Report on environment and the economy

16 March 2009

The Treasury needs to do far more to ensure its stimulus measures are sufficient to help transform the UK into a low carbon economy, according to a select committee report.

The Treasury set out its initial plans for a ‘green fiscal stimulus’ package in its Pre-Budget Report, published last November. In a report published today, the Environmental Audit Committee criticises the size and focus of the Treasury’s proposals for ‘greening’ the UK’s economic recovery.

The Committee points out that most of the £535 million in the package is not even new money, but has simply been brought forward from 2010-11 budgets - meaning it will be offset by spending cuts in future years. The Committee calls on the Government to match the amount of green investment recommended by Lord Stern.

Commenting on the Report, Tim Yeo MP, Chairman of the Committee said:

"Measures designed to pull the economy out of recession provide an invaluable opportunity for the Treasury to drive the kind of change required to build a sustainable modern economy. The upcoming Budget is a real test of the Government’s commitment to its own climate change policies. Yet the measures in the Pre-Budget Report show the Treasury lacks the consistency and boldness of purpose required.

"The Treasury has announced very little new money for green investments. Yet meeting our climate change targets will require a step-change in funding for the low carbon energy sector, especially when the financial crisis has led to a shortage of capital.

"There is clear evidence that investment in low carbon industries will lead to net job creation. The Budget should contain a much bigger and more coherent package of green fiscal stimulus."

Other key messages in the report:

Overall impact of the package

The Committee wants the Treasury to spell out what the net impact on carbon emissions of its entire £3 billion package of fiscal stimulus measures. Similarly, it is asking for details of what ‘green strings’ are going to be attached to the £2.3 billion loans package for UK car manufacturers announced by Lord Mandelson.

Energy Efficiency of buildings

The package includes £100 million of new money for the Warm Front scheme (which provides free central heating and energy efficiency measures to vulnerable low income households). While this money is welcomed, the Committee says efforts to improve the energy efficiency of all existing buildings need to be accelerated radically.


The majority of the £535 million fiscal stimulus package is to be spent on the provision of 200 new rail carriages. For such a step to qualify as green stimulus, the Committee believes this spending needs to shift people out of cars and planes. The Committee wants to know how the Treasury will ensure this happens.


The Committee calls on the Government to reinstate its plans to replace Air Passenger Duty with a ‘per plane’ charge - which would incentivise airlines to fill their flights more efficiently and would tax air freight for the first time. It also wants the Treasury to introduce both fuel duty and VAT on domestic flights to encourage people to switch to lower carbon rail. In addition, the Committee calls on the Chancellor to seek co-operation with the new US administration to renegotiate the Chicago Convention, which currently blocks governments from taxing international aviation fuel.

Green finance

The Committee wants the Treasury to ensure that vital low carbon energy projects receive the finance they need even when there is a shortage of capital for investment in low carbon infrastructure.

The Committee also calls on the Treasury to look at the benefits and practicalities of imposing some form of environmental criteria on the investment strategies of those banks in which the state had a controlling stake.

Green taxes

The Committee found that, in real terms, revenue from green taxes has gone down slightly since 1998 while revenue from all taxation has increased by around 30 per cent.

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