Switching taxes from labour to pollution and use of natural resources could increase GDP and jobs as well as reduce harm to the environment, economists say.

The scenario follows ‘the polluter pays’ principle by introducing additional excise duties on fossil fuels and taxes on carbon, water and electricity for bulk users. The combined revenues would lower the tax burden on labour, the economists believe.

Independent Dutch think tank the Ex’tax Project Foundation worked with Cambridge Econometrics, Trucost, Deloitte, EY, KPMG and PwC to analyse the impact of such changes across the 28 EU member states.

By 2020, the shift would raise GDP across the bloc by 2%, create 6.6 million jobs and reduce carbon emissions by 8.2%, the study found.

Trucost calculated that the shift would be worth more than €1.1bn in avoided health problems from air pollution, greenhouse-gas emissions, land and water pollution, and health improvements from better water conservation. Social benefits worth more than €17bn would also be created, it said.