Green tax

By Neasa MacErlean

As we await the next Finance Bill, people with a green disposition have every right to feel impatient about the lack of progress on environmental taxation. The recent Budget followed the example of its predecessors in neglecting the area. In fact, with its help for motorists it set back the cause. Or am I being unfair?

If the UK is going to reduce its emissions it will have to create new tax laws to change behaviour. At the moment there is only a handful of specifically green taxes – the Aggregates Levy and the Landfill Tax, for instance. The scope is immense, however. Nine years ago Ireland produced its levy on plastic shopping bags which led to a 90 per cent fall in their use. Mission largely accomplished on that score. This is just the kind of levy that tax experts like and want to see copied in other spheres. It was simple to introduce and to understand. It was not oppressive as shoppers can use other containers to take their shopping home. And it achieved its aim of changing behaviour.

Responsible for 30 per cent of emissions, the homes of ordinary citizens cannot be let off when we do finally get to grips with green tax laws. The Chartered Institute of Taxation has suggested a scheme in which homeowners are encouraged to make their properties energy-efficient. Homes could all be rated (in the same way that we rate fridges and other domestic electrical equipment now) both for their actual efficiency and their potential efficiency. A charge would be levied on the difference.

So what holds the UK back? The principles of green tax law have not yet been outlined or included in tax law. Without the unity of an overall statement of aims, individual tax laws have no fundamental context. So if, for instance, they go out-of-date or backfire, these rules cannot be easily measured against their goals either by judges in courts or by MPs as they appraise the Finance Bill each year.

However, we could expect some movement on this soon, maybe in the next Budget. Officials at H M Treasury started consulting this year on the drafting of principles for environmental taxation. They would very likely cover much of the same ground as the basic principles defined by Adam Smith more than 230 years ago. They would, almost undoubtedly, set out the need for fairness, certainty and the minimisation of the compliance burden. These concepts would act as vital safeguards in the development of a new branch of taxation. For instance, it would be easy, in our complicated tax system, to tax people twice (once through an existing tax, and once through a new green tax) on the same asset or income but a well-drafted statement of principles would bar that oppressive approach. The Adam Smith principles might need to be extended to cater for the fact that environmental taxes would mainly be introduced to change behaviour, rather than simply to raise revenue.

It has taken the UK 23 years to get to this point: the Intergovernmental Panel on Climate Change was set up in 1988. Let us hope that the tax lawyers act more speedily than the politicians.


  1. William says

    The tax system is in a hopeless state of complexity, and this isn’t going to change soon.

    The problem with green taxes is that they inevitably hit the poor harder, as they are far less able to insulate their homes etc. And the problem with climate change goals in particular is that the UK’s emissions are a tiny percentage of the global total, meaning highly expensive measures to reduce them will have virtually no effect.

    Far better to concentrate on alternative energy sources, which may be justified on many more grounds than simply CO2 emissions (involvement in fewer wars in the Middle East, for a start).

  2. Nick Gillies says

    “The principles for environmental legislation”? This sounds like a civil law approach. If the judges are meant to read legislation with reference to over-arching principles it will be something novel, like deciding what legislation means by referring back to the White Paper. And are the Parliamentary draughtsmen ready for this statement of principles? Also, frankly, with a Tory government with a hostile attitude to all things European, who is driving this? Your article is fascinating. Thanks for the heads-up.

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