Environmental Taxation

HC Deb 18 November 1998 vol 319 cc853-75

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kevin Hughes.]

9.34 am

Mrs. Helen Brinton (Peterborough)

The ballot has given the House the opportunity to hold a timely debate—timely because it is taking place soon after the return of my right hon. Friend the Deputy Prime Minister from the climate negotiations in Buenos Aires. I was fortunate to be called to speak last July in the Adjournment debate secured by my hon. Friend the Member for Islington, North (Mr. Corbyn) on the preparations for the Buenos Aires talks. I am sure that the House will join me in paying tribute once again to the Deputy Prime Minister for his considerable achievements in that vital process.

The Government pledged to put the environment at the heart of policy making. We all know that they are committed to ambitious targets for reducing emissions that are seriously damaging the environment both directly and indirectly, through climate change. The two are often connected.

The Select Committee on Environmental Audit, of which I am proud to be a member, was set up to be, in the Deputy Prime Minister's words, a terrier snapping at the Government's heels". Some of us believe that we have been not a terrier, but a rottweiler. We have tried to live up to those expectations.

Today's debate should be seen as an extension of that activity. Its subject is the environmental effects of taxation. There are many aspects of that—such as transport, housing, energy and agriculture—on which other hon. Members will want to speak. I shall give a brief introduction and concentrate on some aspects of energy taxation, a matter that is relevant to my constituents in Peterborough.

The basic aim of green tax reform is to shift the burden from "goods" to "bads". "Goods" are economic activities such as income generation, job creation and added value. "Bads" are pollution and excessive use of resources such as energy—excessive from the point of view of society. For example, petrol creates costs in terms of pollution and congestion, which are borne by society. Thus, the consumption of petrol is excessive from a societal point of view. Measures could be designed to help energy-intensive industries to adapt.

Mr. Eric Forth (Bromley and Chislehurst)

Will the hon. Lady give way?

Mrs. Brinton

No, I have just started and I want to make progress.

Other policy instruments could protect potentially disadvantaged groups, such as the rural poor, who are more reliant on cars and would suffer unduly from increased fuel duties.

There is a much greater role for indirect taxation in promoting energy efficiency. Far too many anomalies discriminate against energy conservation materials, whose present high VAT rating is a disincentive for householders to invest in them.

Mr. Lindsay Hoyle (Chorley)

Will my hon. Friend give way?

Mrs. Brinton

I am pleased to give way to my hon. Friend.

Mr. Hoyle

I thank my hon. Friend, and I welcome the debate. As she considers it important to conserve fuel, does she agree that it would have made more sense if the battalion headquarters of the Royal Electrical and Mechanical Engineer 101 Battalion, which was based in my constituency, had stayed there, where there is a population of 300,000, rather than being moved to Queensbury, where there is not a similar population, which will mean more vehicle movements from Lancashire to Wales?

Mrs. Brinton

I thank my hon. Friend for his comments and sympathise with the sentiments that he has so eloquently expressed.

In his March Budget the Chancellor announced partial VAT relief, with a drop in VAT from 17.5 per cent. to 5 per cent. on the installation of energy-saving materials funded under certain Government grants. That was designed to help people suffering from fuel poverty. My right hon. Friend said that the cut in VAT would help to insulate 40,000 more homes a year, which is good, but it is not a significant benefit to the environment, and it does not cover payments by householders over and above Government grants received.

I know that the Government are pursuing with their European partners the legality of a reduced or even a zero rating, about which there has long been disagreement. Perhaps the Minister will tell us later about progress on that front. I look forward to his comments.

Mr. Forth

Will the hon. Lady give way?

Mrs. Brinton

I am making progress.

Low-polluting road fuels such as liquefied petroleum gas and so-called city petrol produced by Sainsburys are on sale in my constituency, Peterborough, among other places. Their use would similarly be encouraged by a lower VAT rating. I welcomed some moves in that direction in the last Budget. There is a much larger potential market for such fuels, but if manufacturers and distributors are to make the necessary investment and commitment, they need to know that any policy changes will remain in place and progress for a number of years.

Last February, the Treasury promised a new approach to environmental taxes that will be fair to future generations. In the recent pre-Budget report, we read that the Government are committed to exploring scope for using taxes in the strategy of sustainable development". However, there are few clues as to when we might expect the results of apparently on-going deliberations. Bound with the bundle of pre-Budget reports issued to all hon. Members—and appearing to be part of them, in the same green and white format—was the Marshall report on economic instruments and the business use of energy. When Sir Colin Marshall, the former chairman of British Airways, was appointed to head a panel of industrialists tasked to investigate energy taxes, one commentator said that it was like putting King Herod in charge of child care since aviation is one of the worst contributors to climate change and the industry has lobbied hard to ensure that it pays no green taxes. None the less, the report concluded: there probably is a role for a tax if businesses of all sizes and from all sectors are to contribute to improved energy efficiency and help meet the UK's emissions targets. The United Kingdom should obviously make its own decisions about meeting its own considerations. However, there are precedents in other European countries concerning the effects of carbon tax from which we may learn some lessons.

A carbon tax was introduced in Sweden in 1991, and the most recent evaluation found that it had delivered a 9 per cent. cut in CO₂ emissions in three years. On the one hand, district heating—which pays the full rate of tax—showed a dramatic switch from fossil fuels to biomass, and fossil fuel use shifted significantly from coal to gas. On the other hand, when the tax rate for industry was reduced in 1993 to 25 per cent. of the full rate, fossil fuel consumption rose, with a corresponding rise in CO₂ emissions by 21 per cent. in one Swedish district between 1992 and 1994.

Sir Colin Marshall recommended that a clear signal be given as to the long-term direction of policy in order to help businesses plan for future investment and maximise the environmental impact of a tax. He also said that any measures should be subject to detailed consultation. I am particularly happy to endorse that proposal, especially as the economic and social costs of some proposed taxes may be too high. Other measures, such as voluntary self-regulation, which are often based on enlightened self-interest may work much better—and, indeed, may already be in place. The agricultural interests in my constituency would certainly support that view.

Other proposals might appear to be environmentally friendly in a narrow context—for example, some recycling initiatives—but they involve extra environmental costs, such as transportation, when considered more widely. Consultation is not only desirable but absolutely necessary, often on a case-by-case basis, in order to weigh the advantages and disadvantages and the different interests involved. I know that that is happening now in some cases. However, consultation should not be a recipe for unnecessary delay.

The first report of the Environmental Audit Committee—I am pleased to see members of that Committee from both sides of the House present in the Chamber today—made a recommendation concerning the potential of the tax system to deliver environmental objectives and make economic development more sustainable. It called on the Government to establish an advisory body on environmental taxation—the Committee has certainly been a terrier, if not a rottweiler—preferably in the form of a green tax commission. I take this opportunity to reiterate that recommendation.

Such a commission, by whatever name, would bring together the different interests involved in a more transparent and neutral forum—the Government are committed to openness—leaving the final decisions to Government. It would invite interested bodies to submit evidence on proposed environmental taxes, and examine the potential pitfalls and trade-offs that might arise from particular decisions.

