Brown Calls For Green Tax Incentives

by Jason Gorringe, Tax-News.com, London

14 March 2007

In contrast to the new green taxes proposed this week by the UK's Conservative Party, Chancellor of the Exchequer, Gordon Brown on Monday signalled his preference for green tax incentives to encourage a reduction in carbon emissions.

In a speech delivered to the Green Alliance in London, Mr Brown announced that:

"When, nearly two years ago I commissioned Nick Stern to conduct a review of the economics of climate change, I wanted to build a new consensus: that we had to go beyond the traditional alliance of economic growth and social justice as the central concerns of policy, and put growth, justice and environmental care together as our trinity of objectives."

"But perhaps I did not realise, and - possibly outside some people in this room, I don't think many people did - quite the scale of the challenge that would be revealed by Nick Stern's work, now reinforced by the latest report of the Intergovernmental Panel on Climate Change. We are facing a world at risk of an increase in temperature equivalent to that between the last Ice Age and now. But, as Stern shows, this is also a world of great new opportunity - for business, commerce and science, to ensure that a green economy will also be a growing economy."

He continued:

"I believe the new partnership must be founded on a clear set of objectives; a new contract between citizen and government; and a clear, long-term policy framework."

"First, as we enter a new era of international obligations from 2008, and as we begin to negotiate seriously for commitments beyond 2012, we need to ensure that the UK's emissions - including the emissions abroad for which the UK is responsible through emissions trading systems - are placed on a sustained downward path. For while the UK's record on greenhouse gas emissions is among the best in the developed world - we are on course for a 23% cut by 2010, nearly double our Kyoto commitment - we know this is not enough."

"So we will adopt a new institutional framework to cap control and manage the UK's contribution to global carbon emissions."

"I can tell you tonight that the draft Climate Change Bill published by David Miliband tomorrow will create for the first time a system of statutory carbon budgets which will place an overall limit on our cumulative emissions. They will be set following advice from an independent Committee on Climate Change and the Bill will require an annual Parliamentary report on progress by government: a wholly new way of managing the UK's climate change effort, sustained by proper public accountability. Just as we manage our financial budgets over the economic cycle with prudence and discipline, so we will have to manage our carbon budgets with the same prudence and discipline. Chancellors of the Exchequer will now count the carbon as they currently count the pounds."

Speaking with regard to the tax-related measures being put forward by the government in this area, the Chancellor stated that:

"In the last Pre-Budget Report, I announced that within ten years all new homes would have to be zero carbon, and I provided a stamp duty exemption as an incentive to get there. But new homes are only a small percentage of the total. So today I want to extend our ambition to all homes. Over the next decade my aim is that every home for which it is practically possible will become low carbon."

He continued:

"I am calling on the EU today to speed up the setting of new energy efficiency standards for consumer electronic goods and to permit lower rates of VAT on energy efficient goods. But again by working with retailers we will do this first in Britain, designing out the use of wasteful standby facilities and raising energy efficiency. This will save a further 1.7 million tonnes of carbon, and GBP45 off a household bill."

And went on to argue that:

"We need to provide such incentives across the board. Over the last ten years, I have reduced the rates of VAT on energy efficient goods which are professionally installed. But European law currently prohibits reduced rates of VAT for environmentally friendly products bought by individual consumers. So I am today writing to European Finance Ministers to follow up last week's EU decisions not just by speeding up new environmental standards for greener goods but allowing reduced VAT rates to encourage their use. And building on the tax changes we have already made - the Climate Change Levy, the Aggregates Levy, the Landfill Tax escalator, Enhanced Capital Allowances, VED and company car tax - we will continue to examine how the fiscal system can properly incentivise environmental behaviour."

The Conservatives, meanwhile, have launched a consultation exercise on how to use environmental taxes to reduce the rapid growth in carbon emissions from aviation.

Highlighting the idea of a new green air miles allowance for every passenger, Party Leader David Cameron declared: "We should be taxing in a smart way with taxes at the margin that change behaviour. We need to make carbon reduction as important as the Budget."

While rejecting suggestions that flying is wrong and should be stopped, Cameron nevertheless argued that the rapid predicted future growth of aircraft emissions must be cut if Britain and the rest of the world are to meet national and international targets for reducing greenhouse gas emissions.

With the consultation focusing on the UK national effort, he suggested that the current system of aviation taxation in the UK is fundamentally flawed - with Air Passenger Duty not directly linked to carbon emissions, and providing no incentives for airlines to use more fuel-efficient aircraft.

Addressing the Green Economy Conference in London earlier this week, Cameron stated:

"In aviation, we are directly taking on the most difficult challenges. Carbon emissions from aircraft are taxed less than virtually any other form of carbon, yet because they are released high into the atmosphere, they can do most damage."

He went on to accuse the Labour Government of confronting the problem with a superficial, short-term spin approach, arguing that:

"We have had ten years of rising emissions and wasted opportunities. The Chancellor is giving green taxes a bad name. Air Passenger Duty is not directly linked to carbon emissions, and provides no incentives for airlines to use more fuel-efficient aircraft."

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