Examination of Witnesses (Questions 145-159)
ANGELA EAGLE
MP, MS REBECCA
LAWRENCE AND
MS LINDSEY
WHYTE
12 DECEMBER 2007
Q145 Chairman: I extend a warm welcome
to you. I apologise for the fact that you have had to wait outside.
The Committee does not normally meet on a Wednesday. I think some
colleagues were confused about what was going on, but you have
some top-quality people here and I am sure that the extra 10 minutes
on your brief will be reflected in the quality of our discussions.
Thank you very much for coming along. This is our traditional
annual outing on the PBR. I want to start with a question about
the proportion of overall taxation represented by green taxes.
It peaked in 1999 at just under 10% and since then almost every
year it has slipped back. We are now down to just over 7%. In
1997 the Treasury promised that it would shift the burden of tax
from goods to bads. It does not look as though that is happening,
does it?
Angela Eagle: I
welcome the opportunity to give evidence to the Committee. Perhaps
I may first ask my colleagues to introduce themselves so we all
know who is doing what.
Ms Whyte: I am Lindsey Whyte,
Head of the Environment and Transport Tax Team in the Treasury.
Ms Lawrence: I am Rebecca Lawrence,
joint head of the Energy, Environment and Agriculture Team in
the Treasury.
Angela Eagle: On the "tax"
point, obviously one of the ways in which you can see how seriously
we view environmental concerns is to look at the percentage of
so-called environmental tax take, but I do not believe that that
is necessarily a sensible way to do it. It is certainly part of
the jigsaw. For example, if one had a circumstance in which the
environmental tax take went up that might be because one was not
dealing with the problem of pollution but simply taxing it. As
with a lot of these issues I think we have to look behind the
figures and see what is happening. It is true that the environmental
tax take has fallen but we have done a whole range of other things
in order to incentivise better behaviour. I believe other economic
instruments have a direct bearing on whether we can make the progress
we need to make to achieve the Kyoto targets such as the EU cap
and trade system, the emissions trading scheme. There is a range
of other potential instruments that we can use, of which tax is
one, to incentivise good behaviour, for example by giving credits
for zero carbon homes which were announced in the recent PBR.
That has not registered in any of our figures yet simply because
we have just announced it. You have to look at the overall direction
of policy, not just a measure as crude as the environmental tax
take as a percentage of GDP. Obviously, if you tax an environmental
bad or pollution and prevent it happening one of the results is
that the tax take goes down.
Q146 Chairman: Of course, and you
can say that that is a mark of success. Let us look specifically
at fuel duty. I note that last month you made a speech to the
International Carbon Markets Conference in which you said—I
hope I quote it accurately—"Tax has a part to play
by influencing behaviour and incentivising low carbon technologies,
and as the main way of tackling emissions from surface transport."
We would very much agree with that. This Committee has made a
whole series of recommendations about the taxation of surface
transport. It has always seemed to me to be one of the easier
hits because there are low carbon surface transport options which
people could be incentivised to choose through the tax system.
As to fuel duty, let me quote from this year's Budget: "By
2009-10, main fuel duty rates will still remain 11% lower in real
terms than they were in 1999." That statement, which is perhaps
made with a degree of pride, appears to run directly contrary
to what you have said you would like to do.
Angela Eagle: I think it was a
statement of fact. I am not sure that we have pride, or any other
emotion, in the PBR. In my limited experience, perhaps there is
exhaustion in producing it. It is true that the tax take from
fuel duty has gone down in recent years, simply because the escalator
was taken off, as we all know, but I believe quite a delicate
balance is to be struck in having an environmental tax take and
an ever-escalating fuel duty. When we consider the importance
of freight to our economy and individual transport, we have to
provide people with reasonable alternatives rather than simply
load costs on them when they do not have other choices. As with
all these things, it is a question of getting a balance from where
we are now, which is not ideal, to where we want to go, namely
a future, as outlined to some extent by Julia King's interim report,
where individual cars are a lot less damaging in terms of carbon
emissions and people can make other sensible choices about getting
round. That implies some time lags while we change the nature
of the choices we have: investment in public transport, which
is certainly happening, incentives such as changes in VED rates
to give environmental signals there and the work we are doing
with car manufacturers to try to pull through some of the lower
carbon-emitting technologies for cars. All of this takes time
and we have to balance it. You will know as well as I that we
have announced duty increases in the 2007 Budget and two more
are planned. Not everybody is happy about that.
Q147 Chairman: I am sure they are
not.
