Examination of
Witness (Questions 180-199)
JOHN HEALEY
MP
9 FEBRUARY 2006
Q180 David Howarth: You are saying that
the factors that are pushing you against increasing environmental
taxes are distributional and to do with competitiveness rather
than simply saying, "We have achieved all that we are able
to change and want to achieve"?
John Healey: No. Mr Howarth, take
fuel duty. You mentioned fuel duty. In the Budget we decided that
we would as usual, because that is basically our established policy,
look to revalorize the fuel duty and we would do so from 1 September.
The volatile oil price caused us to rethink that. By the time
it came to the Pre-Budget Report, we decided, in December, that
we would extend the freeze that we had announced in July that
would not come into effect until September through to the Budget
this year. We were set to raise, by revalorizing fuel duty at
the Budget, fuel duty for the main pure rate by 1.22 pence per
litre. By the time we came to the Pre-Budget Report, the pump
price paid for road fuels was 10 pence per litre for last year,
higher than what we he had projected at the Budget. In those circumstances,
first of all, I think you would appreciate (and I would be interested
to hear if you disagree) it was the right decision, given the
pressure on motorists and business not to proceed with the increase
in fuel duty. For those concerned about the environment, clearly
the 10 pence per litre price rise at the pumps would have a much
greater impact on demand and, therefore, emissions from road transport
than the planned increase that we had in the duty rates, and,
incidentally, will lead to a revenue reduction. If you look at
the Pre-Budget Report, you will see that the revenues that we
projected at the Budget for road fuel duty are cut, as a result
of the combination of factors that is produced by high prices,
by about point seven billion. That is an illustration of the interplay
of the different factors.
Q181 David Howarth: We will come specifically
on to fuel duty later. The only follow up point I would make is
this. Are you saying that if the oil price falls the revalorization
of tax will come back into play?
John Healey: No. I do not know
if you are aware of this. We had a debate in the course of the
Finance Bill and subsequently, led by Scottish Nationalist Party,
for some sort of automatic arrangement of that nature. That was
not a model that we accepted. It was not a model that your Liberal
Democrat Party accepted either.
Q182 David Howarth: No, not automatic.
I just mean merely as a matter of policy.
John Healey: Clearly, the level
of oil price and the volatility of the oil price, which has driven
many of the problems of the last couple of years, will be a factor
in any decision that we take at the Budget this year, but our
standing policy, as with every government in the past, is that
we look each year at least to revalorize tax rates in order that
they at least maintain their value.
Q183 David Howarth: Can I move on to
the second point, which is the evidence base that you use for
measuring environmental success. What are the key indicators that
you use for the success of environmental taxes?
John Healey: Because environmental
taxes have different and specific purposes—you cannot say
the aggregates tax is the same as the landfill tax or the climate
change levy or the differential in fuel duty to encourage bio-fuels—clearly
the mechanism used, albeit related to the fiscal regime, is different,
and, therefore, the evaluation that is required is different.
If you look back at the Budget report last year, you will see
that we reported on the independent Cambridge econometrics study
of the climate change levy, and you will be able to see the references
to the methodology that was used there. For an aggregates levy,
clearly the sort of indices that we are interested in are those
that relate directly to the objectives of it: to see what the
impact is on the level of virgin aggregate that is taken out of
the ground once and for all each year in this country, to look
at the levels of recycled aggregate that are being produced and
used as a replacement and also to look at perhaps the gains that
are made in the aggregates levy case from the environmental fund
that was a modest part of the architecture of that tax.
Q184 David Howarth: Car journeys seem
to be going up, air passenger numbers go up and car emissions,
crucially, are going up. Would you take that as a sign that the
policy is not working overall? What you have done is talked about
the existing instruments, but one part of the policy is whether
we need new instruments to make policy move in the right direction?
John Healey: I would not draw
that hard conclusion that you did there. I would suggest, on transport,
that a very significant factor, as I think you would agree, is
the degree of economic growth and changing patterns and habit.
What it would say to me is that with emissions, particularly in
the context of affecting climate change, increasing from the transport
sector compared, for instance, to the business sector or even
the household and domestic sector, clearly in that policy area
we have more to do. It was one of the reasons that, in fact, within
government I kicked off the study of the fuel obligation and it
is one of the reasons that we felt we can do this in a way that
balances the range of concerns we have and make a real impact,
as I explained earlier, on the emissions that are coming from
the transport sector. For the first time, over the last couple
of years I think you have been able to see a very firm and clear
commitment from the Government that all sectors of the economy
have got to contribute to meeting the challenge of climate change,
including transport.
