Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 108-119)

RT HON MR PAUL BOATENG MP, CLIVE MAXWELL AND MICHAEL COLLINS
WEDNESDAY 5 DECEMBER 2001

Chairman

  108. Minister, welcome to the Committee. As you know, this has become an annual event. It is the first time you, I think, have appeared in front of this Committee. I hope you last rather longer than some of your predecessors, who made one appearance and then went somewhere else; sometimes they were promoted, so there is hope. I am delighted to see you. Is there anything you would like to add, by way of a brief preliminary statement, to the Pre-Budget Report, which we have already seen, of course?

  (Mr Boateng) Chairman, yes. Can I, first of all, thank the Committee for this opportunity to meet with you, in order to discuss the Pre-Budget Report. Can I begin by introducing Clive Maxwell, on my left, who is Head of the Environmental and Transportation Tax Policy at the Treasury; on my right, Michael Collins, who works in Environment, Food and Rural Affairs. Just a few short words, if I may. First of all, to stress the importance that the Treasury places on Sustainable Development; we see it as vital to maintaining and developing a better quality of life for everyone, today and for generations to come. And whilst economic growth is obviously the key to rising national prosperity, our commitment is to ensure that it does not come at the expense of the environment. I would briefly flag up some important announcements to come over the next year, and they do represent the coming to fruition of announcements that have been made over recent years, because I know that has always been a concern of the Committee, to get a sense of progress in this area. First of all, the new company car tax system, which begins in April 2002, and then the new levy on aggregate extraction, which also begins in 2002. I would flag up, too, three recent announcements to which I would particularly like to draw the attention of the Committee, in terms of their demonstration of our commitment to Sustainable Development. First, Powering Future Vehicles draft strategy document, which the Committee will be aware of; we see it as an important document, builds on measures we have already taken, but also gives some indication of some that may be required in the future. We are co-signatory to the document, and we confirmed, as you will have noticed in the PBR, our support for this strategy, with further tax incentives considered in the run-up to the Budget. Secondly, the importance of the Green Technology Challenge, in the form of Enhanced Capital Allowances, for a further range of energy-saving technologies, for cleaner fuels and vehicles, and for minimising water use and improving water quality. And, thirdly, Chairman, and in conclusion, you will note that we have published the guidelines on Sustainable Development, provided to Departments as part of the Spending Review 2002, and I will have a particular remit, in the course of that Review, in ensuring that, as the bids are worked up by departmental colleagues, they take into account those guidelines and the importance the Government attaches to Sustainable Development. Thank you, Chairman.

  Chairman: Thank you, Minister. We would like to start off with some questions about the broad strategy of the Treasury, and I know Mr Owen Jones wants to come in on that.

Mr Jones

  109. Minister, the Pre-Budget Report is regarded by those that are concerned with the environment as something of a disappointment; in particular, if I can ask you to think about the Government's Statement of Intent on shifting the tax burden from "bads" to "goods". Has the Government entirely given up on this strategy, because there is not a word of it in the Pre-Budget Statement?
  (Mr Boateng) On the contrary, we regard that as being at the very heart of our strategy to promote sustainable growth. We have set out the principles, in the Statement of Intent on Environmental Taxation, which we published in 1997; we believe, and continue to believe, in the importance of a strategy that includes tax incentives, we have established the principles and we now look to ensuring that we keep under review a range of possible measures, in order to continue to apply those principles in action. But the nature, Mr Owen Jones, of this area of policy is, as you know, that there will be many views on what the priorities for action should be, and that is why we put a particular emphasis on the continuing dialogue that we have with the non-governmental organisations, with the voluntary sector, and those concerned with the environment, and on a campaigning level, as well as with industry and business.

  110. It is difficult to equate the phrases that you have used about "at the heart of Government policy", "vital to Government policy", with a Statement which barely mentions environmental concerns, apart from in a sort of lip-service way; and the measures that you have mentioned are absolutely tiny in comparison with the scale of the acknowledged task by Government of how we intend to meet even the Government's targets let alone targets for the environment, say, that we need to meet. Will you be more honest with the Committee about the difficulties, or perhaps the Government foresees, in shifting our tax burden in any significant way from taxing "goods" to taxing "bads"?
  (Mr Boateng) I think it is a question of bringing forward, as we have always sought to do, a balanced package. It is about making clear, as I hope we have made clear, that we see scope for further initiatives as lying in three areas; first the development of existing taxes, and you will know that we are considering the future of the Landfill Tax credit scheme, and we will be consulting shortly on possible options there, including either keeping the scheme or replacing it with a spending programme. Similarly, we are committed to continuing to develop tax incentives, and you have there the example of the 100 per cent Enhanced Capital Allowances for investment in energy efficiency, which are part of the CCL package. And, secondly, reviewing the case for new taxes, which are already on the table; and the classic example of that, and one on which I recently had a discussion with WWF, for instance, is pesticides, where we are monitoring progress of the voluntary package but sending a very, very clear message to industry that if we do not see progress in that area then we will not hesitate to take the steps that we have indicated we regard as being a proper response, if voluntary action is not taken. And we keep constantly, as any prudent Government would, the option open for new taxes, in any event, and we are consulting and continue to consult with DEFRA, with the DTLR and the DTI on what those might be.

