Archived press release

Chancellor must tackle climate change in pre budget report

30 November 2006

Tackling climate change must be the central theme of Gordon Brown's Pre-Budget Report [PBR] on 6 December, Friends of the Earth said today. The environmental campaign group has published a number of measures that the Chancellor should implement to cut carbon dioxide emissions. As well as tackling climate change, most of the measures would help people save money and benefit the UK economy too

Friends of the Earth is calling on the Chancellor to do more to cut emissions from our homes (responsible for around a quarter of UK emissions) by increasing incentives to be energy efficient and the take up of small-scale renewable energy. The Chancellor must also do more to encourage motorists to drive fuel-efficient vehicles, and discourage them from buying gas-guzzlers.

In October, the Treasury-commissioned Stern Review, the most comprehensive review ever carried out on the economics of climate change, was published. It warned that unless we take urgent action to tackle climate change, the environmental, human and economic costs would be huge. The PBR is a crucial opportunity for Mr Brown to take action to tackle climate change, show genuine international leadership on this issue, and help get the UK Government's failing climate strategy back on track.

But Gordon Brown's record on tackling climate change has been woefully inadequate. Green taxation has fallen under the Chancellor despite a 1997 pledge to shift the burden of taxation from employment and onto environmental pollution [1]. In 1997, green taxes stood at 9.5 per cent of all taxes; but by 2005 it had fallen to just 7.7% Despite repeated Government promises of substantial cuts, UK carbon dioxide emissions have risen under Labour.

Friends of the Earth's recommendations for a Green Budget include:

• Council Tax rebates to encourage home insulation;
• Stamp duty rebates for energy efficient homes or improvements within six months of purchase;
• Cutting VAT on DIY energy saving equipment and materials, and on high quality refurbishments;
• Tax incentives and increased grants to boost micro-energy generation
• Substantially increasing VED for gas-guzzling vehicles (up to £2,000 for the most polluting vehicles), and cutting it for more fuel-efficient models;
• Restore the road fuel tax escalator;
• Increase Air Passenger Duty to fund the above and improve public transport.
• Using the money raised from green taxes to help create a £2.4 billion 'green homes fund' to finance Council Tax rebates and micro-generation grants

Further details on these measures follow. A detailed briefing on Friends of the Earth's recommendations for a Green Budget can be found at:
www.foe.co.uk/resource/briefings/pre_budget_nov_2006

Friends of the Earth's economics campaigner, Dave Timms, said:

"The Stern Review warned of the catastrophic economic consequences of failing to tackle climate change. Green taxation has fallen under Gordon Brown. The Chancellor must show that he is serious about tackling this issue by taking urgent action to create a climate friendly economy and cut UK carbon dioxide emissions. The Pre Budget Report is the first opportunity since the review for the Government to show it is serious about rising to the policy challenge.

"Stern was clear that environmental taxes, alongside other measures, have a key role to play in tackling climate change. The Chancellor must introduce taxes that cut polluting activities and measures that make it easier and cheaper for people to cut their emissions.

"Well designed packages of green taxes, tax breaks and spending can cut polluting activity, reward good environmental behaviour, benefit the economy by creating demand for environmental goods and services, and improve the quality of life for all. Far from hitting the poorest, this could be a highly progressive package."

Budgetary measures can play a crucial role in reducing UK carbon dioxide emissions. Friends of the Earth has led the campaign for a new law to tackle climate change through The Big Ask climate campaign. Nearly two thirds of MPs, all the main political opposition parties and a huge coalition of organisations are calling for legislation requiring annual cuts in UK carbon dioxide emissions. The Government announced that it will introduce a climate change law in the Queen's Speech and is currently consulting on its details. See www.thebigask.com

TACKLING CLIMATE CHANGE AT HOME

The domestic sector was responsible for 27 per cent of total UK carbon dioxide emissions in 2004. But this sector has massive potential for reducing emissions through energy efficiency and micro renewable energy technologies. According to the Energy Savings Trust around half of heat loss in a typical home is through the walls and loft. Friends of the Earth is calling on the Chancellor to introduce the following measures:

Council tax rebates to encourage energy efficiency

Friends of the Earth is calling on the Treasury to create a £1.4 billion fund to finance a £100 Council Tax rebate for those that install cavity wall insulation (CWI) or loft insulation

In November 2004 Braintree Council in Essex, instituted a scheme with British Gas which gave a £100 Council Tax rebate to households that installed CWI. The scheme has proved to be a success and has been extended to a pilot project in 16 other local authorities.

The average cost of CWI installation is around £342, and the average annual saving on fuel bills is around £104. There are currently 8.5 million homes with potential for CWI, and 6.2 million dwellings which lack loft insulation. Rectifying this would save 3.3 million tonnes of carbon every year - just over two per cent of the UK's carbon emissions

Stamp duty rebates for energy efficient homes.

Stamp duty rebates should be given to homes that meet high standards of energy efficiency or where the new owner makes these improvements within six months of purchase. Research by Sheffield University, shows that new owners are more likely to make home improvements shortly after purchase.

Cut VAT on energy saving appliances and materials, and on high quality refurbishments.

If you use gas or electricity your home you are charged five per cent VAT. But if you buy materials or appliances to cut your energy-use you must pay 17.5 per cent VAT So bizarrely you are taxed more than three times as much for saving energy as you are for using it.(However, you are only charged five per cent if energy efficiency measures - such as loft insulation - are fitted by a contractor).

