The TaxPayers' Alliance - Economics 101

How much extra Vehicle Excise Duty will you pay?

People might be forgiven for thinking it is just the largest and most polluting cars that are going to face increased tax with the big boost to Vehicle Excise Duty today.  This report, from the BBC News website, suggests that Darling has raised taxes on "high-polluting" cars:

"In his first Budget Mr Darling raised taxes on high-polluting cars, alcohol and cigarettes and announced new tests for incapacity benefit claimants."

In fact, new TaxPayers' Alliance research reveals that a heavy majority of the different car models in current production will face increased taxes under the new charging structure, even compared to the 2008-09 rates:

• 88 per cent of cars will pay more under Darling's new charging structure.
• 2 per cent of cars will pay the same under Darling's new charging structure.
• 9 per cent of cars will pay less under Darling's new charging structure.

The higher rate in the first year, the "showroom tax", will apply to most cars - with only a small number paying less in the first year:

• 72 per cent of cars will pay more in the first year than in subsequent years.
• 22 per cent of cars will pay the same in the first year as in subsequent years.
• 6 per cent of cars will pay less in the first year than in subsequent years.

To find out how much you will have to pay for your car download our spreadsheet with details of every model in production:

Download the TaxPayers' Alliance Vehicle Excise Duty Database (XLS, 2.5MB)

Notes

1. Fuel economy data is drawn from the official VCA Car Fuel Database.
2. Data on the new charging structures is from table A8 in the Budget.

Scrap fuel duty rises and Ken's attack on big cars

The Times reports that the accountancy firm Grant Thornton and a host of other organisations such as the AA, Chambers of Commerce and Freight Transport Association have called for a planned rise in fuel duty in the Budget to be scrapped.  We couldn't agree more.

Our report The case against further green taxes (PDF) set out, in chapter two, the case against ludicrously high fuel duty rates.

We set out how motoring taxes - charged on top of VAT - are set at between 40.9 and 3.6 times the global social cost of carbon dioxide emissions.  Each motorist is therefore paying between £548 and £743 per year beyond the cost of their emissions.

The only way that the fuel duty is justified is by focussing on all manner of other externalities, from noise to accidents to congestion.  Imagine if factories were taxed for noise they produced, if charity parachute jumps were taxed for the cost parachuting accidents imposes on the NHS, if we taxed first time buyers in order to reduce excess demand for homes instead of trying to ensure there is a greater supply (congestion is just an excess of demand for road space).  The proper response to small-scale, localised externalities is to regulate against dangerous or excessive levels; the proper response to congestion is to build more roads.

The reality is that when politicians push for increased fuel duty they are doing so not in order to save the planet but in order to squeeze more money out of hard working taxpayers.  Ken's proposed increase in the Congestion Charge rate for 4x4s and other big cars is exactly the same.  The only difference is that the Congestion Charges wastes almost all of the money it raises:

"Conservative councillor Phil Taylor challenge's TfL's assertion that congestion charging is generating substantial surpluses. He says: "TfL's own statement of accounts show that the cumulative surplus generated from the start of the scheme until the end of the last financial year was only £189.7 million.

"This amount has barely covered the original scheme's set up costs of £161.7 million.  Pretty much all of the £677.4 million collected in the first three and a bit years of operation of the scheme has been spent on out of control set up and running costs."

The additional charge for big cars is just Ken Livingstone playing class warrior.  Making very productive people who contribute a huge amount to the capital's economy feel unwelcome.

Fuel Duty increases and increased congestion charging both unfairly single out motorists who already pay VAT on petrol and when buying new cars.  They also impose a burden on the rest of the economy by making road haulage - the main way in which goods are moved around the country - more expensive.

If politicians accepted how weak the case for further green taxes is and stopped or reversed increases in fuel duty then they could reap the rewards electorally.  Look at this graph, from our report on green taxes:

 

Those consuming the most petrol, and hence, paying the most fuel duty are middle class commuters.  An electoral constituency well worth appealing to.  Our polling has shown that most people are pretty cynical about green taxes and think they are just a revenue raising measure.  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.”  Bashing cars won't improve a politician's image.

Increasing fuel duty is both a bad idea and makes no political sense.  Alistair Darling should give motorists a break.

Jeremy Leggett attempts to bend the logic of peak oil to secure more subsidies for renewables

The Guardian are still allowing Jeremy Leggett space to lobby on behalf of his industry - those renewable companies making big profits on the back of the Renewables Obligation that pushes up energy prices.  His new article is about peak oil.

