Environmental Audit

HC Deb 07 March 2002 vol 381 cc451-92

Considered pursuant to Resolution [5 February] and Standing Order No.145 (Liaison Committee) [Relevant documents: Second Report from the Environmental Audit Committee, Session 2001–02, on Pre-Budget Report 2001: A New Agenda? HC 363-I; and The Chancellor of the Exchequer's Departments: Annual Report 2001, Cm 5116.]

Motion made, and Question proposed, That further resources, not exceeding £3,020,000, be authorised for use during the year ending on 31st March 2002, and that a sum, not exceeding £3,020,000, be granted to Her Majesty out of the Consolidated Fund for the year ending on 31st March 2002 for expenditure by HM Treasury.—[Mr. Woolas]

2.22 pm

Mr. John Horam (Orpington)

I should like to thank all my colleagues on the Environmental Audit Committee and the staff and advisers to the Committee for the work that they have done. As evidence of the Committee's hard work, I refer to the fact that, this week alone, we have taken evidence from the Deputy Prime Minister, the Secretary of State for International Development and the chairman of the Sustainable Development Commission, Jonathon Porritt, as well as participating in this debate—several of my colleagues are here today. Last week, we spent three days in Germany investigating renewable energy. As one of my colleagues remarked, I am sure that we would qualify for a charter mark for activity if they were awarded to Select Committees.

The debate today is billed as being about environmental taxation policy. That is a rather narrow and, in many ways, unhelpful overall title. It is narrow because, as our report on the Chancellor's pre-Budget report makes clear, we considered the whole gamut of ways in which Treasury policy can affect the environment: taxation, subsidies, investment, incentives, negotiated self-regulation, trading systems and so on. So the issue is not just about taxation. It is unhelpful because talk of environmental taxation inevitably invites the suspicion that this is another Treasury stealth tax by a different name.

I believe that concern for the environment is part of the natural evolution of a civilised, modern society that has come to understand that the quality of life is not just a matter of the standard of living It is about time that the Treasury wholeheartedly and intelligently joined in that debate; it is essential that it does so if we are to make progress. That is why I rather like the concept of sustainable development, which is occasionally rather well defined as treating the world as though we intended to stay. That concept contains the idea of a balance between all three important elements: economic, social and environmental issues.

The fact is that we can benefit economically from good environmental ideas. There is the possibility of a win-win situation. Indeed, given how other countries—Germany and Denmark, for example—handle waste treatment, renewable energy, fuel cell technology and so on, I am becoming concerned that the United Kingdom may fall behind economically because it does not give enough priority to environmental technology. I am afraid that the opposite of win-win is lose-lose, and we must not get ourselves into that situation.

I received for Christmas from a well-meaning friend a now famous book, by Bjorn Lomberg, called "The Sceptical Environmentalist". It is a fairly heavy academic tome, and I would not recommend it as bedtime reading. It certainly provides a healthy corrective to the more apocalyptic notions that sometimes hold sway in environmental quarters, but nothing in it denies the need for a sensible and precautionary approach to sustainable development.

When I visit local schools—as I did last Friday, to talk about globalisation and development—I am struck by the fact that many young people understand the relevance of concern for the environment, based on their knowledge of science and geography as taught in school. In Westminster Hall, only yesterday, we debated the participation of young people in politics. If politicians seriously want to capture the enthusiasms of the young, we would do well to talk more about the environment and the problems and challenges of globalisation than we do at the moment. That is particularly true in a year when the world summit on sustainable development will take place in Johannesburg.

Mr. Gareth R. Thomas (Harrow, West)

Will the hon. Gentleman join me in congratulating the students of Rooks Heath high school in my constituency on today being awarded a certificate for their successful activities in increasing the school's use of renewable energy and energy-saving materials? Will he also join me in congratulating the continued, excellent judgment of my right hon. Friend the Financial Secretary to the Treasury in taking the time, while preparing for today's debate, to visit that school this morning to present that certificate?

Mr. Horam

That is an example of thinking locally and acting globally.

The Johannesburg meeting on world sustainable development will take place, by design, 10 years after the Rio summit and, by accident, nearly a year after the terrible events that took place in New York last September. Although we have, rightly, had to tackle terrorism by military means, a proper commitment to sustainable development is part of the answer to tackling the causes of terrorism.

Mr. John Gummer (Suffolk, Coastal)

Does my hon. Friend agree that both events should remind the United States of the fact that it is impossible for any nation to act in isolation, that all of us depend on global solutions to global problems and that none of us ought to opt out?

Mr. Horam

I profoundly agree with my right hon. Friend. Just because the United States is so powerful, it should not forget that we live in an interdependent world. I hope therefore that the Financial Secretary will convey to the Prime Minister my desire that he persuade George Bush to go to Johannesburg, just as Mrs. Thatcher persuaded his father to go to Rio. If that were to happen, it would send a positive signal about US intentions, which would help to repair the damage caused by its initial reaction to the Kyoto protocol, which we discussed earlier today. I hope that the Government will take that on board.

Our verdict on the Chancellor's November statement was that it was a serious disappointment. In the last Parliament—indeed, in his first Budget—the Chancellor issued a statement of intent on environmental taxation. It was an admirable statement and many people hoped that, at the beginning of the second Parliament of the Labour Government, he would take the opportunity to reaffirm those objectives and re-commit himself to those goals.

Unfortunately, the Chancellor did nothing of the kind. The pre-Budget statement contained only one paragraph on environmental issues, the substance of which was that the Government were consulting from today—the day of the pre-Budget statement—on a total of 10 new environmental measures.

On page 11 of our report, hon. Members will see that we have analysed those 10 measures one by one, which is precisely the careful scrutiny that a Committee of our kind should undertake. We discovered that only one of the 10 measures could be characterised as new. In only three of the 10 was consultation beginning on that day. If one defines "today" so as to include "tomorrow", it becomes four but, none the less, it is clearly not 10. Wherever this comes in the hierarchy of spin, I suggest that it is a considerable exaggeration of what the Government are doing in this area.

