Environmental taxes: back on the agenda

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It appears the government is trying to make good on its manifesto pledge to increase the proportion of tax revenues accounted for by environmental taxes.

This week Treasury commenced a unique consultation exercise on environmental taxation. It held one of a number of workshops looking at how fiscal instruments can help shape behaviour change to meet environmental policy objectives. I say unique because Treasury rarely organise events of this ilk, which are commonplace in other departments. It is, to be honest, a breath of fresh air.

We were asked what would be a “fair” environmental tax. How effective are existing environmental taxes in changing behaviour? What existing taxes could be made “greener”? And what new “green taxes were introduced?

And we were treated to not one, but two government ministers: Economic Secretary to the Treasury Justine Greening and Chief Secretary to the Treasury, Danny Alexander. The results, we were told, are to feed into a programme of work on environmental taxes which will influence the budget and policy making beyond.

Environmental taxes have proven to be effective provided they are visible, well-targeted and with a clear trajectory which provide time to plan and adapt. If designed correctly they could prove to be a powerful incentive for change, as argued in our climate report which calls for a carbon tax to replace layers and layers of poorly connected and over-designed and costly climate change policies.

But the government must be wise to growing cynicism amongst manufacturers. Before being elected in, the Conservatives promised that any additional revenue generated from new green taxes would be used to reduce the burden of taxation elsewhere. Yet anyone in the Carbon Reduction Commitment will roll their eyes at the latter. The decision not to recycle revenues generated from the scheme means an extra £1 billion for the Chancellor's coffers. Not a bad haul for a scheme that was originally sold to us as being revenue neutral to business.

In light of this u-turn, it is therefore not surprising that there is a healthy degree of scepticism that this exercise is just a means for additional revenue-raising. So if government genuinely wants business buy-in on this agenda it must ensure – now more than ever – that it stays true to its promise to reduce the burden elsewhere.

Let me know what you think.

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