Memorandum submitted by John Healey MP,
Financial Secretary, HM Treasury
ENVIRONMENTAL TAXES
1. Following your evidence that, contrary
to its classification by the Office of National Statistics, Air
Passenger Duty is "not an environmental tax", could
you list all the taxes and levies that the Treasury does class
as environmental taxes?
The ONS uses a classification of environmental
taxes which includes taxes on transport as well as pollution and
resources. This approach allows analysis to be based on the effects
of the measures rather than the aims behind their introduction.
Where the Treasury refers to environmental taxes it means the
climate change levy, aggregates levy and landfill tax. Other taxes
can have a positive environmental impact, but were not specifically
designed to achieve environmental ends.
Specifically, in relation to Air Passenger Duty,
to quote directly from oral evidence given to the EAC on Thursday
9 February in response to Q13;
"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."
2. How many environmental taxes have been
revalorized (ie, either revalorized or increased), and on what
occasions, dating back to (and including) Budget 2001?
| Climate Change Levy
| Aggregates Levy | Landfill Tax
|
2000-01 | Introduction
| N/a | £11/tonne |
| 2001-02 | Freeze | N/a
| £12/tonne |
| 2002-03 | Freeze | Introduction
| £13/tonne |
| 2003-04 | Freeze | Freeze
| £14/tonne |
| 2004-05 | Freeze | Freeze
| £15/tonne |
| 2005-06 | Freeze | Freeze
| £18/tonne |
| |
| |
AIR PASSENGER
DUTY
3. What is the purpose of air passenger duty?
APD was not introduced as an environmental tax. It was announced
in November 1993 as a measure to extend the tax base, based on
a recognition that aviation was under taxed as a sector, due to
its zero rating for VAT and exemption from fuel duty for all international
and the majority of domestic flights. Many in the aviation industry
and voluntary sector nevertheless view APD as an environmental
tax.
4. Has the Treasury considered modifying it, so that it
became an environmental tax?
APD can have an effect on demand for aviation and therefore
emissions, so it can be used as an environmental instrument in
its current form, although a blunt one.
It is possible that restructuring of APD could adapt it to
be more suitable as an environmental tool, but this would need
to be weighed against other impacts of restructuring on the Exchequer,
industry and passengers.
5. In the entry for Air Passenger Duty in "Table
7.2: The environmental impacts of Budget measures", the Pre-Budget
Report 2005 states: "Levying APD has resulted in a reduction
in emissions of CO2 and local air pollutants from aviation."
Could the Treasury explain its argument for this statement?
PBR 2005 Table 7.2 states that "Levying APD has resulted
in a reduction in emissions of CO2 and local air pollutants from
aviation". This is based on the demand impact of APD. Should
APD be removed, demand would increase (by a relatively small amount),
resulting in higher levels of emissions.
COMMUNICATIONS STRATEGY
6. In relation to vehicle fuel duty, does the Treasury
have a specific communications strategy for: (a) getting the message
across to the public that the costs of motoring have actually
fallen in recent years; and (b) linking fuel duty in the minds
of the public to the need to curb carbon emissions and hence avert
the worse scenarios of climate change? If the Treasury does have
such a communications strategy, could the Committee see a copy
of the main relevant document which sets this strategy out?
Chapter 7 of the Pre-Budget Report and Budget documents,
entitled Protecting the Environment includes a chart showing how
the cost of motoring has changed over time. In PBR 2005 this was
chart 7.3. Section 7.46 of the document sets out more details
of the recent trends.
The link between fuel duty rates and carbon emissions has
been made consistently by the Government. PBR 2005 (section 7.47)
stated it is the Government's policy that fuel duty rates should
rise each year at least in line with inflation, as the UK seeks
to meet its targets of reducing polluting emissions and funding
public services.
PEAK OIL
AND GAS
7. In the session on 9 February, you were asked, in view
of plans by the Swedish Government to make its country oil-free
by 2020, what the UK's consumption of oil was projected to be
by 2020. You said that if the Treasury had such figures, you would
let the Committee have them. Does the Treasury have such a projection,
and, if so, could you let us see it?
UK oil demand in mtoe (including bunkers and non-energy use)
is currently projected to grow as indicated below:
1990 | 1995
| 2000 | 2005 |
2010 | 2015 | 2020
|
91.1 | 91.7 | 89.2
| 88.6 | 91.6 | 94.5
| 96.8 |
| |
| | | |
|
Source: "UK Energy and CO2 Emissions Projections',
DTI, February 2006"
8. Would the Treasury consider adding a dedicated section
within Chapter 7 of every Pre-Budget Report, assessing the nature
and level of risks posed to the United Kingdom from the depletion
of world oil and gas reserves, and setting out what fiscal instruments
and other policies the Treasury is proposing each year to take
in response?
The Government's view on oil production prospects is set
out in the 2003 Energy White Paper "Our energy future—creating
a low carbon economy" http://www.dti.gov.uk/energy/whitepaper/index.shtml:
"Globally, conventional oil reserves are sufficient to
meet projected demand for around 30 years, although new discoveries
will be needed to renew reserves. Together with non-conventional
reserves such as oil shales and improvements in technology, there
is the potential for oil reserves to last twice as long."
