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


1. The Treasury introduced a tradition of publishing annual Pre-Budget Reports (PBRs) in 1997. It described their purpose as being to "launch a national debate on important economic issues, including taxation and spending, […] to inform the Government's Budget decisions."[1]

2. This year's PBR—entitled Facing global challenges: Supporting people through difficult times—was published at a time of economic turmoil.[2] In response to these economic conditions, the Pre-Budget Report announced a number of measures, including a fiscal stimulus package, "bringing forward £3 billion of capital spending from 2010-11 into 2009-10 and 2008-09 for housing, education, transport and other construction projects, supporting industries and jobs across the country".[3] Approximately one-sixth of this fiscal stimulus package was given over to specifically environmental objectives.[4]

3. The PBR stressed:

Action to achieve environmental goals remains a high priority for the Government in current economic circumstances. The Government is putting in place policies and investment to support a low-carbon recovery, with new jobs and businesses created through green growth. Government policies are driving £50 billion of investment in the low-carbon sector over three years.[5]

4. The PBR also:

  • increased fuel duty by two pence per litre (though this will be offset by the reduction of VAT);
  • reduced the differential levels of Vehicle Excise Duty for cars bought since 2001 that had been announced in the 2008 Budget;
  • abandoned the proposal to turn Air Passenger Duty (APD) into a 'per-plane' rather than 'per passenger' charge; but reformed it by moving from two to four distance bands;
  • extended the duration of the Renewables Obligation to provide financial support for large-scale renewable electricity, and introducing a feed-in tariff for small-scale renewable electricity;
  • called on the European Commission to bring forward a proposal to introduce reduced VAT rates for energy efficient products as soon as possible;
  • announced the creation of a forum on low carbon skills.

Focus of this inquiry

5. The Environmental Audit Committee has held inquiries into each of the Treasury's annual Pre-Budget Reports; this is the twelfth in the series. In these reports, we have reviewed the Treasury's approach to the environment, looking in particular at the extent to which it is following the policy it announced in July 1997 of shifting the burden of taxation from 'goods' (such as employment) to 'bads' (such as pollution). In addition, we choose one or more topical themes to focus on. In our terms of reference for this inquiry we said we would:

[…] focus on the implications of the economic downturn for environmental taxes and spending. This will include looking at the extent to which the Treasury is (or should be) using measures aimed at stimulating economic recovery simultaneously to advance environmental goals.[6]

6. The main questions we are asking in this report are:

  • how effective is the announced green fiscal stimulus likely to be in meeting environmental challenges, while contributing to economic and social sustainability;
  • how green is the overall package of fiscal stimulus measures;
  • should more be done in terms of green fiscal stimulus, and if so what; and
  • how coherent and effective are the Treasury's policies on green taxes, and to what extent should these policies change in the light of the recession?

1   "Pre-Budget 1997", HM Treasury, 25 November 1997, Back

2   HM Treasury, Pre-Budget Report: Facing global challenges: Supporting people through difficult times, Cm 7484, November 2008, p 2 Back

3   Cm 7484, p 7 Back

4   Cm 7484, p 126 Back

5   Cm 7484, p 125 Back

6   "The 2008 Pre-Budget Report", Environmental Audit Committee press release,16 December 2008 Back

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Prepared 16 March 2009