I am not accusing the Government of doing nothing at all. Indeed the Committee rightly praised many of the measures in the last Parliament that were taken with the considerable support of the Treasury; I am glad to see the Financial Secretary to the Treasury in his place. We should say also that the Government have succeeded in setting up the right kind of machinery inside government for developing policies on sustainable development in a coherent way. However, at some stage, process must produce delivery and that is where the Government have been so disappointing.

I contrast the situation in the UK with what we found in Germany last week. In Germany, there is a strong energy policy, with substantial environmental investment by the Government who were already having the spin-off of creating a large number of new jobs, as well as important export opportunities for German business. Here we have simply the performance and innovation unit report; a worthy document, but one which comes to no clear conclusions. We are just talking; in Germany, they are acting.

Mr. Simon Thomas (Ceredigion)

Does the hon. Gentleman agree that we could compare and contrast the problems with the new electricity trading arrangements that we have in this country, and the combined heat and power access within that, with the decision of the German Government to change their electricity metering law to allow ordinary household users to use photovoltaic cells and import directly into the grid? That cannot be done here.

Mr. Horam

The hon. Gentleman was present in Germany and is right. Another advantage of Select Committee-type scrutiny is that we can analyse Government figures carefully. I noted that the Secretary of State for Environment, Food and Rural Affairs said in her statement on Kyoto that the Government were putting £250 million behind renewable energy. We have analysed the figures carefully in the document. If the Financial Secretary to the Treasury looks at it, he will find that, in cash terms, the figure is much smaller if one takes out the double counting. Indeed, it will fall to £135 million next year.

As the hon. Member for Ceredigion (Mr. Thomas) has just said, there are considerable problems as a consequence of the measure in the renewable energies industry. CHP companies are packing up the investment that they had taken previously. The Government's rhetoric, in terms of the Prime Minister's statement before the last election, was admirable. Their delivery has been extremely poor.

It does seem that we are over-cautious in our approach and, perhaps because of the power of the Treasury, too finance-oriented. The German approach seems to be a matter of trying to devise a strategy and then worrying about the necessary finance later. Our approach seems to be exactly the contrary; to worry about the money and then to come up with a rather limited approach, which simply does not do the business.

Mr. Colin Challen (Morley and Rothwell)

Does the hon. Gentleman agree that the attitude of the German economic ministry is to subsidise and support a nascent environmental industry, so that it can stand on its own two legs and compete in the wider world, having created a new technology? Does he agree that to support such an industry is the right approach?

Mr. Horam

I agree emphatically with the hon. Gentleman and that is why I said that this is a debate about investment—and precautionary investment of the kind that he is talking about—just as much as it is about moving taxation from "goods" to "bads". There will be all-party support for a coherent approach.

Finally, I shall mention three specific areas where I think that the Government should take action as a result of the report. The first is to reform VAT to remove the present tax disincentive that works in favour of greenfield development and against brownfield development. In the present circumstances, that is an anachronism.

Secondly, on waste disposal, there is now consensus across political parties and among the various interests that the landfill tax should be substantially increased. I have never heard of a situation before in which a Chancellor is being urged to increase tax by almost everybody and yet does not do it. Something must have happened to the normal Treasury reactions.

Finally, the Government must sort out their energy policy. We have commented on this previously and I feel that here is an opportunity that this country should not miss. The report is vigorous and critical, but, I believe, fair. I believe that the Government should act upon it.

2.36 pm

Jane Griffiths (Reading, East)

It is always a pleasure to follow the hon. Member for Orpington (Mr. Horam), who has a long and distinguished record on all environmental matters. I am grateful for the opportunity to make a couple of points on environmental taxation.

The Government's policy of shifting taxation from environmental "goods" to environmental "bads" is working. The reduced burden of taxation on road fuel gases has been put in place in recognition of their excellent emissions profile. When liquefied petroleum gas burns, virtually all that is produced is carbon dioxide and water, and even the carbon dioxide that is emitted is significantly less than that emitted by conventionally fuelled cars.

The result of this "greening" taxation has been to stimulate and grow a market of 50,000 vehicles to date running on LPG. That is a growth from virtually nil only a few years ago. It is certainly going in the right direction. The London congestion charge will also, I suspect, be a stimulus because most LPG cars will be exempt.

The potential market for LPG vehicles is far from being reached. In Japan, which has specific congestion and pollution problems, virtually all the taxis run on LPG and the country is one of the highest users of LPG in the world. Italy has the highest number of vehicles running on the fuel, with around 1.2 million, followed by South Korea and Australia.

Her Majesty's Treasury, I have noted, takes a rather cautious approach to shifting the burden of taxation, probably rightly. It has a natural horror of deadweight expenditure. The result is that environmental benefits—many of them now quantifiable in cash terms and lives saved—are sometimes slower to be delivered than they might otherwise be.

A good example of that is the company car tax regime, which is being gradually reshaped to bear down on the gas-guzzlers and the heavy carbon emitters. It is an area that could do with some joined-up policy thinking. It reflects a current separation between the climate change anti-carbon policy and the air quality anti-pollution policy. Company car taxation addresses carbon but does not yet adequately address pollutants. The importance of this is that it is among company fleets that the most dramatic gain can be produced, by choosing LPG over traditional fuels. A greater recognition of the desirability of LPG over petrol and diesel should be built into the car tax regime.

For instance, the fuel scale charges and VAT charges are at present not only heavy on the use of LPG, but unfair, since consumption of LPG is taxed as if it cost the same as petrol or diesel, despite the fact that it is only half the price.

Environmental taxation has not been deployed to refrigerants. Most fridges and cooling systems in the United Kingdom run on hydroflurocarbons, which are recognised as highly damaging by contributing to global warming. The trouble is that HFCs leak at a rate of 30 per cent. a year on distributed systems. The UK has to an extent relied on voluntary actions to improve the leakage, and that approach is given solemn lip service. Far be it from me to suggest that manufacturers have a vested interest in selling as much top-up HFC as they can.

The UK policy is delineated in the climate change UK programme, which states: HFCs should only be used where other safe, technically feasible, cost-effective and more environmentally acceptable alternatives do not exist…HFCs are not sustainable in the long term". So we rely on exhortation to produce change in the private sector. When we examine the pattern of procurement in the public sector, we find that the record is—if I am to be generous—patchy. If ever there was a case for a new economic instrument, this is it. I plead with my right hon. Friend the Financial Secretary to consider that.

