Green taxes and charges: why do reforms always mean paying more?

December 09, 2009 3:37 PM

Alistair Darling said in his speech:

"I can also announce changes to the climate change levy, company car tax, and fuel benefit charge."
Try and guess what happens to revenue under all of those changes?  That's right, it goes up.  From Table 1.2 in the PBR document, by 2012-13:

  • Climate change levy: reduction of relief from 2011-12 - £50 million

  • Company Car Tax: extend bands from 2012-13 - £120 million

  • Fuel Benefit Charge: increase multiplier - £45 million



We'll write about the company car tax changes once we've run the numbers to see how it affects different cars.  But, the Climate Change Levy change is very important and rather buried in the report.  They're increasing the rate on companies that are in Climate Change Agreements from 20 to 35 per cent, that's a 75 per cent increase.

Climate Change Agreements are basically designed so that energy intensive industries can come to an agreement with the government to take practical steps to reduce emissions and in return won't face the full Climate Change Levy.  That is important because if you increase taxes unilaterally on energy intensive exporting industries all you do is close down industrial plants here and shift them abroad, which doesn't cut emissions but does reduce employment in Britain.

These figures from our report (PDF) on the EU Emissions Trading Scheme:

Energyintensity 

If those industries face a substantial increase in their costs then it will drive more capacity abroad.  We will see more factories closing and the difference between our consumer emissions, those produced catering to the British market, and our producer emissions, will rise.  We are already seeing (PDF, pg. 32) more emissions exported as government policy doesn't succeed in reducing emissions, just sending the jobs and emissions to other countries:

Exportingemissions


That might help us meet our targets, but it will do nothing to reduce global emissions or potential global warming.  And, it hardly squares with the idea that the Chancellor wants growth to "come from more varied sources and not depend as much on the financial sector".  This measure will, along with the rising costs of other climate change policies that increase energy costs, mean more factories closing like the Corus plant last week.  That will in turn mean fewer jobs and make the economy less diverse and more dependent on the service sector.

Alistair Darling said in his speech:

"I can also announce changes to the climate change levy, company car tax, and fuel benefit charge."
Try and guess what happens to revenue under all of those changes?  That's right, it goes up.  From Table 1.2 in the PBR document, by 2012-13:

  • Climate change levy: reduction of relief from 2011-12 - £50 million

  • Company Car Tax: extend bands from 2012-13 - £120 million

  • Fuel Benefit Charge: increase multiplier - £45 million



We'll write about the company car tax changes once we've run the numbers to see how it affects different cars.  But, the Climate Change Levy change is very important and rather buried in the report.  They're increasing the rate on companies that are in Climate Change Agreements from 20 to 35 per cent, that's a 75 per cent increase.

Climate Change Agreements are basically designed so that energy intensive industries can come to an agreement with the government to take practical steps to reduce emissions and in return won't face the full Climate Change Levy.  That is important because if you increase taxes unilaterally on energy intensive exporting industries all you do is close down industrial plants here and shift them abroad, which doesn't cut emissions but does reduce employment in Britain.

These figures from our report (PDF) on the EU Emissions Trading Scheme:

Energyintensity 

If those industries face a substantial increase in their costs then it will drive more capacity abroad.  We will see more factories closing and the difference between our consumer emissions, those produced catering to the British market, and our producer emissions, will rise.  We are already seeing (PDF, pg. 32) more emissions exported as government policy doesn't succeed in reducing emissions, just sending the jobs and emissions to other countries:

Exportingemissions


That might help us meet our targets, but it will do nothing to reduce global emissions or potential global warming.  And, it hardly squares with the idea that the Chancellor wants growth to "come from more varied sources and not depend as much on the financial sector".  This measure will, along with the rising costs of other climate change policies that increase energy costs, mean more factories closing like the Corus plant last week.  That will in turn mean fewer jobs and make the economy less diverse and more dependent on the service sector.

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