Examination of Witnesses (Questions 20-39)|
WEDNESDAY 14 NOVEMBER 2001
20. It is interesting, what you were saying
earlier, an example about congestion charging as opposed to increases
in petrol, fuel pricing. Is the CBI moving to a positionand
I think RAC in their evidence to us, or was it AA in their evidence
to us, were saying something similarwhere, rather than
simply saying to the Government `this taxation policy, our members
don't like it and it won't work', you are beginning to move to
a point where you are saying `why don't you try this instead,
because we think it will work'?
(Mr Roberts) I think, for all organisations, such
as ourselves, that are engaged in public policy, trying to promote
an alternative, rather than simply being negative, is a constructive
way of trying to take the debate forward in any particular area.
That does not mean that we will not be firm in registering our
concern with a particular option that is being taken forward by
Government, and the Climate Change Levy, I would suggest, is one
particular case in point where, for many years now, since the
idea was first mooted in specific form in 1998, we have been saying
to Government that our belief is that it is a deeply flawed instrument,
in many regards. And, yes, we have suggested alternatives, for
example, the role that emissions trading might play in trying
to promote carbon reductions by business; but, in proposing an
alternative, that has not stopped us from being fairly outspoken,
I would suggest, in our opposition to that particular instrument.
21. You have not been too convincing, or you
have not convinced an awful lot of people, about the value of
emissions trading, as opposed to, I think your argument is more
likely to be accepted on congestion charging, but there are some
who would suggest that throwing up emissions trading is simply
a way of avoiding doing something else, rather than really suggesting
something that is effective?
(Mr Roberts) I think my first answer to that would
be that we have not suggested that emissions trading is the only
tool in the box to reduce carbon emissions in this country. What
we have suggested is that it is one of a number, and particularly
we believe that it could be effective, because, in its pure form,
at least, trading establishes an absolute limit of carbon emission,
it places a value on that carbon, and thereby incentivises the
market to find the most cost-effective ways of delivering that
specified reduction in carbon reduction. The further benefit of
trading, if it can be made to work in practice, is that under
the Kyoto Protocol it has an international dimension, which is
positive from our perspective in two ways; one is that potentially
it engages the international community in what is, after all,
a global problem, but, secondly, by involving potentially a larger
number of players, it increases the liquidity in the market for
carbon and therefore it reduces the cost of reducing carbon in
the world as a whole.
22. You have clearly embarked upon what is an
important part of your remit, evaluating Government's proposals
on environmental measures; have you been bringing that evaluation
together, and could you share some of your thoughts with the Committee?
(Mr Roberts) We have been trying to put some thoughts
together. I should rewind a little bit and refer to a publication
that we produced in 1998 called `Coming Clean', again, to which
we refer in our memorandum, which really tried to set out, as
it were, the theoretical principles by which we felt policy-makers
should pursue the use of economic instruments in the round, including
tax, as a way of achieving environmental objectives. And, for
us, I think, as an organisation, it was a particularly useful
exercise in identifying what it is that might or might not work
in this field, and it has been a useful context within which we
can comment on individual proposals. However, we became conscious
more recently that that only went so far, and it really did not
provide us with an analysis of what has actually happened on the
ground in this particular field. And, again, as we allude to in
our memorandum, we have been undertaking some work, which my colleague
Richard Jackson has been particularly engaged in, which is to
try to assess how the environmental taxes which currently operate
in the UK have actually performed against not only their environmental
objectives, but, if you like, from the point of view of competitiveness,
which is one of our key concerns. And that work, I have to say,
is still under way, so in our memorandum we have been able to
give you, I think, a flavour of where our thinking is going at
the moment, but I would urge you to treat the conclusions as very
much interim rather than final; we hope to report in final form
at the end of the year.
23. You have given a couple of examples of environmental
taxes that you do not think would be particularly effective, and
you gave one example, I think, getting rid of lead in petrol,
as an example of an environmental tax that was effective; are
there any other examples of environmental taxes that would be
effective? I will ask another question. Are there any good examples
of countries in which the government is particularly well attuned
to the business interest, which have a good record on the environment,
environmentally-friendly governments? Or are there any examples
the other way round?
(Mr Jackson) Can I just come back to your previous
question and just say that, with the report that we have been
undertaking, we have been looking at each of the individual taxes,
and, yes, there have been negative points to each of the individual
taxes, but there have also been some plus points; and to give
you an example of, I suppose, a plus point would be with the Climate
Change Levy. Obviously, we have our concerns with the Climate
Change Levy, but it could be argued that the Climate Change Levy
has brought energy efficiency and climate change to business and
it has raised awareness of the issue to business, as do a lot
of the taxes; whether taxation is the right measure to tackle
the problem is another question.
