Budget 2011 and Environmental Taxes

Written evidence submitted by Friends of the Earth England, Wales and Northern Ireland.

Summary

1. Less than a month ago the Government issued a challenge – that the nation must wean itself off oil. In that light, this Budget was exceptionally disappointing. The UK’s oil addiction is an ever-increasing economic liability – it is dangerously negligent of the Treasury to keep choosing to ignore this problem.

2. The Budget was also a huge economic opportunity blown – damaging the potential for new jobs and the UK’s economic recovery by hobbling some of the country’s fastest growing sectors. The Green Investment Bank has been hamstrung – it cannot borrow for at least five years. The low carbon homes sector has been damaged, to go with the Treasury’s earlier actions to hold back the growing UK solar industry. Planning changes are a deeply retrograde step, at odds with the Government’s climate change goals. They also conflict with the Government’s Localism agenda because they threaten even less involvement for people in decisions that affect them.

3. The Treasury’s Budget actions are in deep opposition to the Prime Minister’s promise to make this the Greenest Government ever .

4. The main green announcements were:

4.1. The new Green Investment Bank will not have borrowing powers until 2015/2016 at the very earliest. The ability to borrow is the core of a successful bank, as Mr Cameron and Mr Huhne have both made clear. The Bank has been hamstrung.

4.2. Ripped up planning-controls. The Budget is attempting to redefine "sustainable development" to mean "yes to everything", in direct conflict with Mr Cameron’s (correct) contention that the type of growth matters. If successful this will mean a development free-for-all, which local authorities and people will have almost no means to stop or improve. And it will concentrate development in the already over-heated South-East region. Local people will have less say in what happens in their area, in direct conflict with the Government’s localism agenda.

4.3. Increased oil-dependence. The Chancellor found £10 billion extra over five years by increasing taxes on North Sea Oil profits, but spent it all on cutting fuel duty and none of it on measures to cut our dependence on oil.

4.4. Weak carbon price mechanism. The Budget introduced a new tax to underpin the failing EUETS scheme, but it will be set way below the figure needed to influence investment decisions. It gives an extra subsidy to the nuclear industry and increases electricity bills – with no promise that any of the revenue will be used to help people save energy at home.

4.5. Inaction on aviation, yet another consultation and more buck-passing – blaming international law.

4.6. No help on energy efficiency for the cold homes of the 4.5 million households suffering from fuel poverty. Buried in small print, pensioners will lose £50-£100 winter fuel allowance. Zero-carbon new homes standard watered down

5. In late 2009 George Osborne promised "Under a Conservative government, the Treasury will no longer be the cuckoo in the Whitehall nest when it comes to climate change. If I become Chancellor, the Treasury will become a green ally, not a foe " [1] . But the Treasury is a bigger cuckoo than ever – this is increasingly economic as well as environmental folly.

Fuel duty

6. What was announced: Planned fuel duty increase postponed until next year; fuel duty cut by 1p / litre. The five year cost of this measure is £10 billion, paid for by increasing taxes on the profits of North Sea oil and gas production [2] . Future rises in fuel duty will be in line with inflation. The increased tax on production will be removed if oil prices fall below a "trigger" level, tentatively set at $75 per barrel [3] .

7. The Government said earlier this month that it wanted to get the UK "off the oil hook". From nowhere, the Chancellor found £10billion over the next five years by increasing charges on the profits on UK oil and gas production. But every penny of this has gone to cut fuel duty – a move which increases the UK’s dependence on oil. None of it was spent on giving people and businesses better alternatives to using cars and vans, or improving the efficiency of vehicles.

8. Even just a fraction of that £10billion could have made a real difference to improving alternatives to the car:

9. £500m would have doubled the new Local Sustainable Transport Fund, which provides sorely needed funds to cash-strapped councils to cut carbon from transport in their areas

10. £300m would reverse the cuts to public subsidy of buses which were announced in the CSR (the Bus Operators Subsidy Grant, BSOG) - a move which will increase bus fuel duty by 8p in 2012;

11. £300m would ensure the construction of the long-planned electric trolley bus network in Leeds, which has been under threat since the Comprehensive Spending Review.

