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Environmental Taxes

Volume 548: debated on Monday 16 July 2012

A simple efficient and cost-effective policy framework will meet environmental objectives while supporting growth and maintaining a sound fiscal position. Market-based solutions to price carbon are at the heart of this approach, achieving objectives at the lowest possible cost. Tax policy will be developed in the context of wider Government levers (such as voluntary agreements and regulations) and overlap of policy instruments will be avoided.

The Government classify environmental taxes as those that meet all of the following three principles:

The tax is explicitly linked to the Government’s environmental objectives; and

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.

The Government have defined the following as environmental taxes based on these principles. These taxes will form the baseline for the proportion of tax revenues from environmental taxes, against which the Government will be assessed against the coalition’s commitment to increase the proportion of tax revenue accounted for by environmental taxes:

Climate Change Levy;

Aggregates Levy;

Landfill Tax;

EU Emissions Trading System (EU ETS);

Carbon Reduction Commitment Energy Efficiency Scheme;

Carbon Price Support.

Building on the baseline established here for environmental taxation, the Government will continue to explore opportunities to further green the tax system over the course of this Parliament. There are a number of environmental priorities which could be pursued through the tax system including:

Climate change mitigation; carbon reduction; energy efficiency.

Climate change adaptation; water efficiency, water quality in the environment (diffuse pollution), flood mitigation.

Environmental protection and improvement: waste reduction, protection of virgin resource, biodiversity, air quality.

Any options considered will be assessed against the fundamental priority of deficit reduction and strategic aim of simplification.

Revenue Forecast for Environmental Taxes

Tax

Actual Revenue Raised 2010/11

Actual Revenue Raised 2011/12

Revenue Forecast 2012/13

Revenue Forecast 2013/14

Revenue Forecast 2014/15

Revenue Forecast 2015/16

Climate Change Levy

£0.7bn

£0.7bn

£0.7bn

£0.7bn

£0.7bn

£0.8bn

Aggregates Levy

£0.3bn

£0.3bn

£0.3bn

£0.3bn

£0.3bn

£0.3bn

Landfill Tax

£1.1bn

£1.1bn

£1.1bn

£1.2bn

£1.5bn

£1.6bn

EU ETS

£0.4bn

£0.3bn

£0.7bn

£1.5bn

£1.6bn

£1.7bn

Carbon Reduction Commitment

0

£0.7bn

£0.7bn

£0.8bn

£1.0bn

£1.0bn

Carbon Price Floor

0

0

0

£0.6bn

£1bn

£1.2bn

Total

£2.5bn

£3.1bn

£3.5bn

£5.1bn

£6.1bn

£6.6bn

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

Total Revenue from Environmental Taxes (£bn)

£2.5bn

£3.1bn

£3.5bn

£5.1bn

£6.1bn

£6.6bn

Total Tax Forecast Receipts (£ bn)

£550.8

£570.4

£591.5

£622.5

£658.4

£692.0

Proportion of total tax receipts

0.5%

0.5%

0.6%

0.8%

0.9%

1.0%

Environmental Impacts from Budget 2012 announcements by year

Impact from Budget 2012 (already included above)

0

0

-£15m

+£60m

+£30m

+£30m

Based on Budget 2012 forecasts including impact of Budget 2012 announcements.

Total Revenues as % of GDP = 0.2% (2011/12)

Revenue Raising Taxes and Fiscal Instruments with Environmental Benefits

In addition, the Government believe that the design and structure of other taxes can play a role in achieving the coalition commitment.

These are taxes and fiscal instruments which are primarily designed to raise revenue or to achieve other objectives, and therefore do not qualify as environmental taxes on the basis of the Government’s three principles. However these instruments may have an environmental impact due to behavioural change and in some cases may be explicitly designed to do so. On that basis, the Government believe that it is important to make reference to the revenue (or revenue forgone) of transport taxes, levies and exemptions/reliefs in its overall assessment of environmental taxation.

For example, vehicle excise duty is primarily a revenue raising tax but is, for cars bought new after 2001, structured to incentivise the purchase of cars with lower CO2 emissions. Other taxes may include reliefs or exemptions which promote environmentally positive behaviour change but within a wider set of objectives.

We will continue to explore opportunities to improve, update and reform revenue-raising taxes to increase their environmental benefits.

Examples of Revenue-Raising Taxes and Fiscal Instruments with Secondary Environmental Benefits

Tax

Actual Revenue Raised 2010/11

Actual Revenue Raised 2011/12

Revenue Forecast 2012/13

Revenue Forecast 2013/14

Revenue Forecast 2014/15

Revenue Forecast 2015/16

Vehicle Excise Duty

£5.8bn

£5.8bn

£5.9bn

£5.8bn

£5.8bn

£5.8bn

Fuel Duty

£27.3bn

£26.9bn

£27.3bn

£28.1bn

£28.9bn

£30.1bn

Air Passenger Duty

£2.2bn

£2.7bn

£2.9bn

£3.0bn

£3.3bn

£3.5bn

Company Car Tax

£1.8bn

£1.9bn

£2bn

£2.1bn

£2.3bn

£2.6bn

Fuel Benefit Charge

£0.4bn

£0.4bn

£0.4bn

£0.5bn

£0.5bn

£0.5bn

Van Fuel Benefit Charge

£10m

£10m

£10m

£10m

£10m

£10m

Van Benefit Charge

£65m

£65m

£65m

£65m

£65m

£65m

Feed in Tariffs*

£0.0bn

£0.2bn

£0.5bn

0.7bn

0.8bn

£0.9bn

Renewable Obligations*

£0.5bn

£0.6bn

£0.8bn

£1.0bn

£1.2bn

£1.4bn

Total

£38.1bn

£38.6bn

£39.9bn

£41.3bn

£42.9bn

£44.9bn

Total Tax Forecast Receipts (£bn)

£550.8

£570.4

£591.5

£622.5

£658.4

£692.0

Proportion of total tax receipts

6.9%

6.8%

6.7%

6.6%

6.5%

6.5%

Exemption/Reliefs with environmental benefits

Not costed separately but are classed as revenue foregone. These include: Enhanced Capital Allowances; Landlord Energy Saving Allowance and Capital Allowance for thermal insulation of buildings.

Based on Budget 2012 forecasts

*Based on OBR forecast

The Government's definition compared to the ONS definition of environmental taxes

The Office for National Statistics (ONS), OECD and EuroStat all follow the same broad definition of environmental related taxes but all three include different sets of taxes within that definition.

The Government also accept this broad definition but the Government’s definition focuses on the taxes that are explicitly environmental (e.g. climate change levy, landfill tax, aggregates levy etc) and those that are environmentally related but primarily revenue raising (e.g. fuel duty, air passenger duty, vehicle excise duty etc).