Environmental Audit Committee

1 April 2003 The Pre-Budget Report 2002

1 April 2003 The Pre-Budget Report 2002


The Environmental Audit Committee published its Fourth Report of Session 2002-03 today, Pre-Budget Report 2002.   The Chairman of the Committee, John Horam MP, commented today:

"The government's Pre-Budget Report introduced a number of useful environmental measures, but these hardly constitute major initiatives.  The Treasury's strategic objectives of shifting the burden of taxation from 'goods' to 'bads' is in danger of stalling.   Indeed, we see little evidence of an environmental tax strategy as such."

The Committee examined a number of specific topics - in particular, the Treasury's fuel duty strategy, where it criticises the lack of a clear long-term strategy linked to environmental benefits.   It also queries the Government's approach in a number of other areas such as the Landfill Tax, the Landfill Tax Credits Scheme, VAT in relation to development and energy saving products, and aviation.   (See below for its conclusions and recommendations in these areas.)

A second major focus of the Committee's report centres on the Treasury's environmental tax strategy and the related document Tax and the Environment.   The report is critical of both the manner in which the Treasury reviewed its strategy, and the adequacy of the strategy itself.   It also highlights the stringent criteria the Government has now put in place for environmental taxation, and the absence of documented tax strategies for other major tax regimes.    The Committee cautions against placing too great a reliance on monetary valuation of environmental costs, and advocates using economic instruments flexibly to support environmental policy objectives, targets, and standards.

The Committee will see Mr John Healey, MP on the 30 April as part of its ongoing work in this area.   One of the issues it will consider in this context is the Treasury's consultation on Aviation and the Environment, and readers are referred to a press release which the Committee has also issued today, entitled Budget 2003 and Aviation.

Conclusions and recommendations on specific environmental tax areas

• We strongly feel that the Treasury could do far more to set out a coherent long-term strategy for fuel duties, and demonstrate how the current incentives for biofuels, road fuel gases (eg LPG), and hydrogen fit into this.  If biofuels are to play a role, the Treasury should also set specific targets for take-up by which the effectiveness of its fiscal strategy can be judged - before the EU forces us to do so.

• It will take at least nine years for the Landfill tax to reach £35 per tonne - widely seen as the minimum level required to stimulate significant changes in behaviour.  We recommend that the Treasury increases the rate of Landfill Tax more steeply than is currently proposed, so as to reach this level in a much shorter period of time.

• Our suspicion remains that the Government saw reducing the Landfill Tax Credits Scheme as a way of obtaining finance for strategic central initiatives for which it would otherwise have had to find additional funding.  We are also amazed that - after such a protracted course of deliberation and consultation - the Government has not made available any information about the public spending programme which will largely replace it.

• The Treasury must clarify its position on VAT with regard to energy efficiency products in the light of our concerns and the legal precedent which the Association for the Conservation of Energy has cited.

• We recommend that the Treasury immediately institutes research into the present perverse taxation of building on brownfield and greenfield sites, and publishes the results.

• The Government's Climate Change Strategy for reducing greenhouse gases is seriously off-course, and current progress and future projections must be reviewed as a matter of urgency.  There is clearly a need a need for fiscal instruments to play a greater part in bringing carbon reductions back on track, and the Treasury must set out how it proposes to achieve this.

• We are astonished by the views the Secretary of State for Transport has recently expressed in relation to the environmental impacts of aviation; and by his disregard for joined-up government and the manner in which he has attempted to pre-empt the Treasury consultation on this issue.   His comments demonstrate a failure in the mechanisms which the Government has put in place to embed sustainable development at its heart, and are particularly surprising in view of the great emphasis the Prime Minister placed on environmental objectives in his recent speech.

• Progress on developing fiscal instruments, in particular to reduce fertiliser use, has been very slow and the Treasury - in conjunction with DEFRA - need to address this urgently.  The Treasury should utilise the revenues from such sources to provide matching funding for environmental land management schemes, exploiting the opportunity offered in this respect by recent reforms of the Common Agricultural Policy.

Notes for Editors

1. The Environmental Audit Committee's Fourth Report of Session 2002-03, Pre-Budget Report 2002, HC 167, was published today.  

2. Since its inception in 1997, the Environmental Audit Committee has regularly reviewed the progress made by the Treasury in placing environmental objectives at the heart of its fiscal policies. In doing so, it has taken as one of its reference point the Statement of Intent on Environmental Taxation which the Treasury released in July 1997.  The Committee's latest report examines the Government's Pre-Budget Report, Steering a steady course: Delivering stability, enterprise and fairness in an uncertain world, HM Treasury, November 2002, Cm 5664.

3. The Committee is also today announcing its inquiry on Budget 2003.   It will take evidence from the Economic Secretary to the Treasury, John Healey MP, on 30 April 2003.   One of the main issues the Committee will examine is the progress being made to take account of the environmental costs of aviation in the light of a recent Treasury discussion document.  Readers are referred to a second press release issued today by the Committee, entitled Budget 2003 and Aviation.