12. High and increasing global oil prices are set to continue to be a fact of life. The UK desperately needs a strategy to overcome its ever-increasing dependence on imported fossil fuels, yet there was nothing in this Budget to help people or businesses use less petrol. The Chancellor’s actions are actively subsidising our oil addiction and making it more expensive for people to choose less oil-dependent options.

13. Green Investment Bank (GIB)

14. What was announced: Initial funding for the GIB increased from £1bn to £3bn. But the GIB will only be able to borrow in 2015/16 at the very earliest – a critical function for any bank – and only then if the Chancellor has eliminated the annual structural deficit.

15. The extra £2 billion in initial funding for the GIB – up to £3 billion in total - is still short of the £4-6 billion Ernst and Young say the GIB needs [4] , but nonetheless represents a significant improvement.

16. But the decision to prevent the Bank from borrowing until 2015/16 at the earliest is a huge own goal - an economically-damaging delaying tactic from a Treasury determined not to cede any of its power. The ability to borrow is the most critical aspect of the GIB – it’s the key mechanism to leverage in the billions of pounds of essential private investment.

17. Even in 2015/16, it is very far from certain that the GIB will actually be able to borrow: a condition imposed is that it can only borrow "once the target for debt to be falling as a percentage of GDP has been met". The Chancellor’s ambitious growth forecasts allow him to suggest that this will happen in 2015/16 – but after the Budget leading economists, including the Governor of the Bank of England, lined up to attack these forecasts as very ambitious [5] . The CBI said the Bank "should have powers to borrow from the outset to give investors confidence". Institutional investors the UKSIF, representing assets of over £500 billion, said linking the Bank’s borrowing to progress on the deficit "does not give investors the certainty they need" [6]

18. The increased funding secured for the Bank represents a victory for the more progressive elements in Government, but they need to overcome Treasury resistance to the key issue of borrowing for the Bank to be effective – the 2015 date must be brought forward, and the condition that the deficit must be eliminated first must be dropped. After all, a fully functioning bank will be a critical element in helping Britain’s economic recovery – rather than something that must wait until the economy is on track.

19. Carbon Floor Price

20. What was announced: a carbon floor price of £16 / tonne will start in 2013, rising to £30 / tonne in 2020. The floor price will underpin the price of permits in the EU Emissions Trading Scheme

21. This carbon floor price is set too low to have a meaningful effect on investment decisions. The Government’s own modelling looked at a £50 price for 2020. As set up, the policy provides a windfall for existing nuclear power stations of at least £1.8 billion between 2013 and 2026 [7] . It’s inappropriate for a well-established industry to get yet another major subsidy.

22. The Treasury expect the floor price to raise £1.6 billion a year by 2015/2016. As this will get passed onto bills, this revenue should be used to help people insulate their homes. At present, this extra cash goes straight to Treasury coffers.

23. Air Passenger Duty (APD)

24. What was announced: Abandonment of commitment to tax per plane, rather than per passenger as at present. APD frozen for 2011/12, with inflation price increase delayed until next year. Commitment to launch consultation on reform of APD.

25. The Government cites prohibitions in international law for why it has had to backtrack on its plans to bring in a per-plane tax, which could have netted the Exchequer an extra £3 billion – but experts expressed surprise at the sudden change of policy and called on the Government to test this presumption in law later this year [8] . This and the postponement of planned rises are bad for the economy and environment. Tax rises could have been used to fund tax cuts elsewhere, or prevent cuts to public services.

26. Aviation remains massively under-taxed – it pays no VAT on any of its activities, and no duty on kerosene. The postponement of the planned inflationary rise means air taxes will actually fall in real terms, and operators will continue to have no incentive to fill planes more efficiently. Freight continues to pay no APD, and there is no distinction between the payments made by the least and most polluting aircraft. The decision to make private jets pay APD is a tiny loophole closed, but makes very little difference – these flights are a negligible proportion of the total.

