Budget 2011 and Environmental Taxes

Written evidence submitted by Sustrans

About Sustrans

Sustrans makes smarter travel choices possible, desirable and inevitable. We’re a leading UK charity enabling people to travel by foot, bike or public transport for more of the journeys we make every day. We work with families, communities, policy-makers and partner organisations so that people are able to choose healthier, cleaner and cheaper journeys, with better places and spaces to move through and live in.

Summary

· Transport plays a key role in all our lives. It has transformed our outlook and has had a massive impact on our quality of life yet but the transport sector in the UK is responsible for a significant proportion of emissions. Transport policy therefore has a strategic role to play in the challenge to reduce carbon emissions and mitigate oil dependency.

· The Prime Minister’s aspirations for the coalition to be the ‘greenest government ever’ have been well documented though actual green credentials less able to identify. The Chancellor’s 2011 highlighted a weak commitment to ‘green’ issues and appeared to be heavily influenced by the ‘end of the war on the motorist’.

· Environmental taxes offer the potential for behavioural change and modal shift and consequently may offer an important part of wider government strategy towards reducing the onset and impact of climate change, but research shows that such taxes require transparency and must be designed to improve rather than worsen inequality.

Recommendations

· Environmental taxes should be used to reward, rather than punish behaviour.

· Revenues from fuel duty should be ring-fenced and invested increasing people’s travel choices and make it easier for people to walk, cycle and use public transport

· Additional support from national government, local government or business may be required to create an environment that enables people to travel sustainably.

· Environmental taxes must be positively communicated so as to ensure that the public understand the rewards that the taxation gives and are encouraged to change their behaviour.

1. Sustrans

Overview

1.1 Sustrans is the charity that’s enabling people to travel by foot, bike or public transport for more of the journeys we make every day. Our work makes it possible for people to choose healthier, cleaner and cheaper journeys, with better places and spaces to move through and live in. [1]

1.2 Sustrans was founded in 1977 partly in response to emerging evidence at the time about the threat of ‘global warming’, as it was popularly termed then. We believe that now more than ever before, we have an urgent collective responsibility to reduce our contribution to climate change by changing the way we travel. Sustrans is committed to creating an environment in which people can make low and zero carbon transport decisions every day.

1.3 We welcome the opportunity to respond to this Environmental Audit Committee inquiry into the 2011 Budget and environmental taxes. As the expected impact of the March 2011 budget begins to unfold it is vital that select committees ensure the government is able to maintain its commitments across all policy areas.

Sustrans and Climate Change

1.4 The latest scientific information from the Intergovernmental Panel on Climate Change – the largest body of expert climate scientists from around the world - shows that climate change is the biggest challenge facing us all today. Sustrans supports swift and decisive action to reduce greenhouse gas emissions, to prevent catastrophic climate change. The urgency of our work, to put in place low and zero carbon transport solutions, is informed by the ever-increasing scientific literature on climate change, and the moral imperative of adopting a precautionary approach, considering the global impacts of catastrophic climate change.

1.5 The rate of change in predictions as to what degree of greenhouse gas emission reductions we need, and by when, is alarming, and only serves to increase the urgency for change. The need to transform travel behaviour towards low and zero carbon solutions is only made more urgent by the data surrounding peak oil – by some predictions, we have already passed the point where conventional oil production has peaked; by other predictions, we will pass this point before or by 2015. As oil becomes ever more expensive as supply declines compared to demand, this has the potential to increase pressures on more climate polluting sources of fossil fuels, such as coal, or marginal oil production methods such as tar sands. The sooner we reduce our oil dependency for transport, the faster we can reduce our contribution to catastrophic climate change.

1.6 Sustrans believes that the UK Government should be aiming for a policy target of zero greenhouse gas emissions by 2050, or sooner if possible, across all sectors (not just transport). The target of zero greenhouse gas emissions is also set by the Intergovernmental Panel on Climate Change (IPCC), who argue that we should be aiming globally for zero emissions by 2060. [2]

1.7 Sustrans believes that different sectors should all be working towards carbon reduction targets – no one sector should be allowed to mitigate the effects of another. So for instance, Sustrans does not support investment in walking and cycling if it is done to offset the pressures caused by an escalating demand for air travel, and its associated increases in greenhouse gas emissions. Every sector must play its part in reducing greenhouse gas emissions. Strategy and planning for different sectors then needs to start with these carbon reduction targets, and budgets for implementation need to clearly deliver results towards these sectoral targets.

