Clause 23

Finance (No. 3) Bill – in a Public Bill Committee at 9:00 am on 19th May 2011.

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Question proposed, That the clause stand part of the Bill.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 9:15 am, 19th May 2011

Clause 23 increases the climate change levy by the retail prices index. Many of the changes to the structure of that levy are brought in by part 6 of the Bill, so we will discuss those later.

I want to make some broad points about what the Government have said about their tax policy-making framework, including improving the predictability and stability of the tax regime. To further those aims, in November last year the Government released a road map for corporation tax, which aims to set out the principles that will guide reforms to the corporation tax regime, a timetable for those reforms and the details of how the Government will consult business in introducing those reforms. The Exchequer Secretary to the Treasury has said that a reason for the road map is to signal that Britain is open for business.

Another key objective of the Government is, as the Prime Minister said a year ago, to be the greenest Government ever. We do not, however, have the same clarity or predictability in the area of green taxation as we do on corporation tax. For example, the coalition agreement states that the Government will increase the proportion of tax revenue accounted for by environmental taxes, and, according to the 2011 Budget report, there will be a small cut in environmental taxes this year, but increases in future years. In evidence submitted to the Environmental Audit Committee, however, the Chartered Institute of Taxation said that there was a need for greater consistency from the Government in how they defined environmental taxes.

Last year, in response to a written question from the hon. Member for Denton and Reddish (Andrew Gwynne), the Economic Secretary appeared to imply that environmental taxes covered the climate change levy, aggregates levy and the landfill tax only, as well as revenues from the EU emissions trading scheme. However, the Chartered Institute of Taxation points out that the Office for National Statistics said in a report last year that, in addition to those taxes, environmental taxes also covered fuel duty, VAT on duty, renewable energy obligations, vehicle excise duty and air passenger duty. We have already had some debate about whether those are environmental taxes that are designed to alter behaviour towards more environmentally friendly practices.

Alison McGovern (Wirral South) (Lab) rose—

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

I call Stella Creasy. [ Interruption. ] I have the wrong glasses. I apologise.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

It is an honour to serve under your chairmanship, Mr Gale, and it is an honour to be mistaken for my hon. Friend the Member for Walthamstow. If only I had her presence and reputation. Does my hon. Friend the Member for Bristol East agree that it is highly important that we get the definitions right? When we look back at what happened now for evidence that green taxes changed behaviour, we will need to know exactly what we were discussing at the time. We need to ensure now that the policy is right, because we will want to prove that the changes that the Government made actually changed behaviour. We need to have the correct definitions from the start.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I agree entirely with my hon. Friend. If the Government want to be the greenest Government ever, it is important that green thinking pervades all the work that they do. It is important, therefore, that, when looking at issues such as air passenger duty and fuel duty, at least consideration is given to the impact not only on individual behaviour but on how, as a country, we can help meet our targets for reducing emissions.

As I said, the Chartered Institute of Taxation says that there should be a broader definition of environmental taxes than that apparently implied by the Economic Secretary when she responded to the written question from the hon. Member for Denton and Reddish. In the Budget report, air passenger duty is included under the environmental taxes heading—it was not mentioned in the Economic Secretary’s answer—but fuel duty is not. I would appreciate some clarity on that.

The institute says that if changes to fuel duty are included in the definition of environmental taxes, they are in fact being cut every year to the end of the forecast period. Does the Minister agree that a key aim of fuel duty is to encourage more efficient use of fuel, and the use of public transport for environmental reasons? Does that not qualify it as an environmental tax?

In a separate paper in February this year, the Chartered Institute of Taxation also called for greater clarity on the principles that would guide the Government on green taxation. It does not believe that an entirely new set of principles needs to be developed, but it would like the general principles of good taxation, such as fairness, certainty and minimising the compliance burden, to be modified and applied to environmental taxes. The institute has called for a statement of those principles to be included in tax legislation, and has said that it would welcome a document from the Government along the same lines as the document on corporation tax.

I want to put the clause into the context of the Government’s wider programme on green taxation and the environment. In February, the Department for Environment, Food and Rural Affairs published its vision for sustainable development. According to the document—“Mainstreaming Sustainable Development” —the Government want sustainable development to become central to the policy of all Departments, and not to be seen as a niche issue for one Department. However, a report for Friends of the Earth has recently pointed out that the Treasury is by far the most important Department in terms of delivering green goals, and at the moment it does not seem to have taken that vision on board. The report charted the Government’s progress  on its green objectives, and found that on most of them it had stalled, or little progress had been made. It agreed with the Chartered Institute of Taxation that there was no clarity on how the Government would deliver their coalition agreement promise of increasing green taxation as a proportion of overall tax take. It also said that if fuel duty was considered to be an environmental tax, it would be difficult for the Government to achieve that promise.