For example, it would have to establish whether a proposed measure would have an adverse impact on competition, and decide whether that was outweighed by any other advantages that would result. Such bodies need not be yet another layer of bureaucracy. Importantly, the existence of a green tax commission would make it much easier to take an overall strategic view of environmental tax making. I hope that we will not go down the route of a fragmented, "here today, gone tomorrow", piecemeal approach.

The Marshall report concluded that revenues should be recycled in full to business with at least some of them channelled into schemes aimed directly at promoting energy efficiency … low carbon technologies and/or energy audits/advice for SMEs. I particularly welcome the latter, as a pioneering audit of city-wide energy, conducted by the Environment City Trust with support from our largest local employer, Perkins Engines, was launched recently in my constituency. I am pleased to report that that launch took place in the presence of the new Under-Secretary of State for the Environment, Transport and the Regions, my hon. Friend the Member for Mansfield (Mr. Meale). Marshall's last recommendation was: the design of any tax should ensure that Combined Heat and Power (CHP) is not disadvantaged. It should also aim, where possible, to increase incentives for the take-up of renewable sources of energy. That is good, but perhaps too cautious. I hope that that will not be the last word on the subject. I regard Marshall as a beginning and not an end in itself.

A major finding of the Peterborough energy audit was that nearly half the city's share of the Kyoto target—which, I am told, is 220,000 tonnes of CO²—could be met by small CHP schemes in business and industry. That sector accounts for about two thirds of CO² emissions and two thirds of energy spending in the city. We are still awaiting the Department of Trade and Industry's review of renewables—the Environmental Audit Committee is certainly awaiting it with bated breath.

The United Kingdom has a target to produce 10 per cent. of electricity from renewable sources by 2010. At present, we have the lowest rate in Europe at around 1 per cent. Studies show that both wind and wave power could meet the United Kingdom's electricity needs three times over and that solar power could provide two thirds of our needs. However, all those forms of power generation require Government support whether by way of interdepartmental co-operation—as occurred between the DTI and the Ministry of Agriculture in the development of energy crops—research and development or changes to the structure and functioning of the electricity market. The non-fossil fuel obligation, which obliges power companies to buy from more expensive renewable sources, has helped to get the renewables industry going and, in some cases, has driven the price down. However, progress has been intermittent, with modest targets. Recent research shows that the extension of NFFO alone will not allow Government targets to be met. Government investment in renewables has been insignificant compared with the billions of pounds in subsidies granted to the nuclear and fossil fuel industries.

European industry leads the world in wind and solar power, and the United Kingdom is a leader in combined heat and power. There are major United Kingdom export opportunities at present, and some of the large oil companies —such BP and shell, to name but two—are beginning to invest heavily in renewables the Government should do all in their power to encourage the development of renewables for the development of renewables for the benefit of the country as a whole and to help avoid catastrophic climate change.

Attending the launch of the energy audit in my constituency—I was particularly pleased to be there—were many of those engaged commercially and otherwise in the promotion of renewables and CHP. I was extremely impressed by the extent and quality of the involvement. Business certainly understands the potential opportunities for creating wealth and employment in this field. A key manufacturer in my constituency, Peter Brotherhood, has just obtained a multi-million-pound contract for supplying wind turbines for a renewable energy scheme in the Fens. That scheme will obviously create jobs both in Peterborough and where the turbines are installed.

I have come to realise that another advantage of renewable energy is that it is localised rather than centralised, and therefore can act to regenerate local communities by creating employment, with a knock-on benefit for the local and regional economies. However, many of those present at the launch made it clear that they need some help—and they need it now. They need a kick start to enable them to obtain a viable toehold in the market, from which to develop, before others gain the crucial lead that in business often means that the weakest and those left behind are driven to the wall.

The current situation has been described by my hon. Friend the Minister for Energy and Industry as "win, win, win". By that, he meant that the encouragement of renewable energy means that the United Kingdom can simultaneously meet its emission targets, boost industry—which is what the Government are pledged to do—and create jobs. In the summer, my hon. Friend the Financial Secretary to the Treasury told the all-party environment group that the general approach of the Treasury to environmental taxation might be described as "prudent enthusiasm". "Prudent" is a favourite word in Treasury-speak.

I hope that the debate will highlight the degree of enthusiasm in the House—and, indeed, the country—for environmental taxation, and signal that the need for it is rather more urgent than people appear to believe at present.

9.50 am

Mr. Tim Loughton (East Worthing and Shoreham)

I am grateful to have caught your eye, Madam Speaker. I congratulate the hon. Member for Peterborough (Mrs. Brinton) on securing this important debate. As a fellow member of the Environmental Audit Committee, I agree with her that the Committee has turned into a rottweiler, and has rottweilered many Ministers in its 12-month span. Environmental taxation is especially important to that Committee; indeed, it is important to us all—it is the coming issue with which the House will be involved.

The hon. Member for Peterborough referred to the Labour party's repeated commitments on the environment, and mentioned the manifesto commitment to put the environment at the heart of policy making". When the Financial Secretary appeared before our Committee, she reiterated that she wanted to ensure that the environment is placed at the centre of our objectives for the tax system". One would hope that the Government considered the issue to have equal importance, but, alas, the warm words are not being matched by action.

As one who has been a member of the Finance Bill Standing Committee for the past two years, I know at first hand how difficult it is to put amendments relating to the environment—which, in most cases, are tabled by Opposition Members—on to the agenda. During the Committee's consideration of this year's Budget, only one amendment on the environment tabled by an Opposition Member—and precious little from Labour Members—was accepted. It dealt with a tiny technical issue which I happened to raise, in respect of the taxation treatment of company cars that had been converted to road fuel gases.

In the whole of the 1998 Budget, there was no mention of preferential treatment of taxation for road fuel gases; no mention of incentives to promote oxidation catalysts; no mention of incentives to promote use of brown-field sites in preference to ripping up the green belt, and the discrepancy between value added tax on renovation and new-build remains; and no mention of corporate incentives to promote the preferential tax treatment of company public transport season tickets. There was nothing to tackle the distortions on company car mileage rates—we still encourage the absurdity of an incentive for people to drive more miles; nothing to deter water pollution through pesticides; and nothing to encourage the more environmentally sustainable use of rural land.

That bears out the fears of the Environmental Audit Committee, whose pre-Budget report said: It is difficult to reconcile the status of environmentally sustainable growth as a 'core feature' of the Government's economic policy. Indeed, on environmental matters the previous Budget amounted to an action-free zone. Friends of the Earth called it "green as smog". More politely, the Royal Society for the Protection of Birds said: So far, the Treasury has made little substantive progress in using the tax system to protect the environment. More recently, the green Budget failed to tackle the issue, with the exception of the bludgeon measure of the energy tax and a consultation paper on vehicle excise duty. The comprehensive spending review made virtually no mention of environmental considerations, but there was a lot about spending more money on the back of dodgy growth estimates, with no link to their environmental impact.

