Matthew Sinclair: More green taxes – a bad idea and politically dangerous

Last week a ConservativeHome survey of party members identified a sceptical attitude towards environmental taxes.  A report today from the TaxPayers' Alliance argues that the nation is already paying too much green taxation.  The TPA estimates the social cost of Britain's carbon emissions as £11.7bn but notes that Britain already pays £21.9bn in green taxes.

Today the TaxPayers’ Alliance releases a report setting out the state of green taxes in the UK today.  Our findings are stark.  We already pay far too much in green taxes, £10 billion or £400 per household per year. 

This result isn’t based upon some new and controversial understanding of the science.  The estimates we use of the harms resulting from global warming are taken from the reports of eminent climate scientists, William Nordhaus and Richard Tol, British civil servants, Sir Nicholas Stern, and the UN body usually cited as the ‘scientific consensus’ on climate change, the IPCC.

We compared their estimates of the harms, now and in the future, of climate change with the actual amounts of green tax charged, net of road spending.  The logic of green taxes is that if polluters are made to pay the social cost of the emissions they put out then they will balance the value to them of emitting against the social cost and the optimal amount of carbon will be emitted.  We found that green taxes have been set too high.

Not only are green taxes set above the social cost of carbon not really ‘green’, they create a series of social and economic problems:

> They are chronically unfair. Motorists pay VAT, industrial firms pay other business taxes – putting a big additional burden on these groups is deeply unfair.  A couple of examples: the Climate Change Levy costs the North 35 per cent more than the South; Fuel Duty and Vehicle Excise Duty cost every motorist between £548 and £743 more than the cost of building roads and the social cost of road transport emissions.  This unfairness also distorts the economy by, for example, favouring any firm that doesn’t need to move goods around the country.  Green taxes are also often regressive, Fuel Duty hits those on middle and low incomes hardest while any tax on electricity generation will be passed on to consumers and hit the poorest.

> They hurt our economic competitiveness.  Many other countries do not set green taxes at all and few have set them as high as we have.  You can see the difference in the negotiations over the European Union Emissions Trading Scheme where every other country played the system to avoid their firms paying while our government didn’t.  British firms ended up paying a £470 million subsidy to firms in other European nations.  It can undermine the emissions savings from green taxes if economic activity moves to countries like China whose industry is less energy efficient but where green taxes are not levied.

> Finally, they are inefficient.  Air Passenger Duty hurts the British tourism industry by discouraging people from flying to Britain – it might also increase emissions by encouraging people to fly further within its long and short haul bands.  Even the government’s Regulatory Impact Assessment – a measure thought to underestimate the true cost of regulation - for the EU Emissions Trading Scheme suggested it would cost £60 million per year in administration costs alone.

These costs make new green taxes, without a genuine environmental rationale, a very bad idea.  They are also politically dangerous.  New polling for the TaxPayers’ Alliance shows that the public are split roughly evenly on the question of whether additional green taxes should be charged (46 per cent disapprove while 45 per cent approve), however, one in four people are strongly opposed against only one in ten who are strongly in favour of new green taxes.

People are also very cynical about politicians who support green taxes.  63 per cent agreed with the statement “Politicians are not serious about the environment and are using the issue as an excuse to raise more revenue from green taxes”.  Politicians think that green taxes makes them sound responsible and caring, the reality is that to most of the British public they just sound phoney.

A better move would be to think about cutting some green taxes that are set at excessive levels.  Fuel Duty, for example, is thought of as an unfair tax by 60% of the public; just 17% think it is fair.  It is paid by people on middle incomes and in the commuter belts where there are so many marginal seats.

Excess green taxes are both a bad idea and politically dangerous.  The politicians of all major parties who have endorsed them should think again.

Comments

[Moral minority]

The TaxPayers' Alliance debunks more socialist (that's what the environmentalists like Goldsmith and Gummer really are) myths. It is not surprising that the Cameroons brief against TPA.

It was Ken Clarke who introduced the fuel duty escalator, insurance premium tax and air passenger duty. Gordon Brown learned a lot of his stealth tax tricks from the Tories own "Red Ken".