Q185 David Howarth: Finally, I mention
one particular levy which seems not to be working at all and seems
to require some change of direction, the air passenger duty, where
the yield seems to be falling but the number of passengers seems
to be rising. Are we taxing the wrong thing?
John Healey: The air passenger
duty in many ways is not an entirely satisfactory tax. It was
introduced, you may remember, in the early 1990s. It has never
been an environmental tax. It has certain sorts of perverse aspects
built into the design. In other words, a more fuel-efficient plane
filled with the same number of passengers pays the same rate of
air passenger duty as an airline using a much less fuel-efficient
plane, and actually a half-empty plane is rather less than a full
plane, even though it is more efficient in terms of passengers
per air miles travelled. First of all, it is not an environmental
tax. Second, it does, however, contribute to the recognition that
we have been very clear about, that the aviation industry has
to pay the costs, the externalities if you like, that it imposes
on society and on the environment. It is a significant contribution
to that, but it is not an instrument that is well designed to
achieving environmental ends.
Joan Walley: I think we will come on
to more of the detail of aviation tax later on.
Q186 Mr Chaytor: Minister, in the last
few weeks since the Pre-Budget Report, the Treasury has conducted
two major U-turns. It antagonised the nation's bite on that lobby
by the changes to self-invested personal pension scheme arrangements
and it has antagonised the environmental lobby by pulling back
on the Operating and Financial Review. I ask myself: is this good
politics and what does the Treasury intend to do now that the
OFR has been scrapped?
John Healey: You will make judgments,
like anyone, Mr Chaytor, on whether it is good politics. These
are the right decisions in policy terms in both cases. In terms
of the Operating and Financial Review, you will be aware that
there are already requirements to prepare business reviews. You
will be aware, I think, that we are consulting as a government,
led by the Department of Trade and Industry, on the development
of those and that we want to do so in a way that allows us to
make any decisions about whether that system should be developed
further in order that we can make the legislative changes, if
they are required, within the Company Reform Bill that has already
been introduced into Parliament.
Q187 Mr Chaytor: What is going to be
in the Business Review that was not in the Operating and Financial
Review? Are we just playing with words here or are there points
of substance?
John Healey: No, in general terms,
the reporting requirements are quite similar.
Q188 Mr Chaytor: So we are playing with
words?
John Healey: Let me finish. No,
I am not playing with words. I am going to draw some observations
about how they are consistent and then I am going to draw some
observations about how they are different, if that is what you
are asking me. They both have broad disclosure requirements for
requiring provision of information that is necessary for shareholders
to make judgments about the development and the performance of
the company, in broad terms. Specifically what the Operating and
Financial Review would have required is much more prescriptive
auditing arrangements, and that was the bulk of the additional
cost that was set out in the Regulatory Impact Assessment, originally
around £33 million. It was principally that auditing requirement
that was the big difference between the two.
Q189 Mr Chaytor: But last week the DTI
also announced that it is going to consult on companies' environmental
reporting. How does this fit in with the Treasury's concept of
a business review?
John Healey: I think it is entirely
consistent. As I said earlier on, led by the DTI, the Government
is consulting on the nature of the current requirements for reporting
in the Business Review framework and the degree to which there
is a case for developing those further. Clearly, and you have
a strong interest in this, the environmental element of that is
a feature that the DTI is particularly keen to get views on.
Q190 Mr Chaytor: Can you give the assurance
that there will be no watering down of the specific environmental
requirements that finally emerge from the new concept of a business
review, as against what would have been the case in the OFR?
John Healey: The OFR has been
repealed.
Q191 Mr Chaytor: I understand that?
John Healey: What we have is a
business review. The Business Review does not have any specific
reporting requirements on the environment, and so what we are
building on potentially, depending on the judgments we take after
this consultation, will be the framework that exists at the moment,
which is the Business Review. To the extent that this Committee
or others want to make the case for stronger environmental reporting,
this is a very opportune time to be doing that, during this period
of the consultation, before we make any decisions about appropriate
amendments to the Bill going through Parliament.