  111. I think we will want to question you later about those specific areas, the Landfill Tax and pesticide taxes, but what I am interested in questioning you on now is getting from you an idea of an overall strategy, does the Treasury have an overall strategy about how it will meet Sustainable Development, and what role incentives or taxes will play in that strategy; rather than give me answers about an individual pesticide tax, what about the strategic view?
  (Mr Boateng) I would say, yes, but then, of course, I would say that anyway, would I not; so let me give you a practical example of the way in which I see, in one important area, environmental impacts being taken into account. If you take transport, what you have seen there is a mix of initiatives, fiscal, regulatory, voluntary; mediating the environmental impacts of transport does require a mix of measures, and if you take road transport, the fiscal, where cleaner fuels, low-sulphur fuels, helping reduce emissions of regulated pollutants directly, and, via higher efficiency, exhausts, after treatment systems have been incentivised in the UK, through fuel duty differentials. So that is one part of it. Linking that with the regulatory, in terms of European emission standards, and the voluntary, if you look at the agreements arrived at between the Commission, the European, Japanese and Korean automobile manufacturing associations, in relation to vehicles sold in Europe and the reduction of their carbon emissions. I think that does amount to a strategy; but, within that strategy, decisions have to be made, a balance has to be struck, between what are, clearly, competing interests and competing demands.

  112. The subject of debate will be whether that amounts to a strategy or whether it amounts to small, incremental measures which may help alleviate a process. Certainly, we do not have the research material about levels of transport and the impact of transport on global warming in this country to show that the measures so far taken by the Government have any impact which is likely to meet their global targets.
  (Mr Boateng) I hope it is more than simply a set of incremental measures. I think we can put it, I have tried to put it, within a policy framework. But the point I would make is, a decision on which type of policy instrument to use will depend on the circumstances; it is the role of the Chancellor, Treasury Ministers and officials to come to a view about that, about the relative balance and merits between taxes, on the one hand, tax reliefs, on the other, public spending and regulation. There will be different views about that and they will be views that will differ from the business and industrial sector to the environmental sector, people will have different views; some will think we have not gone far enough, others will think we have gone too far. And colleagues will have sensed, in terms of the debate in the House, for instance, around the Climate Change Levy, that is a debate that rages, and colleagues will also have noticed our absolute commitment to the Levy and our belief that it is absolutely vital, in terms of our meeting the Kyoto objectives; and I would suggest, as a country, we have taken some important steps on the way to meeting those objectives, and we are getting there.

  113. The recent PIU report on Resource Productivity suggested a number of practical measures we could be doing, including sending clear signals about the way in which the economy will need to develop in the long term. Do you accept the need for clear, long-term signals of price changes to help industry to invest and to make behavioural changes and adjustments?
  (Mr Boateng) I think we need, first of all, to look carefully at the detail of this report, and we will be deciding how to take the work forward. It is early days, and I am reluctant to give any definitive views on the detail. But what I will say, I would argue that we are already doing a lot in the area of Resource Productivity and Sustainable Development. PIU have made an important contribution to the debate, it is a debate we want, we need to engage all the stakeholders in considering these issues. And, in terms of both the issue of indicators and the issue of targets, what I would say is, as the PIU report makes very clear, it is very difficult to identify a single resource productivity indicator, we need to continue to work in this area, in order to improve the indicators that are available to us. We have got some useful indicators in the UK Sustainable Development Strategy, as the Committee will be aware, that cover a whole range of economic, social and environmental factors, and they are going to be important, in terms of the process that I outlined in my opening statement, in relation to CSR 2002. And, as for targets, before we can have specific Resource Productivity targets, we need to have good indicators, and they are not there at the moment; but that is not to say that we do not have challenging targets. We have legally binding targets to reduce greenhouse gas emissions and to reduce waste going to landfill, and the Sustainable Development Strategy that we do have makes it clear that all those Sustainable Development indicators help move us in the right direction.

  114. Would you acknowledge the concern, at least, that developing such a wide range of tax measures, which often have a variety of complex exemptions, eligibility criteria, and so on, leads to the charge, especially from industries affected, that this is very, very fiddly, very complex; is there a consideration of rationalising measures to simplify that?
  (Mr Boateng) I think it is important that we recognise the importance, the significance, of the principles that we laid down in the Statement of Intent on Environmental Tax, which I referred to earlier on. And they are, that they should be well-designed, that they should meet objectives without undesirable side-effects, keep deadweight compliance costs to a minimum, have an acceptable distributional impact, take account of any implications for international competitiveness. Now my experience of the way in which the Treasury operates, in order to design environmental taxes, is one of great care taken to involve the industry itself. If you take the example of aggregates, I have been doing a lot of work recently on that, in advance of the PBR, indeed, gave evidence to the Northern Ireland Select Committee on aggregates; and colleagues may well know that there are specific issues in relation to aggregates and Northern Ireland. And I know that, in finding a way forward, as I believe we now have, in relation to that issue, the involvement of the industry at every stage has been absolutely vital. So I do not actually accept the criticism that it is fiddly and overly complex, but I do say these are complex issues, and anyone who believes that there are simple answers that will enable us to address the environmental questions and make sure that we do not impact adversely on our competitiveness, really deludes themselves.