First, he accuses oil firms of profiteering because Shell and ExxonMobil are making big profits.  That's a bit rich coming from a renewables executive (see link above) and only part of the picture.  Not all big oil companies are enjoying soaring profits.  Just today British Petroleum announced dissapointing figures.  That means all the rest of Leggett's rhetoric about oil firms pocketing the cash rather than investing in new exploration is a little empirically weak.

From then on he starts arguing that peak oil is going to ruin us and lambasting complacent economists:

"Economists tend not to see the problem. As the oil price goes up, they assume more cash will be available for exploration, the oil majors will duly explore, and they will find more oil."

It is reasonable to assume that oil exploration spending will increase with a higher oil price - and that does appear to have happened.  In just one year, from 2004 to 2005, oil exploration budgets increased by 31 per cent.  Leggett argues this kind of statistic is misleading:

"Moreover, the International Energy Agency has described recent apparent increases in exploration spend as "illusory" because of inflation in costs in the far-flung places where the industry is now forced to look for new oil."

So they are spending more money looking for oil.  It's just that those colossal amounts of money are being spent to find oil in increasingly remote and challenging places to drill, where oil production hasn't been nationalised - most of the world's productive oil fields are off limits.

Of course, oil won't magically appear from the ground when the majors increase investment.  While there is still a lot of oil there - rising prices are still dependent upon OPEC holding down supply - it will be increasingly difficult to meet rising demand. While that contradicts the straw man assumption set up by Leggett - that economists think oil production will always rise to meet demand - it doesn't really create the need for panic he seeks to establish. The economy is filled with rational actors who don't want to pay higher energy bills who have plenty of other ways to respond to rising fuel prices.

If incentives to discover more oil - high oil prices - don't create an increased supply then resulting high energy prices will create other incentives.  Incentives to use energy more efficiently; to seek out new economical sources of power; to shift towards other existing sources of power such as nuclear.  All this will be done without subsidy.  That means there isn't a need for new taxes and Government attempting to pick winners.  Shortages in a particular resources encourage innovation, economy and substitution.  That is why economists do not expect high oil prices to create a long term crisis, although there may well be costs in the short term.

Those short term costs will be larger if the rise in energy prices is faster and smaller if it is slower.  It is more costly to adapt to rising prices more quickly.  What that implies is that the correct policy response to peak oil would actually be to do everything we can to slow rises in energy prices - and give the economy longer to adapt - that would imply dumping measures like the Renewables Obligation.  That way we could replace subsidies now with a more gradual rise in energy prices.  That would allow time for market incentives to encourage investment in alternative sources of energy that aren't subsidy junkies like wind farms.

Not quite the policy conclusion Leggett had in mind?

Photo by Flickr User neilharmer used under a Creative Commons License.

The human cost of wind power vanity projects

Today the Financial Times reports on the poor performance of the Renewables Obligation in encouraging wind farms: "The amount of new wind capacity added in 2007 was less than three-quarters of that built the year before."  This is despite subsidies that make wind farms massively profitable:

"Under the current regime, and thanks in part to high power prices, wind turbines can pay for themselves within about five years, out of a working life of at least 20 years.

In its energy white paper last year the government described the RO as the “primary mechanism” for meeting its goals of reducing fossil fuel dependency. However, Andrew Wright, managing director of markets at Ofgem, the electricity regulator, told the Financial Times: “The RO is a very expensive way of providing support for renewables.”

Peter Atherton, head utilities analyst at Citi Investment Research, said: “It’s a bonanza. Anyone who can get their nose in the trough is trying to."

The problem is that wind farms are getting stuck in the planning system.  Now, it is important at this stage to note that they aren't just facing the same "not in my back yard" opposition that many industrial developments do.

Part of the problem with windpower is that each turbine has a very low capacity and, as such, you need massive numbers of them - covering a huge amount of land - to get the kind of power you would get from a small number of conventional or nuclear power plants.

As such, wind farms are poor value in two ways:  They are poor value for money as you need to provide a lot of subsidy to produce a relatively small amount of capacity.  However, they are also poor value for environmental disruption as you need to ruin a lot of landscapes in order to produce a relatively small amount of capacity.  The Government have offered a massive subsidy that has meant it is unnecessary for wind power to offer good value for money.  However, they have not found a way of absolving wind farms of the need to provide good value for their geographical footprint - because of that large footprint the planning system is proving particularly difficult to traverse for wind power.

