The Treasury takes us all down the green tax rabbit hole

The Treasury’s decision to redefine green taxes to exclude fuel and aviation duties is the very height of political cowardice

17 Jul 2012, 00:05

Strap yourself in folks, it is time for one of our periodic trips down the Whitehall rabbit hole.

For years now you may have comforted yourself with the knowledge that periodic increases in fuel duty, vehicle excise duty, and air passenger duty did at least have the environmental benefit of encouraging people to drive a bit less, purchase greener cars, and maybe take the train instead of fly. No one likes paying taxes, but at least the gradual hike in these levies was serving a modest environmental purpose, right?

Well, no actually, you were wrong. Completely wrong. In fact, everything you thought you knew about green taxes, behaviour change, and price signals has been wrong.

Let me explain why, and bear in mind you might want to pour yourself a drink and light yourself a cheeky cigarette for this one (a beer and a smoke that the government presumably does not attempt to discourage through duties on both products).

Upon forming the coalition, the Conservatives and the Liberal Democrats transferred commitments made in both of their manifestos to increase the proportion of environmental levies into the coalition agreement. It was a nice little progressive green commitment that could be realised relatively simply by cutting taxes on income and increasing taxes on polluting activities. The policy was shown to have worked, it had support from economists from across the political spectrum, and it required few major changes given most environmental levies were already scheduled to go up.

But the Treasury did not like this idea, it did not like it one bit, so it did what civil servants and ministers always do when they are being asked to do something they don't want to do - they moved the goal posts.

Following a lengthy consultation the Treasury yesterday issued a new official definition of environmental levies that conveniently decided that the three most politically contentious green taxes - fuel duty, vehicle excise duty (VED) and air passenger duty (APD) - were not green taxes at all. They are just common or garden taxes, apparently, without so much as the palest green hues. 

It takes some pretty gymnastic leaps of logic to decide that the three taxes people are most likely to cite as an example of green taxes are not in fact green taxes, but you are forgetting that when it comes to mealy-mouthed, politically convenient, utterly cowardly exercises in rhetorical contortions our political class is without parallel.

The new definition goes like this: "environmental taxes are defined as those which meet all of the following three principles:

• the tax is explicitly linked to the Government's environmental objectives;
• the primary objective of the tax is to encourage environmentally positive behaviour change; and
• the tax is structured in relation to environmental objectives, for example: the more polluting the behaviour, the greater the tax levied."

All of which apparently means that various carbon and waste levies are environmental taxes, but fuel duty, VED, and APD are not.

Except they are. Of course they are. Even by the Treasury's own rushed and nonsensical Orwellian definition they are.

It is one of the government's environmental objectives to curb emissions from road transport, just as it is an objective to curb the rate of growth of emissions from aviation. Therefore, basic economics means that the taxes and the price signals they create are linked to environmental objectives, even if Osborne and co have decided they are not "explicitly linked".

Equally, if one of the primary objectives of these taxes is not to encourage environmentally responsible behaviour then that surely means their only purpose is revenue-raising and all those motoring groups were right all along. The Treasury can argue black is white all it likes, but these taxes are clearly meant to encourage certain green behaviours. Countless politicians and economists have said so in the past and all the evidence suggests they have worked as a means of curbing emissions.

Finally, we know that VED and APD in particular are designed to encourage greener behaviour because they are explicitly structure to do so. APD is higher for more polluting long haul flights and VED is (very successfully) banded to encourage people to purchase more fuel efficient cars.

Everyone knows all of this, economists know it, businesses know it, green groups know it, and the Treasury knows it, even though it has decided to pretend otherwise. But faced with doing something brave and progressive to help bolster the green economy and help people make more environmentally friendly choices the government has bottled it. Worse still, ministers haven't even have the nerve to come out and make a coherent case for not raising green taxes, but have instead used this pathetic exercise in Kafka-esque machinations to avoid the embarrassment of breaking the coalition agreement.

We are now left with the utterly surreal scenario where, as Friends of the Earth's David Powell has noted, the proportion of revenue raised from green taxes will actually rise if the government cuts fuel duty, APD or VED. Not to mention the politically convenient scenario where almost all the officially classified green taxes, such as the landfill tax and the EU emissions trading scheme, are structured to rise year-on-year anyway.

I am not alone in wanting to see Jeremy Paxman repeat his monstering of the Treasury's Chloe Smith by getting Danny Alexander or George Osborne to explain why green taxes are not green taxes.

Ministers who are genuinely committed to the green agenda sometimes ask why the coalition does not get more credit for the genuinely impressive environmental policies they are pursuing. The next time they ask the question they should look to this shoddy episode and wonder no longer.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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