Green taxes: commitment or obsession?

All three major parties are publicly committed to shifting taxation towards
green taxes. They bill this as a move from taxing ‘goods’ to taxing ‘bads’; a
move from taxing ‘families and businesses’ to taxing pollution. The truth, of
course, is that carbon dioxide doesn’t pay taxes.

These taxes are not a benign alternative to other taxes. They have particular
costs of their own, which any politician considering a big increase in them
should be aware of.

Green taxes are often unfair in two ways. They are unfair in that they single
out particular groups like those outside urban areas who cannot rely on public
transport or manufacturing firms that are already struggling and cannot easily
avoid using substantial quantities of energy. They are also regressive as the
poor spend more on motor fuel and electricity than the rich.

Many green taxes hurt our economic competitiveness. Lots of other countries
do not levy green taxes at all and few have set them as high as Britain. This
means that our businesses will suffer if they need to compete with businesses in
other countries and they depend on affordable energy or transport.

Green taxes are also massively inefficient. Even the government’s own
regulatory impact assessment, a measure known to yield unrealistically low
numbers, puts the cost of implementing the EU’s emissions trading scheme at more
than £60m.

According to climate economist Richard Tol, air passenger duty may actually
increase emissions as it reduces the difference in price between shorter and
longer journeys within its short and long-haul bands.

All these serious costs have to be balanced against a compelling
environmental rationale for higher green taxes to make sense. But our research
suggests that green taxes in the UK are £10bn ­ equivalent to £400 per household
­ above the level that the scientific analysis of groups and academics like
William Nordhaus ­ described by The Economist as the ‘father of climat
e-change economics’­ suggests is needed to account for the UK’s carbon
footprint. This means that the externality that these taxes were supposed to
correct has already been corrected. There is no serious economic rationale for
big net increases in green taxes.

We are already straining under an excessive burden of green taxation. Further
increases will have serious economic and social costs. If government wants to
curb greenhouse gas emissions, it should find another way.

Matthew Elliott is chief executive of The Taxpayers’

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