[Derek]

Green taxes are unpopular with most voters. Remember most voters do not believe the climate science/CO2 theory, and why should they when the scientists keep changing tack as new discoveries and information undermine their pronouncements.

What is the point of undermining our own people when the rest of the world isn't playing the game?

[James Maskell]

Well said Matthew Sinclair. Keep up the good work at the TPA.

[malcolm]

Taxes not just green ones are unpopular Derek. Not sure where you get your information but the polling I've seen suggests that most do believe the overwhelming number of scientists who believe that climate change is happening and is man made.
Personally I am unsure whether a tax on behaviour will deliver the finance that Osboirne needs.People can change their behaviour which will be good for the enviroment but not the PSBR

[Peter Franklin]

Matthew,

What are you counting as a green tax? Weren't many of these taxes implemented long before the green label was attached to them.

Also, what are you counting as the environmental cost of the taxed activities -- just the climate change cost or are you including the other other environmental costs such aslocal pollution from car exhausts?

Just asking...

[Matthew Sinclair]

Peter,

First, please go and take a look at the full report. It does discuss other externalities for several of the emitting activities. It is available through the TPA website.

Some of these taxes are older than the climate change debate, however, they are now being justified in those terms and clearly place a particular tax (beyond VAT, corporation tax etc.) on emitting activity.

We have included some externalities such as the need to build roads. We have left others out such as noise and localised pollution. These are the kind of externalities that emerge from all manner of activities from factories to houses to nightclubs. There are specific planning provisions for these externalities (all road building and activities that will materially affect the volume of traffic face additional checks). Regulation is the means by which such localised externalities are dealt with so the only externality that Fuel Duty and Vehicle Excise Duty can properly correct for is CO2 emissions.

[spagbob]

no one likes paying taxes and all taxes are unpopular, but the fact is that the government has to get taxes from somewhere, and in my opinion, better to tax pollution than families or business. i dont think the tories want to raise green taxes, but they realise they have no choice if they want to cut other taxes.

[Ross K. Allan]

Green taxes are paid by families and businesses.

[Adam]

You forgot congestion Matthew...

[Adam (again)]

Isn't it a bit cheeky to cite Sir Nick Stern as one of the eminent scientists whose values you use, when the application of his work actually shows that green taxes don't meet the social costs of carbon emissions, which then leads the TPA to spend a page of the report explaining why they think Stern is a load of rubbish.

[Derek]

Malcolm, see here for a poll to support my comment that a majority of the public do not believe that the science of climate change is settled.

What's more as the claims of global warming fanatics unravel - such as when Steve McIntyre showed that US temperatures were actually hotter in the 1930's than in the 1990's, more and more people will come to doubt the so-called "consensus".

[Derek]

sorry try here

[Matthew Sinclair]

Fuel Duty and Vehicle Excise Duty cannot effectively mitigate against congestion as they do not discriminate between different times and places. Driving on a lonely country road in the middle of the night gets the same charge as driving on a busy city road in rush hour.

[GADFLY]

I SEE ALL THESE PEOPLE THAT HAVE NOW TAKEN UP THE NEW RELIGION GLOBAL WARMING RIDING THEIR BIKES EVERYWHERE.THE MAIN CAUSE OF THE STATE OF THIS WORLD IS THERE ARE TO MANY HUMANS IN IT.THE ANSWER BY THE USELESS POLITICAL CLASSES IS TO TAX PEOPLE MORE.THEN GIVE IT TO PEOPLE TO PRODUCE MORE HUMANS.IN THIS LITTLE ISLAND OF OURS YOU SEE IT EVERYWHERE CONCRETE.WHAT DO OUR THICK POLITICAL CLASSES WANT TO DO! PUT DOWN MORE CONCRETE.EVEN AFTER ALL THIS I BET WE HAVE A TAX TO PAY FOR SOME QUANGO TO TEACH US ALL HOW TO SWIM.

[Cornstock]

"green taxes" are only "green" if people have an alternative. Otherwise they are just taxes- and often fairly regressive ones at that.

(I suspect I would not agree with the 'Taxpayers Alliance' about much, but on this, I do agree)

[David T Breaker]

I don't see how green taxes are any more of a bad idea economically than any other tax, with the exception of carbon trading (which I'd label a weird rationed permit trading scheme and not a tax, as the revenue is to a company and not the state).