2.41 pm

Matthew Taylor (Truro and St. Austell)

The Environmental Audit Committee is an innovation for which we argued, and it is most welcome. It is a pity, however, that it did not get the powers that the Labour party in opposition envisaged for it. The idea was that it would be similar to the Public Accounts Committee, with the back-up and resources to do detailed work. All Select Committees suffer from a lack of resources. Although that applies to the Environmental Audit Committee, it has done some extremely good work nevertheless. The Minister needs to reflect carefully on its report. It makes a well argued and strong indictment against the state of environmental tax reform some five years into the Government's term in office.

As with any policy development, we need proper research and analysis of the problems to design effective environmental taxes. If we are not clear about the damage that is being done or the policy tools that are being used to address it, we are not going to be effective. Research and analysis do not take place as they should in government in general. There are far too few trials and too little analysis of whether Government policies are effective after they have been implemented. I have criticised the Chancellor before for introducing endless bureaucratic targeted schemes, few of which, if any, are properly analysed for their effectiveness subsequently in either cost or policy terms. The Select Committee report makes it clear that that is undoubtedly true of the Government's policies on environmental taxation.

The Committee criticises Treasury research as "inadequate". It states that: the Treasury is failing to provide adequate leadership and co-ordination". It highlights the appalling, although typical, refusal by the Treasury to publish key information. It not only calls on the Government to make reports on sustainable development available to it, but points out that if the Treasury continues to keep secrets, the reports must, at the very least, be released to the National Audit Office because they are—or should be—a crucial part of the comprehensive spending review process.

The Committee also rightly criticises the lack of joined-up thinking across Government. The Government talk about that a great deal, but too often they fail to deliver on it. If the sustainable development unit is a cross-government resource, it needs to be involved in evaluating the sustainable development reports. If it is not, a suitable body needs to be created to do that.

The Treasury's worst record is on allowing public evaluation of its policies, which applies across the board, not just to environmental taxation. The House and the general public lack the opportunity to see the conclusions of audits of policies that are implemented by the Treasury and other Departments that it encourages to act in the same way. The reports have to be made public or their value becomes diminished. I support the Committee's call to have a unit within the Treasury which is responsible for environmental taxes, developing resource productivity indicators, monitoring the adequacy of environmental appraisal and co-ordinating a more strategic approach.

Mr. Mark Francois (Rayleigh)

The hon. Gentleman has probably seen the press release that the Environmental Audit Committee issued to accompany its report. Following his important point on access to departmental sustainable development reports, is he aware that the press release says: It is particularly outrageous that the Treasury is proposing to keep secret sustainable development reports submitted as part of spending review 2002. This will make it impossible for Parliament to hold Departments properly to account"?

Matthew Taylor

Not only am I aware of that comment, but I strongly welcome it. We could understand the Treasury not making the reports public when it draws up the review, but it is a different matter when it keeps them secret thereafter, because that makes proper scrutiny of Government policy impossible. Sadly, it is not just environmental issues to which that applies. It is a long-running failure on the part of the Treasury, and it is getting worse year by year, as any hon. Member who has tabled parliamentary questions to the Treasury knows because they are stonewalled time and time again.

The Minister needs to recognise just how strong the report is. It has been produced by a cross-party Committee with a majority of Labour Members, and concludes: We strongly regret the refusal of the Treasury to provide us with the Spending Review main Guidance". It comments that that vividly demonstrates that the Treasury will only share what it does not value or consider important. That is a pretty good summary of the position that this Government at least have managed to get into with regard to making information available.

It is even more worrying that when we cross-question the Government, as the Committee and hon. Members have done, on their evaluation of implemented policy—policies on which money has already been spent—the answer is frequently that there is no systematic evaluation of their effectiveness. I strongly welcome the report's request that the Government should fulfil their commitment to incorporate systematic ex post appraisals in future pre-Budget reports. However, Committee members should be aware that the appraisals often do not appear because they do not exist, even in the Treasury. The Committee also says: We find it difficult to understand how the Government can decide what is the most appropriate policy mechanism, if it is not able to assess the effect of different policy instruments. We urge the Government to clarify how it proposes to develop appraisal and monitoring systems on a more comprehensive basis. An overriding conclusion of what this and other Governments have done on environmental tax is that too often they have grabbed the green mantle in a way that simply hides the fact that the Treasury takes decisions that largely suit it. For example, the decision to opt for the climate change levy rather than a carbon tax was politically driven; it had nothing to do with best environmental practice. As a result, not only did that decision put huge administrative burdens on business in particular and, incidentally, on the Government, but the Government have been forced almost ever since to go through an endless process of rejigging the climate change levy in a desperate effort to make it work either environmentally or administratively.

Mr. Gummer

Is the hon. Gentleman aware that the Government have admitted that the reduction of emissions annually as a result of the climate change levy is less than the increase in emissions caused by the moratorium on gas-fired power stations? The fact that the Government at the time said that such an increase was immaterial shows just how small an effect such an enormously complicated system has on the environment.

Matthew Taylor

One great problem with the climate change levy is that it is not terribly effective in changing the way in which businesses operate. The whole point of adopting a carbon tax would be to tackle carbon use, which the levy fails to do. Although various efforts have been made to get round that problem, the situation is still far from ideal. In addition, the levy was introduced in one big block. A carbon tax could be phased in gradually in order to affect the real decision-making process of long-term capital investment, rather than penalise companies for past investment, as the levy has done, long after they are able to change those decisions. So, although the levy may be a stick of sorts, it provided little carrot and flogged a dead horse, since most investment decisions that it penalises have long since been taken.

Ian Lucas (Wrexham)

Will the hon. Gentleman clarify whether he would support the introduction of a carbon tax that applied to individual consumers as well as business?

Matthew Taylor

My view on that matter has been consistent, and was presented in our manifesto in 1997, when the Government were first considering the matter. A carbon tax is the only way to address the matter successfully. By its very nature, it must apply to all fuels and therefore to all users on the basis of carbon use, but revenues could be directly used to compensate users. If they used more carbon energy, they would pay more; if they used less, they would pay less. However, ordinary people could be compensated from the revenue raised. I shall touch on that issue a little more in a moment.