The job of the Environmental Audit Committee has been the auditing of the environmental impacts of Government policy. In the Chancellor's speech to the Confederation of British Industry conference on 2 November, there were plenty of old chestnuts about global turmoil, being prudent and cautious, productivity top-up, Europe, prudence and investment—that old one again—and mature patriotism. Despite the fact that the energy tax announced a few weeks ago will have the biggest impact on business, there was not a single word about the environment or the use of environmental taxes on business.

Even the Prime Minister's Mansion House speech a few days ago to the heart of the business and investment community—which these days might be expected to act as an antidote to the Chancellor's own thoughts—contained not a word about the relationship between business and the environment and green taxes. What Conservative Members fear most is that the broad-brush use of tax in the name of environmental improvement is a surrogate measure to fill the coffers of the Treasury.

The insensitive use of tax alone can be counter-productive. There has been no more stark example of that than the state of the British road haulage industry, where the combination of the increased 6 per cent. fuel escalator and the ending of the European cabotage regulations on 1 July has meant a flood of French and Belgian lorries on United Kingdom roads which pay no tax and import diesel from France and Belgium. Diesel is taxed at 24.5p per litre in France and at 19.1p per litre in Belgium. In the United Kingdom, it is taxed at a whopping 43.7p per litre. That is hardly a level playing field.

Mr. Matthew Taylor (Truro and St. Austell)

As the Government have been in office for only a year or so, most of that difference came about through the imposition of the fuel price escalator by the previous Conservative Government, who raised £25 billion in extra taxation. Does the hon. Gentleman now think that that was wrong or right?

Mr. Loughton

Not at all; the hon. Gentleman misses my point. I said that a combination of the increased escalator and the ending of cabotage rules on 1 July has been a dangerous combination and has had an immediate effect on the British freight haulage industry. If the hon. Gentleman had remained a member of the Environmental Audit Committee for more than 10 days, he might have been aware of those facts. As a result, British lorry firms are seriously considering moving to the continent to avoid the extra taxes—taxes which, by the end of 2002, are likely to be costing the freight haulage industry an extra £5 billion a year.

Who wins in all this? Not the environment, because we are simply exchanging British fumes from British lorries on British roads for Belgian fumes from Belgian lorries on British roads. Who wins? Not the British freight business, because about 26,000 jobs are at stake. It is not enough, as the Minister may say, that the allowance of £500 against vehicle excise duty for particular traps being fitted will compensate, when it costs £3,500 to fit those systems. Who wins? Not the Government, as business moves to the continent and pays taxes to other European Governments.

The aggregates tax is another example; a broad-brush approach to taxing quarrying will not result in reduced quarrying of material, unless we shut down the schools, hospitals and road-building programmes.

I shall deal briefly with the energy tax and Lord Marshall's report, which the hon. Member for Peterborough mentioned. The report turned out to be a downstream tax levied on business consumers. It is not a carbon tax, because a genuine carbon tax would be levied upstream: coal-fired power stations would pay most; gas-fired power stations would pay less; and nuclear power stations would pay nothing.

The Government have prejudged the issue by blocking the expansion of gas-fired power stations for political reasons, but the switch to gas has had the biggest effect on reducing CO₂ emissions. Indeed, it has been calculated that burning 25 million tonnes of coal, rather than getting the same power from gas, produces in extra pollution an extra 28.7 million tonnes of CO₂, 425,000 tonnes of SO₂, 14,000 tonnes of particulates and 6,000 tonnes of black smoke. Sticking with coal cuts gross domestic product by 0.15 percentage points for each of the next five years, according to the Treasury's own model. Manufacturing industry could be damaged most, when it is suffering from the high levels of the pound and the shrinking economy. Costs will be passed on, which will be inflationary, and we need to know from the report which sectors of business will pay most.

What about high energy users such as the chemical industry, which is already suffering extensive international competition? What about the biggest area of energy waste by business—shops that blow hot air on to the high street and offices, where energy demand has increased by 140 per cent. in the past 12 years as a result of air conditioning?

The report is full of contradictions, with the Government already having tried to rig the market in favour of environmentally unfriendly coal. As the Chancellor will have found when he delivered his speech earlier this month, the CBI is firmly against it. The additional costs of £2 billion a year will be a big tax on industry, at a time when it can least afford to pay it. Even if the recommendations are introduced in a tax-neutral way, they will encourage a further switch away from manufacturing to services.

The one redeeming feature of the Marshall report is the reference to tradeable emissions permits. I hope that the Government will today give a commitment that they will introduce those well before the 2008 date that was suggested by the Kyoto protocol.

We have much to learn from the United States, where emissions trading is well advanced as a market mechanism that promotes cost-effective reductions by allowing countries or companies to trade emissions allowances. Every emitter must have an allowance for each tonne of sulphur dioxide that it emits. So far, acid rain-causing emissions are being cut ahead of schedule, at 50 per cent. of the expected cost. Trading gets incentives right by encouraging cuts where they can be achieved at the lowest cost.

The United States is already working with several developed and developing countries to help to strengthen their capacity to measure emissions and to participate in an emissions-trading system with high standards. In Australia, just the other day, the Sydney futures exchange announced plans to launch a market in permits to emit greenhouse tax. The exchange will operate spot, forward and futures markets in the permits, to be issued under legislation to meet the Kyoto targets. The exchange could become a hub for greenhouse-gas trading in the whole Pacific region. In this country, British Petroleum has established, off its own bat, a pilot scheme for trading carbon emissions among its subsidiary companies.

Those are all market structures with incentives to promote environmental good practice and to reduce costs. The Government need to get on with a similar system in this country, but we need much more imaginative thinking on linking environment and taxes. On road fuel gases, we need to follow the example of cutting taxes drastically on lead-free petrol that was set by the previous Government. Liquid petroleum gas, which is more environmentally friendly, costs 318.2 ecu for every 1,000 litres in the United Kingdom. The next nearest costs only 201.9 ecu. In France, the cost is 63 ecu. In Sweden and Belgium there is no tax on LPG.

We need a bold move such as that, where taxation as one tool can be effective. We need the rent-a-room scheme, for example—another innovation that was set up by the last Conservative Government. We need to encourage more diverse use of homes on brown-field land before ripping up green-field sites.

On taxation on company cars, we need incentives to encourage more car sharing among people going to work, preferential taxation for company season tickets for public transport travel, disincentives to do more mileage, and proper incentives to convert to LPG—well above and beyond the tinkering in the Budget. There should not be just a blunt increase in fuel, which we know prejudices most the rural driver who has little choice.

There has been another innovative idea in my constituency. Northbrook college has just bought at its own expense and on its own initiative 50 bicycles through a deal with a local bicycle seller. It has made them available free of charge to its students on a year-by-year basis to encourage more cycling to college rather than car use. If the Government were to kick-start such schemes throughout the country, the attractions to colleges, businesses and industries alike would be immense, but they need some kick-starting by the Government.

I agree with the hon. Member for Peterborough. One of the recommendations of the Select Committee on Environmental Audit was to set up a green-tax commission. The Government have gone the route of a Monetary Policy Committee and independence, in certain terms, for the Bank of England. Surely a green-tax commission that is independent of political interference could bring some benefits.

