Change over to ‘green taxes’ says commission

30th October, 2009

A report by the Green Fiscal Commission says that the balance of taxation must change towards ‘green taxes’. Aviation must play its part.

Article on green taxes, reproduced from The Times:

“An influential think-tank, supported by the government, will tomorrow urge £150 billion of new green taxes on businesses and households — including a £3,300 levy on new cars.

The recommendations from the Green Fiscal Commission (GFC), to be presented by Lord Turner, head of the committee on climate change — and chairman of the Financial Services Authority — could bring a drastic reshaping of the tax system to curb greenhouse gas emissions and encourage investment in low-carbon technology. Among the proposals are a tripling of fuel duty over the next decade, a household energy tax, and the hefty tax added to the price of every new car.

Greg Barker, the Tory environment spokesman, Alan Whitehead, a Labour MP on the energy select committee, and Chris Huhne, the Liberal Democrat home affairs spokesman, will speak at the launch of the 100-page report from the commission — a body of academics, industrialists and politicians set up to advise government.

The GFC, which is chaired by Robert Napier, chairman of the Met Office, argues for a “fundamental rebalancing of the tax system” based on the “polluter pays” principle.

It wants to double the proportion of green taxes in the overall tax take from the current 7%. The government’s total tax income would not rise because the hikes in green levies would be offset by cuts to income tax and National Insurance contributions.
The report sets out different models for the tax system depending on different commodity-price assumptions and required levels of investment for clean technologies and energy-efficiency measures.

The broad theme is for a raft of new “eco taxes” aimed at curtailing activities, of both individuals and businesses,that use natural resources or create pollution.

Paul Ekins, a professor at University College London and the author of the report, said: “It’s really a question of moving a mindset. We’ve had it as a given that energy is cheap, so we have been wasteful. This has to change and the only way to do that is to make the polluters pay.” Elkins said he was “hopeful” that the recommendations will be adopted by the leading political parties.

Among the most controversial proposals would be a £300 tax on new cars, increasing annually to £3,300 by 2020.

Representatives from the Tories, Liberal Democrats and Labour were closely involved in drafting the report.”

Surprisingly, there is no mention of aviation in this article. But the report has a lot to say about it and we endorse what it says:

“Road transport and aviation are or are becoming major sources of carbon emissions which will need to be reduced if the UK’s carbon dioxide (CO2) reduction targets are to be met. .. The Committee on Climate Change has noted that, even if aviation emissions continued at current levels, it would require CO2 emissions from all other sectors to be cut by 90 per cent to achieve the UK’s target of an overall 80 per cent cut. If aviation emissions grow, then the legally binding 2050 target is unattainable.

Aviation currently benefits from a number of tax advantages:
* Aviation fuel is exempt from fuel duty
* There is no VAT on air tickets. Air Passenger Duty (APD) is generally less than what VAT would be
* Tax-free shopping at airports is a significant benefit which allows higher rents and subsidises airport charges. Aviation currently benefits from a number of tax advantages

With regard to aviation, the majority of air travel by people from the UK (including most travel on low-cost airlines) is by people in the richest 20 per cent of the population. Because people on low incomes fly very little there are no serious distributional concerns about ending aviation’s tax privileges. Because with a GFR additional taxes on aviation would be offset by tax reductions and tax credits elsewhere, a person who flew once a year on a short-haul flight as far afield as Spain or Italy would roughly break even. It would be those who flew more often or further than that who would lose, while those who do not fly at all would gain.

Finally, a green tax on flying was the most supported of all the main interventions. As noted, this was in part due to the heavy subsidies that aviation receives relative to other forms of transport due to tax exemptions the sector enjoys. It was also due to the relative affluence of flyers and the general support for progressive taxation measures. There was seen to be a need to focus on frequent flyers.”