Sustrans and Peak Oil

1.8 Clearly our way of life, particularly how we transport ourselves, is currently hugely dependent on cheap, readily available oil supplies. Sustrans promotes sustainable transport solutions which can help to dramatically decrease our reliance on oil. Sustrans is keen to ensure that the solutions we promote, and demonstrate through a wide range of projects changing travel behaviour to increase walking and cycling wherever possible – are developed fast enough, and on a big enough scale, to provide solutions to the problems presented by loss of access to cheap oil and rising fuel prices.

1.9 Sustrans believes that one of the ways we can adapt to living in an oil-scarce world is by choosing to walk and cycle wherever feasible. Ultimately, this will require us to reduce the need to travel long distances, and also to reduce the need to travel at high speeds. These two changes – travelling less far, and less fast – will require major changes in many aspects of our lives. There are a number of other ways people can prepare and adapt for an oil scarce future – Sustrans’ focus is on the changes we can all make in our personal travel choices.

1.10 One of the most effective means the Government has of constraining emissions from road transport is to reduce reliance on car use through planning regulations which can shape the areas in which people live. The Department for Transport (DfT) and the Department for Communities and Local Government (DCLG) must work more closely together to ensure that new developments, especially in the housing growth areas, are designed to minimise car use. Planning policy, in particular, should include specific measures for reducing road journeys.

1.11 Progress to date indicates both that reducing carbon emissions from transport is particularly challenging, and that the DfT needs urgently to accelerate its efforts: transport is the only sector of the UK economy in which carbon emissions were higher in 2004 than the baseline year of 1990, and the only sector in which emissions are projected to be higher in 2020 than in 1990. [3]

1.12 The fuel duty escalator, put in place under the previous Conservative government, [4] has played an important role in helping to reduce the increase in CO2 emissions from road transport. Given the transport sector continues to present seemingly intractable problems of emissions growth, the Government and sensitivity around the issue of fuel pricing, particularly at a time of high oil prices, there can be few more urgent issues on which those who have argued for an all party consensus on climate change policy should now focus their attention.

2. Budget 2011

2.1 The chancellor’s 2011 budget [5] could have used the recession as a reason to build a greener, cleaner and more sustainable economy, creating jobs and tackling climate change. In practice, the budget failed to exemplify the well-documented green aspirations of the coalition government, instead providing an incentive to use more oil, just as we might be heading towards an oil crisis. [6] The fuel duty escalator has been abolished, fuel tax for vehicles has been cut, air passenger duty rates have been frozen and a tax on planes that would have discouraged airlines from running them half-empty has been dismissed. These measures send the clearest possible signal that intentions to reduce oil dependency have been downgraded.

2.2 A particularly concerning element of the budget was the abolition of a social contract dating back to 1947 [7] , [8] , which ensured that developers, through the planning laws, were accountable to the people. Notwithstanding the unorthodox location of the detail referred to as sustainable development, the change undermines the commitment to local control emphasized regularly [9] in coalition policy doctrine. In effect, the change presents yet another barrier to communities trying to prevent large corporation domination of local areas.

2.3 The Green Investment Bank will now start borrowing to the start of financial year 2015-2016. In effect this means that the Chancellor will not, unless he remains chancellor beyond that point, take responsibility for a measure that will contribute to the national debt, but prefers to pass it on to his successors.

2.4 The budget was disappointingly regressive and has the potential to undermine not only progress on ‘green’ agendas but also the government’s own tendency towards devolved control. It demonstrates that the government promises to protect the environment were not thoroughly integrated across government policy.

3. Environmental Taxes

Overview

2.5 Environmental taxation has been regularly misrepresented in Britain. Government has failed to combine environmental or green taxes with direct and ring-fenced funding to support the preferred behaviours which the taxes are designed to encourage. Environmental taxation, at its most effective, should not generate any revenue and should therefore not be used to replace alternative modes of taxation such as income tax.

