EAC mystified by Treasury timidity over green taxes

The Environmental Audit Committee (EAC) today publishes its Fourth Report of Session 2005-06, Pre-Budget 2005: Tax, economic analysis and climate change. This Report reviews the progress made by the Treasury in placing environmental objectives at the heart of its fiscal policies, concentrating on the Treasury's most recent Pre-Budget Report, published on 5 December 2005.

Tim Yeo MP, the Chairman of the Committee, commented:

"As our Report makes clear, in the context of rising concerns over the dangers of climate change, and the fact that UK CO2 emissions are actually increasing once more, this year's Pre-Budget Report was inadequate. In view of the compelling case for more urgent action to reduce carbon emissions, we are concerned that there may be a degree of institutional inertia within the Treasury in the face of the scientific evidence on climate change. We urge the Treasury to give greater priority to climate change; and hope that the Stern Review will lead to a profound and consistent impact in the seriousness with which the Treasury responds to this issue."

Key conclusions of the Report include:

€ The proportion of total tax revenues made up from environmental taxes has fallen almost year on year since 1999, from a peak of 9.8% down to 8.3% in 2004. This is the lowest figure for over a decade.

€ Passenger numbers and CO2 emissions have risen steeply since the Air Passenger Duty rate for budget flights was cut in 2001. Over the same period APD receipts have actually fallen. APD rates should more accurately reflect the carbon emissions of the flights to which they apply. The Committee would urge the Treasury to consider changing the basis of the APD to tax flights instead of individual passengers. This would provide an incentive to make more efficient use of aviation fuels and airport runways, helping to curb demand for more flights and limiting the growth of carbon emissions from UK aviation.

€ The Government should also use Vehicle Excise Duty more effectively as a way of encouraging the use of less environmentally damaging vehicles. The differences between the Vehicle Excise Duty for the most and least efficient cars ought to be increased, and a new special top-rate band should be created for the worst "gas-guzzlers". The Treasury should also raise consumer awareness by making vehicle tax discs prominently colour-coded, to reflect their energy efficiency banding.

€ We welcome the discount in duty to support the growth of biofuels, and support the introduction of the Renewable Transport Fuel Obligation. However, it is important that only biofuels which are from sustainable sources should be rewarded with Renewables Obligation Certificates.

€ The Treasury should consider reducing both Stamp Duty and Council Tax for those homes built or refurbished to high environmental standards.

€ Better use of incentives or "carrots" should be made alongside the use of environmental taxes. This could mean using tax revenue to invest in new technologies, and reducing other taxes or offering tax rebate payments for taking positive environmental action. This should be accompanied by a clearer message from the Treasury that links its environmental taxes to the urgent need to avoid dangerous climate change.

€ We are concerned about the way in which the Treasury took the decision to abolish the requirement for listed companies to publish an Operating and Financial Review. This suggests an attitude of simply opposing competitiveness and sustainability. However, we welcome the fact that the Government has issued renewed consultation on the form the new Business Reviews should take. Our main concern now is that the Government introduces a new reporting scheme which provides effective incentives for listed companies to act more sustainably.

Copies of the report can be obtained from TSO outlets and from the Parliamentary Bookshop, 12 Bridge Street, Parliament Square, London SW1A 2JX (020 7219 3890) by quoting House of Commons No 882. The text of the Report will also be available from approximately 3.30pm onwards on its publication date, on the Committee's Internet homepage.

For further information on the report, journalists may phone the Committee's media officer, Laura Kibby, on 020 7219 0718.

Notes for Editors

The report published today by the Environmental Audit Committee (EAC) is its Fourth Report of Session 2005-06, Pre-Budget 2005: Tax, economic analysis, and climate change, HC 882. Details of all the Committee's press releases together with its Reports, oral evidence and other publications, are available on the Committee's website.

The Stern Review on the Economics of Climate Change is being led by Sir Nicholas Stern, Adviser to the Government on the economics of climate change and development, and is expected to report by autumn 2006.