Remember that environmental taxes can mean lower taxes for good practice, not inevitably higher ones to clobber everyone indiscriminately. Decisions on environmental taxes must be made on a case-by-case basis, with due regard to the most effective mix of tax, regulation, voluntary agreements and other instruments.

A few weeks ago, the New Statesman, not a Conservative-minded magazine, said: It is hard to detect any sign of commitment by this government to an energy policy that will shift our entire system on to a sustainable footing in the longer term. It has quite a lot to do with a complete lack of enthusiasm for the environment on the part of No. 10. By contrast, the previous Secretary of State for the Environment, my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), enjoyed a reputation as the most influential Secretary of State for the Environment ever, according to Friends of the Earth. He was responsible for setting up the Environment Agency, for implementing a comprehensive biodiversity plan and for introducing ambitious recycling targets, among many other measures. That followed the "green-blue", effective and practical approach to environmental good practice that was started by Baroness Thatcher.

Conservative Members believe in sensible environmental taxation, but only as part of a range of measures, including the use of sensible regulation that harnesses the power of the market, the promotion of property rights, the creation of a low-tax regime, the favouring of voluntary action and local impact, the trusting of technology, insisting on sound science and working at an international level.

It was Conservative Ministers who set the pace on environmental good practice over many years. I look forward to Labour Ministers starting to show signs of wanting to catch us up soon.

10.5 am

Mr. Jonathan Shaw (Chatham and Aylesford)

I join in the congratulations to my hon. Friend the Member for Peterborough (Mrs. Brinton) on securing this important debate. It is a particular pleasure to join her in an Adjournment debate, as I am also a member of the Select Committee on Environmental Audit, and we campaigned for many years together in Kent before her migration to Peterborough. She was a feisty campaigner, and I know that she continues to represent her constituents with the steel with which she approached campaigning in Kent.

I wish to focus on one green taxation issue which has been referred to briefly by my hon. Friend the Member for Peterborough and by the hon. Member for East Worthing and Shoreham (Mr. Loughton)—taxation on the renovation of empty properties. It is essential that we harmonise value added tax at 5 per cent. for the renovation of long-standing empty properties. It is currently applied at the full rate of 17.5 per cent., yet, for newly built homes on green-field sites, it is applied at a zero rate.

My contribution follows the excellent report on housing by the Select Committee on Environment, Transport and Regional Affairs. It marked a vital contribution to the White Paper "Planning for the Communities of the Future." In its recommendations, it concurred with the earlier recommendation of Environmental Audit Committee calling for VAT on conversions and renovations to be reduced to as low a level as possible.

The Government's response was positive. They agreed that the current situation was an anomaly. Indeed, since the response, my hon. Friend the Minister for the Regions, Regeneration and Planning has said that the way in which we apply VAT on old properties and not on new ones is a massive anomaly.

In the response, the Government said: Unifying VAT rates would help to provide a more level playing field for conversions and thus be more consistent with our objectives for accommodating household growth. However, the report went on to say: There are other economic and technical issues to be considered, such as the impact on House prices and tax administration and the legality under European Law. I have spoken on the issue in an Adjournment debate and during a 10-minute rule Bill debate. I have tabled an early-day motion, which was signed by nearly 100 Members from both sides of the House. This morning, I want to deal with some of the economic and technical issues that were mentioned in the Government's response to the report of the Environment, Transport and Regional Affairs Committee.

The environment faces considerable pressure if we are to provide all the homes that we need. Therefore, it is essential that we have a tax framework that encourages us to make more use of what we already have. Unlocking the empty homes is just one way in which to do that, but, to begin with, we need to be clear about how many properties we are talking about.

There are some 800,000 empty homes in England and Wales, a wasted resource. If we put them all together, we would have the sixth largest urban conurbation in the country next to Tyneside; that gives the scale.

In a written answer in June, my hon. Friend the Financial Secretary to the Treasury said that the cost of reducing VAT for the refurbishment of all those properties to 5 per cent. would be £1.1 billion. In a further reply, my hon. Friend said that the income generated by the introduction of 5 per cent. VAT on all new-build homes would be about £550 million. There is a huge gap.

We need to be clear about the numbers involved, and about what we are defining. In February this year, the Department of the Environment, Transport and the Regions published its annual housing investment programme returns from local authorities, which showed that there were 230,000 long-standing empty homes in the private sector—that is, homes that had been empty for a year or more. It is on that figure that the argument for harmonisation of VAT should focus.

Members of Parliament see such homes in their constituencies year in, year out. They are the homes that blight our inner cities, and they could be put to better use. We could provide decent dwellings for families, protecting the countryside and regenerating our inner cities, and also meet the housing needs of the future. The present VAT arrangements only provide disincentives to builders, as the Government's response recognises.

I am not sure whether the Department is aware of the figures. When, in July, I asked what was the total number of long-standing empty properties, the Department said that it was not available—that it could only provide the number of homes that had been empty for six months, which was 400,000. When I asked the Treasury what would be the cost of reducing VAT on that number to 5 per cent., I was told that it would be £300 million. Eventually, then, we can arrive at an approximate figure of £160 million in loss of revenue for the Treasury if VAT was reduced to 5 per cent. on the 230,000 long-standing empty homes in England. If the introduction of 5 per cent. VAT on new build would generate £550 million, the Treasury would actually be better off.

What about administration? I understand the concern about fraud, but systems are already in place. As I have said, local authorities have information on empty properties, which they are required to provide as part of their council tax returns. They could provide exemption certificates for the properties identified.

European law is clearly a difficult hurdle, but I am confident. The Treasury team won the argument on the reduction of VAT on fuel, to which we were committed, and I think that they could win this argument too. Given the way in which VAT exemptions are currently being applied to new build, it is difficult to argue that they are consistent with the criteria. Article 17 of the sixth directive allows VAT exemptions provided that they are maintained for clearly definable social reasons and for the benefit of the final consumer". It follows that the current VAT arrangements allow a millionaire's new home to be built on a green-field site for "social reasons". It is certainly of "benefit", but it is not for social reasons in housing terms.

The conversion of a barn is zero-rated. How many families in housing need were rehoused in such conversions in 1994, the year in which that exemption was introduced? Just one.

In Medway, our empty homes strategy enabled us to bring 100 homes back into use, working in partnership with housing associations. Social landlords are not exempt from VAT, but, with harmonisation, we could have provided 15 more homes for families on low incomes. There are some 3,000 empty homes in my borough, which could make a significant contribution to the requirement in the local plan for Medway to provide 13,000 homes.

We should also consider the matter of house prices. The average value of arable land is £3,000 per acre, which can increase to £400,000 per acre when planning permission is given. There is plenty of room for a modest 5 per cent. increase.

I believe that harmonising VAT on long-standing empty properties would provide the building industry with the necessary incentives, protecting our countryside and regenerating our inner cities. I am confident that the Treasury team will examine the possibilities closely, working in conjunction with the DETR, so that we can improve the environment and provide a sustainable taxation base for housing.

