Select Committee on Environmental Audit Appendices to the Minutes of Evidence


APPENDIX 4

Memorandum from the Environment Agency

SUMMARY
  (a)  The budget process can make an important contribution to sustainable development.

  (b)  We welcome the fact that there is an environmental strategy that underlies the budget, although we would wish to see the strategy explained more fully.

  (c)  We are still concerned that there is not a more clear strategy to introduce economic instruments—the approach still seems piecemeal.

  (d)  In particular we would wish to see a clearer strategy to help deliver the long term shift in business and consumer behaviour, such as that identified in the Prime Minister's recent speech on the environment, in the Government's Opportunities for Change, or in the DTI's Sustainable Development Strategy.

  (e)  We welcome some of the individual measures, such as the continuing changes to company car policy and dealing with commuting costs, and the Government's commitment to introduce an aggregates levy and to keep a pesticides levy under review.

  (f)  We welcome the continuing differentiation between vehicle fuels, although we are concerned that, instead of directly addressing the concerns of those affected by high fuel prices, the Government has opted to effectively reduce fuel duty.

  (g)  We support the Government's intention to reform vehicle taxation, but are concerned that the extension of the rebate on vehicle excise duty to larger engine sizes is a retrograde step—we would prefer to see vehicle taxation more closely related to emissions than to engine size.

The budget process can make an important contribution to sustainable development.

  1.  If the UK is to make sustainable development a reality, then the tax system too must play its part, by encouraging good behaviour and discouraging bad. Fiscal policy, including the use of taxes and rebates, can have a very strong influence on behaviour. Moreover, the budget process, which is a very public one, can help send strong signals to the public and business about environmental issues—for example by highlighting the importance of issues such as climate change.

We welcome the fact that there is an environmental strategy that underlies the budget, although we would wish to see the strategy explained more fully.

  2.  In order to direct fiscal policy on to a sustainable footing, there must be a clear environmental strategy. The Agency welcomes the fact that the Treasury acknowledges this, and that they have outlined their four key objectives. However, it is less clear how the Treasury has developed these objectives, and how it intends to develop and pursue them.

  3.  We also believe that the Treasury needs to extend its review of the environmental impact of the budget to all measures, not just those with an explicitly environmental intent.

We are still concerned that there is not a more clear strategy to introduce economic instruments—the approach still seems piecemeal.

  4.  Moreover, the Agency believes that the approach to using economic instruments in general, and fiscal policy in particular, is still piecemeal and is not governed by an overall strategy. The Government's 1997 statement of intent on environmental taxation remains largely a filter to judge individual proposals, and has not been used to develop a programme to seek out and introduce new measures. Without that programme, business and individuals will not have a clear idea of what is coming and will not be able to plan accordingly. The overall path to sustainable development is not helped, because there is not a long term vision of the future development of one of the most important instruments to help deliver it.

In particular we would wish to see a clearer strategy to help deliver the long term shift in business and consumer behaviour, such as that identified in the Prime Minister's recent speech on the environment, in the Government's Opportunities for Change, or in the DTI's Sustainable Development Strategy.

  5.  This is all the more surprising given the clear indications by Government that we need a long term shift in the economy and society to help deliver sustainable development:

    —  The Prime Minister, in his speech "Richer & Greener", highlighted the need to increase resource efficiency, referring to the "factor 10" approach.

    —  The Government's sustainable development strategy, "Opportunities for Change", noted the need for market transformation—shifts in both production and consumption to make the economy more sustainable.

    —  The DTI's sustainable development strategy, also highlighted the need for resource efficiency as a long term goal.

  6.  The Agency reflects this long term thinking in its own Vision, recognising that we need a clear long term view of how to develop our regulation and influencing work, in order to facilitate the changes needed. Without a similar vision underlying the budget, the overall intention of moving to sustainable development is weakened.

  7.  Obviously we recognise that the budget process each year needs flexibility. However, the longer term fiscal stability, which the Chancellor aims for, could only be enhanced by a clearer long term vision of the development of environmental taxes.

We welcome some of the individual measures, such as the continuing changes to company car policy and dealing with commuting costs, and the Government's commitment to introduce an aggregates levy and to keep a pesticides levy under review.

  8.  There are very positive individual measures in the Pre-Budget Report:

    —  The confirmation of the aggregates levy and sustainability fund will help conserve natural resources, and reduce the threat of the extraction industry to the environment.

    —  The problem of pesticides in the environment is an important one, and the Agency still supports the idea of a levy on pesticide use, in order to maintain the incentive for reductions in pesticide use and to fund the transition of the agriculture industry to one less reliant on chemical inputs. The existing proposals from the Crop Protection Association are welcome, but do not go far enough in addressing the risk to the environment, or in keeping up the incentive on farmers to reduce pesticide use.

    —  The support for clean up of contaminated land will help boost the land clean-up industry, and reduce the legacy of historical pollution.

    —  The ongoing support for green transport plans will continue to encourage individuals and employers to reduce the impact of travel on the environment, albeit in a relatively small-scale way.

We welcome the continuing differentiation between vehicle fuels, although we are concerned that, instead of directly addressing the concerns of those affected by high fuel prices, the Government has opted to effectively reduce fuel duty.

  9.  Clearly fuel taxation was a major issue in the Chancellor's mind in the run-up to the budget. The Agency's own preference would have been to maintain the general level of fuel duty, but to seek means of providing more direct support to those sectors of the economy and society most affected. This would have kept up the broad level of pressure on climate change that fuel duty provides, but alleviated some of the genuine difficulty that it causes some people.

  10.  While the shift to lower sulphur petrol is a positive contribution to air quality, the net effect of the changes introduced will be to reduce fuel duty, and so to reduce the positive effect it has on addressing climate change and on the emissions of other pollutants.

We support the Government's intention to reform vehicle taxation, but are concerned that the extension of the rebate on vehicle excise duty to larger engine sizes is a retrograde step—we would prefer to see vehicle taxation more closely related to emissions than to engine size.

  11.  In parallel to the taxation of fuel, the taxation of vehicles can give the purchasers of vehicles important signals about the environmental performance of their purchase. The future environmental performance can often be ignored or forgotten about at the time of purchase. In addition, because not every vehicle burns fuel equally cleanly, fuel duty alone does not fully signal the environmental impact of exhaust fumes. A graduated vehicle tax can help refine the signal that fuel duty sends motorists, by taxing more heavily those drivers whose vehicles are less clean.

  12.  Hence we welcome the general principle of graduated vehicle excise duty as a very positive step. While this was restricted to smaller engine sizes, it was broadly acceptable as an indicator of lower environmental impact. However the Chancellor's current proposals, to extend this rebate to larger vehicle sizes, is diluting this signal. Engine size alone is a crude measure of environmental performance. Factors such as vehicle weight, engine technology etc., all play a part. It would be possible to graduate vehicle tax on the basis of agreed vehicle performance. This would send a more positive signal to the market. Similar considerations should apply to the taxation of freight lorries.

  13.  In addition, fiscal policy can help develop alternative forms of transport. The Agency welcomes the Powershift initiative, which encourages the fitting of gas technology to cars. We would wish to see it extended, if possible, to cars over one year old, and to see similar support given to those purchasing cars with the new technology in place.

  14.  We also welcome the Chancellor's openness to supporting alternative power sources for vehicles. This technology is close to market, with some manufacturers already starting to introduce them in their home markets. There is a significant opportunity for the UK automobile industry to move into this market. There is also need for support for manufacturers who wish to introduce this new technology into the UK market.

November 2000


 
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