Examination of
Witness (Questions 173-179)
JOHN HEALEY
MP
9 FEBRUARY 2006
Q173 Joan Walley: Welcome. Can I say
at the outset, Minister, thank you very much for coming back to
this Committee. We understand we have about an hour to an hour
and a half with you. We have got a lot of ground to cover, so
we would like to go straight into the questions, if that is okay.
I would start off by saying that when the Environment Agency gave
evidence to us about the Treasury's approach to environmental
taxes and incentives, they felt that the Treasury had been unnecessarily
tentative and that you could be more ambitious. Do you recognise
that criticism or do you feel that it is unfair criticism?
John Healey: No,
I do not accept the criticism. To respond to your welcome, I am
very pleased to be here again, and it is good to see you in the
Chair, Ms Walley.
Q174 Joan Walley: It is only temporary.
John Healey: Even though it is
temporary. Would you pass on my congratulations to Mr Ainsworth
for his promotion? I have been coming before this Committee for
several years and a number of members from both sides have gone
on to front bench duties and responsibilities afterwards. It is
good to see that the parties are taking the Environmental Audit
Committee seriously as well. I do not accept the criticism, briefly,
for these reasons. If you look back to 1997, when we first came
into government, we set out a principled statement of intent on
the environment and the use of economic instruments led by the
Treasury but obviously on behalf of Government at that point.
At different stages, we have reinforced that principled framework—in
the Pre-Budget Report in 2002 and then again in the Pre-Budget
Report this inquiry is basing its work on in December. Within
that framework we have introduced a number of very serious fiscal
and economic instruments, often at points when we have faced considerable
opposition not just from opposition parties but from groups outside.
If you think back to the introduction of the climate change levy
which we started the process for examining and introducing in
1999, at that stage, with the exception of the Scandinavian countries,
there were only two other countries in Europe with any sort of
carbon or energy-related tax. Now, of course, with the Energy
Products Directive, it has become the standard. When you look
also at the introduction that we did with the Voluntary UK Emissions
Trading Scheme, it was the first economy-wide emissions trading
scheme. It was the forerunner and very much the basis on which
the EU Emissions Trading Scheme was devised. Again, if you look
at the recognition that has always been there in our environmental
policy, particularly on the biggest challenges like climate change,
this is not a UK problem. It cannot ever be simply a UK problem
because our emissions are around 2% of the world's emissions.
Therefore our ability to lead and contribute to the international
consensus for action and measures to deal with climate change
has been essential. You have seen that not just in the instruments
and measures that we have been prepared to introduce, as I have
just said, but also, in the recent 12 months, with the priority
that we gave to climate change within the period of Presidency
that the UK held for the G8 and for the European Union, and you
will see this again tomorrow and Saturday when the Chancellor
is in Moscow at the G8 meeting—the follow up to Gleneagles—where
he will be discussing and leading the arguments for the World
Bank to go further with the energy investment framework that was
recently announced to try and help the poorest and developing
countries develop alternative and cleaner energy sources.
Q175 Joan Walley: Thank you. It is very
helpful to have that as a contextual framework for the inquiry
that we are taking. I think the issues that you have raised about
consensus or communication and understanding by the public are
issues that we will come on to later. What we really want to press
you a little bit further on is that the 1997 statement from the
Treasury really did promise so much in terms of shifting from
"goods" to "bads", and the issue is: how do
we measure the success of that? We have to have regard, surely,
to the fact that the proportion of tax revenue generated through
environmental taxes is now, for the fourth year running, lower
that it was in 1997. How can you show that you have kept faith
with that huge ambition in 1997 and that we are still making progress
on the shift from "goods" to "bads"?
John Healey: You can see it, first
of all, in some of the specific measures. I mentioned the climate
change levy, very specifically an instrument that, apart from
its environmental objects, did just that. It shifted the taxation,
because it was accompanied, you will remember, by a 0.3% cut in
employers' national insurance payments, from "goods",
if you like, the cost to employers employing people, to "bads",
in other words, the profligate or excessive use of energy in business
processes. First of all, you see that, and I could make the same
argument with the aggregates levy, I could make the same argument
with the landfill tax. Secondly, and this is important to understand,
if the sole measure of the seriousness with which the Government
takes environmental taxes is the total tax take of that group
of taxes that happens to be categorised as environmental transport
taxes, then I think you are missing two very important points.
