Select Committee on Treasury Fourth Report


Our inquiry

1. In July 2005, the then Chancellor of the Exchequer, Rt Hon Gordon Brown MP, commissioned Sir Nicholas Stern to report to the Prime Minister and the Chancellor by Autumn 2006 on an evidence-based assessment of the economics of moving to a low-carbon global economy and the implications of that assessment for the UK.[1] Sir Nicholas was then Head of the Government Economic Service and former chief economist at the World Bank. On 30 October 2006, Sir Nicholas' review of The Economics of Climate Change was published. On publication of the Review, HM Treasury described it as "the most comprehensive review ever carried out on the economics of climate change".[2]

2. On 14 December 2006, we announced an inquiry into climate change and the Stern review: the implications for HM Treasury policy on tax and the environment. We intended to examine the effectiveness of steps taken by HM Treasury to tackle climate change. In particular, we stated that we would consider:

  • progress made by the Government on the undertakings set out in its Statement of intent on environmental taxation, published in 1997, and subsequently endorsed in its 2002 paper, Tax and the environment: using economic instruments;
  • the Government's use of environmental or 'green' taxes that are specifically targeted at tackling climate change;
  • the extent to which the Government uses environmental taxation to encourage behavioural change, rather than solely to raise revenue, and the social impact of such taxation; and
  • looking forward, the appropriate role of environmental taxation, in the context of the range of means by which the Government can seek to achieve its environmental policy aims—for example, by means of regulation, a voluntary agreement or a spending measure.

In relation to the Stern Review, we announced that we would give particular consideration to:

  • the innovative and novel aspects of the economic analysis carried out in the Stern Review, in order to examine what new perspectives the Stern Review has brought to the climate change debate; and
  • the design and the parameters of the economic modelling used in the Stern Review.

We made clear that we would not seek to examine the environmental science of climate change, except where it related to the economic modelling undertaken in the Review.

3. We received 32 written memoranda and took oral evidence from: Professor Paul Ekins of the Policy Studies Institute; the British Air Transport Association (BATA); British Airways; easyJet; Virgin Atlantic Airways; Climate Change Capital; the Centre for Sustainable Energy; Sir Nicholas Stern himself; Rt Hon Lord Lawson of Blaby, a former Chancellor of the Exchequer; the Better Regulation Commission; Friends of the Earth; the Environment Agency; Ms Farhana Yamin of the University of Sussex; the International Maritime Organisation; the Chamber of Shipping; the International Air Transport Association (IATA); and the then Financial Secretary to the Treasury, John Healey MP, and Treasury officials. We are grateful to all those who gave evidence or otherwise assisted with our inquiry.

Previous work by the Treasury Committee

4. We have previously considered issues relevant to this inquiry in our examinations of the 2006 Budget and Pre-Budget Report.[3] In our Report on the 2006 Budget, we examined the drop in the proportion of revenue yielded to the Exchequer from environmental taxes, from a peak of 9.8% in 1999 to 8.3% in 2004, and expressed concern about the apparently limited assessment the Treasury had made of the reasons for this decline.[4] We described the Government's justification of its decision to freeze air passenger duty (APD) for the fifth year running as "incoherent and unconvincing" and recommended that the Government gave serious consideration to increasing rates of APD.[5] Finally, we accepted that it was important to bring aviation within the EU Emissions Trading Scheme (ETS) but, given the time lapse before aviation was likely to be included in the EU ETS, we recommended that the Government also act at a domestic level by giving urgent consideration to how it could best use the tax system to increase incentives to reduce the harmful environmental effects of aviation.[6]

Relevant work by other select committees

5. Several other select committees have recently reported to both Houses on climate changes issues:

Pre-Stern Review

The House of Lords Economic Affairs Committee explored issues relating to the Economics of Climate Change in 2005-06.[7]

Post-Stern Review

In September 2007, the Environment, Food and Rural Affairs Committee reported to the House on Climate change: the "citizen's agenda", a Report which examined how the ordinary citizen could change his or her lifestyle to minimise the impact of climate change and to mitigate its effects.[8]

In March 2007, the Environmental Audit Committee reported on the 2006 Pre-Budget Review and the Stern Review,[9] in June 2007 reported on the Climate Change Programme Review and the Draft Climate Change Bill,[10] and in October 2007 reported on the Structure of Government and the challenge of climate change.[11]

Climate Change Bill

The Environment, Food and Rural Affairs Committee also considered the Draft Climate Change Bill and reported in 2007.[12]

The Joint Committee on the Draft Climate Change Bill reported on the Climate Change Bill in August 2007.[13]

1   The full terms of reference are available at  Back

2   "Publication of the Stern Review on the Economics of Climate change", HM Treasury press notice, 30 October 2006 Back

3   Treasury Committee, Fourth Report of Session 2005-06, The 2006 Budget, HC 994-I, paras 93---102 (hereafter HC (2005--06) 994-I); Treasury Committee, Second Report of Session 2006-07, The 2006 Pre-Budget Report, HC 115, paras 80--83 (hereafter HC (2006--07) 115) Back

4   HC (2005-06) 994-I, para 99 Back

5   HC (2005-06) 994-I, paras 100-101  Back

6   HC (2005-06) 994-I, para 102 Back

7   Economic Affairs Committee, Second Report of Session 2005-06, The Economics of Climate Change, HL 12-I Back

8   Environment, Food and Rural Affairs Committee, Eighth Report of Session 2006-07, Climate change: the "citizen's agenda", HC 88-I  Back

9   Environmental Audit Committee, Fourth Report of Session 2006-07, Pre-Budget 2006 and the Stern Review, HC 227 Back

10   Environmental Audit Committee, Seventh Report of Session 2006-07, Beyond Stern: From the Climate Change Programme Review to the Draft Climate Change Bill, HC 460 Back

11   Environmental Audit Committee, Ninth Report of Session 2006-07, The structure of Government and the challenge of climate change, HC 740 Back

12   Environment, Food and Rural Affairs Committee, Fifth Report of Session 2006-07, Draft Climate Change Bill,
HC 534-I 

13   Joint Committee on the Draft Climate Change Bill, First Report of Session 2006-07, Draft Climate Change Bill, HL 170-I/HC 542-I Back

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