It would be bad enough if the Renewables Obligation, the largest source of subsidy to wind power, were merely expensive - a waste of every taxpayers' money.  However, as it functions by obligating energy companies to obtain a certain share of the energy they provide from renewable sources - thereby increasing the cost of electricity - it has particularly pernicious social consequences.  The poor spend a significantly larger proportion of their income on electricity than the rich (graph from the TaxPayers' Alliance report The Case Against Further Green Taxes):

The poor could, in theory, be compensated for the additional bill created by the Renewables Obligation with some sort of additional benefit - an increase in the Winter Fuel Allowance, for example.  However, benefits are a poor subsitute for keeping your money in the first place.  When a Government policy creates an uncertain burden - it is hard to know exactly what the Renewables Obligation will cost people, how much it will raise utility bills - compensation will often be insufficient, slow to arrive and otherwise poorly targetted.

In this particular case the burden of regulation is likely to be not just unwelcome but actually lethal.  In 2006-07 there were 23,900 excess deaths in the winter (PDF).  These are predominantly the elderly suffering in the cold and making it more expensive for them to keep warm seems almost certain to increase the number of deaths.  Poor pensioners - forced to try and cut corners by, among other things, higher council tax bills - should not be forced to choose between a more pressing struggle to make ends meet and the dreadful risks of living in a cold home.

An additional financial burden upon the poorest and deaths among the elderly are a high price to pay for a failing attempt to encourage slight increases in the amount of renewable power we use.

Photo by Flickr User wdrwilson used under a Creative Commons License.

The CBI's attempt to buy off the environmental movement

The FT reports a new CBI report endorsing new green taxes.  The reports supports a range of policies.  Strengthening emissions regulations on cars are easy for British business to endorse as our car production is now almost entirely foreign-owned.  The central recommendation, to strengthen the EU's Emissions Trading Scheme, has been characterised by economist Greg Mankiw as thinly veiled corporate subsidy:

"Cap-and-trade = Carbon tax + Corporate welfare."

Both BP and Shell made profits (PDF) from the scheme while NHS hospitals paid millions.  Both companies had members of staff contribute to this report.

More broadly, this report is an attempt to pay Danegeld to the environmental movement.  The authors hope that they can divert environmentalist fervour into corporatist policies that will either provide them with a subsidy or impose further regulation which gives a competitive advantage to big businesses competing with small firms.  The reality is that they will further strengthen unhinged, radical environmentalism and do immeasurable damage to business interests in the medium to long term.

Jeremy Leggett on Renewable Power

Leggett's article for Comment is Free is so idiotic it is positively painful. I'll fisk it and then quickly conclude with a little examination of his dubious byline:

"When Britain and Germany raced to scale up their aircraft industries for war in the 1930s, the British competed rather well. Recovering from a late start, we rapidly produced machines capable of winning the Battle of Britain.

Today, the two nations are on the same side in a different battle, but Germany alone is mobilising as fast as it did 70 years ago."

If we're on the same side why would we want to race the Germans? Who cares if they win. Their gain is not our loss. Quite the opposite. If they develop the renewable technologies we can use them. Welcome to post-mercantilist economics.

"Our common enemy is global warming, and it is already at our gates. But while our German allies are turning out the renewable energy equivalents of Messerschmitts by the factory-load, Britain is again slow to spring into action."

Okay, they can bring the renewable power technology; we'll bring the City, Canary Wharf and associated financial innovation. We can't produce everything so why should we distort our investment market in an effort to race the Germans for the renewable energy market? Specialisation can make us all better off.

"Worse, as we learned yesterday, officials responsible for UK mobilisation have told the prime minister it is impossible for us to build modern-day Spitfires in any number. We should instead oppose European targets set recently for such mobilisation and join other laggards in order to persuade the Germans to scale back their own efforts."

Perhaps they've realised that big subsidies for renewables may not be a particularly efficient way of reducing emissions.

"On Tuesday one of the main architects of Germany's renewable energy policy, Hans-Josef Fell, was in London to give a press conference on peak oil. In this issue lies another, related imperative for nations like Germany and Britain to be mobilising for renewable energy as if for war. A group of German scientists, the Energy Watch Group, has completed the latest in a crop of studies showing that oil is depleting far faster than previously estimated, and that a global energy crisis is imminent. Renewable energy and energy efficiency are the only technologies that offer any hope of staving this off in time."

