Problems associated with a tax
79. Evidence suggested that a pesticides tax might
burden farmers unduly. The CPA estimated the tax burden at £120
million a year and claimed that it "would be passed on to
farmers" who, unable to pass it on to their customers, would
be put at a significant competitive disadvantage in EU and world
markets".[152]
The Countryside Alliance cited analysis carried out by the NFU
on the impacts of a tax. This analysis suggested that, "for
a typical general cropping farm, the reductions in gross margins
would translate to income loss of between 13% and 60%".[153]
80. Witnesses from the farming and crop protection
industries all felt that introducing a tax would undermine the
VI and other non tax-based measures already in operation. The
NFU said a tax would be "a very, very counter-productive
measure" and thought, if it were imposed, farmers would question
the point of improving their practices.[154]
The Countryside Alliance also thought a tax could have a perverse
effect, working as a "disincentive to the use of up-to-date
chemicals" and, in fact, "creating an economic incentive
to use older, less environmentally friendly chemicals and techniques,
in an attempt to minimise input costs".[155]
The AIC echoed those fears, describing how farmers might "shift
towards cheaper products which could be more environmentally harmful".[156]
The AIC also suggested that farmers would feel they had paid for
a "right to pollute" and Professor Dent warned that
a tax "could do more damage than good".[157]
81. There was also a feeling from the agricultural
and agrochemical organisations that a tax was a blunt instrument.[158]
This position was supported by HM Treasury, which said:
If you had a straightforward tax you would have some
impact on the overall level of pesticides used, depending on how
you price it, but that would have none of the behavioural changes,
in terms of how pesticides were being applied, that you were trying
to achieve.[159]
The Minister also described a tax as "a crude
and blunt instrument which would be paid as much by those who
were undertaking those professional activities which reduced the
amount of substances that run-off from the farmyard, for instance,
as it does those who fail to undertake such good practice".[160]
He emphasised that a pesticides tax was "not under active
consideration" because the results of the VI were "more
demonstrably successful than we think the blunt instrument of
a tax would be".[161]
Our conclusions
82. We recognise that there is a possibility that
a pesticides tax will be imposed. However, considerably more work
is needed to explore the possible design of such a tax before
we can adopt a firm position with regard to its imposition.
83. We were told that a pesticides tax could lead
to environmentally perverse behaviour, but that this might be
resolved with banding. Conceptually, a properly designed banded
approach to pesticide taxation seems advantageous, since it should
create an incentive for pesticide users to switch to less environmentally
hazardous products. However, before the potential of such an approach
can be properly assessed, several practical issues, including
possible administrative complexity, need to be resolved. We recommend
that the Government undertake research to define the criteria
and methodology for categorising pesticides into different bands.
Furthermore, if the Government regards a banded pesticides tax
as a credible policy option, it must also carry out a detailed
evaluation of the administrative costs that would be involved.
84. Hypothecation is another important design issue
for a possible pesticides tax. We welcome the Treasury's open-mindedness
about the prospect of revenue recycling, or hypothecation, for
environmental taxes. Funds are needed to pay for the full spectrum
of measures required to minimise the environmental impact of pesticides.
To raise revenue to pay for these measures, we recommend that
the Government should consider a hypothecated tax on pesticides.
We strongly believe that the only justifiable reason for imposing
a pesticides tax would be to raise funds to pay exclusively for
pesticide mitigation action. If the revenues raised from such
a tax were not to be hypothecated, then the adverse financial
impacts on farmers would make levying a tax unjust.
122 HM Treasury, Statement of Intent on Environmental
Taxation, 2 July 1997 Back
123
Risk and Policy Analysts, Review of Key Issues Related to Economic
Instruments to Reduce the Environmental Impact of Pesticide Use,
report to Defra, April 2004, Executive Summary, p 2 Back
124
Ev 114 Back
125
ECOTEC Research and Consulting, Design of a Tax or Charge Scheme
for Pesticides, report to Department of the Environment, Transport
and the Regions, March 1999 Back
126
Above n 123 Back
127
Environment, Food and Rural Affairs Committee, Nineteenth Report
of Session 2003-2004, Water Pricing: follow-up, HC 1186,
para 16 Back
128
Ibid. Back
129
Q 171 Back
130
Q 98 Back
131
Q 341 Back
132
Ibid. Back
133
Q 342 Back
134
Ev 4 Back
135
Q 128 Back
136
Ev 61, 62 Back
137
Q 344 Back
138
Q 172 Back
139
Ev 175 Back
140
Q 344 Back
141
Ibid. Back
142
Ev 49 Back
143
Q 172 Back
144
Qq 277, 178 Back
145
Qq 346-347 Back
146
Defra Review of International Experience with Pesticide Taxes
2003, quoted in full in above n 123. Back
147
Q 58 Back
148
Ev 21 Back
149
Ev 48 Back
150
Ibid. Back
151
Ev 74 Back
152
Ev 4 Back
153
Ev 170 Back
154
Q 93 Back
155
Ev 169 Back
156
Ev 20 Back
157
Qq 53, 271 Back
158
Q 15 [CPA]; ev 20 [AIC] Back
159
Q 321 Back
160
Q 326 Back
161
Q 339 Back