This week’s announcement by the Government on energy bills will cut the average bill by £50. It’s a progressive move, despite the fact it shifts the burden from consumers to general taxation. It will benefit poorest households most, many of who continue to benefit from Warm House Discount worth £120 a year to 2 million households. Everyone will benefit from these plans – unlike Labour’s energy price con, which is lose-lose for everyone.
However, the plan also risks setting a worrying direction of travel.
In his own words in 2007, George Osborne set a very clear objective for a future Conservative Government. He said “The Conservative Party will rebalance the tax system away from jobs and families and towards pollution and carbon emissions – pay as you burn not pay as you earn.”
Further to this the then Leader of the Opposition David Cameron wrote in for the Green Alliance (2007) “The Conservative’s aim is not to increase the tax burden on hard working families but to rebalance taxation so that the polluter pays and the non-polluter pays less. It’s time to move taxes from income and investment to pollution – pay as you burn, not pay as you earn.”
But as the financial crisis and Labour’s recession hit, political attention turned to saving the global economy rather than the environment. Quite rightly the Government’s focus in office has been on tackling the deficit (now reduced by one third). And, while we have seen the Office of Tax Simplification established and there has been some progress on reducing the UK’s tax code, there has been little effort to shift the burden of taxation.
Let me be clear, green taxes should be about changing behaviour and not raising revenue. In the Conservatives Manifesto for 2010 they pledged to "increase the proportion of tax revenue accounted for by environmental taxes". The same pledge is repeated in the Coalition agreement.
As Geoffrey Lean reminds us in The Telegraph, the Chancellor said "Instead of a tax system that penalises hard work and enterprise ...I want to move towards more effective and fair taxes on pollution." David Cameron put it even more simply: "We want to increase tax on bad things, and try to relieve tax on good things."
In a separate article in 2009, Geoffrey Lean made the argument for better green taxes, highlighting an argument which is key to today’s announcement on energy bills: “[Government] has managed to attract all this obloquy while actually reducing the already small proportion of its revenue that comes from green taxation by more than a fifth since Labour took office. Indeed it now makes up less of the tax take than at any time since the 1980s, long before anyone had ever heard of the concept.”
This strategy – of shifting and cutting the tax burden - much trumped in opposition, was right.
But so far the direction of travel has stalled. In March this year the Government published its own analysis of tax plans, showing environmental taxes will rise for 0.5% of revenue to 0.8% of revenue by 2017/18; hardly a seismic shift. But as the IFS point out, the Treasury figure are a diversion at the very least, marking the true picture: “International bodies such as the OECD and Eurostat, define environmental taxes not according to their intent [as HMT does], but on whether the tax encourages pro-environmental outcomes. On this basis, the ONS classifies taxes such as fuel duty and air passenger duty as environmental, which the Treasury does not.”
Under these plans to IFS forecast green taxes will in fact fall from 7.3% to 7.0% by 2017/18 and the ONS suggest they will fall from 7.8% to 7.1%. This comes off the back of Gordon Brown’s time in office which saw environmental tax revenues fall by 22% as a proportion of total revenue – to 7.3 per cent, the lowest since 1987.
Under this Government we have had welcome freezes and cuts in taxes that hit the cost of living – fuel duty, green energy levies – but ahead of this week’s Autumn Statement George Osborne should remind himself of his words in opposition and put into action a tax plan that promotes enterprise, rewards work, and tackles the environmental challenge ahead of us - “Instead of a tax system that penalises hard work and enterprise ...I want to move towards more effective and fair taxes on pollution.”
It’s time to make pay as you burn, not pay as you earn a slogan matched by action.