Anyone who pretends to have a good idea of the amount of oil left in the ground is trying to fool us or themselves. Besides, shortages of hydrocarbons aren't an externality so the market will create the proper incentives to switch to other sources of power. There is no market failure here for government to address.

If all you're worried about is dwindling reserves then you're worried about them increasing the cost of hydrocarbon-based power. The idea that the best response is raising the cost of hydrocarbon power is pretty bizarre.

"Fell spelt out Germany's success with renewables. In 2000, when he and other parliamentarians pushed through a law to fast-track renewables markets, such sources contributed 6% to the national electricity mix; the target was 12% by 2010. Three years ahead of the target, they are approaching 14% - and have created 200,000 jobs in the process."

Have they created more jobs than would have been created if the free-market had invested the capital instead of it being forced by the state into the hands of renewables companies? Opportunity costs!

"International investment patterns tell the story. Some $1 trillion, globally, will go into energy this year, and more than $100bn of that will be invested in renewables. Renewables make up just 2% of the global mix, excluding large hydropower schemes, and yet about a tenth of global energy investment now flows into them. Renewables companies are lining up to be quoted on stock exchanges, and those already listed have strong share prices. But as things stand, only a tiny proportion of this investment bonanza is heading into Britain."

Almost all of that development is utterly dependent on subsidies. It isn't a competitive industry at all. What that means is that each country pays for the investment either from its exchequer or through a levy on energy production.

"The German renewables market is being fed by funds raised from a levy on energy bills to guarantee premium prices for renewable electricity. Britain's Department of Business, Enterprise and Regulatory Reform says the UK's renewables obligation, a certificate-based scheme for growing renewables markets, works better. Ofgem and the Carbon Trust are among the many who disagree. It is easy to see why. In 2006 the cost to the average German household of the tariff was £12 a year. The average UK household paid £7 a year under the renewables obligation, but that delivered significantly less renewable capacity. German windpower capacity is 10 times that of the UK today, and the energy it produces is 30% cheaper; German solar power capacity is 200 times that of the UK."

An energy production levy is particularly cruel as it means taking money from the very poorest. We demonstrated in the TaxPayers' Alliance report on green taxes (PDF) how regressive any measure increasing the cost of electricity is. Poor families pay more, as a portion of their income, than the average and the rich pay the least. While £7-12 pounds isn't a lot of money it is significant and could be spent in another way or deliver a tax cut that might make a small but meaningful difference to a number of poor families. That is quite a price to pay to distort the market in favour of renewables.

"Consider the stakes here. If we fail to contain global warming, we put the economy at risk. If we continue to ignore peak-oil warnings, we will plunge into the chaos of a third global energy crisis. If we continue to allow investment to flow uncontested into countries with a renewables vision, UK plc loses out on any prospect of a serious share in the next global business revolution."

1) Britain's renewables subsidy won't make a significant difference to global emissions. It makes no important difference to the amount of risk the economy is at from global warming.

2) I've dealt with 'peak-oil' already. "Oh no! An energy crisis is coming and we'll all suffer as energy gets more expensive. Better make it expensive now to end the suspense!"

3) There are plenty of plausible "next global business revolution". I think the market is better at identifying them. Renewables, which are dependent on big subsidies, are a particularly poor candidate.

"· Jeremy Leggett is author of Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis"

The Guardian's byline tells us only that he has written a book about energy policy. This suggests that he is an 'expert' in the field and little more. How has such an expert produced such a poor article?

It appears the reason is that the article is more corporate PR flyer than intellectual search for truth. If you look at his profile on Comment is Free it turns out that instead of being an independent expert he is actually "chief executive of solarcentury the UK’s largest independent solar electric solutions company". If that isn't enough "he is, in addition to his solarcentury role, a director of the world’s first private equity fund for renewable energy, Bank Sarasin’s New Energies Invest AG". This is a man with a massive personal stake in subsidies for renewable power that guarantee its future. For the Guardian to put him up as merely a concerned author writing on his subject instead of mentioning front and centre that he is a part of the renewables business he wishes to see subsidised is an abject failure of journalistic standards.

I'm all for business leaders speaking for their industry. I don't mind newspapers printing what they have to say. However, that depends upon two key conditions being met:

1. They must have something interesting and coherent to say. Instead, this article just ignored basic economics and spouted phony analogies about Spitfires.
2. It must be clearly acknowledged - in a prominent position on the same page as the article - that they have an interest in the matter.

Neither condition was satisfied with this article. Deeply shoddy.

