, on this highly sensational topic—from the fuel protests—we
test the water and, if it seems too hot, we immediately remove
our toe. What is the difficulty? What is holding us back from
getting the message across?
John Healey: I am not sure that
it is a question of getting the message across. I am not sure
that there is much more we can do to get the message across and
the facts about the decisions the Chancellor takes in the Budget,
other than a full statement in the House of Commons, the very
clear and voluminous documentation that is published alongside
it and, normally, acres of coverage and significant air time in
the media on the main decisions that he takes. The nature of public
interest is that Budget decisions on things like fags, booze and
fuel tend to be given a lot of prominence. It is very difficult
to deal with public perceptions if that information is not actually
registering with people.
Q198 Mr Challen: We have got the message
across that taxes on tobacco go up regularly because the Government
does not approve of smoking. The Government also says that climate
change is the world's number one problem. Surely the Chancellor
should be saying that these taxes, like the taxation on tobacco,
do have a greater good? Why can we not make that kind of comparison?
If we do not start doing that, is somebody else going to do it
for us?
John Healey: In fact, we only
revalorised—in other words, put up by the rate of inflation
so that it kept pace—tobacco duties in the last Budget.
Similar problems or discrepancies between the fact and the perception,
therefore, are evidenced in that sort of excise region as well
as fuel.
Q199 Mr Challen: I know a lot of people
who smoke who still vote Labour. Perhaps they do not vote Labour
as long as they might do if they did not smoke! However, that
is because people now accept the argument, and it is backed up
by scientific evidence. Surely the Treasury, with its huge power
in government, should be taking a lead on these fiscal measures,
explaining to the public why they are so important. We have to
change people's consumer behaviour—as we have in reducing
the number of people who smoke.
John Healey: I do not know whether
they have a stronger interest in a better Health Service and therefore,
as smokers, are voting Labour or not. But, to make this a non-party
issue and to pay due credit to the previous Government, with tobacco
duty and the prices of cigarettes there has been a deliberate
policy for more than two decades to keep prices high as a way
of discouraging people from taking up smoking, and encouraging
people to give up. That has led to a long-term trend in the overall
smoking rates, and that has played a part in the case of tobacco.
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