10.14 am

Mr. Matthew Taylor (Truro and St. Austell)

I congratulate the hon. Member for Peterborough (Mrs. Brinton) on securing this welcome debate. I believe that environmental taxation could underpin a huge reform of our tax system, but such a reform will require imagination and courage.

In February, the Treasury promised such a new approach to environmental taxes. It echoed that promise in a recent pre-Budget report, saying that the Government were committed to exploring the scope for using taxes in their sustainable development strategy. A welcome process of consultation has been embarked on, not least through the Marshall report, but so far little action has been taken, and no timetable has been drawn up.

What concerns me most is the lack of vision in regard to the place of environmental taxation in the overall tax system, and how it should be introduced. So far, we have seen no more than a continuation of the Conservative Government's record. Ad hoc increases in what are described as environmental taxes have been seen as tax-raising rather than as tax-changing—in my view, the latter is the fundamental principle of environmental taxation. There has been an increase in the fuel tax escalator, but no commensurate cut in other taxes. There has been an increase in the landfill tax, but, unlike the original introduction of the tax, that increase involves no hypothecated cut in another tax. Previously, employers' national insurance was cut, and that was seen as a benefit of the introduction of that "green" tax. If the process continues, we risk destroying any public support for, or belief in, environmental taxation.

Mr. Loughton

How does what the hon. Gentleman has said tally with the last Government's 25 per cent. cut in duty on LPG, and the fact that the landfill tax was introduced with a compensatory allowance for a reduction in employers' national insurance contributions? Those were not overall tax-raising measures.

Mr. Taylor

The hon. Gentleman cannot have been listening to what I said about the landfill tax. I said exactly that. As for his first point, the last Government raised £25 billion in increased fuel duties; nothing like that was spent on the small cuts in duty on LPG and unleaded fuel. I welcome those cuts, but there was no deal. The last Government raised an extra £25 billion net through increases in fuel taxation. That is why I believe that we should return to first principles.

Environmental taxation provides incentives for the continuous improvement of environmental performance. It thus introduces a market-led mechanism to find cost-effective ways of securing change. That is one clear benefit, but taxation is not an alternative to regulation. Regulation lays the base: it underpins the level of what can be allowed. Taxation must come on top of that. It can raise revenue to pay for improvements, and I welcome the Government's saying that they may introduce road pricing to finance better local transport. When charges are introduced to provide a clear benefit, it is appropriate to use the revenue for such investment.

As for the wider issue of general environmental taxation, I believe that, to win support, it requires a larger vision. Income, jobs and added value are all heavily taxed, although we want higher incomes, more jobs and more added value. Instead, we should be taxing pollution and the excessive use of resources. We all talk about that—the hon. Member for Peterborough rightly did so herself—but we need to strike a genuine bargain with the public. We need to make it clear that, when we talk of environmental taxation, we are talking not of a general process of tax increases dressed up in a green gown, but of radical reform of the tax system.

I can give two examples that demonstrate the importance of such reform. The first is the petrol price escalator, on which, as I have said, the last Government raised £25 billion, and on which the new Government plan to raise some £9 billion. However, neither the previous nor the current Government expressed a clear commitment to a substantive shift in taxation alongside those escalators. So far, Governments have been protected from real public anger about the escalators because raw material prices have been falling, so that there has been little real-terms impact at the pump. As raw material prices have been falling, the escalators have had nothing like the impact implied by their size. However, the situation may change if oil price increases reach the pump.

Given the massive scale of revenues, there is a real opportunity to do something that will not only help to maintain public support for the process and match the rhetoric of taxing bads rather than goods, but emphasise the principle that the problem with car ownership is excessive use—specifically excessive use of fuel—and not vehicle ownership itself. For most people—certainly in rural constituencies such as my own—vehicle ownership is a necessary part of daily life. However, very often, people can use more fuel—efficient vehicles and think again about making the very large proportion of very short journeys—which is where the fuel escalator comes in.

If the issue is vehicle use and not vehicle ownership, we should stop taxing ownership as such. I therefore believe that a part of the income that we are raising by such means should be used to abolish vehicle excise duty for all but the most gas-guzzling vehicles. Although there is a principle that we may want to provide a direct disincentive against choosing ownership of the most gas-guzzling vehicles, the issue for the great majority of people is use and not ownership. Abolition of vehicle excise duty would be a strong signal to that effect.

The Government are consulting on vehicle excise duty changes, but we have to face the fact that the difference between £150 a year and £100 a year—as the Chancellor suggested last year—is unlikely to change people's habits when deciding which vehicle to buy. In the context of car ownership, that sum—although it will undoubtedly be pocketed with cheer—is too small.

Abolishing vehicle excise duty could make a real difference in people's decisions on which vehicles to buy. Most significantly, abolition could make a difference in which vehicles fleet buyers decide to buy. We know that most larger-engine vehicles were purchased originally by the company car market and sold subsequently into the second-hand market. Those vehicles' lack of fuel economy is discounted by the low prices that they achieve on the secondhand market. Buyers of the cars therefore compensate themselves in advance. Vehicle excise duty would be a direct way of dealing with that situation. If we do not do something about such situations, we shall lose basic public support for the principle of environmental taxation.

The second issue that I should like to deal with is the carbon tax and energy taxation. The Marshall report was very good news on the issue. Given Lord Marshall's background as an extremely experienced business man in an industry in which fuel costs comprise a significant part of overall costs£I do not think that anyone had thought of him as a great environmentalist before he was appointed to his new role£it was extremely significant that his report argued for energy taxation.

One conclusion of the Marshall report was: there probably is a role for a tax if businesses of all sizes and from all sectors are to contribute to improved energy efficiency". Although that sentence sounds rather full of caveats, the report goes much further, arguing comprehensively for the introduction of energy taxation. The point—it is often lost—that is being made in that quotation is that Marshall does not believe that a trading system, which is the explored alternative, would be an effective mechanism to embrace all business. He believes that such a system could apply to the largest businesses—although it would be complex and difficult to introduce—but could not be introduced for all business. He therefore favours taxation over the alternatives that have been examined, and that is an important part of his conclusions. I have a couple of important reservations about the matter. The first is that Lord Marshall suggests that such taxation should cover all energy and not only carbon energies. Taxation would therefore apply as much to energy from renewable sources as it does to energy from the most polluting sources. He said that he had reached the conclusion that it would not be possible to differentiate between the types of energy, because there would not be such taxation of domestic fuel.

Liberal Democrats have argued that such taxation should be applied across the board precisely for those reasons, and could be introduced now, at a time of falling energy prices—so that energy prices are at least kept roughly at current levels and are not expected to fall, thereby reducing incentives to invest in future energy savings. That would be one solution to the dilemma.

The Government will have to find a way in which they can target carbon fuels without imposing a general energy tax. If they cannot, the tax would fall at the first—environmental—hurdle of justification. That is precisely where VAT on fuel came a cropper for the previous Government. Not only was that tax self-evidently targeted at the non-polluting fuels: it was a financial tax-grab rather than part of a tax change. There was no big tax cut to go with it.