Friends of the Earth is calling on the Chancellor to cut VAT on all DIY and installed insulation, microgeneration and energy efficiency materials (such as light bulbs) to five per cent, and to vigorously lobby the EU to allow it to fall to zero.

The Chancellor should also scrap VAT for high quality home refurbishments that significantly improve energy efficiency.

Boost micro-generation technologies

A major part of the solution to tackling climate change would be for households - and businesses - to generate their own low-carbon or renewable heat and power.

Countries that have invested in renewable energy have reaped the economic benefits. The German solar industry has increased turnover ten-fold in the last six years, is worth 3.7 billion euros annually and employs 42,500 people in production, distribution and installation.

The UK Government must do more to encourage the take up of these technologies which include: solar photovoltaics (which convert solar energy into electricity), solar thermal collectors (heat water), heat pumps, micro-wind turbines, micro-hydropower turbines, wood-fuel boilers and micro combined heat and power units. The high initial outlay for many of these technologies hampers their take-up and extends the payback time. The government needs to make them more affordable and cut the payback time.

The Chancellor should:

1. Ensure that businesses installing micro-generation do not see their financial benefits wiped out by an increase in the property's rateable value;
2. Domestic micro-schemes able to supply excess electricity to the grid should be able to do so tax-free and they should get paid for the electricity they export at the same rate as they would pay for electricity they consume.
3. Increase grants for installing micro-generation systems to £1 billion. The current fund is only enough to help 3,000 homes to install solar electric panels (or a paltry 58p for each household in England and Wales).

ROAD TRANSPORT

Road transport is responsible for around a fifth of UK carbon dioxide emissions. Emissions are rising - up five per cent since 1997 - and are predicted to rise yet further. This is because the cost of motoring has fallen - it's cheaper now than it was in 1997 when Labour came to power. At the same time the cost of bus and train travel has risen. Furthermore, the average efficiency of cars has risen very slowly (slower even than the unambitious voluntary targets set by the motor industry).

Measures are needed to persuade people out of their cars and onto public transport and other less polluting ways of getting around (such as cycling). Motorists also need to be encouraged to choose more fuel-efficient vehicles.

Cut Vehicle Excise Duty for fuel efficient vehicles and substantially increase it for purchases of new gas-guzzlers.

One of the biggest effects that individuals can make on their carbon dioxide contribution is through the type of car they drive. The Government must do more to encourage motorists to drive fuel-efficient vehicles, and to avoid gas-guzzling models. One way it can do this is by increasing Vehicle Excise Duty (VED, or road tax) for the most polluting cars, and cutting it for greener cars.

There are currently seven different VED bands. These require car owners to pay differing levels of VED depending on the fuel-efficiency of their vehicle. At present, VED payments range from nothing (for a few cars in band A) through to £210 for the most polluting vehicles in band G. Last year the Chancellor increased VED for the biggest gas-guzzlers by a mere £30, a token gesture that is unlikely to have made much difference.

The Department of Transport has published research which shows that increasing the differential between the various bands - and therefore increasing VED for new gas-guzzlers - would persuade people to choose greener vehicles.

Friends of the Earth is calling on the Chancellor to extend the zero payment to VED Band B. And to increase Band E to £700, Band F to £1,200 and Band G to £2000 for new cars

Reintroduce the fuel price escalator.

In 1999, the Chancellor abolished the fuel price escalator (an above inflation increase in fuel duty), which had been introduced by the previous Conservative Government to reflect growing concerns about the impact of road transport, and encourage people to drive less and choose greener cars.

The Institute for Fiscal Studies says that if the rate of fuel duty had been kept at 1999 levels "we might expect current fuel consumption to be around 4-5 per cent lower". Furthermore, the extra revenue that this would have generated, around £4.2 billion each year, could have significantly been spent to improve public transport.

Friends of the Earth is calling on the Chancellor to reintroduce the fuel price escalator .The revenue generated should be invested in public transport.

AVIATION

The aviation sector is the fastest growing source of carbon dioxide emissions. Last year the Tyndall Centre for Climate Change published a report warning that if aviation continues to grow at the current rate, it could account for 100 per cent of the UK's emissions quota by 2050. This will make it virtually impossible to meet targets on tackling climate change as all householders, motorists and businesses would have to reduce their carbon dioxide pollution to zero.

Increase Air Passenger Duty (APD) by £15 for intra-EU flights and £25 for flights outside the EU

In his November 1996 Budget statement, Kenneth Clarke stated that "air travel has also been undertaxed, because it has proved difficult--still proves difficult--to get international agreement to tax its fuel" [3] and announced a doubling of APD to £10 for flights to most European countries and £20 for other flights from 1st November 1997.

But in his 2000 Budget, Gordon Brown halved APD rates for economy class passengers flying to most European countries to £5.

Raising APD as suggested by Friends of the Earth would help slow the rate of growth in air travel and raise significant funds - an estimated £1,700 million. This could be used to fund other environmental measures such as improvements in public transport, reducing VAT on energy efficient products and Council Tax rebates for energy efficiency measures in homes.

A 2006 MORI poll found that 60 per cent supported increased taxes on air travel for environmental reasons (18 per cent opposed), and this rose to 73 per cent if the money raised were spent on improving the environment.

A more detailed briefing on Friends of the Earth's call for a green Pre-Budget Report, can

www.foe.co.uk/resource/briefings/pre_budget_nov_2006.pdf (PDF)

1. www.hm-treasury.gov.uk/independent_reviews/ ¬
stern_review_economics_climate_change/sternreview_index.cfm

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Published by Friends of the Earth Trust