2.6 Before the 2010 elections, the Liberal Democrats indicated an inadequate understanding of environmental taxation. Their "green tax switch" [10] announced last September promised to "cut income tax and switch to green taxes on pollution instead". As the UK relies on income tax to fund schools, hospitals and public services, replacing this funding with eco-tax revenue either implies a desire to continue polluting so as to keep the revenue coming in, or indicates a reduction in spending for schools, hospitals, public services and so on.

Environmental Taxes: Transport

2.7 Britain should be a particularly responsive environment in which to apply environmental taxation as a means to achieve significant modal shift. Of course there are some journeys which need to be made by car and which will continue to require private motorised transport, at least in the foreseeable future. But 23 per cent of car journeys are less than two miles long and 56 per cent less than five miles [11] and government should be focusing on making it possible for the majority of those journeys to be  made by other modes such as walking, cycling and public transport.

2.8 There are a whole host of journeys we make for example to the out of town supermarket or to the post office in the next town which could be removed from oil dependency if we looked more holistically at policy decisions. [12] Land use planning, [13] investment from health, and a more coherent understanding of school travel are all policy areas which could significantly reduce the number of journeys we currently need to make by car.

2.9 In the UK, the adoption of fuel tax as a transport demand measure formally took place in 1992 when the Conservative government replaced the UK’s ten percent Car Purchase Tax with the Fuel Duty Escalator. [14]

2.10 The principle of the Fuel Duty Escalator was that Road Fuel Duty would be increased annually at above the rate of inflation, initially by 5 percent per annum and, from 1997, 6 percent per annum. This was coupled, for example, with the 1996 policy for regulated rail fares to rise at 1 percent below the rate of inflation, thus over time increasing the real cost of travel by car and reducing that of rail. Other European countries have also adopted a policy to raise the overall price of road fuels, in some cases with an increase in public transport subsidies to reduce fares and/or considerable investment in public transport capacity. The Netherlands is a prime example of this. Fuel duty has thus emerged as a policy instrument to promote modal shift.

2.11 The effectiveness of the imposition of fuel duty as a general pricing mechanism will depend on the context in which it is applied. As noted above, some counties have combined a policy to increase fuel duties with subsidies to reduce public transport fares (or the rate of fare rises). So, the impact of fuel duties will be dependent on the overall pricing context. Fuel Duties would be expected to have a stronger impact if there were complementary policies to reduce public transport fares (and also increase public transport availability) and a political and financial commitment towards increasing levels of walking and cycling.

2.12 In the UK, the general context has been one where, compared to other European countries, both fuel duties and public transport fares are high and investment in walking and cycling has not seen significant and focused commitment. Even the 1996 policy to limit the increase in (already high) regulated rail fares was reversed in 2002 to increase fares at 1% above inflation (coupled with a funding decision to also raise London bus and Underground fares above inflation in order to help finance service improvements). So the UK context is one where the modal shift impact of high fuel duties has been subdued.

2.13 Furthermore, governments have been inconsistent in the way that motoring taxes have been justified. Fuel duty has been presented, at different times, as a tool to reduce carbon emissions, a source of general revenue, and a means to fund transport investment. This approach has undermined the potential which environmental taxation has to reduce the negative impact which the current transport system has on the environment.

2.14 In their 2009 report ‘Taxes and Charges on Road Users’, the Transport Select Committee stated that

Taxation policy can have a significant effect on the impact of transport on the environment. Transport contributes about 23% of UK domestic carbon dioxide (CO2) emissions and road transport is responsible for 93% of this. The Climate Change Act 2008 commits the Government to reducing emissions CO2 by 80% by 2050 and transport will have to contribute to this reduction. The Department for Transport’s objectives include commitments to reduce congestion, CO2 emissions and pollutants, as well as road casualties. Fuel duty, Vehicle Excise Duty (VED) and other taxes and charges can, to varying extents, be used to help achieve these objectives. [15]

2.15 Fuel duty is, in most respects, the better way to raise revenue, to encourage fuel efficiency and reduce CO2 emissions. Those who consume the most and pollute the most, pay the most. Unfortunately the public are distrustful of government on this issue and will need to see an improvement in the consistency and transparency with which environmental taxes are handled.

20 April 2011