Lord Marshall made my next point, which is that revenues raised from an energy tax must be recycled into other tax cuts. I believe that such a proposal is likely to receive as much support from the business sector as it is from ordinary people. At the general election, Liberal Democrats fought on a policy of cutting VAT and employer's national insurance, to boost jobs and to help those who pay extra energy bills by cutting their other bills.

We now suggest being more direct and using the revenue gradually to raise income tax thresholds so that £10,000 is tax-free for every individual. That would be a very direct incentive for jobs, income, earning and hard work. It would also be direct compensation for any extra costs that people may pay, more than outweighing any increase in domestic fuel costs—which are nevertheless falling.

Those examples show clearly not only the role that environmental taxation can play but the pitfalls surrounding such taxation. The biggest single message must be one of vision, by placing the role of environmental taxation clearly in the context of reform of the wider tax system. Such taxation will not have public support if it is seen as a back door way of raising taxes—which the Chancellor can claim are good ones, whereas everyone realises that they are simply paying more. Such taxation has to be part of a process of tax reform. If the Government do that, they will make it possible to have a truly reforming series of Budgets in this Parliament.

10.26 am

Mr. Gareth R. Thomas (Harrow, West)

I add my congratulations to my hon. Friend the Member for Peterborough (Mrs. Brinton) on securing this important debate. I congratulate also my hon. Friend the Member for Chatham and Aylesford (Mr. Shaw) specifically on his campaign to highlight the differences between VAT treatment of empty and new-build properties.

The Government, and particularly my right hon. Friend the Chancellor, have been enormously courageous in asking Lord Marshall to draw up a report on the business use of energy and possible tax measures to reduce business energy use. Like other hon. Members, I look forward to hearing the comments of my right hon. Friend the Chief Secretary on the Treasury's thinking on the Marshall report. As I, too, am a member of the Environmental Audit Committee, I should like to take this opportunity to welcome him to one of our meetings, so that he can tell us in detail how the Government will make progress on the energy tax agenda.

I shall concentrate this speech on measures that my right hon. Friend the Chief Secretary to the Treasury might take to encourage the renewable energy sector. The Government have already taken some important initiatives in supporting renewables. The Government's reversal of the previous Administration's cuts in renewables research and development spending—which they had planned to eliminate entirely by 2005—is very welcome. Investment in renewable technologies is essential for lowering their cost, and for ensuring that Britain will be in a position to reap the benefits of the global expansion in renewables, not only creating employment in the United Kingdom but realising the huge benefits of preventing climate change.

Other fiscal measures and tax incentives to stimulate the levering of private finance into the renewables industry could be usefully considered by the Treasury in helping us to meet our targets. The non-fossil fuel obligation has been successful in reducing costs of renewables, but many non-governmental organisations and the International Energy Agency have recommended that other measures to develop the green electricity market—both to complement the NFFO and to encourage the commercial take-up of energy generated by renewable sources—should be taken.

Some electricity companies offer a green tariff for those willing to pay extra for renewable energy. That may attract some subscribers, but I fear that they will be in a minority. It will be a significant time before sufficient funds are generated for substantial investment in renewables.

Countries such as the Netherlands have successfully levered private finance into renewable energy through simple tax incentives. Since the introduction of a green tax break in 1995, almost £200 million of private finance has been invested in funds established by Dutch banks for environmental projects. The majority of investment has been in renewables, although there have also been small investments in organic farming, eco-offices and the development of natural habitats and country estates. Similar tax breaks have been advocated by the New Economics Foundation and others to stimulate investment in initiatives, including environmental initiatives, to tackle social and financial exclusion. Other Treasury Ministers are considering such proposals.

The interest or dividends on the green funds are exempt from income tax, allowing the bank to pass on favourable terms to the investor and the project being financed. The initiative has been greeted with considerable enthusiasm by the Dutch public and financial institutions. The certificates of the first green interest fund issued by Rabo-Robeco bank to the value of £150 million were sold out in nine days. The ABN-AMRO fund for a £25 million wind farm was similarly popular. The green funds have succeeded by harnessing the public's desire to invest their savings in an environmentally sound and ethical way while still receiving an acceptable return. They have also provided much-needed capital for renewable energy projects, which could not have been secured through public expenditure or other means. The green funds are carefully regulated through the Dutch central bank. Proposals by project developers are assessed by the Ministry of Housing and Environment. The initiative has already resulted in 25 new energy projects, mostly on wind energy.

There is a fund for investing in wind power in Britain, established by the Triodos bank, but it is on a small scale compared with the Netherlands and does not have the advantages of the Netherlands tax system. My hon. Friend the Minister for Energy and Industry has welcomed the fund as an example of extending community involvement in the planning and ownership of green energy schemes.

We must carry the public with us if we are to achieve our renewables target. The Dutch system has so far favoured large-scale projects, but attention must be given to promoting renewable energy at community level. Tax incentives for communities that want to invest in renewable technology should be actively promoted. It has been demonstrated in other countries that, where communities have a stake in renewable facilities—such as through a co-operatively owned structure—and can see the financial benefits, they are more positive about the development of renewables. Tax incentives for community-based renewable projects would help to stimulate interest in, and take-up of, renewable energy, particularly if any surplus electricity could be taken by the grid at a reasonable price.

A tax incentive scheme could be a useful complementary measure to the NFFO. It would help us to meet our renewables and carbon dioxide targets and ensure that Britain was at the forefront of the development of the renewables sector. I hope that my right hon. Friend the Minister will give careful consideration to such a scheme.

10.33 am

Mr. Shaun Woodward (Witney)

I congratulate the hon. Member for Peterborough (Mrs. Brinton) on securing the debate. I should like to concentrate on why it is so important.

I recently became a trustee of an international body that is concerned with the crisis in the world's fisheries. The UN Food and Agriculture Organisation estimates that 60 per cent. of the world's fisheries require urgent management, and that 30 to 40 per cent. of them are about to be exhausted. It is essential that Governments take a lead and mean what they say. This should not be an issue of party politics. The previous Government passed on a good record on the environment to the new Government. However, more needs to be done. The link between the environment and taxation is crucial. I agree with the hon. Member for Truro and St. Austell (Mr. Taylor) that a serious tax reform must consider the role of the environment.

The Deputy Prime Minister recently returned from the conference on climate change in Buenos Aires. He went out with a great deal to say and high hopes, but most of us know that he returned with very little agreed. One of the major agreements was that 146 unresolved items would be deferred to a future climate change meeting.

The world must face up to the crisis. Countries such as the United Kingdom must take a lead and the Government must take action. The Government have shown a spirit of wanting to get on with addressing the problems of the environment. There has been a great deal of consultation. Indeed, as Charles Secrett of Friends of the Earth recently said, the Government's motto is fast becoming "Carry on Consulting". Lord Marshall's recent report on business energy use and the proposal for an energy tax is a start, but, for all the criticisms that might be levelled against the report, the Chancellor's response was that we must have more consultation.