27. Energy efficiency in homes

28. What was announced: almost nothing positive, despite outrage over surging energy bills. The Chancellor committed to introduce incentives to encourage takeup of its impending Green Deal scheme for energy efficiency improvements in homes and businesses. The much-lauded policy commitment for all homes to be zero carbon by 2016 was abandoned, to outrage from the industry.

29. Tucked away in the small print of the Budget was a very nasty surprise: the Government quietly walking away from its much trumpeted policy that all new homes must be zero carbon by 2016 [9] . This means that in practice new homes will only need to be about two-thirds zero carbon. This represents a shocking u-turn from a Government who earlier this month were still trumpeting their commitment to the policy. The UK’s low-carbon building industry, which has flourished in readiness for the 2016 target, reacted furiously to this unheralded announcement [10] .

30. The Chancellor conceded that he would need to offer financial incentives to encourage people to take up the Green Deal, although he did not go into any further detail. This is broadly welcome: incentives will indeed be hugely important – both "carrots" (financial incentives) and "sticks"(legislation for future minimum standards on energy efficiency). Financial incentives could take the form of a council tax rebate or money off stamp duty and would make a significant difference to the attractiveness of the Green Deal to consumers – as called for by a broad coalition of NGOs and companies [11] .

31. It is however important to be clear that from what we know about the Green Deal it seems unlikely that it will live up to the bolder claims Government has made for it. It won’t deliver whole-house retrofits, won’t work for many millions of fuel-poor households, and is no substitute for a comprehensive strategy – if made to work as well as it can, the Green Deal could have a sizeable role to play in cutting carbon from some of the UK’s homes. But it cannot and must not be the only show in town.

32. For a Budget that claimed to be helping people deal with soaring every day prices, there was nothing else which will help people with the struggle of heating their homes adequately.

33. The Government is still committed to axing public grants for energy efficiency in the poorest households by phasing out the Warm Front scheme, a decision which this Budget should have reversed.

34. The Chancellor has also cut the Winter Fuel Payment for pensioners - £100 less for people over 80, £50 less for people over 60. This payment was introduced in 2008 to help pensioners cope with rising energy bills [12] . These bills have risen since then.

35. Sustainable Development

36. What was announced. A "powerful new presumption in favour of sustainable development, so that the default answer to development is ‘yes’".

37. The Government has announced changes to planning policy through a Ministerial Statement on 23 March 2011 and a letter to Chief Planning Officers on the 31 March 2011 [13] . The Letter to Chief Planning Officers sets out that planning is to support sustainable development, but the Ministerial statement sets out a pro-growth agenda. The Government is attempting to give growth priority over other issues but this is problematic in planning law. What is of more concern, is the Government’s deliberate undermining of the term sustainable development as defined internationally by Brundtland [14] , and by the UK Sustainable Development Strategy’s five principles, agreed by the UK Government, Scottish Executive, Welsh Assembly Government and the Northern Ireland Administration in 2005. The Government’s announcements on sustainable development consistently attempt to redefine sustainable development, creating inconsistency, and moving away from the international definition.

38. The Government’s sustainable development strategy [15] is clear that economic, social and environmental goals should be met together – the types and location of economic activity matter. David Cameron has said as recently as November 2010 [16] that the type of economic activity is critical and that the wrong types of growth can make our society worse off. Greg Clark’s ministerial statement says: "The Government’s top priority in reforming the planning system is to promote sustainable economic growth and jobs." The obvious confusion around sustainable development is maintained further by the following sentence: "When deciding whether to grant planning permission, local planning authorities should support enterprise and facilitate housing, economic and other forms of sustainable development." Further attempts at prioritisation are also made " They [local planning authorities] should ensure that they give appropriate weight to the need to support economic recovery, that applications that secure sustainabl e growth are treated favourably ." The obvious result is that local authorities will feel unable to demand better-quality, more sustainable developments in appropriate locations which benefit the community and environment as a whole.