Q192 Joan Walley: Given what in effect
is a U-turn that the Government has had to do because of the challenge
by Friends of the Earth, can I check, in terms of the new Business
Review that you are now talking about, that you will be consulting
with people like Friends of the Earth to make sure that there
is that attention to the environmental aspect of the new Business
Review that Mr Chaytor has just referred to?
John Healey: First of all, it
is not a U-turn. In the sense that the Chancellor announced the
Government's decision to set aside the Operating and Financial
Review, then that stands. In terms of how we develop the Business
Review, we are particularly keen to hear from Friends of the Earth
their ideas about how we can build on what is in existence now.
Q193 Colin Challen: The Government published
last week the outcomes of the Exeter conference, Avoiding Dangerous
Climate Change, which, if anything, shows that the situation
is far worse than perhaps we thought even two or three years ago.
How does the Treasury respond to the warnings that the Exeter
conference report contains?
John Healey: I think it is an
important publication. As you say, it is the report of the conference
that took place earlier last year. What it does show is that incontrovertibly
climate change is happening; it shows that incontrovertibly it
is global in cause. In many ways, I think we are getting a better
scientific understanding of this now. It is clear that greenhouse
gas emissions have a very similar impact wherever in the world
they happen to be emitted. We understand better that, once they
are emitted, they can stay in the atmosphere and do the damage
that they bring for well over a century. If we understand more
clearly, and this publication helps us, that the climate change
challenge is global in course, it is global in consequences, then
what it drives us to do is to work very much harder to say that
we have to find and build international solutions to try and deal
with these problems.
Q194 Colin Challen: Will it have any
impact on the Treasury's top five priorities? Could you say what
those top five priorities are and then explain how tackling climate
change may move up the agenda or stay where it is? The Treasury
has a lot of thresholds to cross.
John Healey: Since we have come
into government, let me be very clear, the heart of the Treasury's
economic role is a desire to see the British economy grow but
grow sustainably. Therefore, right in the heart of the Treasury's
mission are some of our formalised public service agreement targets,
the concept that we have to make decisions about economic prosperity,
also with some of the social consequences in mind and the environmental
consequences as well.
Q195 Colin Challen: Economic prosperity,
in the old-fashioned way of describing it, is going to be perhaps
more injurious to us in many ways. How can we respond to the argument
that we have to really make a radical shift and very quickly?
Tony Blair was saying only last week (a few days ago) that we
have got to get the new post Kyoto framework in place. That time-set,
of course, is set by the existing Kyoto Protocol, but where is
the Treasury taking us now? We cannot wait for agreements all
the time or for further reviews. Where does this extra document
land in the Treasury and make people really start assessing things
now and moving things up their order of priorities?
John Healey: First of all, I do
not accept the premise that was at the heart of your question,
Mr Challen. Essentially, you suggest that if we want to be greener
we have to be poorer. First of all, I do not think the experience
that we have been able to demonstrate over the last eight, 10
years actually supports that. I will not go into the detail for
this Committee, but the UK has been one of the most successful,
certainly the most stable economy out of all the developed countries
since 1997. At the same time, we are one of only two (Sweden being
the other) EU countries on track to meet our Kyoto targets. I
do not want to go over the other ground about aspects of the way
that we have been able to lead some of the practice and the debate
on climate change policy, but in the end we are politicians and
our purpose is to try and balance some of the competing pressures
that there are within our society between the demand that people
rightly want to be able to work and support their families and
their concern for the environment with the some of the concerns
that are there about the poorest. We have to make decisions that
balance those. That is the heart of what we need to do. In terms
of the Treasury, as a government we have to shift up a gear in
our attention and our advocacy of international solutions. I think
you really pointed to that with your concern about the post 2012
Kyoto arrangements. You will see, tomorrow and Saturday, the Chancellor
of the Exchequer leading the arguments in Moscow for a follow
up to one of the important elements of the Gleneagles agreement
(the G8 agreement) that the World Bank should develop a well-funded
alternative energy investment framework that helps the poorer
countries and those developing countries to meet their energy
needs from alternative sources or in more efficient ways. The
reason we have to do this, as I talked about earlier on, is the
recognition that the consequences of climate change are global,
the impact is hardest on the poorest, which gives us a special
responsibility to help them, and, although we in the developed
world are responsible for the emissions that are causing the damage
at the moment, over the next 10, 20, 30 years the significant
proportion of emissions that is going to continue to do the damage
or escalate the damage is going to come from those developing
economies.