Some of the problems require not just consultation, but action. The Marine Stewardship Council came into play because Unilever and the World Wide Fund for Nature put up about £1 million for urgent research on the state of the world's fisheries. That was not done with whole-hearted benevolence, but there was philanthropy involved. Unilever owns Bird's Eye. It realised that, in 10 years, there will be no more cod for its fish fingers. It is a long time since an 18th-century cabin boy could report that he was unable to get the boat out from the shore into the Baltic sea for three days because of the shoals of fish. Today, he would be lucky to find a fish in the Baltic.

The MSC wants to launch two major projects: one on the state of Alaska salmon and the second on South African hake. Those fisheries will soon be exhausted, but it is difficult for such bodies to find the funding that they need. There are suggestions of hypothecated taxation or the creation of an independent resource such as an environmental investment bank from which bodies such as the MSC or the Forest Stewardship Council could draw. Action is essential.

The Government's pre-Budget report has been criticised by many green bodies, including Friends of the Earth, because it fails to make core links between the environment and taxation. One of the projects mentioned in the pre-Budget report involves changes to vehicle excise duty. We have heard that there is to be a cut of £50 for cars with low emissions—a total incentive from the Treasury of £1.7 billion or £1.8 billion. However, we can guess that the Government will increase vehicle excise duty on other cars, which will net the Exchequer the same amount of money.

What will happen to that money? Will it be specifically linked to innovation in new technologies to protect the environment? Will it be made available to bodies such as the Marine Stewardship Council, which could use it to get on with the crucial work of certification, which has been agreed around the world? It has a set of principles that the whole world will sign up to, including the industries and the retailers involved.

The problem is that we cannot get the money to progress to the next stage. This is an opportunity for the Government. The environment needs to be at the heart of the economy, because we are talking about a common inheritance, as John Stuart Mill recognised. It should be at the heart of a civilised society to recognise its duty to husband the environment.

If the Government and the Chancellor are serious about the environment, they should use the change in vehicle excise duty as a way of helping the environment rather than a way of raising taxes. I am glad to see the Chief Secretary to the Treasury in his place, because his presence is a recognition of the importance of the debate. Will he consider ensuring that the money is not used simply as a way of raising taxes for general revenue purposes, but will be hypothecated in some form, and find its way into environmental concerns, to help bodies such as the Marine Stewardship Council and the Forestry Stewardship Council?

The tax changes should not simply penalise people who drive cars, they should change behaviour. That is at the heart of the issue. The problem is that changes to vehicle excise duty will probably hit people in rural communities hard, while people in urban communities go on driving their cars, and congestion, emissions and pollution continue. The crucial challenge on the environment and taxation is to find a meaningful way in which to encourage people, industry and businesses to change their behaviour. That is at the heart of the debate, and a civilised society must think about it.

Sustainable development is not a slogan, but a crucial task for the Government to take on. I urge the Chief Secretary to tell the House that sustainable development is not mere rhetoric but will be translated into policy, and that the Treasury will firmly underline that fact.

10.40 am

Mr. David Heathcoat-Amory (Wells)

The hon. Member for Peterborough (Mrs. Brinton) has chosen well in selecting this important subject for debate, but she has also chosen a minefield for the Government. Several of the mines have already been trodden on by Labour Members, so we look forward to the response to the debate by the Chief Secretary to the Treasury.

I support my hon. Friend the Member for Witney (Mr. Woodward) in saying that sustainable development should be a core aim in any civilised society. The Conservatives have always believed that tax measures have an important part to play in delivering environmental aims. For instance, we used tax measures to achieve the successful switch from leaded to unleaded petrol.

Another example that has already been mentioned is the landfill tax, which we introduced, and which was designed to deter and tax the dumping of waste in landfill sites. Crucially, we used the revenue—nearly half a billion pounds a year—to cut employers' national insurance contributions by an equivalent annual sum. By taxing pollution, we cut the taxes on employment.

We can contrast that with what the present Chancellor of the Exchequer has done. He has announced a 43 per cent. increase in the standard rate of landfill tax, but the money will not be recycled into industry or used to reduce the costs of employment. Instead, it will simply be bagged by the Treasury for general expenditure. Taxation comes first, and the environment a poor second. It is therefore not surprising that, in March, the director of Friends of the Earth, Mr. Secrett, said: Last week's Budget was unforgivable. At a stroke, Gordon Brown broke the Government's manifesto promise to put 'the environment at the heart of policymaking'. We shall undoubtedly hear several ideas from the Government about aggregate taxation, taxing water pollution and so on—but those ideas were first announced in July 1997. Since then, they have put up taxes 17 times and revolutionised the British constitution, but they still have not introduced any of those environmental ideas.

Rather than trying to gaze into a crystal ball, we are now entitled to examine the Government's record, and we see that little has been done for the environment, while great damage has been done to industry and commerce. My hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) made a good point about fuel taxation. The Library has calculated that the additional fuel escalator and future tax increases in future Budgets will add £9 billion to the costs of transport and motoring during this Parliament. That will not do anything for the environment; it will simply raise revenue.

The Government have a problem with carbon dioxide reduction, because they are stopping the development of any more gas-burning power stations, and nuclear power will start to be phased out soon, as the older Magnox reactors are decommissioned. However, imposing a burden on the motorist as a substitute will not do the trick. Indeed, the Budget documents make it clear that, by 2010, reductions due to the fuel duty increases will amount to only 1.7 million tonnes of carbon a year, compared with an annual emission of 206 million tonnes. After 12 years of fuel tax increases, the benefit will be an 0.8 per cent. reduction in carbon emissions at best. That is a ludicrously expensive way of achieving not very much. A fraction of that money used in other ways to reduce carbon emissions or to control pollution would bring a far greater return.

The Government are not only hitting the motorist, in rural areas and elsewhere, but damaging the haulage industry—a subject on which the House had a good debate last week. The whole of manufacturing industry is being hit, and productivity undermined, by huge and continuing cost increases. The Government lecture manufacturing industry about productivity. That is their new excuse for economic problems—lazy workers not doing enough at plant level. Yet, at the same time, they are imposing wave upon wave of extra regulations and tax increases on the firms in which people work.

Mr. Gareth R. Thomas

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I hope that the hon. Gentleman will forgive me if I do not. I have only a few minutes and I must complete the points that I want to make, most of which are in response to what has been said in the debate.

Despite their declared belief in tax harmonisation in Europe, the Government have made diesel fuel the most expensive in Europe—if that is untrue, 1 hope that the Minister will correct me now. The Financial Secretary to the Treasury sits on a committee dealing with unfair tax competition in the European Union, which means increasing United Kingdom taxation where it is below continental levels. Yet, although the Government have unquestioned discretion on fuel taxation, successive Budgets have widened the gap between our fuel taxes and those on the continent.

That is not harmonisation but the economics of the madhouse. The Government are making a bad situation worse. French lorry drivers come over here with full tanks to take freight round the United Kingdom, while British lorries fill up on the continent. We are exporting not only jobs but revenue.

