Motorists could face a huge increase in fuel duty on top of a £3,300 levy on new cars under proposals outlined by the Green Fiscal Commission. So would these tax hikes linked to the amount we pollute be justified? We take a look…
Is a green tax blitz justified?
Put forward the idea of raised taxation and most people will complain. Justify it with a green agenda and some will at least stop and listen.
A report unveiled by the Green Fiscal Commission, which includes the Government's top environmental adviser Lord Turner, as well as Conservative and Liberal Democrat politicians and Environment Agency chairman Chris Smith, has outlined a host of proposals that would heap an additional £150billion in taxes on households and businesses (see article).
What are the proposals?
The 100-page report wants to double the proportion of green taxes in the current tax take from the existing level of seven per cent. It states that green levies could be offset elsewhere by decreases in income tax and National Insurance contributions.
Among its suggestions is a £300 tax on new cars, increasing annually to £3,300 by 2020. It also puts forward the idea of further increases in fuel duty which could lead to petrol costing motorists £2 a litre within 11 years.
According to the think-tank, the blitz is essential for the UK to meet its target of cutting greenhouse gas emissions by around a third in that time. However, critics have hit out at the plans suggesting that we are already over taxed and that motorists in particular are being used as 'cash cows'.
Can a tax rise be a good thing?
In his column in The Guardian, John Sauven outlined that since 1997, the proportion of Government revenues derived from green taxes has actually fallen. If we are to get serious about tackling climate change then it is inevitable that green taxes will have to rise.
The right economic choices now could influence Britain's ability to enter the low carbon economy as world leaders. If the UK can develop clean technology then it could dominate export markets rather than having to spend billions on buying carbon credits from countries that have left us behind. The likes of Germany and Denmark are already reaping the rewards of having altered their tax systems to encourage green innovation.
By following the steps outlined in the Green Fiscal Commission's report, Britain could make a transition that allows it to create new jobs in low carbon industries, create energy efficient homes that keep people warm without using as much energy; and enjoy greater energy security that is less vulnerable to the fluctuations of the oil and gas markets.
Under the Stern review, three kinds of policy were outlined to reduce carbon dioxide emissions: technology stimulation, carbon pricing and the removal of the barriers to behavioural change. By implementing green taxes, all three areas would be addressed with incentives to encourage behavioural change.
The keys to a green tax change
While understanding the theory behind the proposals, there are some important caveats that must be raised before any changes are implemented.
Firstly it's vital to note that the British public is already heavily taxed. Offsetting any increases with reductions in income tax and National Insurance contributions – as suggested – is vital. Only when these plans are made clear is there any chance of widespread acceptance.
The idea of levies on new cars will raise alarms when the industry is in recession; and any increases in fuel duty will be regarded as a money making scheme rather than anything aimed specifically at boosting the environment. So the Government should steer clear of making wholesale changes until they can justify them with reductions in taxes elsewhere.
More money must be invested into green car infrastructure too. If we are to be taxed so heavily for petrol then it must be realistic to drive an alternative vehicle – presumably an electric car. Until that infrastructure is in place, penalising motorists who have no real alternative will just be tax for the sake of tax.
Serious incentives must be introduced for drivers to move over to green cars too. In previous editions of The Green Piece Column we have openly criticised the Government for failing to attach an emissions criteria to its scrappage scheme – in theory a motorist could pick up a new vehicle at a reduced cost under the scrappage scheme, even if it pollutes more than their existing car. There have to be real incentives to go green and to further encourage car manufacturers and dealers to veer away from traditional gas guzzlers.
Green taxation has the potential to be a step forward – to stimulate technology, to put Britain in a competitive position and to stimulate behavioural changes at ground level. However, these changes must be preceded by significant investment in green infrastructure to give motorists a clear alternative and an opportunity to make positive environmental changes to their lifestyle. Otherwise levying these taxes would be little more than a swinging form of income tax.
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