Angela Eagle: I get many representations
from all sides of the argument about what the Treasury should
be doing about fuel duty. It is important to remember that, given
the importance of getting freight and goods around our economy
based on the present infrastructure, we have to plan these changes
in a sensible way that does not damage the economy but balances
our environmental concerns.
Q148 Chairman: You have now gone
wider than fuel duty, quite rightly. I noted with interest that
the Mayor of London is choosing to raise the congestion charge.
At the moment someone with a very high emission car who lives
inside the zone pays £4 a week. I believe that in February
that person will pay £25 a day with no discount available.
That looks like a 30-fold increase in the congestion charge for
a high emission car. That is a pretty strong signal and one which
I am sure most Members of this Committee would fully support.
I recognise that you have introduced more differentials in the
VED, which I applaud, but the differences are still not that great.
It is interesting that the mayor is doing this two months before
he is up for election. That suggests he believes there is tremendous
popular support for it. I am surprised that the Government has
not been more radical. It may believe that the mayor is not very
smart politically. I know that you have had your differences with
him in the past, but on this occasion it appears he has made quite
a clear judgment about what will get him re-elected.
Angela Eagle: It is clear that
the success of the congestion charges has given the mayor some
interesting options that do not appear in other areas where we
do not yet have such charges and where we can begin to give environmental
signals. The reason for changes in VED rates was precisely to
create an infrastructure where we could begin to develop those
signals. I assure you that we shall be looking very closely at
how we might refine those signals in the 2008 Budget and in future
years, but first we have to create the signals and the infrastructure
and changes in VED rates. We are obviously anxious to see—Julia
King also points this out—whether we can persuade people
to go for lower emitting cars in the same bands. We shall keep
the nature of the bands under view and obviously we would like
to see more cars in the lowest band. This takes time, but I think
the signals are clear. We shall be looking at how we may be able
to strengthen them in future budgets.
Q149 Chairman: Do you agree with
the poll published by the Green Fiscal Commission which shows
a substantial amount of public support for green taxes but that
support rises still further when the revenue from those taxes
is hypothecated—I know that is a word we are not supposed
to use in the Treasury—to projects which might be seen also
to provide low carbon alternatives?
Angela Eagle: In Treasury terms
it is a terrible word; it is almost banned from the dictionary.
There is always a balance to be struck. I do not sit here and
say that in all circumstances hypothecation is always and everywhere
bad, but if you get into hypothecation into a big way it means
that there are fewer flexible choices as you go forward because
money that you may be able to raise in revenue is put away for
particular reasons. There are examples of hypothecation, for example
the climate change levy and the reduction in National Insurance
contributions. That is still a tax cut to business since we have
recycled more money back in reducing NI contributions than we
have collected. That can play a part, but we have to be careful
that we do not get ourselves into a circumstance where paradoxically
if we are hypothecating large amounts of revenue we cannot achieve
what we need to achieve as we shift to a lower carbon-emitting
economy.
Q150 Joan Walley: I am very conscious
that previously you have held briefs on the green agenda in other
departments with responsibilities for environment, transport,
the regions and so on.
Angela Eagle: That was a few years
ago.
Q151 Joan Walley: I particularly
remember the discussion we had when the regional development agencies
were set up about whether or not they should have a duty in respect
of sustainable development. What lesson have you brought from
your previous roles and how does that work in your present role
as a Treasury minister? In a way, you approach it from a slightly
different perspective. Can you bring any lessons to the Treasury
as a result of having had all those battles under previous guises?
Angela Eagle: I hope so. Being
out of government for five years doing other things and then coming
back gives you a chance to see whether things have changed in
the interim. What strikes me most is how much this agenda is now
being mainstreamed. There is a tipping point in the whole area.
We and the world realise that this is a case for urgent action
which must infuse the whole government effort domestically but
crucially internationally. That was the nature of the speech of
the UN Secretary General yesterday in Bali, with which I agree.
The interesting change that has occurred in the past year is how
much business is now seized not only of the importance of this
agenda but the opportunities that it provides for creating exciting
new opportunities and jobs. That is completely different from
the atmosphere around the Kyoto negotiations in which I was involved
under a previous guise at the DETR. I believe that that gives
us a tremendous opportunity to make rapid progress. The interesting
thing is how the Treasury is now seized of this. I do not believe
that that is necessarily the case yet in many other countries.
