Budget 2011 and environmental taxes

Book excerpt: The Environmental Audit Committee claims the Treasury has undermined public trust in green taxes by appearing to use them as a revenue raising tool rather than a serious attempt to change environmentally damaging behaviour. The MPs single out two recent tax changes for particular criticism: cutting a penny off Fuel Duty while providing no new incentives to switch to lower carbon alternatives; and proposed changes to Air Passenger Duty will do nothing to reduce emissions or make it a more effective environmental tax. The Treasury needs to adopt a coherent strategy for environmental taxation, setting out its objectives and rationale, the basis on which rates are set, and how their impact will be evaluated. With green taxes there is a strong case for ring-fencing some of the revenues for investment in green alternatives - for instance using fuel duty to reduce public transport fares - in order to build trust and support for environmental taxes. Environmental taxes need to be straightforward so that taxpayers understand the behavioural change signal being sent. In practice their growing complexity means that many businesses are unaware of the cumulative impact of the environmental taxes affecting them. They must also be seen as fair so that political support can be built for environmental taxation. Also, the Plan for Growth, published alongside the Budget, does not provide the much needed step-change to aid the transition to a low-carbon economy. The Government should demonstrate greater commitment to putting the green economy at the heart of growth plans.