  115. I do not think this Committee is deluding itself. We do understand that these are complicated. We are trying to elucidate from you, as representing the Government, what the Government's view is?
  (Mr Boateng) The Government's view is, and I would not dream of saying that the Committee takes that view, because the Committee studies these issues in great depth, but I do have to say that some of the quite unfounded criticism that comes from business of the Climate Change Levy makes the very accusation that you have just outlined, and I think it is an accusation that has to be rebutted robustly, because a great deal of care was taken in the preparation of the Climate Change Levy. Which is why it has always been supported, for instance, by this Committee, why it is supported by the environmental movement, and why it was the product of a great deal of work done by Lord Marshall, with Treasury officials, and industry itself. So I reject very strongly the accusation that comes from that sector that this is fiddly and overcomplex; it is a complex issue, but I think the principles are clear, and I think our commitment to consultation and involvement is equally clear.

Mr Challen

  116. Can I just follow up on aggregates, very briefly. We have received a written submission from a glass manufacturer, I believe, and it seems to suggest to me that an Aggregates Tax is really designed to tackle perhaps issues around quarrying and road-building, and those are worthy things to tackle, but caught in the middle there might be a group of businesses, which, like glass manufacturers, use soda ash, which will be trapped in this aggregates base, if you like, and that, surely, is not one of our targets at all. And how do you go around tackling those issues, without getting involved in these fiddly taxes?
  (Mr Boateng) I think, if I may say so, Mr Challen, you have gone straight to the point that I was trying to make about complexity, and there are undoubtedly instances on the margins where particular processes find themselves affected in a way, I think, that gives us all cause for concern; to a certain extent, they are the inevitable casualties, if you like, of developing a tax of this nature. What one has to do always is to seek to reduce the number of instances where you do have unintended consequences that are not able to be easily mitigated, and I would not pretend, for one moment, that there are not occasionally instances thrown up when there is an impact that affects particular industries in ways that are not necessarily helpful.

Ian Lucas

  117. It strikes me that, very often, when the Government talks about environmental taxation, it focuses very strongly on the business sector and on the industrial sector; have the Treasury actually ruled out taxation on "bads" for individuals?
  (Mr Boateng) I think what one has to do is to ensure, within the principles I have outlined, that you get that balance between fiscal, regulatory and voluntary measures. And, in relation to individuals, that balance is more heavily weighed in relation to regulatory and voluntary than it is in relation to the fiscal. Having said that, if you take the motorist, for instance, I do not think the motorist would say that he, or she, was not actually being the subject of fiscal action to tax out the "bads"; but undoubtedly there is a balance to be struck. And transport issues, I think, are a good example, and if you look at this PBR you do see a Government that is committed to encouraging the use and development of cleaner vehicles and technologies, and the emphasis is on the use and the development.

  118. If we are to be in favour of more regulatory and voluntary arrangements for individuals, what steps are being taken actually to measure the consequences of the frameworks that you are introducing, which are voluntary and regulatory rather than fiscal, for those individuals, and the effectiveness of those frameworks?
  (Mr Boateng) Let me ask Mr Maxwell to give you the technical response to that first and then I will try to set it within the broader political context.
  (Mr Maxwell) If we are looking just at regulatory measures then, of course, they are chiefly the responsibility of those Departments that are responsible for them, and they do have to look at the compliance costs for different people that are affected by those regulations, and carry out compliance cost assessments as a standard procedure when introducing new regulations.

  119. But how do you know if they work; how do you know whether the voluntary approach is being effective, in, for example, reducing greenhouse gas emissions?
  (Mr Maxwell) In the case of greenhouse gas emissions, DEFRA is the Department that will be responsible for evaluating over time the success of any regulatory or voluntary programmes.
  (Mr Boateng) And there is guidance given on how to undertake an environmental appraisal. The Committee will no doubt have and be aware of `Policy Appraisal and the Environment', which DEFRA actually produces to assist them in this, and that guidance applies to all budget measures. But I do not think this is an area, and officials will have their views, which no doubt they will share with you, if you ask, where we can yet begin to say that we have all the answers; and I think we are going to have, as policy develops in this area, and this is still a relatively new area of public policy, we are going to need to develop better instruments in order to undertake environmental appraisal and evaluation. And the input of your Committee, the input of the academic community, as well as others who are actually front-line stakeholders, in order to help us to get it right, I think, is very important.


 
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