24. What about the second part of my question.
Are there any good examples of countries, that you can quote,
which are particularly well attuned to business interests, and
as a result have developed really good environmental measures?
(Mr Roberts) In terms of, I suppose, within Europe,
the countries that one traditionally thinks of as being positively
attuned to delivering environmental improvement are The Netherlands,
the Scandinavian countries and, I suppose, Germany, as well. In
terms of whether or not they pursue that agenda at the same time
as being business friendly, as it were, one example which occurs
to me is the case of Germany and the way that they have approached
energy taxation, and I use this by way of comparison with the
arrangements here, with the Climate Change Levy, where our understanding
is that in Germany there are, as here, arrangements to treat favourably
energy-intensive industries, but the definition of the industries
which need to be treated favourably in Germany is far wider than
is the case here, with our Climate Change Levy. So our understanding
is that in Germany all manufacturing companies are eligible for
an 80 per cent discount on their industrial energy tax; in this
country, a limited sub-section of the manufacturing community
is eligible for the 80 per cent discount, to the extent that 40
per cent of energy used by manufacturing is not captured by the
discounted arrangements. And, in our view, that is an example
of where perhaps there has not been given enough thought to the
competitiveness dimensions of energy taxation, whereas the Germans
seem to be a little bit more amenable to that approach. Does that
help provide at least one example to answer your question?
25. I was waiting for you to give an example
in the United States, with a very-business-friendly Government,
a not particularly environmentally-friendly Government?
(Mr Roberts) One economic instrument which is an American
example, is trading. The trading scheme on sulphur dioxide, which
was implemented in the United States, has not been entirely problem-free,
but our understanding is that the experience has been a pretty
positive one, from the point of view of the business community,
and one which has delivered genuine environmental improvement
in terms of the reduction of SO2.
26. When you say a German example, it just illustrates
the point that in Germany there tends to be the approach that
they have high taxes but lots of exemptions, a sort of cultural
habit of theirs, if you like, and it is simply reflecting that
rather than anything else, a different attitude towards energy
(Mr Roberts) It may be; it may be that the example
was not the best one that I could think of.
27. But would you not say, for example, in the
case of Germany, there is a great deal to be said for improved
competitiveness, as a result of the taxation measures that there
(Mr Roberts) I am not sure I quite understood.
28. That they are much more able to take advantage
of the market and able to be more productive, because there is
a market which is actually linked to the taxation that there is?
You have just got to think, for example, of different things which
are manufactured in Germany which we do not manufacture here because
there is no market because it is not linked to the taxation system;
it actually produces greater competitiveness in the longer term?
(Mr Roberts) I think there is a broad issue which
you do rightly put your finger on, which is a sense, that is expressed
by many of our members in relevant sectors, that other companies'
governments have been perhaps more proactive in stimulating industries
which produce, as it were, environmental products; and particularly
that countries such as Japan, and in fact the United States, are
being far more proactive in supporting research and development
capability into the green technologies of the future, and so stimulate
sectors which then develop those areas. And in responses we have
been making to the Government on the need to promote research
and development more generally, through a tax credit regime, this
is one of the areas that is in the minds of our members.
29. Just following on what Mr Owen Jones was
asking you, I did not get your answer to his question about which
environmental tax was causing you most concern?
(Mr Roberts) Causing us most concern?
Chairman: Yes. You indicated one or two which
were better than you might have anticipated, but you also . .
Mr Challen: Which you have the least problem
30. The top trend, or the bottom trend?
(Mr Roberts) The top trend; can you wait for our report?
But, to be serious, I think the most contentious environmental
tax at the moment, in our view, is the Climate Change Levy. What
is interesting is that it is clearly early days yet, and it is
difficult to understand just what sort of impact it is having
on the ground. But some of the official figures which came out
in the summer, in terms of impacts on manufacturing prices, looking
at all of the impacts on manufacturing prices, there were some
provisional figures which indicated that the impact of the Climate
Change Levy was almost as large as all of the other impacts which
have an upward pressure on manufacturing prices.
31. The effect of the Climate Change Levy was
as great as what comparator?
(Mr Roberts) Was as significant as all the other factors
combined that were also contributing to upward pressure on manufacturing
32. What do you mean by `all the other factors',
sorry; I am not quite with you?
(Mr Roberts) In terms of, for example, I am not absolutely
au fait with the figures, but I think it would be something
like the effect of the level of sterling on input prices; so it
is a combination of those things which impact on manufacturing
33. And the Climate Change Levy was having as
big an impact as all that, if I am right?
(Mr Roberts) It was of the same order of magnitude,
it was not exactly the same, but it was a big impact, if you conceived
of it in those terms, and those were provisional official figures,
not our own.