Smuggling in Northern Ireland leads to a loss of about £100 million in revenue every year, because of the tax differentials across the border. When I asked the Treasury about that, the answer was that it had made no estimate. The Government think that they can estimate carbon reductions in 2010, but they have no idea how much revenue is lost today. Those are the finances of the madhouse.

Instead of making things better, the Government have announced that things will get worse, because they have signalled that successive Budgets will continue to increase fuel taxes year on year. The damaging differential between our fuel tax rates and those on the continent will widen.

There is another threat, which is mentioned in Lord Marshall's report on a possible energy tax. I am not impressed by the report, which has a curious omission. A Government document on climate change says that air transport is the fastest growing source of carbon dioxide emissions. However, aviation fuel is not taxed at all. The document by Lord Marshall is silent on that sector. I find that surprising, because Lord Marshall is, of course, the chairman of British Airways and has a great deal of knowledge and expertise in that sector. He might have been expected to tell us what should be done to bring those emissions under control, instead of dishing it out to the poor old haulage industry. The report is partial and incomplete, and it will, if we are not careful, impose huge additional costs, making British industry less competitive and driving investment away.

What we see is not the use of taxation to deliver environmental goals—that, perhaps, we could support—but the use of the environment to justify huge tax increases. The Chief Secretary to the Treasury is about to reply, and I welcome that. He is still relatively new to his job. Let him use his influence to reverse this high-tax strategy, which has failed. It is doing very little for the environment, it is undermining businesses and it is costing jobs.

In this area at least, can the Government make a start on bringing their rhetoric into line with their performance—or, perhaps, more accurately, start to bring what they do in practice into line with their pre-election rhetoric?

10.50 am

The Chief Secretary to the Treasury (Mr. Stephen Byers)

The Government welcome today's debate on the environmental effects of taxation. I add my congratulations to my hon. Friend the Member for Peterborough (Mrs. Brinton) on securing this debate. I was interested to hear about the Peterborough energy audit and the valuable role played by Perkins Engines in that initiative. My hon. Friend has been a doughty campaigner in Peterborough and elsewhere on environmental matters.

I also welcome the several members of the Environmental Audit Committee who are in the Chamber. I received a kind invitation from my hon. Friend the Member for Harrow, West (Mr. Thomas) to attend one of the Committee's meetings in the near future, and I am due to do so in December. I look forward to that with some trepidation, given the quality of speeches in today's debate.

As we face the century ahead, we need a focused programme of environmental modernisation—a programme that is not simply about environmental protection, but one that can achieve objectives that are central to the Government's policies. Those policies are clearly set out in the Government's approach to sustainable development, and are based on four broad objectives: first, the maintenance of high and stable levels of growth and employment; secondly, the effective protection of the environment; thirdly, prudent use of natural resources; fourthly, social progress which recognises the needs of everyone.

Mr. David Chaytor (Bury, North)

In the context of the Government' s commitment to sustainable development, will my right hon. Friend agree to look again at the code for fiscal stability? Is he aware that, in the recent version of the code which came out with the pre-Budget report, there is a single reference to the word "environment"—and that is the economic environment? Does he agree that it is worth looking at the five criteria used in the code and perhaps including a sixth—sustainability? Would that not be a way of effectively locking in fiscal policy with the Government's commitment to putting the environment at the heart of government?

Mr. Byers

There are a number of ways in which we can address those environmental concerns. My hon. Friend will be pleased to hear that, early next year, the Government will publish our strategy on sustainable development. That will outline our aims, as well as measures already in place, and will highlight what further action might be undertaken to achieve our objectives. Those objectives will make it clear that we believe that economic development must take place in a sustainable way to ensure a better quality of life for everyone, both now and for future generations.

We recognise that what matters is not just the quality but the level of growth. The debate has shown that the tax system clearly has an important role in underpinning sustainable development. Our strategic approach was outlined in our statement of intent on environmental taxation, published at the time of the Budget in July 1997. How and what the Government tax sends clear signals about which economic activities we believe should be encouraged or discouraged. Just as work should be encouraged through the tax system, environmental pollution should be discouraged.

I listened with interest to several hon. Members—including my hon. Friend the Member for Peterborough and the hon. Member for East Worthing and Shoreham (Mr. Lough0ton)—who mentioned the need to establish a green tax commission, something that was proposed by the Environmental Audit Committee in its response to the pre-Budget report. A number of European countries have such a commission, but the experience is variable—it works well in some countries, and not so well in others. We are keeping under review the possibility of establishing such a commission. We do not want duplication. There are many organisations doing valuable work in this area, and we shall need to look carefully to see whether a green tax commission can play a valuable role.

My hon. Friend the Member for Chatham and Aylesford (Mr. Shaw) referred to the harmonisation of VAT on the renovation of empty properties. We keep all tax matters under review—that is the nature of any Government. It will be for my right hon. Friend the Chancellor of the Exchequer to decide whether any changes will be made in that direction. I am sure that my right hon. Friend will look with interest at my hon. Friend's comments.

The hon. Member for Witney (Mr. Woodward) raised the two main issues, in my view. First, he referred to the difficulty caused by the Government consulting so much. We make no apologies for that. This is one of the areas where we need to take people with us and to explain the direction in which we wish to go. By doing that, we can command broad and popular support for our proposals. Secondly, the hon. Gentleman referred to hypothecation. We judge each case on its merits, and we will look carefully at each proposal. Once again, we have noted with interest the hon. Gentleman's specific proposals this morning.

It would be a mistake to believe that taxation is the only way in which we can address environmental issues. Clearly, a key part can be played by taxes, but they are not always the solution to every environmental problem. Environmental taxation must meet the general test of good taxation. It must be well designed to meet its objectives without undesirable side effects. It must keep deadweight compliance and administrative costs to a minimum, and care must be taken with regard to implications for the competitive position of UK companies in international markets.

The hon. Member for East Worthing and Shoreham was critical of the Government's spending commitments, which he felt did not address sufficiently environmental concerns. I wish to give the House an example of how the spending—£40 billion for schools and hospitals over the next three years, with which the Conservative party disagrees—can be used to address environmental concerns.

The House will know that the Government have started a large-scale programme of capital investment in our schools and –30 million has been allocated for improvements in energy management, including the replacement of heating systems. Decisions have just been taken to allocate to some 891 schools some of the money. It is estimated that they will achieve average savings on fuel costs of 20 per cent., with further savings on maintenance costs. This should, in total, amount to more than £2 million in savings a year which can be ploughed back into the individual schools. It is not merely pupils who will benefit. There will be a reduction of 44,000 tonnes in the level of carbon dioxide emissions due to the programme, which is the equivalent of 23 million average car journeys, or a reduction of 24,700 in the number of cars—a real contribution that can be made.

The Government will consider the issues in the round. We will study taxation and other measures that can be taken to improve our environment. We intend to do that with people—to consult and move forward on an ambitious agenda that will be based, not on dogma but on putting the national interest first. On the basis of those principles, I commend our approach to the House.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. We now move on to the debate on the pig and livestock industry.