Pre-Budget Report 2008: Green fiscal policy in a recession - Environmental Audit Committee Contents


The Treasury's response to recession

Green fiscal stimulus

The fiscal stimulus measures intended to pull the economy out of recession represent an invaluable opportunity decisively to transform the UK into a low carbon economy. It is imperative that the Government grasps this opportunity in the forthcoming Budget.

This year's Pre-Budget Report announced a £535m package of green fiscal stimulus measures designed to tackle economic and environmental problems simultaneously. This investment is welcome, but the scale too small—especially given that most of this funding was already committed, and will be offset by reduced spending in 2010-11.

While welcome, the extra funding announced for the Warm Front programme will not deliver the scale and speed of change that is needed. The Treasury should make programmes aimed at improving the energy efficiency of existing buildings the number one priority for green fiscal stimulus. Such programmes are labour-intensive to carry out and do not require the development of any technological advances.

It is disappointing that the wider fiscal stimulus package contains hundreds of millions of pounds for road building and widening. The Treasury should publish an assessment of the net impacts of its fiscal stimulus package on the environment.

Meeting our climate change and renewable energy targets will require a step-change in environmental investment. The Budget in 2009 should contain a much bigger and more coherent package of green fiscal stimulus.

Green finance

The Treasury now has a controlling interest in a number of banks. The Treasury should examine how some form of environmental criteria for the investment strategies pursued by these banks might be imposed, and what impacts this might have on UK sustainable development objectives

The current economic crisis is characterised by a lack of credit. The Treasury should examine the risks to the UK's climate change and renewable energy targets from the shortage of capital for investment in low carbon infrastructure. It should bring forward proposals for ensuring that vital low carbon energy projects receive the finance they need.

Green taxation

Shifting the burden of taxation

The Treasury is continuing to fail in its aim to shift the overall tax burden from 'goods', such as those levied on labour and capital, to 'bads', such as taxes levied on resource use. In real terms, revenue from green taxes has gone down slightly since 1998, while revenue from all taxation has increased by around 30%.

Aviation taxes

The Treasury had proposed to replace Air Passenger Duty with a 'per plane' charge; this would have incentivised airlines to fill their flights more efficiently, and taxed air freight for the first time. The Treasury's decision to backtrack on this commitment is extremely disappointing, and its rationale unconvincing; it should reinstate its original plans.

The introduction of two new bands of Air Passenger Duty—to better reflect the emissions from longer intercontinental journeys—is welcome, but the amounts levied appear inadequate to influence people's decisions to fly, and should be increased.

The Government should urgently seek reform of the Chicago Convention so as to allow governments to impose a tax on international aviation fuel. The fall in oil prices makes such a move especially timely and desirable.

Motoring taxes

The Treasury's decision to cut the increases (announced in Budget 2008) in Vehicle Excise Duty for higher-emitting cars already purchased (between March 2001 and 2006) means policy on how to reduce emissions from the second hand car market is completely inconsistent. The Treasury should re-examine the merits and practicalities of a 'car scrappage' scheme to pay people to trade in their existing, older cars, for newer, more efficient models.

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Prepared 16 March 2009