The Treasury is very much engaged in doing the analytical work
to try to bring about the change we need to make in the most cost-effective
and economically efficient way. That will help to demonstrate
that there is a practical and efficient road map to de-carbonising
our economy and we hope to be able to keep with us the population
which naturally aspires to improved living standards and greater
opportunities. When visiting other countries I do not discern
that their finance ministries are as yet quite as engaged in this
process. I believe that the Climate Change Bill which essentially
will create a parallel structure to measure carbon and see what
we can do to reduce it, alongside market mechanisms like the EU
cap and trade system, will bring that financial and economic rigour
into the arguments that inform our way forward. That is the basic
change that has happened since I was last engaged in these issues
about 10 years ago.
Q152 Joan Walley: All of that is
very interesting. Of special concern to me is that when all those
years ago we were discussing the imposition of a duty on RDAs
for sustainable development it was not a question of whether or
not we should be placing duties on other agencies that are now
being set up because the whole argument has moved on. I was very
interested in the George Monbiot article in the Guardian
yesterday which spoke about encouraging more exploration and tax
breaks for mineral and oil extraction. What I am interested in
are the debates now taking place, because if we are to take on
an international leadership role we also need to look at both
the demand and supply side. Looking at your role in the Treasury,
it is not just mitigating action that needs to be taken; there
is a preventative issue in respect of the supply side of carbon.
I just wonder how you get advice from industry or whoever. Is
it the vested interest of the CBI? Presumably, from the CBI's
recent report there would be much more support for a green way
forward in respect of the Treasury and other technologies. I just
feel that a huge gap is widening up and in some way your particular
role can get that balance right. It does not seem to be there
at the moment because we are encouraging companies to go hell
for leather for extraction which will give us more problems to
deal with; it is literally an end-of-pipe solution.
Angela Eagle: I understand what
you say. I do not believe that the best way forward is necessarily
to halt all oil extraction now, simply because we have to continue
to power our economies. People expect the lights to turn on when
they operate the switch. It is important that we get the balance
right between a shift from the heavy carbon-polluting technologies
on which we now rely to abatement technologies which give us the
space to develop new cleaner technologies. For example, we are
aware of the development lead times for wind power and wave power
which is only at the demonstration stage. Those are long lead
times. Dare I include nuclear power, although I do not express
a personal opinion on that? Some people in the area of green development,
particularly James Lovelock, now support nuclear power. Cleaner
technologies cannot be brought on stream immediately, so we have
to think about abatement and more energy efficient use of the
polluting power sources that we have at the moment. That is why
I think that clean coal technology, carbon capture and storage
and abatement issues are really important in the interim. We are
in a period of switching. What we have to do is concentrate on
those interim actions and technologies that can abate some of
the carbon emissions that inevitably we will generate in the next
period but also pull through, as the Stern report demonstrates,
possibly new cleaner technologies. We are in a hybrid period at
the moment. The Government must balance the ability to keep the
lights on with more energy efficient use and as few polluting
emissions as possible, but also to develop technologies that can
take the carbon being produced and store it somewhere safe.
Q153 Joan Walley: The Committee had
before it Stephen Hale who was an adviser to DEFRA. He felt that
the Treasury tended to block more ambitious proposals because
there was a belief in government and the Treasury that the UK
was already leading the world on this agenda and so there was
not a strong case for going further. What are your brief comments
on that in the light of the recent United Nations human development
report? How much of a world leader are we when someone as senior
as he, who was advising the Government until fairly recently,
has that critical comment to make?
Angela Eagle: I think we should
be proud of the leadership we have shown so far. There are plenty
of examples of it, not only in the diplomatic field: the agreement
at Kyoto and the G8 systems running up to Gleneagles. All of that
is on the record. It is not unusual for people to be disappointed
that the Treasury tries to block them; that is just one of the
things that happens in government, but I am surprised he takes
that view. If you look at the developments now under way and the
ways forward outlined in the Pre-Budget Report, particularly with
respect to helping the creation of new technologies, putting in
price signals for zero carbon homes, the demonstration project
for carbon capture and storage and the Environmental Transformation
Fund which looks to see how we can help developing countries.
Q154 Joan Walley: We are aware of
that.
Angela Eagle: All of that is a
pretty firm base on which to work. I do not believe that the Treasury
will say yes to absolutely everything DEFRA might suggest, but
in working with that department, BERR and DIUS, which are involved
in a lot of the technological developments that must happen in
research councils, we have a pretty good base on which to be optimistic
about the future, but I do not want to be complacent about it
either.
