Pre-Budget 2006: Shifting the burden of
taxation
58. Almost a decade ago, in July 1997, the Treasury
issued a "Statement of Intent on Environmental Taxation",
setting out the Government's aim:
to reform the tax system to increase incentives
to reduce environmental damage. That will shift the burden of
tax from 'goods' to 'bads'; encourage innovation in meeting higher
environmental standards; and deliver a more dynamic economy and
a cleaner environment, to the benefit of everyone.[76]
In our understanding the Government was giving in
this Statement a clear commitment to alter the balance of tax
revenue, increasing the proportion of revenues gained from taxing
environmentally destructive activities, while decreasing the proportion
gained from taxing things such as personal income, corporate profits,
and employment (eg, National Insurance). Following this Statement,
the Treasury introduced a number of promising measures, including
the Climate Change Levy and the Aggregates Levy. However, since
1999 the Government's overall impact on shifting the burden has
gone into reverse, with latest figures showing the proportion
of tax revenues gained from environmental taxes has gone down
once more, and is now at its lowest for over a decade.
59. As the data on environmental taxes published
by the Office of National Statistics (ONS) show (Figure 6),
Government revenue from environmental taxes rose significantly
between 1994 and 1999, largely thanks to the fuel duty escalator,
before declining again, following its abolition. Since 1999, environmental
taxes as a percentage of total taxes have fallen almost year on
year (the single exception being 2002), from a peak of 9.8% in
1999 down to 7.7% in 2005.
Figure 6 UK Environmental Taxes 1994-2005
Source: UK Environmental Accounts Autumn 2006,
Office of National Statistics
60. This year's Pre-Budget Report contained some
key announcements of rises in and revalorisations of environmental
taxes: Air Passenger Duty rates have been doubled, fuel duty rates
have been revalorised (raised in line with inflation), and the
Landfill Tax raised by £3 (in line with the existing Landfill
Tax escalator, the Treasury's policy of increasing the tax of
£3 per year). However, these rises and revalorisations come
in the context of several years in which the majority of environmental
taxes have been frozen (i.e., not revalorised, and therefore cut
in real terms) at most Budgets (Figure 7). As we observed
last year, this forms a contrast with the Financial Secretary's
confirmation of the Government's "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."[77]
61. Overall, then, the picture is of an ongoing
retreat from the Treasury's announcement in 1997 of a policy to
shift the burden of taxation towards taxing environmentally damaging
activities. As the latest figures show, the proportion of all
taxation made up by green taxes is markedly less than in 1997,
and is indeed at a lower proportion than as far back as 1994.
This Pre-Budget does contain some limited announcements of rises
in green taxes, but these are still very modest when set in the
context of several Budgets and Pre-Budgets in recent years in
which many environmental taxes have not even been raised in line
with inflation.
Figure 7 Changes to five key environmental
taxes since 2000-01
76 "Statement of Intent on Environmental Taxation",
HM Treasury, 2 July 1997, www.hm-treasury.gov.uk Back
77
Environmental Audit Committee, Pre-Budget 2005: Tax, economic
analysis, and climate change, Q 182 Back
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