The first is this. Some of those tax regimes are devised specifically
to discourage the activities which are taxed. In other words,
if they are working, you see a reduction in the activity that
is being taxed because the reduction has a beneficial environmental
impact. The evidence of the operation of the aggregates levy is
precisely that. The period of economic growth and expansion of
the construction industry, the amount of virgin aggregate quarried
in this country, has fallen since the introduction of the aggregates
levy. The amount of recycled aggregate produced has increased.
The second thing to bear in mind on the question of looking at
crude figures is this. Within some of these taxes we are able
to use the design of them in a way to achieve environmental objectives
that just is not shown if you look at the headline numbers. Take
fuel duty.
Q176 Joan Walley: We will come on to
fuel duty.
John Healey: May I just say, the
discount in duty to support the development of bio-fuels, which
is 20 pence per litre, is precisely to achieve an environmental
end, but if you are just looking at the total take, including
the tax take from fuel duty, you will not see that registered.
Q177 Colin Challen: I want to ask a follow
up question. I think you are right in terms of the reduction in
tax take in terms of its effectiveness domestically, but has the
Treasury done any work to see whether or not some of the people
who are affected by these taxes might simply be displacing their
activities elsewhere in the world? I could mention one example
which has recently come to my attention of the potential for people
to use Renewable Obligation Certificates for a power model, for
example, which could have serious impacts elsewhere, but here,
of course, we can say it is a bio-fuel and therefore it is a "good"
and reward it, even though it might cause the destruction of ecologically
sensitive rain forest and so on?
John Healey: I think you are right
to point to that sort of life-cycle perspective in trying to assess
the environmental impact and benefit plus the cost of some of
these measures. I have mentioned the rather simple and initial
policy instrument of the duty discount to support the development
of the UK bio-fuels market. The Pre-Budget Report confirmed the
Government's intention to introduce what I think you are referring
to here, which is a road fuel, road transport fuels obligation,
probably from April 2008. Part of the work that the Department
for Transport, which obviously leads in this area, is conducting
at the moment is, importantly, our ability to assess not just
the nature of the fuel that is produced, to make sure it meets
the specifications of bio-fuels and we get the mandatory 5% level
by 2010-11, but also the environmental impact: because what we
do not want to see is imported bio-fuels derived from other countries
and derived from environmental production practices which are
hugely damaging—it could be deforestation, it could be a
number of other detrimental activities—and we do not want
to be producing a policy instrument, albeit one that is likely
to deliver about a million tons of carbon savings per year, which
has those effects which are perhaps a litter further out of sight.
Q178 Mr Hurd: Minister, I understand
your point completely about the initiative taken by the Government
at the beginning of the programme. The point is that there is
considerable frustration about the amount of activity untaken
since 2001-02 against a background in which the biggest environmental
priority of all, which is the reduction in CO2 emissions, is quite
clearly being failed. Do you understand that point, the frustration
in terms of activity since 2001-02?
John Healey: I am not sure if
you are arguing for the introduction of policy instruments of
the significance and weight of the climate change levy every year,
but I do not accept it entirely. If you look at some of the initiatives
that were set out in the Pre-Budget Report, they were designed
to reinforce some of the measures we have got in place. They were
designed also to try and take us into some of the new areas, like
further support for carbon capture and storage. We have just discussed
the road fuels obligation, which is potentially a very significant
economic measure which has recently been announced by the Secretary
of State for Transport, developed by the Chancellor, and, I think,
will produce a really important environmental gain for us.
Q179 David Howarth: Can we probe a little
further into the points that you made a moment ago about the relationship
between behavioural change and revenue and the evidence base that
you were using to judge behavioural change. On the first point,
Paul Ekins came before us yesterday to re-emphasise the point
that the Committee has made in the past that it is a false dichotomy
to set up behavioural change against revenue raising, but, if
the elasticities are right, you can have both. You have mentioned
the aggregates levy, but what about the climate change levy, what
about fuel duty? Surely there is no contradiction between raising
revenue and changing behaviour, because both can happen at the
same time. Have you changed your view on that, or are you still
of the view you were last year that behavioural change can only
happen if you abandon revenue raising as an aim?
John Healey: No. I do not know
if you have misread the transcript of last year's session, but
that cannot be the point. You are pointing to two of the factors
that inevitably are part of the judgments that the Chancellor
takes when making decisions either about new policy instruments
or particularly about decisions on rates; and they are balances
between perhaps the behavioural change and signals that we want
to encourage, because of the environmental gains, with some of
the concerns that there may be about distributional impacts or
the economic impacts and, indeed, revenue raising, but those are
precisely some of the dimensions to any judgment that does not
make some of these things straightforward.
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