Yesterday, the Secretary of State for Energy and Climate Change set out the carbon emissions targets for industry, but without concrete measures from the Treasury those targets will not be reached. Have the Government considered producing a road-map document for environmental taxes, given their coalition agreement objective? Are they committed to providing clarity and predictability for businesses on green taxation, given the aims set out in their new tax policy-making framework last year? What is their assessment of progress towards the coalition agreement’s aim to raise environmental taxes as a proportion of tax revenue, given the changes made in this Finance Bill?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I should start by saying that this Government are absolutely committed to being the greenest Government ever. In fact, one of the first decisions that we implemented was to cancel the third runway at Heathrow. As a London MP, I was delighted, because much of my time as first-term MP in opposition had been spent campaigning against it. I recall vividly a conversation with the now Leader of the Opposition when he was Secretary of State for Energy and Climate Change, and waved through the plan to increase the number of runways at Heathrow. That would have had a hugely detrimental effect on carbon emissions. I have no doubt that he recalls our conversation, when I begged him to see sense. He did not, but fortunately the electorate did, and we now have a Government who realise that a third runway would have been a green disaster.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

Will the Minister assess the Mayor of London’s support for a third airport in London, and tell us whether the same concerns about the environmental impact and the impact on the Exchequer have been raised in the Government?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The Mayor of London is absolutely right to look at what he believes the infrastructure requirements are for our city. I am sure that the hon. Lady would be the first to complain if he did not. In the House, the Government’s decision on Heathrow was not just about emissions; it was about huge road pollution, air pollution, congestion, and other pollution issues such as noise, which would have blighted the lives of millions of Londoners if the last Government had been disastrously re-elected.

Photo of Ian Murray Ian Murray Labour, Edinburgh South

The Minister raises a good point about the third runway at Heathrow. I do not disagree with what she said about it, but she will recognise that the knock-on impact of that decision has been that all the late night flights to Glasgow on Thursdays, for example, have been cancelled, because bmi has used its slots for planes to elsewhere, such as the middle east, because there is no capacity at Heathrow. There is a knock-on impact on the economy, particularly the economy in Scotland, because the domestic flights have been cut at the expense of more profitable flights.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

Order. We are debating rates of climate levy, not the future of aviation in the UK. I appreciate that the two are to some degree related, but we need to come back to the debate in hand.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Thank you, Mr Gale. I was musing the same thoughts as I listened to that intervention. I am sure that the hon. Member for Edinburgh South will take an interest in the Department for Transport’s aviation strategy as that is developed over the coming months.

In response to the questions asked by the hon. Member for Bristol East about what the green agenda means to the Treasury, she is right that we want to see environmental tax form a bigger part of the tax base. I was before the Environmental Audit Committee yesterday talking about how we plan to approach the matter. We held workshops with a variety of stakeholders earlier this year, to get their views on the principles from which we should work. We will wait to see what the Environmental Audit Committee report proposes for how it should be approached. My sense is that we need three principles. First, that the Government make it explicit that the tax is intended to address environmental issues. Secondly, that the tax should be obviously structured in order to achieve a behaviour change. Finally, that it should be about achieving a change in company or personal behaviour.

It is interesting to go back to the measure on road tax in 2008. That included a change to pre-2001 cars that the Chancellor said was about the environment, so technically that first principle was met. It was structured to bring those cars into the banded system, so technically the second principle was met. However, it had no ability to change behaviour, because it was about taxing a retrospective decision. My argument at the time was that it was not actually an environmental tax.

The hon. Member for Bristol East asked, interestingly, about our limited list of environmental taxes. I decided to look at how other people had defined environmental tax. The hon. Lady is right that the Office for National Statistics has a definition and the OECD has one. I wondered what my definition would be from that starting point. Interestingly, I took exactly the same view as the hon. Lady’s colleague, the right hon. Member for East Ham (Stephen Timms), in his response to my right hon. Friend the Member for South West Surrey (Mr Hunt), when he asked for a list of what the previous Government saw as environmental taxation.

I recognise that the next step we need to take is to set out the baseline. The hon. Lady will be aware that the current basic list of absolutely agreed environmental taxes was increased by two in the Budget. One is the carbon price floor and the other the carbon reduction commitment. The proportion of the tax base that shifts from non-environment to environment under that initial definition will go up from about 0.6% this year to 1% by 2015-16, when the carbon reduction commitment and the carbon price floor start to kick in more. We are moving in the right direction, but we will continue to work on this agenda. We will make a statement on how we plan to approach the issue. I hope that that addresses some of the hon. Lady’s concerns.

There is a debate about fuel duty, and I challenged the Environmental Audit Committee for its views. There are environmental aspects, because as fuel duty and the price of fuel rise, people are more likely to think that they cannot afford to use their cars, but it is certainly  not structured with tackling the environment in mind. Fuel duty has been in place for years; it started long before carbon emission and road pollution went to the top of the agenda. To my mind, it is an environment-related tax, but it is not, per se, a purely environmental tax. The Environmental Audit Committee will doubtless have something interesting to say about it, and I look forward to its report.

Clause 23 increases the climate change levy in line with RPI inflation from 1 April 2012. The new rates will apply to the supplies of taxable commodities made to business and the public sector on or after that date. The rates are being increased to ensure that the climate change levy maintains its environmental impact by encouraging business to reduce energy usage. Consistent with previous increases, the rates are being announced a year before they come into effect to enable business to prepare for the change.

The Committee will be aware that the climate change levy is designed to encourage the efficient use of energy and reduce emissions by creating incentives to source electricity from renewable sources. The tax ensures that the UK fulfils its obligations under the energy products directive. The climate change levy is a UK-wide tax, chargeable on supplies of electricity, gas, solid fuel and liquefied gases to business and the public sector. It remains an integral part of the UK’s climate change and energy policy framework to meet legally binding international and domestic carbon-abatement targets. The main climate change levy legislation is to be found in schedule 6 to the Finance Act 2000, and in the Climate Change Levy (General) Regulations 2001.

In the Budget, we announced the introduction of a carbon floor price from 2013. It will be introduced by amending schedule 6 to the Finance Act 2000, which will be done under clause 77 and schedule 20. Clause 23 does not impact on clause 77 or schedule 20, and vice versa. I move that it stands part of the Bill.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.