Zac Goldsmith responds to his critics

Goldsmith’s response to his critics has more than a whiff of desperation.  He starts out by separating bans and regulations in an attempt to portray the report as containing little of either:

“Reports that we want to ban Plasma screens are wrong. We want to encourage plasmas that are less wasteful. Nor are we proposing to ban the standby. We want to have an automatic switch-off mechanism fitted so that appliances switch off after a set period of time.”

The stand-by button as it exists now is a mechanism designed to allow someone to turn their TV, radio or other electronic device on using the remote control.  If you make it so that the stand-by turns off after a certain amount of time the point is rather lost.  When you go to turn your TV on with the remote you’ll find you can’t.  The stand-by button is banned.

While it might not seem like too great an inconvenience to have to get up and turn the TV on the old-fashioned way the stand-by button doesn’t make much of a difference to global warming either.  A quick calculation suggests that even if all of the power used by devices on stand-by was saved (and under Goldsmith’s recommendations it wouldn’t be – some people would just leave the TV on more, others would use the temporary stand-by he proposes to allow) the saving would be equivalent to less than two days of Chinese emissions growth.  Banning stand-by buttons won’t save the planet; it’s just one more little inconvenience that the Quality of Life report seeks to foist on ordinary Britons.

Equally, while the Quality of Life group would allow Plasma TVs if they were sufficiently efficient it would ban most of the ones currently on sale.  Perhaps this shouldn’t be understood as a ban but if not it should definitely be thought of as a regulation.

Goldsmith then goes on to highlight some regulations that he would like to end.  The problem is that his report takes away some regulations with one hand at the same time as adding a whole load more with the other.  For example, the bans discussed above, other regulations such as a ban on below-cost selling by supermarkets and the cigarette style warnings of a particular size and prominence on car adverts.  Reading the report it is absolutely clear that a big net increase in regulation is planned that would offset any cut in regulatory costs as advanced by, among others, the Competitiveness report.

“Aviation: We are categorically NOT proposing to tax holidays. We are ONLY targeting domestic, short-haul, commuter flights to destinations easily reached by train, and within the same sort of time frame. Much of the proceeds will be used to improve the rail alternatives.”

Goldsmith might regard them as passé but many people do enjoy holidays within the UK.

Also, the proposals are to charge VAT on domestic flights.  This would include flights from London to Scotland that would take a long time if replaced by train journeys.  The proposed taxes are also not hypothecated.  An aspiration to spend the money on reducing the costs of going by train is pretty meaningless when all of the revenue from new or higher green taxes have already been committed by the Conservative leadership to a ‘Families Fund’.

Goldsmith does not mention in his response proposed further increases in tax on holidays, with stepped increases in the reformed Air Passenger duty, and on waste either through council tax or variable charging, a big increase in Landfill Tax.

Goldsmith does little to clear up the fog of confusion surrounding proposed changes to planning law by seemingly contradicting himself:

“We are saying that because of the VAT relief, we would require homeowners to upgrade the energy performance of their homes.

[…]

It has been reported that we would require people to fit their homes with efficient appliances if they want to improve their home. This is plain wrong.”

He then talks about proposed charges for supermarket parking and argues that this is a decision for local government.  That may be the case but it’s still one of the report’s recommendations!  Just because it is for local government to implement is no reason it shouldn't be subject to proper criticism.

Finally, he argues that the report did not advocate the government adopting a Happy Planet Index.  This is a bit tendentious.  The report endorses the Happy Planet Index and recommends that a measure sounding very similar be developed.  While there may not be a direct recommendation to adopt the Index the report clearly wants the anti-growth thinking behind it to be placed at the heart of government decision making.  That is what has really alarmed people; the idea that the Conservative party might adopt this report’s disdain for economic growth.

This is the heart of the problem with Goldsmith’s defence of his report.  He does not address the most serious criticism of it coming from the press.  From the Sun’s response:

“Goldsmith and his sidekick, failed Tory minister John Gummer, devote about 30 pages to why Britain’s economic success isn’t everything.

Try telling that to the millions who rely on a booming British economy for their job and their livelihood.

Who have ambitions for a bigger house, more luxurious car and a better foreign holiday for them and their kids.

Any report which includes a chapter entitled “The Darker Side Of Wealth” has no place on any self-respecting Tory’s bookshelf.”

Or, the Express:

“Billionaire's son Mr Goldsmith and former Cabinet minister Mr Gummer have, on behalf of David Cameron, declared war on economic growth. One ludicrous extract claims: "Beyond a certain point – a point which the UK reached some time ago – ever increasing material gain can become not a gift but a burden. As people, it makes us less happy."

