Download Environmental taxation - Institute for Fiscal Studies

Environmental Taxation
Ben Etheridge and Andrew Leicester
Institute for Fiscal Studies
Motivation
• Environment close to top of political agenda
• Stern Review painted bleak picture of economic costs
of climate change
• Though many critics
• Domestic and international targets for emissions
reduction
• Domestic target looks extremely difficult to hit
• Possible wholesale reform of green tax system
• Carbon tax, road pricing
• Growth of global emissions trading
A note of caution
• Revenue not a direct measure of
Government’s “green credentials”
• High revenue could be ‘too high’
• Falling revenues could represent tax base
erosion
• Though not a key factor yet
• Environmental policies not all revenue-raising
• ‘Greening’ existing taxes
• Trends should be seen as indicative
Latest revenues, 2005
35
Revenue (£bn)
30
25
20
15
10
Resource taxes
Energy taxes
Air passenger duty
Vehicle excise duty
Fuel duty (+VAT)
5
0
Source: ONS Environmental Accounts, Autumn 2006
Real receipts (£bn)
Share of GDP (%)
2005
2003
2001
1999
1
0.5
0
1997
10
5
0
1995
3
2.5
2
1.5
1993
30
25
20
15
1991
4
3.5
1989
40
35
1987
Real Receipts (£bn)
Historic receipts
As a share of GDP (%)
Sources: ONS Environmental Accounts, Autumn 2006;
Authors’ calculations
Rate increase needed to raise £1bn
Tax
Change
Illustrative Rate
Fuel Duty (+ VAT)
VED
APD
Landfill Tax
CCL
Aggregates Levy
Sources: HM Treasury Tax Ready Reckoner; Authors’
calculations
Rate increase needed to raise £1bn
Tax
Change
Illustrative Rate
Fuel Duty (+ VAT)
4%
50.28p/litre + VAT
VED
18%
£177 (petrol band E)
APD
50%
£15 (standard EEA)
Landfill Tax
100%
£42/tonne (standard rate)
CCL
200%
£1.29/100kWh electricity
Aggregates Levy
200%
£4.80/tonne
Sources: HM Treasury Tax Ready Reckoner; Authors’
calculations
Revenue raising – some issues
• Fuel Duty
• Overwhelmingly largest green tax
• Decline in revenues/GDP began when fuel duty
escalator abandoned (1999 PBR)
• Returning duty to real-terms peak from April 2000
would raise £4bn per year
• No indication that above-inflation rises to come – will
be hard to raise revenue/GDP share using existing
instruments
• Big increases may have distributional concerns: some
of the very poorest may be hit hardest
• Not clear that duty “regressive” over rest of the
distribution
Revenue raising – some issues
• Air Passenger Duty
• Unclear distributional effects – some low
income people affected badly but are they
“poor”?
• Reforms to air taxes sensible but difficult –
threats of international action under
Chicago Convention
• EU Emissions Trading
• “Aircraft Tax” proposed by Liberal Democrats
Revenue raising – some issues
• Climate Change Levy
• Reform into a business ‘carbon tax’ proposed by
Conservatives
• Extension of energy taxes to domestic sector conflicts
with fuel poverty objectives and has distributional
implications
• Landfill Tax
• Rates set to rise towards £35/tonne in medium-term
• PBR suggested higher target rate or faster acceleration
towards it
• Rates now far higher than estimates of external costs of
landfill
• Tax used to hit EU Landfill Directive – too severe a
target?