Fuel duty not a green tax, says Treasury

19th July 2012


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The government has revealed it does not consider road tax or duties on fuel and air passenger numbers as environmental taxes

In its first formal definition of what constitutes an environmental tax, the Treasury has confirmed that, while levies on fuels and vehicle excise duty can have a positive impact on the environment, they are fundamentally revenue raising exercises.

This means such taxes fall outside of the coalition’s pledge to increase the proportion of revenue generated from environmental taxes.

Figures released by the Office of National Statistics (ONS) in June revealed that the proportion of revenue generated by environmental taxes (including fuel and vehicle duties) fell for the second year in a row in 2011, making up 7.9% of total tax revenues compare to 8.1% in 2009.

According to the Treasury’s new definition only taxes that are “explicitly linked” to environmental objectives; primarily aimed at encouraging “environmentally positive behaviour”; and structured in a way to deliver environmental objectives (higher taxes for more polluting behaviours) are to be considered an environment tax.

The Treasury has confirmed that climate change levies, landfill tax, the Carbon Reduction Commitment Energy Efficiency scheme (CRC) and the government’s planned carbon price floor, all qualify under its new definition.

It total these taxes generated £3.1 billion during 2011 – with landfill tax generating more than a third of those revenues and the CRC £0.7 billion – or just 0.5% of UK tax revenue.

According to ONS projections, however, the introduction of the carbon price floor, increases in landfill tax rates and revenues from the CRC and the EU emissions trading scheme, will see environmental tax revenues more than double by 2015/16.

Announcing the new definition, Chloe Smith, the economic secretary to the Treasury, said: “This is an important step in meeting the government’s commitments on environmental tax, and our broader determination to be the greenest government ever.

“By setting out a clear, usable definition of what a green tax actually is, people will be able to judge us against the coalition agreement pledge.”

Despite Smith's comments others have warned the move smacks of political convenience.

“The coalition said they wanted to increase the proportion of environmental taxes, but the charge that will be levelled at them is whether they can only achieve that by changing the basis on which they describe an environmental tax,” said Martin Baxter, IEMA’s executive director of policy.

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