39. In planning terms, sustainable development is still defined in PPS1 Sustainable Development, and will only be replaced after the National Planning Policy Framework is published for consultation, expected to be early July 2011. If it this is written as the Treasury intends – to be simply a "pro-growth" policy - it will lead to a free-for-all with poor quality, inappropriate developments that increase the UK’s contribution to climate change, deepen the UK’s dependence on fossil fuels, and impact severely on people’s quality of life. The Government have refused to put an agreed definition of sustainable development on the face of the Localism Bill (Public Bill Committee, Greg Clark, 15TH February 2011 [17] ), suggesting that this will be the case.

40. Planning

41. Promoting economic development above other considerations will result in a development free-for-all, which local authorities and people will have almost no means to stop or improve . And it will concentrate development in the already over-heated South-East region . Local people will have less say in what happens in their area, in direct conflict with the Government’s localism agenda.

42. Planning is then the main tool to ensure we get the right types of development in the right places: this is not bureaucracy or red-tape, as the Communities and Local Government Secretary Eric Pickles caricatures it, but essential. If new housing development is granted without proper planning and new communities spring up without linked services, there could be extreme pressure on schools, hospitals, doctor’s services and public transport in the area. Without a decent planning system, essential services will get stretched, Britain’s roads will get ever more choked, and our climate change problems will get worse.

43. The Budget’s proposals are an attempt to tear up this strategy, and cripple the planning system’s effectiveness. Mr Osborne, Mr Pickles and planning minister Greg Clark have said that the prime purpose of planning should be to "prioritise growth" and that the new NPPF will be "inherently pro-growth".

44. Friends of the Earth is not anti-growth, but the type of growth is critical. A presumption in favour of developments whatever their type will make it much harder to ensure that Britain gets the right type of economic developments, in the right places. Unfortunately it seems that all that matters to Mr Osborne and Pickles is that we get growth, whatever its type or impact.

45. The following additional announcements on planning also damage the Government’s own localism agenda – local authorities and people will have a vastly reduced ability to have any say ove r what gets built in their area:

46. What was announced: The creation of 21 new Enterprise Zones across the country, which will use local development orders to bypass planning application processes;

47. The creation of Enterprise Zones which bypass the planning system are of major concern. The lack of an accountable process for designating and locating the zones risks public legitimacy and prioritises developers above the needs of society, the economy and the environment as a whole. If the zones use local development orders (introduced in the Planning and Compulsory Purchase Act 2004), then the local planning authorities will retain some control. However, planning permission will be dropped within the order area for certain types of development. If these orders are weak, they will not promote integrated sustainable development that delivers positive outcomes for the environment, economy and society together. Environmental standards and social needs are not necessarily met by developers without the appropriate controls or incentives. The orders also summarily remove public involvement in local environmental decision-making within that area, by removing the planning application process.

48. What was announced: Relaxing change of use controls e.g. converting commercial properties into private dwelling;

49. Relaxing change of use controls could lower the quality of the local environment, as depending on the location and type of building these may be totally unsuited to other uses, or located without the necessary infrastructure.

50. What was announced: Removing brown-field targets

51. Removing the brownfield targets through the National Planning Policy Framework weakens the sequential test which has been influential in northern parts of England to ensure that development re-uses previously developed land, as a part of regeneration strategies.

52. What was announced: Introduction of Neighbourhood Development Orders through the Localism Bill;

53. The introduction of neighbourhood development orders is the most radical aspect of the Localism Bill in relation to sustainable development. The Government has suggested that these orders will be made available to "neighbourhoods" covering e.g. a local industrial estate, and could be granted (if in conformity with the local plan) for up to five years, removing planning permission controls in that area. As only 22% of England currently has adopted core strategies, the concern is what happens where there is no adopted core strategy.

54. Resource use and waste

55. What was announced: Nothing. With the Government’s Waste Review due for publication in May this Budget was an opportunity to foreshadow genuine commitment towards a zero waste economy. Instead actions on waste and resource efficiency were absent. The Government could have extended landfill tax to all residual waste treatment including and especially incineration. And with Defra only last week estimating "no cost / low cost savings" opportunity for business of £23billion the lack of support for resource efficiency to SMEs in particular is as much economic as environmental negligence.

References