It was precisely because the Government were not prepared even to countenance the possibility that households would be hit that they ended up with such an ungainly and relatively ineffective tax. You pays your money and you takes your choice, but it is rather unfortunate to end up with a system that is administratively highly expensive yet does not deliver the goods terribly well.

I want briefly to raise three issues. The first is landfill tax and the waste stream. Government policy on waste is in a mess; many Members represent constituencies that are in the process of trying to sort out that mess. Landfill is becoming expensive and less viable, but the Government are giving no clear steer on the approach that local authorities should take, and some decisions are having perverse financial effects. I am one of those who believes that incineration should be included in a levy system, but we need a comprehensive strategy for waste. The lack of such a strategy is a failing of the Government's approach to environmental taxation. They have taken on odd, individual items rather than providing a joined-up, overall strategy.

I have worked hard in Cornwall to move the county away from a proposal for an incinerator. I think that we have succeeded. Cornwall Environmental Services—the company that deals with waste in the county—has withdrawn its proposals and is looking for other, better, more environmental solutions. Until the Government either take the decision on their public finance initiative bid for investment in recycling facilities close to homes, so that recycling makes environmental sense, or sort out their approach to incineration and its alternatives, it will be very difficult for any local authority to give a coherent lead. We need a lead from the Government.

Similarly, the development of the countryside is a huge issue—in my part of the country and in the constituencies of many Members. The Government say that they want more brownfield rather than greenfield development, but as the EAC report accurately states, at the moment there are perverse incentives to develop greenfield land. As a result, previously developed areas, particularly in inner-city areas, are being allowed to run down. The re-development of such brownfield sites is subject to a huge VAT burden that does not apply to greenfield development. That cannot make sense. In several Budgets, I have expected the Government to announce some action on the matter, but they have failed to do so.

In a country where there is a shortage of land, the value of development land is dictated by the amount that people are prepared to pay for the properties that are eventually built on it. So, not levying VAT on greenfield development affects not the eventual price of properties built but the price of land sold for development—a windfall gain for the owners of the land and an incentive for developers to find such land. The system needs urgent restructuring, and I welcome the fact that the report highlights that.

Nobody should feel—I hope—that I do not believe that environmental taxes could play a crucial part in how we address the environmental issues that we face. The biggest of those is catastrophic climate change, although we also see the destruction of our countryside. I shall give one other example of importance—the aggregates tax. I have always believed that the aggregates tax could play a major, beneficial role in encouraging re-use of waste material rather than raw extraction in many of the most beautiful parts of the UK countryside. I welcome the fact that the Government have gone down that route, but it might be helpful to touch on how positive an impact a well-designed environmental tax can have.

I have in my constituency the largest area of opencast china clay mining anywhere in Europe. The china clay industry tipped more waste material in my small part of Cornwall than the coal industry's entire output when it operated on a large scale in the early 1980s. Therefore, there is a huge waste issue in our part of the country. For 250 years, that waste material has successfully been used in road building in the county of Cornwall. Therefore, there is no doubt that such waste material can be used successfully as an aggregate. Indeed, I notice in reports on the state of Cornwall's roads that despite very low investment we have among the best roads in the country primarily because they were built using an awful lot of aggregate material and they tend not to break up as much as roads in other parts of the country.

In 1999, 500,000 tonnes of china clay waste material was used locally. Just 2,000 tonnes was taken out of the county by sea in an experiment to find out whether there was a market for such material in the Thames area. In 2000, 890,000 tonnes were used locally as Cornwall county council in particular followed a policy of using such waste material as much as possible. As part of the same experiment, 19,000 tonnes left the county in that year—mainly for the south coast but even to Germany.

By 2001, as the company began to gear up in the knowledge of the aggregates tax and to build up facilities for using the material, it managed to make use of 1.3 million tonnes of waste material-53,000 tonnes going out by sea. The dramatic change as a result of the aggregates tax is that, this year, the company expects to reach a figure of 1.6 million tonnes, with at least 200,000 tonnes leaving from Par docks. However, it is being told by the people whom they supply that, once the aggregates levy comes through, it can expect much higher levels of demand, which could add another 300,000 tonnes to the total. Therefore, as much as 500,000 tonnes will go out by sea this year in comparison with just 2,000 in 1999. Therefore, no one should be in any doubt that such measures can make a difference.

Incidentally, such good news can be set against the gradual reduction in the number of jobs in the china clay industry, as there has been an announcement today that another 300 local jobs are to be lost.

Yesterday, I understand that there was a meeting at the Department for Transport, Local Government and the Regions on the bid that has been put together by the Strategic Rail Authority, those administering objective 1 money in the county, Imerys—the main china clay company—and the DLTR for a major rail upgrade of clay rail routes and two new berths at Par. I hope that Treasury Ministers will get behind the bid. The project is set to cost more than £20 million, but it is believed that it will raise the tonnage of waste material to between 5 million and 7 million tonnes. With other local re-use, that means that all the waste from the china clay industry that can be used will be used, making substantial savings for the environment, not just locally but in other parts of the country, as well as protecting jobs.

It is worth bearing in mind that environmental measures can be effective. In my part of the world, the aggregates levy is doing exactly what it was designed to do. There is one problem, which affects the small, family-owned, traditional quarries that used to supply those services within Cornwall. The Government failed to offer them any alternative route for their businesses, and many of them fear that without some sort of invested support for new avenues of business, they will face sudden collapse through no fault of their own. We should consider giving them more of the resources that will come in to help them cope with the change. When they approach me, I tell them that change is the point of the policy, but I agree that they need help with the process of change.

The flaws are larger than the successes. On the whole, the measures have been badly targeted. Taxation of carbon has been wholly inconsistent, ranging from high rates on vehicle fuels to nothing on aviation fuel. The climate change levy is a muddle. The systems that have been adopted were adopted largely because they were simple for the Treasury, at the expense of environmental effectiveness and administrative cost.