This is consistent with the latest assessment by the International
Energy Agency (IEA) in its 2005 World Energy Outlook. However
the Government is not being complacent. Like the IEA, the Government
recognises that significant investment will be required to turn
these reserves into production. The UK is therefore working with
producers, consumers and the international community to improve
the conditions for investment in the international energy sector.
On the demand side, the Government is working with developing
countries to encourage more effective management of energy demand,
through energy efficiency improvements and the development of
renewable sources of energy. G8 Finance Ministers have also been
monitoring oil issues. Their latest communique« can be found
at <http://en.g8russia.ru/news/20060211/1143117.html>.
Domestically, the Government is working with the industry to maximise
the economic potential of our North Sea supplies. The Energy Review
will consider the long term implications of trends in world energy
markets for domestic energy policy and will report to the Prime
Minister in the Summer.
OPERATING AND
FINANCIAL REVIEWS/ENVIRONMENTAL
REPORTING
9. Is it true that the Treasury has agreed
to repay the legal costs incurred by Friends of the Earth in their
application for a judicial review of the decision to abolish the
requirements for companies to publish Operating and Financial
Reviews? If true, why is the Treasury paying these costs, and
what is the statutory authority under which they are being incurred?
Friends of the Earth withdrew their judicial
review application on the basis that the Government would carry
out further consultation. It was considered appropriate for the
Government to agree to pay Friends of the Earth's costs of bringing
the action.
Statutory authority for making such a payment
is to be found in Chapter 18 of Government Accounting which permits
departments to make special payments where such payments are needed
to settle legal proceedings out of court (see specifically paragraph
18.6.5 of Govt Accounting).
10. On 1 February, the DTI Minister Alun
Michael made an announcement of renewed consultation on how the
Company Law Reform Bill might be amended "to ensure effective
forward looking narrative reporting by quoted companies, including,
where appropriate, on social, community, employee and environmental
matters". In light of this, can the Treasury confirm that
the Government is willing to consider introducing additional requirements
for listed companies to report on environmental matters in the
new Business Reviews?
The Government is willing to consider on their
merits any representations made in the fuller consultation for
changes to narrative reporting requirements.
The Committee has also requested in a subsequent
letter (22 February 2006) copies of all internal documents which
may shed light on the process by which the decision was reached
to abolish the OFR, including the documents sent to Friends of
the Earth as part of legal proceedings. This information will
shortly be provided to the Committee.
SUSTAINABLE PROCUREMENT
11. Has the Treasury considered whether or
not OGC ought to assume leadership in sustainable procurement
in place of DEFRA?
In order to ensure the efficient management
of government business, it is important to be clear about where
lead responsibility should lie on any given subject. The OGC is
responsible for setting the overall procurement policy framework.
Broadly speaking, that involves compliance with EU rules on fair
and open competition and ensuring value for money for the taxpayer.
Within that overall framework, it will often make sense for departments
to develop more detailed policies about how procurement can further
their own departmental objectives. Within Government, DEFRA has
policy responsibility for sustainable development, and so consistent
with the general approach it should have responsibility for sustainable
procurement. But, as with any department wishing to develop more
detailed procurement policy ideas, the OGC is ready to offer its
support and advice on how this can be done within the overall
framework.
12. Has the Treasury considered giving OGC
new environmental or sustainability targets?
To be effective, targets should focus organisations
on their core purpose(s). The core businesses of OGC are value
for money in public procurement, efficiency, and programme and
project management, and its three main targets reflect those.
The environment and sustainability are of course important government
objectives, and it is understandable that the EAC should focus
on them. Environmental and sustainability objectives can be pursued
within existing guidance and procurement arrangements. But the
Government has many other important objectives, and if OGC were
to be given environmental or sustainability targets, it is not
clear why they should not also have targets related to better
health, education etc But that would create an unwieldy list,
diminish the value of the targets, and potentially dilute OGC's
own important mission on value for money in procurement.
13. How effectively does the Treasury believe
the OGC is performing in giving practical guidance to public bodies
on how to reconcile post-Gershon efficiency targets with the objectives
of sustainable procurement?
OGC has always actively promoted the message
that efficiency gains are about increasing the value obtained
from procurement exercises, not just about reducing their costs.
This involves better management of supply markets, smarter logistics
and reducing waste and duplication, all of which can have beneficial
effects for the environment.
OGC has produced guidance looking at the scope
to consider environmental and social issues at each stage of the
procurement process, particularly within the framework of the
UK's procurement policy and within EU rules. The guidance note
on environmental issues in purchasing was published jointly with
DEFRA in October 2003 and the guidance note on social issues in
purchasing was issued in February 2006.
OGC has actively promoted the message that sustainability
and efficiency are mutually compatible and reinforcing. OGC has
made its position clear in a statement on the OGC website, at
events and conferences and through articles in public sector publications.Furthermore,
by raising the profile of public procurement and emphasising the
need for professionalism and a joined—up approach, the OGC
Efficiency Programme offers an opportunity to assist procurement
teams in rolling out sustainable procurement across their departments.
Departments have put plans in place to co-ordinate and professionalise
their procurement activities better across their areas of responsibility
and OGC has organised itself to support departments in this activity.There
does appear to be anecdotal evidence that, despite these efforts,
there remains a perception amongst some in the procurement field
that sustainable procurement options always cost more and that
efficiency is always about the lowest up-front price. I am aware
that this is one of the things the Sustainable Procurement Task
Force is examining, and look forward to any further ideas they
have to change this misperception.
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