34. Given all your concerns about the Climate
Change Levy, it is fairly obvious it is not going to be abolished
in the next Budget, I would think; what changes would you like
to see, are there specific things you would like to see the Chancellor
put in his next Budget in relation to the Climate Change Levy?
(Mr Roberts) Can I answer that question by just making
reference to our general Pre-Budget Report submission, which,
first of all, stipulates the desire on the part of the business
community generally for fiscal stability, that is the primary
objective, from our point of view. Secondly, that there is, nevertheless,
clear concern about the economic situation as it might develop
in the current global environment, and that we have encouraged
the Government to consider having, as it were, a contingency plan,
a plan B, ready to put into place come the Budget next spring,
should it turn out that the economic conditions in the UK are
worse than had been feared. As part of that contingency arrangement,
our view is that there may well be sectors, and I think particularly
here of manufacturing, which may require some form of favourable
treatment in the Budget. And, in that regard, we are doing some
work at the moment to look at what might be done, for example,
with regard to the Climate Change Levy, and I think you can imagine,
as we do, the sort of menu of options, starting from the most
desirable, in our perspective, the least likely from the perspective
of Government, and working down. So one would be abolition, which,
as you suggest, raises questions of realism, but then there might
be deferral of the Levy for a period of time until such time as
the economic conditions recover; extension of the eligibility
for companies to get the 80 per cent discount, which, as we suggest,
at the moment are very narrow; building on the Enhanced Capital
Allowances scheme to promote investment in clean technologies,
so that it is not, as it were, a cash-flow benefit but it actually
becomes a tax credit and provides a real financial incentive for
companies to invest in clean technologies. So we are looking at,
potentially, a menu of things, some of which are more desirable
from our point of view and some of which are less desirable from
the Government's point of view.
35. If you start arguing for extensions of exemptions,
for instance, on Climate Change, are you actually going to be
producing a menu, as you suggested, of objectives, which is just
making the whole system more and more and more complicated; when
what you have actually said in your submission to us is that one
of the guiding principles ought to be simplicity, you said no
system will be perfect, and good, simple, pragmatic solutions
will succeed where more complex ones fail? Are you not in danger
of just making it more and more complicated?
(Mr Roberts) I think part of the game here is the
art of the possible, to be frank. We never would have started
from this position in the first place, but we are where we are.
And, as you suggested, there are some doubts about the extent
to which the Government would actually go right back to the drawing-board
and start anew, and, consequently, we are having to deal with
the imperfect and making the imperfect a little better. But, you
are right, there is a danger that it simply makes the thing more
36. In terms of simplicity, the simplest, easiest,
most clear-cut thing is just to abolish it, is it not; it cannot
be any simpler than that?
(Mr Roberts) That would certainly be simple, in terms
of getting rid of the tax; there then becomes a question of how
do you achieve the carbon reductions, as part of, obviously, the
overall Government's objective to meet not only its Kyoto target
but its domestic target.
37. Which is exactly my question to you; if
we abolish the Climate Change Levy then how does one achieve those
(Mr Roberts) Part of the answer, I think, is to look
particularly at the role of the domestic consumer, the individual.
The business community at the moment is going to be directly responsible
for half of the total programme of carbon reduction in the Government's
climate change programme; when I say directly, that is through
measures such as the Climate Change Levy, such as the technical
improvements to which the car manufacturers are already committed,
but the business community will be indirectly responsible for
more than half of the total programme, through, for example, its
role as a user of transport. And our view is that really we need
to be looking at whether or not that is a fair share of the burden,
in trying to achieve our climate change objectives, and to see
whether or not the domestic consumer will play a greater part.
38. So the CBI favours increasing environmental
taxes on consumers?
(Mr Roberts) I think, to be honest, we have not spent
a great deal of time looking into how exactly we would approach
that, and we are more than conscious
39. It is just that I am extrapolating from
what you were saying earlier what it says to me, and I think we
should call a spade a spade, if that is what you are moving towards?
(Mr Roberts) There may be other ways of encouraging
customers to play their part, other than simply tax. There are
other forms of measures at the moment being considered and being
developed, such as the Renewables Obligation, which, as it were,
looks at the role which electricity suppliers can play in meeting
domestic consumers' needs for electricity, but in rather cleaner
ways. None of these things are perfect, inevitably, but I think
the point I am making is that it is not simply about taxing the
domestic consumer, there may be other ways in which you can achieve
(Mr Jackson) I think it is fair to say that there
is a role for other sectors. I think one of the points that we
would probably like to draw out in our report is the fact that
there is a need for a sound analysis, almost a cost/benefit analysis,
of all the policies and measures available to Government; something
that did not happen with the Climate Change Levy, the Levy was
introduced first, the climate change programme was introduced
second. So there is a need for a redefinition of what comes first.