Recommendations & Conclusions
9 items
12
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
HM Treasury’s December 2020 interim report on net zero said that “the transition to net zero and consequent structural changes in the economy will also have implications for the UK’s public finances and fiscal sustainability. As some sectors grow and others shrink, the mix of tax revenues will change.” The …
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HM Treasury’s December 2020 interim report on net zero said that “the transition to net zero and consequent structural changes in the economy will also have implications for the UK’s public finances and fiscal sustainability. As some sectors grow and others shrink, the mix of tax revenues will change.” The report also said that much of the current tax revenue that is wholly dependent on individuals’ and businesses’ consumption of fossil fuels or emission of greenhouse gases is likely to be eroded during the transition to a net zero economy. In 2019–20, £37 billion of revenue came from taxes on fossil fuels 15 Q 9 16 Qq 27, 47 17 Qq 9, 16–17 18 Q 18 19 UN Climate Change Conference (COP26) website, https://ukcop26.org/, accessed 6 April 2021 20 Q 76 21 Q 77 Environmental tax measures 11 and greenhouse gases. Around £28 billion of this comes from fuel duty: the equivalent of around 6p on the basic rate of Income Tax.22 The remaining £9 billion came from Vehicle Excise Duty, Landfill Tax, emissions trading scheme receipts, and Carbon Price Support.23
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Government response AI summary
The government disagrees with the committee's implicit recommendation to set out a timetable for the replacement of fuel duty revenues before the next Budget, stating it would pre-empt policy decisions.
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HM Treasury
13
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
The transition to cleaner vehicles in the UK will reduce the demand for petrol and diesel and thus affect the amount of fuel duty raised. In November 2020, government announced its ambition to stop the sale of new cars that are powered solely by petrol or diesel by 2030.24 The …
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The transition to cleaner vehicles in the UK will reduce the demand for petrol and diesel and thus affect the amount of fuel duty raised. In November 2020, government announced its ambition to stop the sale of new cars that are powered solely by petrol or diesel by 2030.24 The government also said that as the UK transitions to electric vehicles the government needed to ensure that revenue from motoring taxes keeps pace with the change, to ensure it could continue to fund public services and infrastructure.25
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Government response AI summary
The government disagrees with setting a timetable before the next Budget for replacing fuel duty revenues, stating it would pre-empt policy decisions, although it acknowledges the need to consider implications for tax revenue from net zero.
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HM Treasury
14
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
We asked what planning HM Treasury had undertaken to counteract the reduction in revenue from taxes on fossil fuels and greenhouse gases. It said that the government did not have a plan, but the reduction in revenue had been flagged and under review for several years, with ministers advised on …
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We asked what planning HM Treasury had undertaken to counteract the reduction in revenue from taxes on fossil fuels and greenhouse gases. It said that the government did not have a plan, but the reduction in revenue had been flagged and under review for several years, with ministers advised on long-term tax options. HM Treasury also said that the new regulation banning sales of new petrol and diesel cars would not take effect for another nine years in 2030.26
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Government response AI summary
The government rejects the implied recommendation to set out a timetable for replacing fuel duty revenues before the next Budget, stating it would pre-empt ministerial policy decisions. It agrees on the need to consider revenue implications and set out a plan over time.
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HM Treasury
18
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
The March 2021 Budget took place the week before our session with HM Treasury and HMRC on environmental tax measures. The Budget did not include any particular announcements on green taxes. It did however freeze fuel duty rates for the eleventh year. The Budget said the freeze would support hard-working …
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The March 2021 Budget took place the week before our session with HM Treasury and HMRC on environmental tax measures. The Budget did not include any particular announcements on green taxes. It did however freeze fuel duty rates for the eleventh year. The Budget said the freeze would support hard-working people across the UK, particularly in more rural communities. The Budget also signalled that fuel duty rates for future years would be considered in the context of the UK’s commitment to reach net zero emissions by 2050.32 The previous Budget in March 2020 had also said that fuel duty rates will be considered alongside measures that are needed to help meet the UK’s net zero commitment.33 The government’s decisions on fuel duty rates highlights a key tension. There is a need for long-term planning, but Budgets are annual and led by day-to-day politics and issues.34
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Government response AI summary
The government disagrees with setting a timetable for consulting on options for replacing declining fossil fuel revenues before the next Budget, stating it would pre-empt policy decisions, but acknowledges the need to plan for consultation in the future.
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HM Treasury
22
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
The exchequer departments define ‘environmental taxes’ as those with explicit environmental objectives.40 There are currently four that meet this definition (paragraph 17).41 Other taxes can have environmental impacts. Indeed the 2021 Dasgupta Review on the Economics of Biodiversity (commissioned by HM Treasury in 2019) argues that our economy is embedded …
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The exchequer departments define ‘environmental taxes’ as those with explicit environmental objectives.40 There are currently four that meet this definition (paragraph 17).41 Other taxes can have environmental impacts. Indeed the 2021 Dasgupta Review on the Economics of Biodiversity (commissioned by HM Treasury in 2019) argues that our economy is embedded in nature and is not external to it, and as such all our fiscal measures have an environmental impact in so far as they either encourage or disincentivise different behaviours.42 The exchequer departments recognise that both Air Passenger Duty and fuel duty have an environmental impact by increasing the cost of polluting forms of travel. These taxes do not have environmental objectives and thus the exchequer departments’ primary measure for assessing the taxes’ performance has been the revenue they raise. However, HM Treasury told us they do advise Minsters on environmental impacts, including of previous fuel duty freezes, before decisions are taken on tax rates.43
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Government response AI summary
The government disagrees with the recommendation to assess and publish the environmental impact of every tax change from Budget 2022, citing impracticality and cost, but affirms it already carefully considers environmental implications for relevant measures.
