Alistair Darling's first Budget tomorrow is already being widely referred to as "green". We can but hope. This Government has a lamentable record on environmental taxation. While ministerial rhetoric on the need to reduce carbon emissions has soared into the stratosphere, environmental levies have actually fallen as a proportion of overall taxation under Labour. As the House of Commons Environmental Audit Committee pointed out last week, its share has fallen from 9.5 per cent in 1999 to 7.3 per cent today.
Mr Darling has a chance tomorrow to show serious commitment to the principle that the polluter must pay. There is talk of a rise in fuel duty, higher taxes on heavily polluting vehicles, a replacement of air passenger duty with a tax on each flight and moves to expand carbon trading. That is all to the good, although any serious policy would be incomplete without plans for VAT on airline tickets and jet fuel. Yet there is a significant danger in all of this, namely that "green" taxes will be seen as purely money-raising measures, rather than as part of a serious attempt to safeguard the environment.
Environmental levies need two key features. The first is that they be substantial enough to change behaviour. The second, and no less important, is that the proceeds are seen to be channelled into green schemes, or to provide tax breaks for those who make more environmentally friendly choices.
The London Mayor, Ken Livingstone, showed how it needs to be done with his congestion charge on cars. The proceeds of the charge were invested directly in improving the bus network in the capital. People grumbled, but they could see where their money was going and the environmental benefits it brought. The Chancellor needs to follow this example. Tomorrow he should announce that all the proceeds from new environmental levies will be funnelled into green schemes. One good target would be a hefty increase in funding for the Low Carbon Buildings Programme, which offers grants for households to generate their own electricity through solar panels, wind turbines or ground-source heat pumps. Another worthy recipient would be a major push to encourage energy conservation in homes.
Without such measures, there is a serious risk that green taxes will be discredited by political association. People will accuse the Government of using spurious "green" rhetoric to justify raising taxes. This is precisely what happened when Gordon Brown, as Chancellor, announced a pitiful £5 rise in the air passenger duty in 2006. Yet it is difficult to be optimistic that the Government is about to change its ways. This is because Mr Darling has little room for manoeuvre. He is faced with a housing market on the turn, slowing growth and worrying inflationary pressures. It is true that the blame for such adverse conditions cannot be pinned on the Government. But what ministers cannot escape responsibility for is how ill-prepared we are fiscally to respond to them. Mr Darling has been bequeathed a legacy by Mr Brown of rising public borrowing. Rather than building up a surplus in the times of high growth, the Government spent it. Now we have no fiscal cushion.
A slowing economy will mean less Government tax income from capital gains tax, company profits, stamp duty and VAT.
The upshot is that it is easy to see additional green taxation revenues being swallowed up to fill the gaping hole in the public finances, rather than diverted to environmental schemes. If Mr Darling stands up tomorrow and announces such a cynical plan, his first budget will be as environmentally-unfriendly as any put forward by his predecessor.