So they have identified what they consider to be Gordon Brown's Achilles heel: incredibly, they believe his greatest sin is to have made the British people too well-off. Presumably they would like the Conservatives to fight the next election on a platform of reversing these sinister "material gains".”

As part of our response to the Quality of Life group report the TaxPayers’ Alliance set out the intellectual case against the anti-growth agenda this report is based upon.  Reinforcing the impression that Conservatives are the selfish wealthy who don’t care about improving the lives of ordinary Britons is also politically disastrous.

Two weeks ago the TaxPayers’ Alliance published a report establishing that green taxes are already too high and a poll showing that the public are extremely sceptical about the motives of politicians proposing green taxes.  The Conservatives should leave this report's recommendations well alone.

TaxPayers' Alliance response to the Quality of Life Policy Group

This document sets out the problems with the "Blueprint for a Green Economy:  Submission to the Shadow Cabinet" report of the Conservative Quality of Life Policy Group.

It details how the report is based upon highly suspect assumptions and proposes increased taxes, increased regulation, new quangos, a curb to vital infrastructure investment and a retreat from free-trade.

Download TaxPayers' Alliance Response:  Quality of Life Policy Group Report (PDF)

Liberal Democrats defend their excuse to take your money

Yesterday the Liberal Democrats attacked our study on green taxes.  They make two arguments:

1.    More recent studies, they cite the example of the Stern Review, show a higher cost of carbon.
2.    We haven’t properly accounted for externalities other than CO2 emissions from road transport, their examples of others they give are congestions and congestion.

Do more recent studies show a higher social cost?  Let’s look at the total social cost of UK emissions estimate from the four studies we used – in date order:

Tol – 2005 - £9.1 billion
Stern – 2006 - £30.5 billion
IPCC - 2007 - £4.3 billion
Nordhaus – 2007 - £2.7 billion.

Stern isn’t the most recent.  He’s actually one of the older studies.  The lowest estimate comes from Nordhaus who released his study this July.  Stern’s estimate isn’t significantly higher because he uses more recent science but because his work is (as eminent climate economist Richard Tol described it) “alarmist and incompetent”.  To find out more about the problems with Stern see Box 1.3: “Stern versus the IPCC” in our report.

The second argument assumes the simplistic view that all externalities are the same and should be responded to with increased taxation.  This is not the case and is not accepted in other parts of the economy.  We do not place special taxes on sports classes because someone can injure themselves playing sport, and is almost certain to playing some sports like Rugby.  We don’t place special taxes on nightclubs and factories on the grounds that they are noisy although this is also an externality.

For most local externalities our response has always been regulation to ensure that they do not go beyond safe levels.  We do regulate road transport: we limit speeds, require that people get regular safety checks for older cars, force people to wear seatbelts, test people’s ability to drive, prosecute those who drive unsafely.  All of this is designed to control casualties (we have other rules to control noise and pollution).  There is no reason, beyond political victimisation, why this should not be enough for road transport while it is accepted as sufficient in other activities.

A regulatory approach means that we can avoid penalising ordinary people who drive safely and, barring accidents they don’t deserve to be singled out for any more than the unfortunate who falls down the stairs, impose little burden on anyone.  They are the majority who do not deserve this excessive and regressive tax.

Fuel Duty and Vehicle Excise Duty are entirely unsuitable to correct for congestion.  If you drive on a deserted road in the Scottish highlands during the small hours of the morning you pay exactly the same rate as someone fighting their way to work through an urban rush hour.  This means that the tax doesn’t create an incentive to drive at times and in places where you do not create a cost to other drivers.

The problem of congestion could be solved by building roads.  The number of drivers doesn’t change that much over time so demand for roads is limited by the number of miles they can drive.  Fuel Duty and Vehicle Excise Duty could be cut massively with plenty of room in the budget to get plenty of new roads built.

Huhne finishes his response by setting out Liberal Democrat plans to increase excise duty for some cars and compensate this with a cut in the basic rate of income tax.  We’ll leave aside the fact that if he expects to raise much revenue from this tax then it can’t be doing much for the environment; revenues will only be significant if people don’t stop buying high-emissions cars.  Instead, let’s ask a question.  Do you trust Huhne that this tax will genuinely be revenue neutral?

