Sunday, August 16, 2009

Environmental taxes - going up

I had an epiphany at the 2009 Wyman Debate after listening to Mark Schofield arguing the case for an increase in Environmental taxes.

Mark argued that if environmental taxes are well designed they can provide that double dividend of:
  • generating additional tax revenues; and at the same time
  • discouraging 'bad' behaviour so as to help the fight against climate change.
This is not a new argument but it certainly seemed to win over the audience as was apparent from the shift in voting during the evening. Before Mark spoke only 28% of those present thought that environmental taxes should rise. After hearing him however this increased to 51%.

At one point Mark referred to a report which he claimed suggested that a shift away from traditional taxes to environmental taxes would create 2.8 million jobs in the EU. I've been unable to trace this (as yet) though I have done some limited further research.

Unlike most excise duties environmental taxes are rarely direct taxes on the consumer. The cost of such taxes will however be passed on to consumers through higher prices so they would bear the bulk of any increase. And if costs do not rise this can only be because the businesses subject to the taxes have modified their behaviour with the consequential environmental benefits. Indeed this is a key objective behind the imposition or increase in environmental taxes.

The most well known environmental taxes in the UK at present are:
  • aggregates levy - a tax on primary sand, gravel and rock that is dug from the ground or dredged from the sea up to 12 nautical miles off the coast
  • climate change levy - a tax on commercial and industrial users of energy
  • landfill tax - a tax on any business or local authority that wants to dispose of waste using a landfill site
In addition elements of fuel taxes (hydrocarbon oils), road fund licences and other motoring related taxes have also been impacted by the environmental argument. Equally the Government has also introduced a range of environmental focused tax incentives.

The office of National Statistics reports that environmental tax receipts rose to £38.5 billion in 2008, an increase of £0.5 billion (1.4 per cent) compared with the previous year and almost twice the amount collected in 1993. BUT Environmental taxes accounted for less than 3% of Gross Domestic Product (GDP), and were only just over 7% of total taxes and social contributions in 2008.

I appreciate that speakers at the Wyman Debate were asked to propose specific views with which they did not necessarily personally agree. Nevertheless, Mark Schofield's arguments were quite compelling. It seems inevitable to me that environmental taxes will rise. I'm aware that the Institute of Directors has argued against this inevitability.

What do you think?

1 comment:

  1. The paradox of environmental taxes is that their true 'success' is shown by the amount they don't raise, rather than the income they do bring in.

    If the purpose of the taxes is to change behaviour, then where taxpayers avoid the environmental tax , eg. by buying less petrol etc, then that is surely a 'good thing'.
    To make environmental taxes actually work to reduce environmental damage governments must provide easy avoidance routes for taxpayers, such as removing the barriers to switching to cleaner power (eg. planning permission or better information).

    Environmental taxes also need to be imposed as part of a world-wide system. There is no point in reducing fossil fuel use in the UK if certain oil producing states continue to subsidise the real cost of energy for their citizens.