All taxes distort the economy, but if we are going to have schools, a police force, NHS, Army and public services we have to get the money somewhere. And if we are going to cut other taxes such as IHT, we need to get alternative revenues too. Yes we can cut waste, but only when elected, and the public doubt politicians ability to cut waste without harming services.

I would have thought the TPA would have given thought to the impact of all taxes rather than simply railing against green taxes. As is known, indirect taxes such as green taxes on aviation have a far lesser impact on the economy than direct taxes, hence why we have VAT. They are a lesser disincentive against work, and so are more efficient, with the bonus of the tax burden being splut between the consumer and the company's profit (see tax incidence on Wikipedia). We're better off with green indirect taxes such as this than many other types of tax.

I also challenge whether Air Passenger Duty hurts the British tourism industry by discouraging people from flying to Britain, as surely it also discourages people leaving Britain in equal measure? Plus for every tourist pound spent here, I think about five are spent by Brits overseas.

You're right however that most see green taxes as a phoney way of raising yet more revenue, something I'm very much against. I do think however shifting the collection of tax from inefficient taxes to more efficient taxes is a very good idea, and it just happens to be that some green taxes (such as VAT on aviation) are more efficient than current taxes (such as corporation tax).

[Ian Parker]

At last! A sensible article.

I would make two points, one on the issues and then on a sensible taxation stance in this regard.

First, the issue of global warming has become linked, in a manipulative way, with the impact of humans on the environment. Simply, the science does not support this linkage. That the globe is warming is established. It is, however, a naturally occurring phenomenon. Obviously, this can become a vexatious topic for the proponents of man’s inherent capacity for evil, but let me mention a fact; both Saturn and Pluto are undergoing average increases in temperature (thanks to US probe data). In the case of the latter, this is occurring despite that body’s orbit taking it AWAY from the sun.

Quite clearly, then, the sun is heating the universe. Such heating (and, subsequent cooling) has, of course, taken place through history, hence ice ages and the former growth of quality wines in England! (It is perhaps superfluous to point out that there are no SUV’s on Saturn.)

This is one occasion when I thank God for the Internet. For those who have not explored the subject in a rational way or have only heard the politicians speak on the topic, please use this resource to find information to make up your own mind.

So, man’s contribution to global warming has been grossly exaggerated (misrepresented) for the simple political purpose of raising taxation without the need for legitimacy. Let me take this one stage further, in the form of a challenge to the zealots such as David Cameron (I don’t include Gordon Brown in this because I believe he’s fully aware of the true situation and simply exploiting it). If you wish to raise taxation for so-called green issues, make the policy revenue neutral. That means matching expenditure, probably in the form of grants for genuine energy saving or direct expenditure on relatively less polluting sources of energy, with revenue. Now, I don’t see any government even attempting to do this, hence exposing the lie. How much has this government, or any other for that matter, invested in alternative sources of energy? On that subject we hear a deafening silence.

I would say, finally, that, whilst the man-made global warming scam is based upon myth, there might be a case for using taxation to regulate general pollution levels. This is a different issue but I would apply the same criteria of revenue neutrality as a principle.

[David T Breaker]

Ian, you are right that revenue neutrality is vital. I don't however think that the revenue should be used on spending or on grants, but rather reductions in other taxes. The environment issue must not be used as a tool to increase the tax burden as a percentage of GDP.

As for global warming, the planet is in a constant flux. We've had ice ages, so lots of warming since then, but also hotter eras (it was 3C warmer a few millenia ago, and England produced plenty of good wine in the Elizabethan period).

The way I see it is that pollution is bad whether it causes global warming or not due to the health and environmental (on a local scale) effects, just look at Beijing. Therefore its reduction is a good thing, but doesn't mean moving back to the stone age as some seem to suggest.

[Ian Parker]

Absolutely, David, I've absolutely no problem with lower general taxation compensating for so-called green taxes. (I should say this quietly, though, as I've been called an extremist for proposing lower taxation elsewhere on these boards.)

What we see universally, though, is an awful lot of talk about the environment, but hardly any action to preserve it. Isn’t that strange?