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Business Comment

David Prosser: Undermining the case for green taxes

Outlook One accusation frequently levelled against the previous Labour Government was that it was too fond of introducing new taxes presented as action on climate change that were, in reality, just new sources of revenue. After the Treasury's smash-and-grab raid on the carbon reduction commitment (CRC) scheme, the Coalition faces exactly the same criticism.

This was an arrangement – companies buy carbon allowances and are rewarded with rebates if they succeed in getting emissions down – originally envisaged as being revenue neutral. So the £1bn that the Treasury now expects to earn from the scheme, as it pockets the money spent on allowances but pays out no rebates, represents quite a chunky hit on the 5,000 businesses affected.

The change in the rules will not jeopardise the scheme's aims: it will still be in the interests of companies to get emissions down, so as to minimise the bill for allowances in the first place. Nor is the whingeing of some firms about extra administration justified – the preparation for the CRC scheme should already have been done and the only thing that is changing is that businesses can no longer expect a cheque to arrive if they perform well.

Still, this is a dishonest way to conduct tax policy. It is one thing to announce a tax rise on the grounds that you need the revenue, but quite another to alter the tax system so as to prioritise green issues. Confusing these two policy goals, as the Government has now done, will make moving to a tax system designed with climate change in mind, as we surely must, all the more difficult. Having been stung once in this way, businesses will be even more suspicious about the next green tax initiative. The Treasury has just lost a big slice of environmental credibility.