Archived press release

Green Economics, Or Just More Budget Blues?

2 November 1998

Key green issues for the Budget include an energy or carbon/nuclear tax. Properly introduced, this could help clean-up the environment and fight climate change as well as creating new jobs and reducing unemployment.

Britain is committed under the 1997 Kyoto summit agreement to cut greenhouse gas emissions by 12.5% from 1990 levels by 2012. Labour fought the Election on a pledge to cut CO2 emissions by 20% from 1990 levels by 2010. These targets cannot be achieved unless industry is given a clear financial incentive to reduce emissions.

A working group has been set up chaired by Lord Marshall of British Airways to consider a possible energy tax. According to the Treasury Press Office, it is due to report to Gordon Brown in “early November”. It is possible that it may be published with the pre-Budget statement. Friends of the Earth can make the following forecasts:

1. The Chancellor will not announce a business energy tax in the Pre-Budget Statement. He is most likely simply to welcome Lord Marshall's report. It is likely that he may still not act at the Budget in March. He may simply announce further consultation based on Marshall's conclusions.
2. Lord Marshall is likely to recommend:
i an energy tax set at a low rate to cover all of business
ii options for a subset of business (possibly major emitters registered with the Environment Agency under Integrated Pollution Prevention and Control [IPCC]) to opt out of the tax and use a trading system or even 'voluntary' schemes
iii a partial rebate or even exemption from the tax for energy intensive firms
iv revenue from the tax to be used partly to cut employers' National Insurance Contributions, and partly on measures to increase energy efficiency through credits or grants. This is being resisted by the Department of Trade and Industry
v the need for stronger Government action to tackle emissions from road transport,and improve energy efficiency in the domestic sector.

There is likely to be considerable business pressure to resist the tax altogether or to keep it at the lowest possible level. A joint report in January 1998 by Friends of the Earth and Forum for the Future estimated that a carbon/nuclear tax (see below) set at $1 dollar per barrel of oil equivalent

would raise about £400 million a year. FOE/FfF proposed increasing the tax to $13 dollars per barrel by 2010. This would enable employers' National Insurance rates to be cut by more than half,to just 3%, creating about 100,000 net new jobs.

Friends of the Earth believes that:
i A tax of this kind is vital if the Government is to meet its promise of a 20% cut in CO2 emissions. But it has to be set high enough and apply across the board. It would be absurd to put a lower tax burden on energy intensive firms or sectors, because this would simply increase the burden on cleaner sectors and small businesses
ii starting with a low level of tax would be acceptable, provided that it increased to a level over time (as with road fuel duty) that reflected environmental priorities
iii properly introduced, such a tax could be a major factor in moving towards a sustainable and dynamic economy.

Friends of the Earth would prefer a carbon/nuclear tax to a simple energy tax, because it would exclude renewable energy sources (stimulating investment and research in wind, wave and solar power) and encourage energy users to shift to less carbon intensive power generation.

Other features of the pre-Budget statement may include:
. a rise in petrol duty of perhaps 20p on a gallon of unleaded petrol, in line with the existing road fuel price escalator of 6%
. reform of company car taxation
There is unlikely to be any further progress on other key green tax demands, including:
. taxes on aggregates (quarrying), pesticides and peat use
. increases in vehicle excise duty for gas guzzling cars
. VAT tax reductions on energy saving goods and equipment.

Commenting, Friends of the Earth Executive Director Charles Secrett said:

“It looks as if this will be another disappointing Budget statement. Of course the principle of a tax on carbon emissions is welcome. What we need now is action from the Treasury to ensure that the Government keeps its environmental promises. We need tax increases on pollution, and tax cuts on employment. That will protect the planet and create jobs. Since Labour took office we have had far too much consultation, and far too few deeds. The Department of Environment struggles manfully to make this a green Government. But the Treasury is fast running out of credibility with people who care about our environment. “

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Published by Friends of the Earth Trust