Green credit is given where due: Letter

Sir: Hamish McRae ("Environment taxation should be a practical issue, not a political one", 15 October) claims that our report on Green Tax Reform is a political tract with a "strong anti-Government tone".

In fact we give the Government credit for the petrol fuel escalator and the new landfill tax, and commend John Gummer's outspoken support for action on climate change.

We do attack VAT on domestic fuel, partly because it made the issue so highly politicised. By breaking election promises not to extend VAT, and ignoring the social consequences of this particular form of environmental tax, Norman Lamont seriously damaged the prospects for sensible debate about reform.

Mr McRae is wrong in some of his claims. He states that Germany does not have particularly high energy prices and that Italy's energy and environmental taxation is lower than the UK's.

In fact Germany's industrial electricity and gas prices are both around 20 per cent higher than the UK's, and higher than anyone else's except Japan, Italy and Switzerland. Italy's industrial electricity prices are 50 per cent higher than the UK's.

Mr McRae has confused the tax rate, which dictates the price, with the percentage of total government revenue raised from energy taxes, where Italy does indeed score slightly lower than the UK.

On some things we agree, though Mr McRae appears to overlook the fact. Our report makes clear that the predictions for employment creation should not be taken as quantitatively reliable guides to the future, more as indicators of likely trends. The primary reason for reform would be environmental, not to create jobs.

We also make clear that environmental taxes should not be seen as a "plan to raise more revenue for Big Government" - this is why all our argument and modelling is based on the assumption of tax neutrality, reducing labour taxes to reflect the increase in green taxes.

STEPHEN TINDALE

Senior Research Fellow, Institute for Public Policy Research

London WC2