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HM Treasury
23
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
The March 2021 Budget does not include any new tax measures with environmental objectives but it does include other tax measures that are likely to have an environmental impact.44 In March 2021 the Office for Budget Responsibility (OBR) said the most significant contributor to the economic recovery measures in the …
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The March 2021 Budget does not include any new tax measures with environmental objectives but it does include other tax measures that are likely to have an environmental impact.44 In March 2021 the Office for Budget Responsibility (OBR) said the most significant contributor to the economic recovery measures in the Budget was the introduction of a time-limited 130% capital allowance super deduction from Corporation Tax that will be in place in 2021–22 and 2022–23. The OBR said the deduction provides a very strong incentive to bring investment forward from future periods, supporting economic recovery.45 The deduction is forecast to cost a total of £25 billion in 2021–22 and 2022–23.46 HM Revenue & Customs (HMRC) told us that the capital allowance was available to all businesses in the tax system. We are concerned that the capital allowance is not subject to an environmental or green ‘filter’ and it could lead, for example, to an increase in fossil fuel investments.47
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Government response AI summary
The government rejects the implied recommendation to assess the environmental impact of every tax change, stating it would be impractical and not cost-effective. It clarifies that environmental implications are already considered for relevant measures, citing examples like red diesel and plastic packaging tax.
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HM Treasury
30
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
As we explain in Part One, the Department for Environment, Food & Rural Affairs (Defra) has lead responsibility for all environmental policy areas, apart from climate change mitigation on which the Department for Business, Energy & Industrial Strategy (BEIS) leads. The exchequer departments, HM Treasury and HMRC, are expected to …
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As we explain in Part One, the Department for Environment, Food & Rural Affairs (Defra) has lead responsibility for all environmental policy areas, apart from climate change mitigation on which the Department for Business, Energy & Industrial Strategy (BEIS) leads. The exchequer departments, HM Treasury and HMRC, are expected to consider the government’s overall environmental objectives when undertaking their work.59 Other departments also have a role. For example, the Department for Transport leads on the government’s strategy to reduce carbon emissions from cars and make roads less congested and polluted by promoting lower-carbon-emitting transport.60
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Government response AI summary
The government rejects the recommendation for exchequer departments to describe tax impacts on other departments' environmental responsibilities and agree robust assessment approaches, arguing it could constrain ministerial decisions on publications, but states it will consider next steps for internal assessment.
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HM Treasury
31
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
The NAO found that some recent environmental strategies mentioned tax measures which have an impact on government’s environmental goals, and some of these strategies included a brief consideration of the impact of tax measures or their interaction with other policy measures. But the NAO also identified gaps, particularly relating to …
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The NAO found that some recent environmental strategies mentioned tax measures which have an impact on government’s environmental goals, and some of these strategies included a brief consideration of the impact of tax measures or their interaction with other policy measures. But the NAO also identified gaps, particularly relating to taxes which do not have an environmental objective, such as fuel duty.61 HM Treasury stated that it worked with other departments when designing taxes, for example working with Defra on the most effective combination of tax and regulation to reduce use of single-use plastic in packaging.62
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Government response AI summary
The government rejects the recommendation for exchequer departments to describe tax impacts on other departments' environmental responsibilities and agree robust assessment approaches, arguing it could constrain ministerial decisions on publications, but states it will consider next steps for internal assessment.
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HM Treasury
33
Conclusion
Fifty-Fifth Report - Environmental tax …
Rejected
HMRC expressed the opinion that Landfill Tax “needs to be complemented by regulation and effective enforcement of that regulation” to deal with the negative 58 Q 74; C&AG’s Report, para 1.33 59 C&AG’s Report, para 3 60 C&AG, Reducing carbon emissions from cars, Session 2019–2021, HC 1204, 26 February 2021, …
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HMRC expressed the opinion that Landfill Tax “needs to be complemented by regulation and effective enforcement of that regulation” to deal with the negative 58 Q 74; C&AG’s Report, para 1.33 59 C&AG’s Report, para 3 60 C&AG, Reducing carbon emissions from cars, Session 2019–2021, HC 1204, 26 February 2021, para 2 61 C&AG’s Report, para 2.14, Figure 14 62 Q 14 63 Qq 21, 54 64 Serious and organised waste crime review, Independent review into serious and organised crime in the waste sector, November 2018, page 1 65 C&AG’s Report, para 13 16 Environmental tax measures behaviours incentivised by the tax.66 When we asked HMRC about both exports of waste and fly-tipping, it told us that other departments had lead responsibility for these areas.67 We asked HMRC with whom it had engaged on the impact of Landfill Tax. It said that it was in contact with a range of different departments and in particular it worked with the Environment Agency. It gave the example of how it had worked with the Environment Agency to react to the increasing use of unauthorised landfill sites that HMRC said had been seen around four or so years ago. HMRC said this joint work had resulted in a legislative change which from 2018 had brought unauthorised sites into the scope of tax. HMRC also referred to the new joint unit on waste crime that has been set up to work in partnership with organisations such as the National Crime Agency to deal with criminal gangs.68 This unit was established in 2020 in the Environment Agency, in partnership with HMRC, the National Crime Agency and others, and was in response to a recommendation by the independent review into serious and organised crime in the waste sector in 2018.69
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Government response AI summary
The government rejects the recommendation for exchequer departments to describe tax impacts on other departments' environmental responsibilities and agree robust assessment approaches, arguing it could constrain ministerial decisions on publications, but states it will consider next steps for internal assessment.
Read full response →
HM Treasury