Lamont was right - shock: Geoffrey Lean says that high fuel taxes will boost the economy and create jobs

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The Independent Online
MAYBE, just maybe, Norman Lamont got something right. It may be hard to believe in the week that his imposition of VAT on domestic fuel comes into effect. Yet a measure he announced at the same time is already changing Britain for the better.

In his last Budget, a year ago, he announced that petrol tax would be increased by 'at least 3 per cent' each year, over and above inflation, for the indefinite future. Kenneth Clarke raised this to 'at least 5 per cent' in December. If maintained, this increase will, at the least, double the tax on fuel in 14 years, quadruple it in 28 and multiply it eightfold by 2035.

This will revolutionise British transport. It is behind the Government's first attempts to curb the car, which will be taken further when cuts in the roads programme are announced this week. And it has spurred changes in planning policy to discourage the siting of supermarkets and other facilities out of town.

Tomorrow an international seminar in Chatham House, London, will lay out ways in which similar energy taxes could simultaneously cut pollution, boost employment and get Britain out of recession, while achieving another of Mr Lamont's aims - steady reductions in income tax.

It would be churlish if there were not at least a nod in his direction. But not for the imposition of VAT on fuel, which might almost have been designed to save the least possible energy with the maximum possible social (and political) damage. Short sharp price shocks do little to encourage conservation among householders, notoriously slow to respond, while causing disproportionate pain to the poor. At Chatham House, they will be discussing something much more sophisticated, a gradual shift in the burden of taxation.

The principal speaker, Ernst Ulrich von Weizsacker president of Germany's Wuppertal Institute, will propose raising the price of all forms of energy by 5 per cent a year. He would compensate by cutting income tax and VAT. The idea, as he puts it in Earth Politics, published by Zed Books tomorrow, is to make it 'more profitable to lay off kilowatt hours and barrels of oil than to lay off people'.

Strangely, we tax employment, which we need to increase, far more than energy use, which should be reduced. Through income tax and national insurance we tax jobs at between 33 and 50 per cent, while much energy use - company cars or nuclear power, for example - is heavily subsidised. Over the last 30 years, taxes on energy have decreased in Europe, while those on labour have increased. No wonder unemployment has risen.

Professor von Weizsacker wants taxes on energy to replace as much as one-third of the revenue raised from income taxes. The switch would be gradual, over some 40 years, and would not increase the overall tax burden. But it would bring about profound change. It would cut pollution, including nuclear waste, the gases from fossil fuel that exacerbate asthma, cause acid rain and hasten global warming - and the noise and visual nuisance from wind farms. Professor von Weizsacker reckons pollution costs up to a tenth of GNP.

Shifting the burden of taxation to energy would boost employment in two ways. It would make labour cheaper. And the new, environmentally friendly technologies that would be stimulated by increased energy prices generally provide more jobs than polluting ones. Recycling waste, Robin Cook and Chris Smith, Labour's spokesmen on trade and the environment, pointed out this month, is 10 times more labour intensive than dumping it in holes in the ground; conserving energy provides many more jobs for the same expenditure than generating it. In all, the European Union estimates, 'ecological tax reform' would create at least 2.7 million new jobs.

High energy prices do not hold back economic growth; quite the reverse. The developed countries with the highest energy prices - Japan, Germany and Switzerland - are the most successful. By contrast, cheap fuel helped preserve the creaking and polluting industry of the former Soviet bloc.

This is partly because high prices and tight regulations provide that most precious of all industrial commodities, a spur to technological innovation. Over the last 150 years the cost of labour has risen eight times over and laws restricting its use - shorter hours, safer conditions - have multiplied. As labour has become more expensive, so employers have used it more efficiently. The resulting technology has increased each worker's productivity twentyfold. Similar rises in energy costs, along with tighter pollution controls, could increase 'energy productivity', allowing us to get richer while burning less fuel. Costly energy, for example, accelerated Japan's development of information technology.

Germany and Japan dominate the dollars 200bn world market for anti- pollution equipment. Germany exports 40 per cent of its output. Britain, by contrast, is now a net importer of such technology - after exporting eight times as much as it imported in the early 1980s.

Sweden is already beginning to practise 'ecological tax reform', and it was endorsed in last year's EU White Paper. The Liberal Democrats published proposals last year and the Labour Party is working on plans.

Of course, there would be losers. The poor would have to be safeguarded, preferably through a crash programme of home insulation, which would save them money, conserve energy and provide 50,000 jobs a year in Britain alone.

If this were done, the reform could fulfil the maxim of Louis XIV's great finance minister, Colbert: 'the Art of Taxation consists of plucking the goose so as to get the most feathers with the least hissing'. If Norman Lamont had had been as canny, he might still be in office.