By Sam Packer, media campaign manager at the TaxPayers' Alliance
In 2011, Australia introduced the Clean Energy Act to levy additional taxes on carbon emissions. It was repealed just three years later. Since then, British politicians have repeatedly advocated following suit, with 516 references made to the idea of a “carbon tax” in Parliament over the past five years. There are several reasons why a carbon tax would be an unwise addition to the UK’s already burgeoning, 50-year record tax burden.
In February, Philip Aldrick, Economics Editor at The Times, called for Boris Johnson’s government to introduce a carbon tax so that Britain could “lead by example” and convince other nations, like China and India, to lower their emissions (currently they produce over one-third of the world’s carbon emissions). Just yesterday, I was on a (phone in!) panel hosted by the ZeroCarbon campaign, where it was broadly agreed by the hosts and panelists that the UK needed some form of carbon tax in order to achieve the desired decline in carbon emissions.
The objective of a carbon tax is to lower levels of greenhouse gas emissions by increasing the costs of items and practices that emit CO2. Some carbon tax proponents insist that it ought to be imposed in a manner that impacts only businesses, not consumers. But there is no such thing as a tax that hits only business or producers. Any tax on them will be felt by ordinary consumers down the line. A tax on producers is guaranteed to see a hike in the costs of car ownership, home ownership, development and essentially anything that requires energy. In Australia, carbon was taxed at a rate of 23 Australian dollars for every tonne of carbon produced. Once repealed, gas prices fell by a staggering seven per cent and the average Tasmanian (a disproportionately rural region) saved a whopping 198 Australian dollars in electricity bills.
It is important to note that Britain has levied taxes on carbon, especially fuel prices, for almost three decades. Our current tax on diesel is the second highest in Europe. These taxes have sparked repeated fuel protests across the UK, notably in 2000, 2005 and 2007. Air passenger duty has been applied to flights for several decades, yet it’s only major impact has been to push up costs for holidaymakers. Flights would be further hit by a carbon tax as they emit comparatively significant amounts per head, although the aviation industry as a whole produces just two per cent of all human-induced carbon emissions. A new carbon tax, like any increase, would impact Britain’s £120 billion tourist industry in a variety of ways. But its effect on flights would be especially pernicious for tourism, because the price of flights has a disproportionate impact on where people choose to visit.
In France, an increase in carbon taxes hit regional workers and in response the ‘gilets jaunes’ protests began. Across the channel a British carbon tax would similarly hit the pockets of regional commuters outside of the capital and metropolitan districts most. Unlike in London, regional workers tend to travel to work by car. In ‘Red Wall’ seats that Boris Johnson ‘painted blue’ last December around five in six workers travel to work by car. Drivers already pay hefty taxes on cars, from VAT on fuel, to the road tax, to the insurance premium tax, and it would be unfair to further increase their tax burden. Indeed, the TaxPayers Alliance has been at the forefront of fighting against tax hikes on motorists, including fighting fuel duty rises, workplace parking levies and inaccurately named “clean air zones.”
For these commuters, there will be no way to escape the tax. introducing a carbon tax and increasing the cost of owning a car would undermine Boris Johnson’s attempt to “level up” the country because commuters outside of London and the south east do not have access to viable alternatives. It could well wind up being labelled a tax on regions, rather than a tax on carbon!
Britain’s main manufacturers employ a majority of their workers in Wales, the north of England and the Midlands. Many sectors, like the steel industry, have struggled in recent years. In these industries energy represents between a quarter and half of the total costs. A damaging carbon tax could be the final nail in the steel industry’s coffin. All of British manufacturing would fear for its future and rightly so. In Australia, the impact carbon tax had on the country’s mining and construction sectors led to the downfall of two Prime Ministers, before its eventual repeal in 2014.
People are sceptical of environmental charges. What they are far more willing to accept are environmental-based rewards. This was highlighted in our polling last year, which suggested the public overwhelmingly supports council tax rebates for those families which recycle more. When it comes to carbon emissions, the carrot is often more powerful than the stick.
So, with all that said, why do plenty of committed low-tax organisations, like the Adam Smith Institute, support a carbon tax? The core argument depends on price and demand and is sound. If we raise the price of energy, or anything else that consumes carbon, then the rate of consumption will be reduced. Given we want to see carbon consumption reduced, then a carbon tax is the simplest way to alter the economics of emissions. Furthermore, if a carbon tax were a simple charge on the cost of carbon consumption, then it could be far less corporatist and economically distorting or unfair than sector-specific taxes like fuel duty or air passenger duty. Whilst at the TPA we are reluctant to back lifestyle taxes, the concept of raising the cost of carbon does not immediately emerge as outrageous. That said, the design would have to be very carefully worked out.
Any carbon tax would need to be accompanied by significant reductions in the tax burden elsewhere to offset its impact. All existing supposedly environmental forms of tax such as fuel duty, air passenger duty and even stamp duty land tax would need to be amalgamated into it. But this could even go further. Many advocates point out that environmental taxes need to be high enough to be felt and affect behaviour. In other words, it would need to cover huge parts of people’s everyday lives and spending habits. If this recommendation were to be taken, then a carbon tax would be so large that it would be absolutely vital to reduce income tax and VAT; the existing major taxes which tax the largest proportion of people’s incomes. Otherwise, the impact on household budgets would be devastating.
The fact remains that the free market is the only feasible means of reducing carbon emissions. The magic of the market is that it adapts to what consumers want. As the public in the west has grown more wary of pollution, it has dropped drastically. The incredible tale of human development in the past two centuries is one in which consumer capitalism is the main character. Reductions in carbon usage is the next chapter, provided governments do not curtail these efforts with excessive interference.
This government should learn the lessons of our Antipodean cousins and avoid introducing a carbon tax. It should not create a tax that would ask workers from the least connected corners of our country to pay more and make us less internationally competitive. Consumer pressure in a free market will achieve far more than a new tax ever could.