Green tax looks jaded

Tax used to be a dirty word in the Conservative party. A low-tax economy, it
has argued for decades, invigorates business and encourages investment and
enterprise. So shadow chancellor George Osborne’s (pictured) declaring support
in July for a range of new green taxes may have come as a surprise to the
corporate world.

Given the flak green taxes such as the London congestion charge and the
vehicle excise duty tax banding have received, a complete abolition of Labour’s
green taxes ahead of a forthcoming general election might have looked a more
popular move. True, the Conservatives introduced the UK’s first green tax in the
1990s, the landfill tax. But until 18 months ago, its official line was that
environmental taxes simply added to the business burden.

Now, the Conservatives are finessing. In today’s political culture, MPs have
to be seen to be green or look out of touch. So the response has been a little
more subtle: to denounce the government’s current policies as stealth taxes used
to milk the taxpayer without generating any environmental benefit. “They’ve been
poorly targeted [and] they’ve not led to lower pollution,” said Osborne at a
meeting held by environmental group Green Alliance.

Rohan Silva, Conservative policy developer, explains: “We want a more
competitive tax system that best incentivises investment and work and
disincentivises bad things,” he says. The new and cleverer line is that more
green taxes will take some burden off businesses by allowing governments to
reduce income or investment taxes.

Burden shift
Energy and transport are a particularly good target for this burden shift,
experts argue, because consumption in these sectors only partly responds to
taxation, compared with other sectors which are more price-sensitive, whereby
consumption is reduced in proportion to the price rise. Hence, an increase in
the tax rate in these two areas may generate net revenue increases for the
Treasury, which allows it to move the tax focus while rewarding
environmentally-friendly taxpayers at the same time.

But that would only happen if the environmental taxes were an effective
instrument in the first place. One of the main planks underlying the
Conservatives’ new policy is an overhaul of the Climate Change Levy (CCL),
considered flawed because it does not relate to an electricity supplier’s carbon
content. This tax would be replaced by a Carbon Levy more closely linked to
emissions.

The Conservatives have found ways of making the government appear clumsy,
through, for example, its fuel duty escalator, which they would replace with a
fair fuel stabiliser. Instead of rising annually regardless of the oil price,
the fuel duty would go up when prices fell and fall when prices rose.

It may be some time before the Conservatives get to try out their ideas for
real. For now, perhaps the biggest surprise is that, under a Conservative
government, green taxes are likely to increase because, as policy makers have
confirmed, they have fallen in real terms over the past decade.