Recommendation 22

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