Worse still, there is no clear medium-term strategy. As the Environmental Audit Committee points out, a rush of enthusiasm in 1997 has become, as far as anyone can tell, almost no enthusiasm and only a bit of spin doctoring in 2001–02, yet a medium-term strategy and a clear vision of the Government's direction are crucial if the policies are to be truly effective. Environmental taxation policy is all about changing people's decisions—above all, decisions on capital investment. If the householder deciding whether to invest in a low-energy hot water and central heating system or the business making major capital investment decisions cannot see where the policy is going, and if the Treasury gives no clear plan showing where environmental taxes are going, not only can we in Parliament assume that reforms are unlikely to happen, but, more important, people outside will assume either that they will not happen, or that they are so unpredictable that there is no point in making investments in preparation. A greener Treasury would be more open, because being more open is all about being more effective.

One reason why the Government are so unwilling to develop their environmental tax proposals is that they, like their Conservative predecessors, have been stung by complaints from the public about some of their major environmental tax initiatives—the road fuel protests under the current Government, and the campaign against VAT on fuel under the last Government. The public had a point in both those instances, because the Government, under the guise of environmental taxation, were raising the tax burden. My party and I have consistently argued, and we have consistently set out policies showing how it can be done, that the argument for environmental taxation will be won only when people see it as a process of reform of the tax system so that "bads" rather than "goods" are taxed, not as a means by which more tax is taken from people behind their back while claiming that it is all in the cause of good environmentalism.

The overall tax burden is not the issue: it is how we tax, not how much we tax. When the Government confuse the two, it inevitably causes the cynicism highlighted in the University of Surrey's recent report on public attitudes to environmental taxation in the UK, which said that people believe that such taxation is not about the environment, but all about stealth taxes, so they naturally oppose it.

3.4 pm

Mr. Alan Simpson (Nottingham, South)

I begin with three comments of praise. First, I praise and thank the Select Committee on Environmental Audit for its report and the context in which it set the report. It is important that the Committee acts as a conscience and a critic of where we as a Government have got to, and sets out ways in which we can get to where we want to be. The whole House should thank the Committee, especially for the way in which it has set out the carrots and sticks involved in the process of reaching our goals.

Secondly, I thank my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs for the statement she made prior to this debate on the UK's commitment to signing the Kyoto treaty. She set out with firm commitment the Government's intention to deliver on the reduction of carbon emissions in our society and to change to an economy that gives people a serious prospect of surviving through the century. I do not use the latter phrase lightly.

Thirdly, perhaps unusually, I thank the Prime Minister. In an important speech made a year ago, he pledged to create a low-carbon, low-waste economy in Britain and to green the agriculture sector and the common agricultural policy. Such statements are welcome, but they will not be realised unless they fit into a comprehensive green fiscal strategy, which should he put in place quickly. The question of how to put such a strategy in place quickly focuses our attention on the coming Budget, and it is right that we examine that.

From the report and our many debates in the Chamber emerge four principles around which environmental taxation should be structured and four types of measurable outcome that the House and the Government must take seriously. Taking the principles first, it is right to say that if environmental taxation is to command public support, it has to be clear and honest. Secondly, it must be based on a process that rewards the virtuous while penalising the villainous. There must be a sense of environmental justice in our policies.

Thirdly, there must be a direct connection between environmental taxation and environmental gain. The public will not object to environmental taxation if they can see that the payback directly enhances the quality of life that they, their children and their communities enjoy. Only when the money dissipates in the mist and nothing about the quality of their local environment changes do they begin to be deeply and legitimately sceptical about the purposes of that taxation.

John McDonnell (Hayes and Harlington)

Has my hon. Friend heard that this week the Republic of Ireland introduced a 15 per cent. levy on plastic bags, of which each person in that country gets 325 a year? The levy will bring in £120 million to use for promoting green issues and environmental projects. Should we introduce that sort of thing in this country?

Mr. Simpson

We certainly should. I had not heard of that initiative, which I welcome, although I was aware of a similar one introduced in Greece not only to change the culture in Greek society as a whole, but to target specifically and encourage the re-use of shopping bags by the large number of people who visit Greece as tourists, whose lasting legacy appears to be the polythene bags they leave behind. We should consider such measures as practical applications of the principles I am outlining.

The fourth principle is perhaps the most contentious. We need to be unafraid of saying that if we are to deliver a sustainable low-carbon economy, we have to change the nature of market rules so that markets favour the sustainable rather than the polluting. The practical application of that principle will probably be the most contentious area that any Government have to tackle.

Where does that lead us? On the principle of clarity, and in terms of the specifics that I hope the Chancellor will consider in his contemplation of the coming Budget, the House and the country understand that we should adopt a clear position on the case for a pesticides tax and a fertiliser tax.

I hope that the Chancellor will also consider aviation fuel and the enormous damage that it does through ozone pollution and depletion. It is a mechanism through which suppliers can externalise pollution. The stripping of productive processes out of the United Kingdom to locate them in another country with lower environmental standards is not a global environmental gain. The connectedness of pollution issues means that we cannot consider in isolation what happens in one country. Rules must be set that apply across an international agenda.

On domestic initiatives, I welcome the Government's introduction of the energy efficiency contribution that is required of the energy supply industry to meet energy efficiency initiatives in domestic energy consumption and changes in the technology for environmental sustainability in the industry.

I also praise in advance the support that I am confident will be forthcoming from the Cabinet for the private Member's Bill introduced by my hon. Friend the Member for Brighton, Kemptown (Dr. Turner), the Home Energy Conservation Bill. I know that it has slight financial implications, but in budgetary terms they are little more than the cost of a can of paint, and it would be tragic if the Government missed the opportunity of making changes that would be of enormous benefit to the fuel-poor and to those who are forced to be the most polluting energy consumers.

In terms of rewards and gains, I shall suggest a number of measures that I hope the Chancellor will consider. To promote energy efficiency in the home, we could make considerable mileage from offering rebates on stamp duty for properties that met high energy efficiency standards. That will become more straightforward when we introduce seller's packs that make available surveys of all homes, but we could it introduce before then.

An energy survey of a home would cost about £150. Even on the cheapest property that would be affected by stamp duty—one that cost £60,000—that would offer a potential saving of about £450, which could be used towards improvements in energy efficiency. Once in place, the measure could be widened to encourage households to undertake other improvements such as the recycling of water and the use of low-impact materials. The rebate is the sort of carrot that we ought to have in mind when we discuss environmental gain.

