Commons report questions levy green credentials

An influential Treasury Commons committee has slated the Government’s record on environmental taxes, accusing it of not focusing enough on areas that would bring about larger scale shifts in behaviour.

One area earmarked was the aggregates levy. While the report authors welcomed the advent of taxes such as the levy with clearly-stated environmental purposes, it felt the effort was somewhat misplaced.

“[The aggregates levy] is relatively insignificant in financial terms, and in terms of changing behaviour, when compared with the major fuel and energy taxes,” the fourth report of the Treasury Committee states.

According to the report, the ratio of environmental tax to total tax has been falling in recent years. However, this is more to do with falling real tax rates rather than behaviour change brought about by well-placed taxation.

Professor Ekins of the Policy Studies Institute, who studies the economics of climate change, states in the report that the aggregates levy is a tax designed to bring in revenue almost regardless of behaviour.

“In environmental taxes it is important to distinguish those which are purely designed to change behaviour…and those taxes where there is certainly a demand effect.

“One can imagine, for example, that however high the aggregates tax one would still want to use some aggregates and the revenues that one gets from such a tax are the price times quantity.

“If one raised the [tax] price, unless the quantity fell by an equivalent amount, one would increase the revenue, even if demand fell somewhat,” Elkins states.

The report authors conclude that the fall in the ratio of environmental tax to total tax is “disappointing”, and highlights a Government failure to maintain a commitment to its 1997 Statement of Intent on environmental taxation.

“We recommend that the Government reverse this reduction in commitment and, in response to this Report, indicate the measures it will deploy to reflect that renewed commitment,” it states.

The report also rejects expanding so-called hypothecation, or the earmarking of certain tax revenues for specific areas of public expenditure to soothe those being taxed. The ALSF is an example of this.

Such an approach is not appropriate for an environmental tax, the report states. The setting and the spending of taxes need to be two separate issues.

“Any widespread linking of environmental tax receipts to environmental expenditure would become complex, and create a risk of certain worthwhile expenditure failing to find a source of funding,” it states.