Recommendation 5

HMRC has not done enough to evaluate how tax measures with environmental objectives have changed behaviour. HMRC’s monitoring of environmental taxes focuses on tax revenue, but this is not sufficient on its own. For example, falling tax receipts may mean that a tax is effective because businesses are changing behaviour, but it does not tell HMRC what businesses are doing instead and whether that is more or less environmentally harmful. HMRC has not monitored adverse outcomes sufficiently to understand the impact of environmental taxes. It does not monitor the effect of Landfill Tax on the export of waste, and it currently holds no information on levels of fly-tipping, although it had undertaken some analysis which found no correlation with Landfill Tax rates. The range of responses to a tax can be complex. In the absence of good monitoring data, evaluation is needed to understand the range of environmental impacts. HMRC has evaluated only one of the four environmental Environmental tax measures 7 taxes since 2010, in part because its research budget has been limited. HMRC is now planning to allocate an additional £2 million for evaluating tax measures in 2021–22. Recommendation: HMRC should ensure that it has sufficient information to assess whether environmental taxes are achieving their objectives and whether they are having wider impacts, including unwanted behaviour change.