Sure, in the unlikely event the Liberal Democrats win an election they might introduce a compensating tax cut initially.  However, they have never been a party averse to taking our money and once the new taxes are introduced and as unreformed public services continue to swallow more cash how long before they start using it as a device to increase the burden of tax faced by hard-working businesses and families?

The Case Against Further Green Taxes - Report and Poll

• GOVERNMENT RAISING £10 BILLION MORE FROM GREEN TAXES THAN REQUIRED TO COVER COST OF UK’S CARBON FOOTPRINT
• EVERY UK HOUSEHOLD ALREADY OVER-PAYING GREEN TAXES TO THE TUNE OF MORE THAN £400 A YEAR
• NEW POLL SHOWS BIG MAJORITY BELIEVE POLITICIANS ARE USING GREEN TAXES AS A REVENUE RAISING MEASURE
• FIRST EVER AUDIT OF UK GREEN TAX POLICY REVEALS EXCESSIVE BURDEN OF ENVIRONMENTAL LEVIES THAT FAIL THEIR OBJECTIVES

The TaxPayers’ Alliance has released the first audit of environmental taxation in the UK alongside a new YouGov poll of more than 2,000 adults (double the usual sample) commissioned into public attitudes towards green taxes. 

NEW TPA REPORT – The Case Against Further Green Taxes

Download The Case Against Further Green Taxes (PDF)

The report applies the conclusions of the most prominent experts in the field of climate change research (from the International Panel on Climate Change to academics such as William Nordhaus, “father of climate change economics”, and Sir Nicholas Stern), and compares these studies’ recommendations of the price the UK should be prepared to pay to offset the cost of the UK’s carbon footprint with the actual level of green taxation.  Such a comparison is the only way of knowing whether environmental taxes address root problems or whether they are merely revenue-raising measures.

Covering the main “pollution taxes” of fuel duty; vehicle excise duty (road tax); the Climate Change Levy; Air Passenger Duty; the Landfill Tax and the EU Emissions Trading Scheme, the report investigates each of the green taxes and charges in turn, and reveals that each one has serious flaws:

• Fuel Duty and Vehicle Excise Duty, net of spending on roads, are already between three and forty times higher than the level needed to ensure that drivers cover the official and academic estimates of the social cost of CO2 emissions  This means that each motorist is overpaying by between £548 and £743 each year.
• Under the Climate Change Levy, the North East, England’s poorest region, pays over 35 per cent more as a proportion of regional Gross Value Added, than the South East, England’s richest region outside London.
• The doubling of Air Passenger Duty announced in last year’s Pre-Budget Report is actually likely to have increased total emissions from air travel, incentivising longer flights within the short-haul and long-haul bands.
• The Landfill Tax, which has been increased a number of times by the current government, is already raising up to £620 million more than would be sufficient to meet the social costs of methane emissions from landfill. Planned new bin taxes are likely to represent yet another supplementary charge on stretched household finances.
• The EU’s Emissions Trading Scheme has resulted in a £470 million subsidy from the UK to the majority of EU countries that have not placed strict targets for overall reductions in emissions.

The main conclusions of the report are:

• In many cases, individual green taxes and charges are failing to meet their objectives, are set at a level in excess of that needed to meet the social cost of CO2 emissions, and are causing serious harm to areas of the country and industries least able to cope.
• Taking an average of the most widely quoted official and academic estimates of the social cost of CO2 emissions shows that green taxes in the UK are already well in excess of the level they need to be to meet these social costs.
• The social cost of Britain’s entire output of CO2 was £11.7 billion in 2005 but in the same year, the total net burden of green taxes and charges was £21.9 billion.
• This means that green taxes and charges are already £10.2 billion in excess of the level they need to be to meet the social cost of Britain’s CO2 emissions. This excess is equivalent to over £400 for each household in Britain.
• Green taxes are therefore already too high if they really are a means of internalising environmental externalities rather than simply revenue-raising measures.

NEW YOUGOV POLL – Public distrust politicians on the environment

Most believe politicians are not sincere on green taxes

• When asked what they thought the primary motivation was for new 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.”  Only 20 per cent thought that “Politicians are serious about the environment and are bringing in new green taxes to change people’s behaviour to help reduce carbon emissions.” 

Huge number oppose new council recycling charges

• A vast majority (77 per cent) disapprove of local councils placing extra charges for bin collection on top of council tax to encourage recycling, including two thirds (65 per cent) who would “strongly disapprove”.

Fuel Duty and Air Passenger Duty seen as unfair taxes

• 60 per cent think that Fuel Duty is an unfair tax, compared with just 17 per cent who think it is fair.
• 45 per cent believe that Air Passenger Duty is unfair, compared with 23 per cent who think it is fair.

