Outlook: Energy tax

IT IS one of the depressing facts of life that pleasures are swift and pains lasting. As the glow of Gordon Brown's penny off the income tax has faded from the headlines, the bad news in the Budget has come to the fore. First truckers complained about vehicle excise and fuel duties. Yesterday it was the turn of heavy energy users to criticise plans for a climate change levy, or energy tax.

Like the road hauliers, the energy-intensive industries make some pretty specious points. They complain that their energy costs are much higher than those of their competitors overseas, but omit the fact that other costs are lower. The balance of the tax burden between energy, labour and capital is different in the UK - it favours labour. But the overall corporate tax burden is pretty similar across Europe. Most comparisons put Britain ahead on cost grounds. So while the energy tax will certainly fall more heavily on energy-intensive users, that does not make it a bad policy per se, even if they are all in the struggling manufacturing sector.

However, there are two serious problems with the government's use of tax as an instrument of environmental policy. One is the fact that above- inflation increases in fuel duties have done nothing to dampen our love affair with the car.. Emissions of greenhouse gases from transport have actually doubled in 25 years. The lesson from governmental tinkering with incentives to get vehicles off the roads is that tax charges probably have to be very high indeed to have a big impact on usage.

Secondly, there is a profound political silence on the need for consumers and households to pay more for their energy use if fiscal policy is to be an effective environmental instrument. Having made such political capital over its defeat of the Tories on VAT on domestic fuel, and having made such a virtue of falling gas and electricity bills for consumers, the Government is not going to reverse course now. But the fact is that unless every one of us pays more for energy, as a nation we will not economise on it.

Taxation is a blunt instrument, especially when it is wielded so selectively. A better policy than penalising the use of energy would be to incentivise industry to reduce its emissions. The Government, as yesterday's olive branch to the big energy users demonstrated, is moving in that direction.

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