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Greenhouse Gas Emissions: Tax Strategy

Volume 813: debated on Tuesday 6 July 2021


Asked by

To ask Her Majesty’s Government what assessment they have made of the benefits of implementing a tax strategy that aligns with the United Kingdom’s net zero greenhouse gas emissions target.

My Lords, this Government are committed to net zero and take their legally binding climate commitments very seriously. The UK emissions trading scheme and a wide range of taxes, including the climate change levy and vehicle excise duty, are designed to encourage businesses and consumers to make greener choices. The Government’s net-zero strategy will be published later this year. Any tax changes in future will be considered and announced by the Chancellor.

My Lords, I declare my interests as set out in the register. In 2019, UK taxes per barrel of North Sea oil were just $1.72, compared with Norway’s $21.35. HMRC estimates that the cost to taxpayers of tax relief for decommissioning the mess the oil companies created themselves is at least £24 billion. Does the Minister think that providing huge tax subsidies to fossil fuel industries while refusing to consider tax incentives such as stamp duty rebates to improve tax efficiency is sending the right signals to meet the net-zero target?

My Lords, we are conscious that the net-zero transition requires us to think more strategically about the role of levers that change the price of emitting greenhouse gases in supporting that transition—including carbon prices through taxes or emission trading schemes—and we are doing that work in the context of the net-zero review.

My Lords, the House is considering the Environment Bill at the moment. It has important environmental principles within it, but strangely enough, the Treasury is excluded from them. The Bill says that

“taxation, spending or the allocation of resources within government”

are not included in those principles. Given the important and excellent Dasgupta report that the Treasury produced, will it reconsider that position and persuade the Defra Secretary of State to include Treasury expenditure within those principles?

My Lords, the Government are committed to meeting their legally binding climate change targets and use the tax system to aid this, alongside a suite of other policy instruments. However, in designing tax policy, the Government have to balance their environmental obligations with the need to ensure that revenues are sustainable and economically optimal and enable the Government to continue to fund crucial public services and other priorities.

My Lords, does my noble friend agree that, be it net zero or other overriding objectives, we will be best served by a digital tax system which is inclusive, underpinned through distributed digital ID, and not only revenue generating but fundamentally changing for the better the very social contract within which we all operate?

I absolutely agree with my noble friend’s point. That is why, last July, the Government published their 10-year vision for delivering an effective and modern tax system—the tax administration strategy. If any noble Lords want to read that exciting document, it is on GOV.UK. The strategy includes an extension to making tax digital, intended as the first phase of a modern, digital tax service.

My Lords, I declare my interest as co-chair of Peers for the Planet. I welcome the Minister’s remarks about thinking more strategically on tax issues. The recent Climate Change Committee report recommended a net-zero test for every government policy, and the recent Public Accounts Committee report on environmental tax measures suggested that, from the next Budget, Her Majesty’s Treasury should both assess the environmental impact of every tax change considered and publish the expected environmental impact for each tax measure in the Budget. Will the Government accept those two recommendations?

My Lords, the Government will respond to the Climate Change Committee’s report by October, as they are obliged to. They have, in fact, already responded to the PAC recommendations. While the Government have taken on a number of those recommendations, they disagreed with that specific one. We recognise the importance of considering the impact of tax on environmental measures and make those assessments where relevant. However, we think that the recommendation may constrain the Government and place undue burdens. For example, in looking at income tax thresholds or national insurance tax rates, those environmental considerations would not be proportionate or relevant.

My Lords, the Treasury promised a net-zero review on 2 November 2019. It said that this review would cover

“how the transition to net zero will be funded”


“consider the full range of government levers, including tax.”

It was to be published “in autumn 2020”—seven months ago. In June 2021, the Climate Change Committee recommended that the Treasury

“Complete the overdue Net Zero Review”.

On 22 June 2021, the shadow Chancellor asked Rishi Sunak twice when the review would be published. The best she got was “imminently”. I looked up what “imminent” means. It means “coming or likely to happen very soon”. Surely that assurance given two weeks ago must mean now. Sadly, I heard the Minister say “later” earlier in her answers. Does she agree that the Treasury’s net-zero review is crucial to tackling the climate change emergency? When will it be published? Surely it should be now.

My Lords, I agree with the noble Lord on the importance of the net-zero review. He will be aware that we published an interim report of that review to update people on progress, but I am afraid that I do not have a further update for the noble Lord from my right honourable friend the Chancellor on when the final review will be published, apart from to reiterate his sentiments that it will be imminent.

Do the Government agree that, in view of the climate emergency, we must move away from a fossil fuel-dependent economy? If so, why not take to COP 26 the great, world-leading idea to bring in a carbon tax globally? It is all in our Green Party manifesto—I can send a copy to the Minister.

My Lords, the Government are taking to COP 26 one of the most ambitious nationally determined contributions towards meeting those global climate change challenges. We are also looking at working internationally to look at issues such as carbon leakage across different markets, and we will continue to do so.

We can welcome the steps that the Government have taken to support our climate and environmental objectives through the tax system—I am certainly eagerly looking forward to COP 26, when I hope that the net-zero review will have been published—but can my noble friend the Minister describe how these policies fit with the Government’s wider climate strategy across tax, spending and stimulating the commercial sector?

My noble friend is absolutely right that our climate strategy extends beyond tax. That is why the Prime Minister’s 10-point plan mobilises £12 billion of government investment to create and support up to 250,000 highly-skilled green jobs. Crucially, we hope that it will also spur over three times as much private sector investment by 2030.

My Lords, I declare my interest as a director of Peers for the Planet. The Energy Innovation and Carbon Dividend Act, which is currently passing through the US House of Representatives, proposes a carbon tax that rebates all revenue from the tax back to households. What assessment have the Government made of such a mechanism, which would help low and middle-income households and may be key to ensuring public support for, and the success of, new carbon taxes?

My Lords, the Government look with interest at initiatives taken across the world to tackle this important issue, particularly around maintaining public support as we transition to net zero. The receipts that the Government raise through their environmental taxes already help to fund all of the Government’s public spending commitments; these include £500 million in grants to those buying zero-emission or ultra low emission vehicles to make them cheaper to buy and incentivise the transition to a cleaner option.

My Lords, in April, I asked in Grand Committee whether it would be useful to introduce a metric for reducing greenhouse gas emissions in the UK as a coefficient of GDP growth. The Minister said that he would look into it. What progress has been made on inquiries into the practical merits of such a metric?

My Lords, I undertake to follow up on the noble Lord’s point from Grand Committee. I know that, as far as the Treasury approaches these things, it is undertaking constant review of its Green Book guidance to ensure that net-zero commitments are incorporated into our fiscal decision-making. Although GDP remains one of our most important economic indicators, we are working on other wider indicators. For example, we are looking at taking the importance of the natural environment into account when we look at our public finances as well.