Petrol revenues `must be spent on public transport'

THE GOVERNMENT'S "green" tax plans were criticised by its own experts as unfair and illogical yesterday. Worse, they do not do enough to protect the environment, the three members of the Academic Panel on Environmental Taxation said.

The panel's comments will be discomforting for Gordon Brown as he polishes the pre-Budget statement he will make next week.

If the Chancellor wants to continue with the 6 per cent escalating tax on petrol, he must spend the proceeds on public transport, the panel told Radio 4's Today programme, adding that plans for a climate-change levy will do disproportionate harm to small industries.

"The Government is right to see environmental taxation as a good idea," said the panel's chairman, Dr Dieter Helm, an Oxford economist. "But it also sees environmental taxes as a way of raising money and the two motives get muddled up."

The panel is scathing about the proposed climate-change levy, a tax on electricity which will be used to reduce businesses' national insurance contributions. But the tax will raise the same amount from heavily polluting coal as from clean gas. Even wind and solar power will be taxed at the same rate.

Dr Helm said the levy was "extremely badly designed". "If the purpose of the levy is to do something about carbon emissions, you should tax carbon."

The Government should plough the proceeds of the tax into improving energy efficiency in business, not cutting national insurance, said his colleague, Professor David Pearce, of London University. "Most heavily polluting industries are gaining exemptions from the levy anyway - the only people who'll pay the tax will be little industries."

The third panel member, Professor David Newbery of Cambridge, condemned the fuel-price escalator. Motorists are already paying for more than the damage they cause the environment, he said: "On purely environmental terms, the escalator should have stopped last year."

The Chancellor could make a case for the escalator by promising to spend the proceeds on public transport, Professor Pearce said.

The Government should also raise the tax on energy used in people's homes, a Conservative policy that Labour promised to scrap if elected. "What they should have done was to continue with the tax to increase the price of fuel, then use it to insulate the homes of the poor," said Professor Newbery.