Q196 Colin Challen: I accept much of
what you say about the UK's position on climate change, but domestically
the Office of National Statistics has shown that only 4% of government
expenditure is spent on what is classed as ambient air and climate.
That is £250 million out of something like six billion. There
is something in which we perhaps could take a more interventionist
role in terms of direct expenditure to tackle this problem, but
it does seem to be the lowest amount spent in the various classifications
compared to waste water management and so on. Perhaps we ought
to reconfigure that approach and say that the Government should
become far more involved with direct expenditure, helping us to
reduce our carbon footprint, if you like?
John Healey: I think you are probably
pointing to the limitations of the classification of expenditure
that the Office of National Statistics uses if you want to get
a measure of the range of investments that the Government is making
in various either programmes or policy areas that will help deal
with climate change.
Q197 Joan Walley: I think Mr Challen
is referring to the "environmental protection expenditure
by public sector" graph that was used by the Office of National
Statistics, if that is helpful to you in terms of the reference
he has just made.
John Healey: It is and it is not,
in the sense that there are whole and very significant government
spending and investment programmes in other measures, such as
developing technologies, for instance, such as supporting the
renewables obligation, that will have a direct impact on our attempts
to deal with climate change. The expenditure by public authorities
on what may fall within the classification of environmental protection
may be useful, but it is only a partial part of the picture.
Colin Challen: It may be partial, and
I guess it is always difficult to pin these things down precisely,
but if you look at initiatives, the recent announcement in terms
of the funding of the low carbon building initiative, which brings
together Clear Skies and various other programmes that the Government
funds with direct grant in aid, has been cut. There is an effective
cut in the low carbon building initiative. It is now 30 million
over three years. In previous programmes it used to be around
about £12 million a year. That is what I mean by our "direct
expenditure". Perhaps the ONS does not count all of that
under environmental protection. Nevertheless, it shows that there
is an unmet demand, and that is what I mean in this question.
Q198 Mr Hurd: No-one would argue with
your premise that climate change requires a global solution, but
would you accept the argument that that global conversation would
be greatly facilitated if a G8 country was able to prove that
emissions could be reduced at no cost to prosperity and that Britain
has a fantastic opportunity to do that, but as emissions rise
that opportunity may be slipping away? It is in that context that
this Committee and others are questioning the degree of priority
that the Treasury are giving to clamping down on domestic emissions.
John Healey: You are right in
principle that our ability to convincingly and credibly lead arguments
with other countries about (a) the importance of measures to tackle
climate change but (b) the ways that it can be done without heavy
social or economic penalty do, to some extent, depend on our own
ability to demonstrate that we can do this in our own UK economy.
I come back to the fact that if you compare our growth and our
employment creation record since 1997, if you compare the environmental
performance of the UK—and, as I said earlier, alongside
Sweden, we are the only two countries on track to meet our Kyoto
commitments—then I think we are well placed, as we have
demonstrated, to be able to influence that international debate.
What is also clear (and this is the reason for the very thorough
Climate Change Programme Review that is going on in government),
is that we believe we need to do more to reduce the emissions
beyond the Kyoto commitments, and we are examining both the impact
of what we have done already and potential policies for the future
in order to do that.
Q199 Colin Challen: In relation to the
Climate Change Programme Review, we have seen that Defra want
UK firms to cut down emissions by eight million tons by 2010 and
the DTI are suggesting three million tons. Does the Treasury take
a view on that?
John Healey: What you are probably
referring to is speculation in the media recently. What I think
you are referring to is the discussion and therefore the decision
that will have to take place within government on what we publish
for consultation as part of the preparations for the second phase
of the European Union Emissions Trading Scheme. That process,
as you may know, Mr Challen, requires, by June, the UK to submit
to the European Commission our emissions cap for the next phase
(2008 onwards). What it is necessary to do—it is an important
part of the process and the UK Government has given a very strong
commitment that this is what we will do—is to produce a
draft allocations plan that indicates the sort of options for
the cap and the consequences that will be there for the different
industrial sectors that come within the EUETS. That will give
the range of interests concerned to see the EUETS, like the Government
does, be effective in this second phase and then we will make
the decisions that we need to on the appropriate UK cap by June,
and we will do it also in the light of what the other European
Union states are doing in their plans.
|
