Select Committee on Environmental Audit Minutes of Evidence

Memorandum from Green Alliance


  At the start of a new government, this enquiry provides an opportunity to take stock of the government's progress toward using tax and government spending to achieve environmental outcomes. We would like to highlight four areas in which the Treasury has the potential to make a significant contribution. Firstly, we consider its overall direction and positioning in the sustainable development debate. Secondly, we look at the prospects for environmental taxation, and thirdly, the role of the Treasury in implementing the findings of the Performance and Innovation Unit's study of resource productivity. Lastly, we examine how the Treasury can use the forthcoming Spending Round to achieve sustainable development objectives.

The role of the Treasury in sustainable development

  Over recent years, the Treasury has made considerable progress in promoting environment and sustainable development. In particular, their "statement of intent" about a shift toward greater environmental taxation; the introduction of the climate change levy; and the recent decision to incorporate sustainable development criteria into Spending Round guidance stand out.

  Despite this progress on the ground, however, the Treasury consistently fails to make a political case for the environment. The Chancellor has never publicly set out his vision for environmental policy, and the Treasury rarely publicises the progressive environmental policies that they have implemented. Other government departments and ministers have done this far more successfully—for example, the DTI's sustainable development strategy has received high-level ministerial backing; and the Prime Minister has, on several occasions, outlined his views on the way forward for the environment.

  This reluctance to make the political case acts as a brake on practical policy measures. During the October 2000 fuel protests, for example, the government did not make the case for fuel tax as an environmental measure, and did not make the link with climate change. Without a proper justification of environmental measures, they will continue to be unpopular. Making the political case must be the next step forward for the Treasury. The first step could be to publish a revised "Statement of Intent on Environmental Taxation", extending the text to cover spending policy and management of economic policy more generally.

Where next for green taxation?

  As discussed above, progress has been made on green taxation, but at the start of a new government, there is the need for the Treasury to reaffirm its commitment to shifting the tax burden. Environmental tax reform is a long term process, not a one-off announcement. The measures taken in the first term were very welcome, but must be seen as the first building block in a much deeper reform of the tax system. In terms of practical steps forward, there is much that the Treasury can do to build on existing initiatives, and increase their effectiveness. This includes:

    —  Transport taxes: In the short term, the VED differential between clean and polluting vehicles could be increased—it is much smaller than differentials elsewhere in the EU. In the longer term, we would hope that fiscal and spending measures are part of the Government's forthcoming consultation on Powering Future Vehicles, which should point the way to hydrogen-based systems.

    —  Waste taxes: There is general agreement that the landfill tax is too low to have any real impact, and it should be increased considerably. The Advisory Committee on Business and Environment has recently called for such an increase and the Environment Select Committee called for it to be increased to £25 per tonne. It could also be extended to incineration, so that it becomes a waste disposal tax. More of the revenues should go to support waste minimisation and recycling, including doorstep collection.

    —  Agricultural taxes: The Food and Farming Commission, due to report by Christmas, should be used to reopen the debate about pesticide and fertiliser taxes. Revenues could be used to help support a greater shift towards low input agriculture.

    —  Aggregates tax: We welcome the introduction of this tax, and believe it will be most effective if it is applied at a uniform rate, sending a clear price signal on aggregates.

    —  VAT and regeneration: There is a strong case to be made for a differentiated rate of VAT on repairs and renovation of listed buildings, as suggested by the National Trust.

    —  Energy taxes: We would expect the Treasury to play an active role in the energy policy review, currently underway in the Performance and Innovation Unit of the Cabinet Office. There has been some concern that the Treasury has not been engaged in the review—Despite being on the advisory group, the Financial Secretary did not attend the first few meetings, though he did take part in the most recent one. In the short term, the climate change levy should continue to increase, with the revenues being used to cut other business taxes or support energy saving measures. We see no environmental justification for exempting nuclear energy from the levy. The question of domestic energy levies also needs to be tackled in the medium term.

The pre-budget report and resource productivity

  The Performance and Innovation Unit's study on resource productivity will be published this month. We would expect the Treasury to take a lead in implementing the report's findings, and the pre-budget report speech by the Chancellor is a good opportunity to signal this intention. In particular, resource productivity should be seen alongside labour productivity as a key policy driver. Indicators and targets for resource productivity should inform policy across the board. The Environmental Audit Committee could return to this issue once the report is published, in order to asses the progress of the Treasury, DTI, DTLR and DEFRA in progressing this agenda.

Spending Round 2002

  The pre-budget report will be used to officially launch the 2002 spending round. It is encouraging to hear that, as part of SR2002, departments are being asked to assess the impact of their spending bids on sustainable development. This has been a long-standing recommendation of both NGOs and the Environmental Audit Committee. There is also increased staffing capacity within the Treasury to deal with this, and a willingness to discuss the process with stakeholders, including NGOs. This is a welcome step forward. The following recommendations set out how we believe the Treasury should carry out its commitment:

    —  The Treasury should publish its spending round guidance. The guidance is not sensitive information and, if it is not published, it is more difficult for stakeholders to work with government to meet common objectives. It is also impossible to hold departments, or the Treasury, to account. Whilst accepting the need for confidentiality surrounding the bids themselves, we would ask for greater transparency and accountability in the spending round process.

    —  There is a need to ensure that departments are taking their responsibilities seriously, building in considerations of sustainable development at all stages of the process, rather than carrying out a post-hoc justification of their bid. There should be an iterative dialogue between departments, the Treasury and other stakeholders to ensure this.

    —  Sustainable development considerations are a useful way of assessing or testing departmental bids. In particular, the Treasury could assess whether the bids contribute to the government's sustainable development strategy, and the quality of life indicators.

    —  Departmental PSAs could be linked directly to the sustainable development strategy and its indicators, and, given the cross-cutting nature of sustainable development, greater use could be made of joint PSA targets, such as the previous DETR/DTI joint target on climate change.

  Environmental NGOs are working closely with the Treasury and departments to contribute to this process. Given the high level of activity around the spending round and sustainable development, we would strongly recommend the Environmental Audit Committee to conduct an enquiry into SR2002 in due course.

9 November 2001

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Prepared 11 December 2001