Treasury concludes fuel duty is not an environmental tax

by Jessica Shankleman

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19 Jul 2012

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THE TREASURY has been accused of "washing its hands" of controversial green taxes, such as fuel duty and air passenger duty, in order to ensure it meets a Coalition pledge to increase the proportion of revenue that comes from environmental taxes.

The Treasury unveiled its official definition of environmental taxes, stating environmental taxes must be "explicitly linked to the government's environmental objectives", have the encouragement of environmental behaviour change as their "primary objective", and be structured "in relation to environmental objectives", Accountancy Age's sister publication BusinessGreen reports.

According to the Treasury, this definition excludes vehicle excise duty, fuel duty and air passenger duty on the grounds that they deliver environmental benefits only as an added advantage to their main objective of raising revenue.

Using its definition, the Treasury said it expects to achieve a coalition pledge to increase the proportion of total tax receipts from 0.5 per cent in 2010/11 to 1 per cent in 2015/16, with total revenue from environmental taxes rising from £2.5bn to £6.6bn over the same period.

However, green groups accused the government of "taking the easy" option to meet the pledge by refusing to commit to increase the more controversial taxes.

David Powell, economics campaigner for Friends of the Earth, said the Treasury's limited definition would effectively reduce the amount of money raised from environmental taxes.

The Office for National Statistics has included fuel duty in its list of green taxes for the last decade, and recently found fuel duty rises were the main driver behind a £1.2bn increase in environmental tax earnings last year.

However, the government recently froze a planned 3-pence increase in fuel duty, prompting fears the decision could compromise efforts to encourage drivers to adopt more fuel-efficient behaviours as well as the UK's wider efforts to reduce its carbon emissions.

Powell added that air passenger duty revenues alone could be have added another £3.5bn to the total £6.6bn the government expects to raise by 2015/2016 from its official bundle of environmental taxes.

The Treasury's 2012 Budget report predicts fuel duty will earn the government £30.1bn and vehicle excise duty would raise £5.8bn by 2014/15.

He argued that while there was a debate around the definition of fuel duty, air passenger duty is a green tax because the levy increases in relation to the distance travelled.

Similarly, he cited research by the CBI which showed vehicle excise duty can play a key role in investment decisions at the point of purchase.

"The tools left – such as the EU Emissions Trading Scheme – are scheduled to increase over time," he told BusinessGreen. "It is important that they meet their commitment, but it certainly looks as if they've taken the easy option and are washing their hands of the question of fuel duty being an environmental tax."

Earlier this year a committee of MPs accused the government of "giving green taxes a bad name" after the department took seven months to respond to a report calling for greater clarity on environmental levies.

A spokesman for the Treasury told BusinessGreen that the definition had been published in response to the committee's report and denied it was an attempt to appease critics of the fuel duty freeze.

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