We should introduce flexibility for local authorities to vary council tax on properties that are already energy efficient or which we want to induce to become energy efficient. That would have the advantage of extending the payback period for improvements, reducing the cost to those undertaking the improvements, and saving money on their fuel bills and council tax. Large numbers of households around the country would welcome such a measure.

We could extend the measure to the business community by allowing variation in business rate rebates which would allow cheaper rates for businesses that employ local people, cut their traffic impact and implement green transport schemes for workers and energy efficient premises. My authority in Nottingham is beginning to move in that direction by discussing the introduction of a company car parking levy. Exactly such rebates are being offered to companies that sign up to local green transport schemes.

All these proposals involve hypothecation and the identification of a payback where the return of taxation to virtuous ends binds people in as net gainers from the process. That could be extended to arrangements for recycling in every home. I know that the landfill tax is contentious, but if householders saw its proceeds manifesting themselves in the setting-up costs of recycling schemes, it would allow them to make choices about being environmentally virtuous. Virtue will strongly influence where public pressure takes us in the years ahead.

We must allow the public to make important ethical choices that are also environmental choices. We must allow companies tax breaks to deliver the next generation of renewable energy technologies. We should examine ways of offering similar tax breaks to farmers and households for applying renewable technologies and using them in the daily process of their work and lives.

We should consider how regulation can offer consumers the choice that they want. My hon. Friend the Member for Reading, East (Jane Griffiths) made a powerful case for liquefied petroleum gas—LPG. It is a wonderful example. About a year ago, I was fortunate to be allowed to test drive an LPG vehicle for a week. It was an enjoyable experience, with one exception: I went into a state of panic when the fuel started to run low and I had to work out where to fill the thing up. I remember real anxiety and pulling into petrol stations to ask where I could get LPG. The attendants would scratch their heads. I even stopped the police to ask them. They said that they knew of a place in Southampton—I was going south—and suggested that I go into the centre of Southampton and ask there.

We must contrast that with the experience in France where, by regulation, the terms of franchises for petrol stations were changed. It is an obligation that one out of every six pumps must offer an alternative fuel, such as LPG or biodiesel. There is an important and legitimate argument to be had about which alternative fuel, but the key fact is that when one pulls into a forecourt, one knows that one can make an ethical choice. One is not offered the Hobson's choice of the polluting technologies that we are seeking to move away from. The introduction of alternative fuels makes it possible for motorists to fill up virtuously. I am certain that huge numbers—even greater than those cited by my hon. Friend—would make that change if they could go about their daily lives without panic or confusion.

Mr. Simon Thomas

If the hon. Gentleman repeated the experience of trying to find LPG in rural mid-Wales, he would run out of fuel long before finding the right filling station. LPG is an important option, but does he agree that the potential offered by biodiesel—because the vegetable oil could be produced in this country and the vast majority of diesel cars on the road could easily be adapted to biodiesel without retro-fitting—puts an onus on the Government to enhance the tax incentive for it?

Mr. Simpson

I accept that. I was giving an example of the Government's responsibility to make choice available to consumers.

Without discussing in detail the Home Energy Conservation Bill, we could make a regulatory change that would allow the public to act virtuously if we signed up to the commitments that require the licensing of houses in multiple occupation and the raising or setting of minimum housing standards. Those are not tax issues, but requirement issues, in much the same way as the Clean Air Act 1956.

My final and probably most contentious point relates to markets. I shall make two points. First, there are huge environmental gains to be made by changing our perception of food markets. Some 60 per cent. of the food that this country imports could be grown here. A fantastic report by the campaign group Sustain on EU food markets showed that the largest part of those markets is food swaps. The report was called "Eating Oil", which well describes what is happening. Huge costs, congestion and pollution go into shipping the same goods back and forth from one part of Europe to another. We should consider ways in which the Government can tax that favour the localisation of food markets. Indeed, that would also strengthen the public's demand for shorter and tighter lines of food accountability.

My final point is the one with which I suspect very few hon. Members will agree. Like a number of my colleagues, I have been in the habit of roundly denouncing President Bush as a right-wing, reactionary, belligerent old warmonger, but in the past couple of days I have been forced to consider whether I need to rethink that view. There may be a case for suggesting that the decision of the President of the United States to impose a levy on steel imports is environmentally right. In most major sectors of the global economy, there are huge product surpluses. We must ask what the point is of destroying jobs and production processes so that we can offload products made in the most polluting way in parts of the world where people, as well as the environment, are exploited and where the need for infrastructure programmes must come second because the only purchasing capacity is in the north. I wonder whether President Bush has now appointed himself as honorary leader of the globalised resistance movement. If he has, many of us would welcome it and say that in areas of product surpluses, the issue is not about taxation, but about whether we should hypothecate the tariffs that are imposed and whether they should be automatically transferred to ensure that the developing world can use resources for itself in ways that reduce their part of the pollution equation. I realise that that may be some steps ahead of the Environmental Audit Committee report, but I am sure that we are moving in the same direction.

I do not believe for a moment that by asking for such changes, we will make them happen. However, if we lack the courage to make the case, they will never happen.

3.22 pm

Mr. John Gummer (Suffolk, Coastal)

I am not sure whether the Prime Minister or President Bush would be more embarrassed by the remarks of the hon. Member for Nottingham, South (Mr. Simpson).

I should declare an interest, as I help a number of companies in doing their environmental good on certain issues. On many of those issues, one can hardly mention the environment without referring to those companies. I am also chairman of the not-for-profit organisation, Valpak, which deals with the obligations of companies in the packaging world.

I am very pleased that we are having this debate and I congratulate my hon. Friend the Member for Orpington (Mr. Horam) on the way in which he introduced it. I also congratulate the Environmental Audit Committee on the way in which it considered the issues. Positive signals are very important. I put it to the Minister as delicately as I can that it would be very good if, on occasion, the Chancellor himself felt able to come to the Chamber on days such as this to hear directly the strong feelings that are held. I make that remark not least because he has a reputation—I am sure that he would like to counter this impression—of not really being personally terribly keen on these matters with the sort of fire that is necessary. If he wished to counter such views, coming here and listening would be a first step. I think that that is the only controversial remark that I shall make, but I hope very much that it will make a point.

Ian Lucas

Will the right hon. Gentleman give way?

