The IPPR has been a leading advocate of a greening of the tax system. Last year, it published a report proposing new or additional taxes on energy, waste, road fuels and aggregates which, it suggested, could pay for substantial cuts in labour taxes and stimulate the creation of at least 575,000 new jobs by 2005 (ENDS Report 257, pp 18-21 ).
The Treasury is understood already to have worked up proposals for a tax on primary aggregates and presented them to the new Government. The IPPR calculates that, set at an initial rate of £1 per tonne, the tax would raise £200 million. The net impact on Treasury revenues would be smaller since up to 40% of aggregates are used in public sector contracts, although this will diminish as road construction declines.
Proposals for a modest set of additional green taxes for the July Budget were aired at a closed IPPR seminar attended by civil servants, academics and industry representatives on 28 May. The main options considered were:
However, there appears to have been limited enthusiasm at the seminar for an immediate increase in the rate of landfill tax, which was only introduced last October.
Dr Wade also told the seminar that Customs & Excise has now conceded that there should be few difficulties in defining the energy-saving materials to which the reduced VAT rate could apply. Treasury Ministers have claimed in the past that this is a serious obstacle. However, it remains unclear whether there are also obstacles in EC law.
For the longer term, IPPR Director Gerald Holtham urged the Government to tax industrial and commercial energy use to help it meet its target of cutting carbon dioxide emissions by 20% by 2010 from the 1990 level.
Options for such a tax put forward at the seminar were a starting rate of $1 per barrel of oil equivalent, rising by $0.5 per year to $3.00 in 2002/3, or $2 per barrel rising to $5 by 2002/3. The first would raise £2.65 billion and the second £4.15 billion by the end of the period. In either case UK energy prices would remain in the mid-range of prices among competitor countries.
According to the IPPR, the tax would dampen GDP growth and increase inflation by 0.4-0.8% over base. However, it would help to cut CO2 emissions by 12-14% below 1990 levels by 2010. Opposition can be expected from "powerful industrial lobbies" which will claim that the tax will damage UK competitiveness, and while the IPPR believes that their arguments can be answered, "experience in other countries suggests that the measure will require considerable political will."