Budget `97: A disappointingly pale shade of green

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The Independent Online
The Prime Minister's barnstorming performance at last month's Earth Summit II raised expectations that Mr Brown would deliver a deep green Budget. He has not done so. This will disappoint the green tax hawks both within the pressure groups and his own party.

The Chancellor has promised green jam tomorrow - maybe. He proposes to consult on both an aggregates tax and on water pollution charges later in the year and to consider reducing the VAT on energy efficiency materials. The actual measures he has taken, reducing vehicle duty on lorries and buses with low emission by pounds 500 and increasing the Conservatives' fuel duty escalator by an heroic 1 per cent to 6 per cent, will accomplish little.

Furthermore, their beneficial effects will be far outweighed by the reduction in VAT on domestic fuel to 5 per cent and the reduction in the gas levy that will lower the price of gas by 11 per cent in the second year. Mr Brown's efforts seem destined to give global warming a wholly unnecessary boost and to make the accomplishment of the Government's brave 20 per cent reduction target for carbon emissions even more difficult to achieve.

These are timid steps. Their impact on the environment will be far less important than their contribution to filling the Chancellor's purse. But this is not the significant setback for the environment that the current vogue for green taxation would lead you to believe.

Arguments for environmental taxation have an alluring popular appeal. Pollution is sinful, sin must be punished, taxes are punishment, ergo, tax pollution. Economists are attracted by the idea of using economic instruments rather than regulations to achieve environmental goals since these "first best" measures are supposedly more efficient, because they work with market forces, are cheaper to implement and more flexible. But both the populists' desire to punish wrongdoing and the economists' desire for theoretical elegance are in danger of leading environmental policy makers up a sterile blind alley.

The fact is there is little clear empirical evidence to show that environmental taxes do lead to significant changes in behaviour. Indeed, there is no agreed definition of what makes a tax an environmental tax. Both the OECD and the European Environment Agency have recently published studies of the effects of environmental taxation whose enthusiasm for more of them is matched only by their inability to demonstrate that they actually work.

This should trouble environment ministers but will not worry chancellors of the exchequer since one thing is clear, environmental taxes do generate lots of revenue. What is more, compared to other ways of raising taxes, they are relatively acceptable to the public. The real danger to the environment is not that Chancellors will do too little, but they will do too much and for the wrong reasons.

The green feebleness of Mr Brown's first Budget in fact creates a welcome opportunity for environmental policy makers to arrive at a clear definition of what makes a tax environmental. In particular, they need to develop a much better case for what should happen to the yield of environmental taxes. The few that can clearly be shown to have achieved their environmental goals have all involved a significant amount of recycling the yield into abating the pollution.

The writer was special adviser to the last three Secretaries of State for the Environment.