Trebling Air Passenger Duty would not stop people flying

• Concern for the environment will not lead people to change their behaviour unless there are significant tax increases – in the realm that most politicians would be unwilling to advocate.  When asked how much extra air passenger duty would have to cost before they chose not to fly, more than two thirds (71 per cent) would only stop flying if Air Passenger Duty was trebled from its current rate. If politicians only doubled it, 81 per cent of people would still choose to fly.

New green taxes must only ever be used to reduce other taxes

• As a result of this scepticism, there was a very strong view that any new green taxes should not add to the already high tax burden but should be met with reductions in other taxes.  A majority (61 per cent) thought that if extra ‘green’ taxes were raised, “the extra funds should be used to reduce other taxes”. 

Public split on further green taxes

• There is no majority support for moving towards additional green taxes.  When asked whether, “Generally speaking do you approve or disapprove of additional ‘green’ taxes on motoring and air travel?”, 46 per cent disapproved while 45 per cent approved and one in four people “strongly disapproved” against less than one in ten who “strongly approved”.

Most people aware of the high cost they already pay at the pump

• The poll also showed that most people have a fairly accurate assumption about how much tax they pay for driving.  A third thought the proportion of a litre of petrol costing £1 that was made up of tax was less than 60p.  More than a third (38 per cent) thought it was more than 70p. In fact, the cost of Fuel Duty and VAT charged on fuel purchases is equivalent to roughly 65p in the pound – which one in five people (21 per cent) correctly estimated.

Matthew Elliott, Chief Executive of the TaxPayers’ Alliance said: “The public are right to suspect the motives of politicians.  Not only are they split on whether new green taxes are a good idea, but our research proves that politicians have been using green taxes as a revenue-raising measure and are cynically trying to win support for new ones by exploiting concern about climate change.  We need more honesty about the costs of extra green taxes when British taxpayers already pay some of the highest pollution charges in the world.”   

Corin Taylor, Research Director of the TaxPayers' Alliance said: “Green taxes and charges impose substantial costs on, amongst others, Northern manufacturers and the NHS. Green taxes in the UK are already well in excess of the level they need to be to meet the academic estimates of the social costs of carbon emissions.  Every household is paying more than £400 extra in tax every year because green taxes are set too high.  UK taxpayers are already more than doing their bit to pay for the costs of pollution and additional green taxes would be completely unjustified.”

Liberal Democrat Tax Proposals

Download Reducing the Burden:  Policies for tax reform (PDF)

There are some good ideas in the Liberal Democrat tax proposals:

1. Simplification of the tax code and postcard-style returns could ease the administrative burden faced by individuals and companies.  Britain has the most complex tax system in the world, having recently overtaken India; there has to be room for simplification.
2. A cut in the basic rate would give millions of Britons some of their money back.  Very welcome.
3. Replacing the council tax would address the problem of a tax which hits the vulnerable the hardest and reduces pensioners to penury.

However, there are also some bad ones:

1. An extension of green taxes would be an inefficient way to raise revenue, would likely prove regressive and could do serious harm to British industry.  In particular, plans to increase the variation in vehicle excise duty on the basis of emissions would probably still not take lifetime emissions into account: some estimates that do include costs of construction and design suggest that a Toyota Prius Hybrid puts out more emissions than even a huge Hummer H3.
2. Taxing the rich more may appeal to social democratic notions of fairness but could do the British economy serious harm.  Estimates by the Liberal Democrats suggest that the tax bill of a City banker earning £250,000 would be increased by 11,800 pounds.  If the bank that employs that banker moved to another country to avoid the additional bill or international investment was diverted elsewhere we would all lose out.
3. There are risks to introducing a 'General Anti-Avoidance Rule'.  As the Conservative Tax Reform Commission pointed out:  "It is not easy to define exactly what such a rule should say, and experience in other jurisdictions shows that it may take some time before sufficient issues have been brought before the courts to enable to scope of the GAAR to be clarified."  Until clarity is achieved there is a lot of uncertainty in the law which exposes business leaders to unfair legal risk.

In short, a mixed bag.  Certainly an improvement over past Liberal Democrats plans to introduce a new 50 per cent tax band.  This platform would make important positive changes to the tax system by simplifying it.  If only the Liberal Democrats could get over the need to keep these changes revenue neutral they could avoid compensating measures that might undermine our economic competitiveness.