Q155 Jo Swinson: I should like to
turn to one of the provisions in the Climate Change Bill which
allows local authorities to charge for rubbish collection on the
basis of pay-as-you-throw. Do you see it as just an additional
way for local authorities to raise more money, or do you think
it will be revenue neutral? Will it just be stick or is there
an opportunity to have some carrot as well?
Angela Eagle: I think that in
all these transformations there must be carrots and sticks. I
do not believe that they are politically sustainable if it is
all stick. One of the strongest signals in the DEFRA settlement
with respect to local authorities was the huge increase in PFI
credits of up to £2 billion for capital expenditure on recycling
and waste facilities which will enable us to put in place infrastructure
to do a lot better in terms of getting value from waste. Clearly,
there are two elements of that. To begin with, you have to minimise
waste. There is a range of instruments in place to try to do that
extending from the EU packaging directive all the way through
to individuals being asked to separate out and minimise their
waste as much as possible. According to my understanding, that
is why we intend to run some pilot schemes in which local authorities
can try to test out different ways to encourage home owners to
change their behaviour in terms of both the waste they generate
and the way they separate it and leave it to be collected. We
will look at those with interest. I do not believe that at the
moment there is any solution on which I would like to give a firm
opinion ahead of the pilots.
Q156 Jo Swinson: In looking at pay-as-you-throw,
is it your expectation that it will be revenue neutral?
Angela Eagle: If we are to ask
people to change their behaviour it is important in the first
instance that it is not viewed cynically as just another way to
raise money. At the same time, my understanding is that the pilots
are trying different ways to bring about behavioural change. I
do not want to make it look like I am ruling out any of them until
we have seen how or whether they work. It is quite important to
learn from these pilot issues and demonstration projects rather
than think in advance that you know all the answers.
Q157 Jo Swinson: We took evidence
from the Green Alliance. One of the things it has called for is
a product tax on environmentally damaging and hard to recycle
items, such as disposable cameras and so on, where there are alternatives
and taxes might make a difference. The Treasury seems to be reluctant
to implement those types of taxes. Why is that?
Angela Eagle: The first thing
we want to do before we implement any kind of tax is to see whether
or not it is proportionate and it will achieve its aims. Our priority
to date has been big white goods and energy efficiency issues
rather than smaller issues, although we have done something about
light bulbs. We have attempted to pull through more efficient
technologies and encourage the development of second generation
efficient light bulbs. We are open to ideas on that, but it is
important to deal first with big emitting or energy inefficient
items rather than become too involved in micro-tax policies on
smaller goods.
Q158 Jo Swinson: I very well understand
the rationale in not singling out product categories here and
there, but would there be scope for introducing additional taxation
on things that use virgin materials and certain subsidies for
production methods that use more recycled materials? Would that
not have an impact across a wide range of products without micro-managing
it?
Angela Eagle: We already have
some environmental signals in place about issues such as landfill
taxes, packaging and waste. We would need to be persuaded that
we have to dig down into tinier and tinier bits of the product
market and that that is a reasonable and proportionate effect.
We have to look at how these things are administered and categorised
and whether they are worth doing, which is what we generally do
in the consultations we hold before we introduce such measures,
or whether some of the other signals in place with respect to
landfill, packaging and recycling are doing the job. You have
to make a case on individual grounds to see whether or not it
is worth going into that kind of detail. We have to avoid doing
something to make it look like we are doing something even if
it is fiddly and does not have a lot of effect overall. We must
be proportionate about the way we approach these things.
Q159 Jo Swinson: I turn to plastic
bags. In the past this Committee has recommended a tax on these
items and the Treasury has put forward the argument that it is
not as clear cut as it might appear and it might result potentially
in perverse effects, such as people using heavier bags. We have
now heard a positive signal in this direction from the Prime Minister.
What is the Treasury's view on this now? Is a plastic bag tax
now the way to go and, if so, how might it be taken forward?
Angela Eagle: Already changes
are being made to the sorts of bags being made available by retailers.
Our first response would be to consider whether we can deal with
this in ways that are not simply about a tax on plastic bags.
It is quite interesting to see what has been happening recently.
Big retailers in particular supermarkets give away longer-lasting
bags made of biodegradable material. If we think that our aims
can be achieved that way then our preference, believe it or not,
would not be to tax for the sake of it but to see whether the
market could deliver a solution like that without a heavy-handed
intervention. Clearly, we always keep these things under review
if we do not think there is enough progress in that area.
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