Mr. Gummer

On that point, I think not, but perhaps I shall do so a little later.

Before we turn to taxation, there is a serious issue in respect of how we encourage people to act in an environmentally friendly way. The first part of that is to make it easier to be good than bad. Man cannot be made good by an Act of Parliament, but one can make it easier to be good. For example, all of us have stayed in hotels where it has taken us some time to find all the switches to turn on the lights. Some are high up and some are low down; they can he anywhere. By the time we have turned them all on and it is time to leave the room, we say to ourselves, "Well, I'm damned if I'm going to turn them off again—after all, I'm paying so much a night that the hotel should be able to pay for the extra electricity." Of course, that is an improper reaction. It would be better if there were a system in which one switch would turn all the lights off, or better still, in which the room card turned the lights on and one had to turn them off as one left the room. Such a system would make it possible to save and do the right thing without causing people any inconvenience.

I know that some hair-shirted people would prefer us to be inconvenienced. I am not a person of that kind; I am not a puritan either politically or religiously, and I much prefer it to be easier to do good. That means that the Government themselves have a role to play. I think that that role is fourfold and might be called "CERT". "C" stands for counsel. The Government must say what is best in their opinion. Very often, they are good at doing that. The hon. Member for Reading, East (Jane Griffiths) made that point in respect of HFCs, on which the Government have made a perfectly proper statement.

However, counsel must be followed by example. The hon. Lady rightly said that the Government did not follow their own example. There are far too many examples at this moment of Departments that are directly procuring the very HFC equipment that the Government say is not the answer. If one cannot set an example, one does not have much right to deal either with regulation or taxation. One must say what one believes and then carry it out. Much could be done by public authorities to set the sort of example that we would like to see.

Regulation is another very important part of what happens. Whether it is based on a voluntary agreement such as that of the car industry to make motor cars more efficient, or whether it requires people to meet standards, depends on the circumstances. However, I believe that the Government could do a great deal more. For example, if we were to hasten the phasing out of that little red eye in the corner that can mean that every sort of electronic equipment is using almost half the electricity that it would use if it were fully switched on and replace it with equipment and technology that are already available, we could save at least two major power stations in this country. A huge difference could be made throughout the world. The European Union provides us with the means of agreeing a much faster phase-out than we have at the moment. If every dishwasher washed with as little water as the best, we would make a huge difference in terms of the energy needed not only to heat the water, but to pump it in the home.

If we were prepared to look more closely at the planning regulations, we could achieve a great deal. In that regard, I must tell the Minister that one of the scandals of the recent past is the almost total lack of input from DEFRA into the Government's Green Paper on planning. That is the first casualty of a reorganisation of government that I believe to be wrong. There was no proper environmental concern and a number of the proposals in the Green Paper will make it more and not less difficult to ensure that we plan for a more sustainable future. Frankly, I have yet to discern a single occasion on which the Minister for Housing, Planning and Regeneration has spoken about his proposals in a way that suggests that they will advance sustainable development or improve our opportunity to live in an environmentally friendly way.

I turn now to taxation, on which I think that the Government have not been willing to do as much as the public would be prepared to follow. Unusually, I agree with the Liberal Democrat spokesman, although I find it difficult to take from him any uplifting views on environmental taxation. With the benefit of hindsight we are rewriting our attitude to VAT on fuel, but I remember what actually happened. There was a by-election in which the Liberals wanted to get a vote or two, and suddenly their policy turned around. We should not be surprised about that, for if there is hypocrisy around we know on which Benches it is bound to alight. There is nothing more ready to move than a Liberal faced with a floating vote. As Liberals speak of high-mindedness, the other parties remember where the kick is landed at election time. The dirtiest fighters with the cleanest language—that sums them up. Although I agree with them on this matter, let no one think that I have much time for their normal activities.

The Liberals are right to say that environmental taxation cannot work unless people can see that the money that it raises does not increase total taxation and is used directly for environmental purposes. Thus hypothecation—the horrid word that I hope that the Minister is brave enough to use in the Treasury—becomes central to the success of environmental taxation.

When my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) introduced the landfill tax—I was part and parcel of that battle—his biggest argument was with the Treasury, which saw it as that dangerous thing: using taxation specifically. We should increase the tax on landfill and recycle all that is raised through Entrust, not pinch the whole lot for the Treasury, as happened last time—a disgraceful example of non-environmental taxation that was never explained by Treasury Ministers.

We must change the wholly unacceptable way in which taxation works in relation to car commuters and public transport commuters. That cannot generally be left to local authorities, because where city centres are in competition—for example, in Nottingham, Derby and Leicester—nothing will be done, although some kind of local taxation may be organised in areas where there is no competition. It should be a taxable perk to have a car-parking space and a non-taxable perk to be helped to use public transport. I see no reason why that change cannot be made, and I am sorry that the Government have not yet done so.

The climate change levy was, from the beginning, seen for what it was. For many months, we were given only the figure for how much the Chancellor would raise from it, not the figure for how many tonnes of carbon it would cut. That is because it was a taxation move that emanated from the Treasury, not from the Department responsible for the environment.

The Financial Secretary to the Treasury (Mr. Paul Boateng)

indicated dissent.

Mr. Gummer

The Minister may shake his head, but it is a matter of fact. The measure was proposed by the Treasury and comments were canvassed from the Department responsible for the environment. It is not surprising that the Treasury announced how much it would raise before anyone knew how many tonnes of carbon it would cut. Nor is it surprising that the changes that took place were intended not to improve the environmental outcome, but to buy the odd vote or two from people who thought that they were being over-pressed by the climate change levy. We have ended up with a huge operation that will do little good and was aimed largely at trying to do something on the margin for coal producers.

The truth is that the climate change levy will not contribute anything like enough to reducing emissions, but it will make us less competitive in many markets. That cannot be a good thing. I suggest to the Minister that it is unfair to put people like me in the position of having to be antagonistic towards a levy that I would instinctively support. It is called the climate change levy, so the Government should ensure that it is an environmental tax, not twist the words and make it difficult for us to support it.

