Smoke, Mirrors and the Changing Definition of “Green Taxes”

My colleague Owen Smith MP received a straight bat response to a Parliamentary Question he put in last week on environmental taxes.

‘What estimate he has made’ he asked ‘of the proportion of taxation gathered from environmental taxes in (a) 2010-11 and (b) each financial year to April 2015’.  The Governments reply was, shall we say, inconclusive. They say they are:

‘currently finalising their definition of environmental taxes… This will establish a baseline against which the Government’s commitment to increase the proportion of revenue from environmental taxes can be measured’.

Well, yes. They did, in the Coalition Agreement pledge to ‘increase the proportion of tax revenue accounted for by environmental taxes’.  And that’ll be up to 2015, the term of the Coalition Agreement. But that all got me thinking: why is the government doing this? After all, there’s a perfectly good definition laid down by the Office for National Statistics, and adopted across Europe and the OECD. An environmental tax is, according to ONS ‘a tax whose base is a physical unit….that has a proven specific negative impact on the environment.’ Landfill tax, renewable energy obligations, vehicle excise duty, the climate change levy, EU emissions trading and a number of other taxes fall within this definition and have been used as the basis for calculating the proportion of ‘green taxes’ making up the overall tax take.

I don’t know the answer to my question, but I do recall that the Environmental Audit Committee had a go at finding out what was on the Government’s mind on this in the summer (Sixth report 2010-12 ‘Budget 2011 and environmental taxes’.) ‘Well’, the Government said at the time, we’re ‘working on a definition that will be based on… the tax being explicitly linked to [our] environmental objectives: its primary objective is to encourage environmentally positive behaviour change: and the tax is structured in relation to environmental objectives.’

So far, so worthy. Still no reason why, of course.  But what is interesting, especially in the context of recent debates in Parliament is what is included in and out of the two definitions, and what the consequence is.

  • The Carbon Floor Price and the Carbon Reduction Commitment come in under the new definition whilst not being covered by ONS.
  • Fuel duty, VAT on fuel duty, and Air Passenger Duty are covered by the ONS definition but now go out under the new definition being drafted.

And, according to a very obscure table on page 10 of the EAC report, here’s the effect of those comings and goings post-budget 2011 in the trajectory of ‘environmental taxes’ over the period to 2015 on both definitions. On present arrangements (i.e. the widely used and agreed upon ONS definition) environmental taxes rise a little but fall back to their present level by 2015. On the new definition – would you believe it – they go up steadily and substantially over the period to 2015.

There you are then. On the new definition the Coalition Agreement is saved, just as long as that pesky ONS definition is buried. Oh, and, of course it still shoots up whatever you do on fuel duty or air passenger taxes. You can put them down to zero now and it makes no difference at all.

So that’s all right then – another promise kept, and maybe some motorists mollified into the bargain. But that can’t really be the answer to the question, can it?

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One thought on “Smoke, Mirrors and the Changing Definition of “Green Taxes”

  1. Pingback: It’s bombs away with George (again) | alan's energy blog

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