Similarly, the aggregates tax will not deliver even as much as the industry offered in advance of it. I shall not say too much about that, as I do quite a bit of work with the industry. The Government have not proved the case for the tax. They have not explained how they will ensure that it is not translated into longer journeys by lorries carrying reconstituted material. They have not explained why so little of it will be used directly in the sustainability fund, nor what the sustainability fund will do. They did not even explain, before the tax was introduced, what it would do and how it would do it. That is not good for the environment because it does not look competent. Environmentalists must look competent because we are always being accused of not being so. The Government should at least have ensured that the tax was introduced comprehensibly and comprehensively.

HFCs and combined heat and power are very different things but they both suffer from the same problem—namely, that the Government have not made it easier for people to move from dangerous ozone-depleting refrigerants to forms of refrigeration and air conditioning that do not lead to global warming. We should be able to move from CFCs to benign alternatives. I try to encourage people to do that, for the good reason that I believe that it is right, and so should the Government. On CHP, the Government were warned for months about what their legislation and regulations were doing to the industry, yet they did nothing.

How can we achieve our ends? We can do so by using the market to which the hon. Member for Nottingham, South (Mr. Simpson) rather cack-handedly referred. That market is a powerful mechanism; all we need to do is to give it the fourth dimension of time. If we make it recognise what it does over time and put a price on that we will be able to make it a powerful driver of environmental change. We can do that because we are part of the European Union. If we were in a market on our own we would not be powerful enough to make those changes: the competitive position would make it impossible. But because we are part of the largest trading community in the world, we have the means not only to change market conditions for this nation and for our colleagues in the EU, but to affect the global scene by driving those changes in the United States and beyond. In environmental terms, the EU gives us a large enough base not only to change ourselves without competitive disadvantage, but to change the world through others having to come to terms with the EU's environmental demands.

Not for the first time, I remind the House of the centrality of the European Union in ensuring that we have sensible environmental policies. The Chancellor can act effectively on taxation and regulation only if we are properly linked to the common decisions of the EU, which alone makes it possible for us to reclaim sovereignty over our environment. That is why the European Union is so crucial and why, without it, we lose sovereignty.

3.39 pm

Mr. Colin Challen (Morley and Rothwell)

I want to focus on an issue that is affecting my constituency particularly badly, and which I imagine many urban hinterland seats face: the development of greenfield sites for housing. The pre-Budget report states on page 118: A derelict and under-developed physical environment has a detrimental impact on the social and economic fabric of communities. Population movement out of urban areas makes it difficult to sustain good services and leads to pressure for new development in the countryside. If 45 per cent of new homes continue to be built on greenfield land, within 20 years an area the size of Exmoor would be built over and the quality of life in both urban and rural areas would suffer". That is absolutely right. I do not know the relative size of Exmoor compared with my constituency, but I know that there is a feeling in Morley and Rothwell that the quality of life is beginning to suffer rather badly, due to the amount of new house building going on.

The pre-Budget report contains some excellent moves against new housing on greenfield sites to re-balance the demand for regeneration, but there is, as the Environmental Audit Committee says at paragraph 31 of its report, a great concern that the Government has still not addressed the fundamental perverse VAT incentives between greenfield and brownfield development which still exist. The Government has admittedly introduced some concessions in VAT rates for development on polluted brownfield sites, and for the conversion of buildings for residential occupancy. However, it is still the case that new build on greenfield sites is zero VAT rated. The Committee, on which I sit, goes on to call for urgent research on the impact of removing the perverse fiscal incentive to build on greenfield sites. Urgent is indeed the word.

There is a massive demand for building land, as evidenced by a report from the Joseph Rowntree Foundation, cited in Monday's Yorkshire Post, which claimed that new build must rise by 60 per cent. and stay at that level for the next 14 years. All that house builders want to do is get their hands on as much greenfield land as they possibly can, and cover it with bricks and mortar. Also in Monday's Yorkshire Post, the chief executive of Persimmon Homes, Britain's biggest house building company, said that all the house builders want to do is buy land, build houses and sell them at a profit. I understand that; there is a demand and those companies make the product to fulfil that demand, but they do not get too worked up about greenfield sites. In fact, they even advertise for greenfield sites, with or without planning permission.

The Treasury's response to the Environmental Audit Committee's question about the perverse VAT incentive was rather bland, and certainly lacked any sense of urgency. That is a great shame because, as more houses go up, a curtain of finality drops on our countryside, which is now at its weakest point of resistance to these estates of identikit houses on the edges of our cities and towns. Everywhere we look, regiments of bland dwellings are crowding along the boundaries of the urban landscape, like some great invading encirclement in a mediaeval siege, seeking to ensure that whatever is left of the unique heritage of our towns and cities is made to conform to the uniform master plan of the chief executive of Persimmon Homes.

Incentives need to focus much more on how we can reclaim city centres, brownfield sites and old industrial buildings. We are told that, nationally, 760,000 houses are empty on a long-term basis. In Morley, there is a rich architectural heritage, dating from the town's great industrial days, which needs an injection of capital to restore it to modern use. Old buildings need nourishing, and as there is clearly a need for residential buildings, the measures covered in the pre-Budget report for revitalising such buildings need far greater emphasis. As long as it is so much cheaper to build on a nice greenfield site, however, the incentive is not there, and what is achieved in the older urban areas is still far too weak in many of them to achieve a pure market-driven momentum. That is the case in Morley, and I ask the Treasury to give special attention to the recommendation on removing the perverse incentive contained in the Environmental Audit Committee's report.

3.44 pm

Mr. Mark Francois (Rayleigh)

I am pleased to be able to contribute to this debate as a member of the Environmental Audit Select Committee, whose report forms the basis for this afternoon's discourse. On a personal level, I am also pleased to be doing so with the Financial Secretary to the Treasury, the right hon. Member for Brent, South (Mr. Boateng), in the Chamber. I fought my first parliamentary seat in Brent, East against Ken Livingstone in 1997, and I have fond memories of participating in a number of borough-wide debates during that general election, including some with the right hon. Gentleman, so it is a pleasure to be here, debating with him again, five years on.

I would like to concentrate on the role of the Treasury as highlighted in the Committee's report. The Treasury is the Department primarily responsible for taxation policy, including environmental taxation. As such, it bears an important responsibility for the practical effect of such taxation on promoting—or otherwise—the concept of sustainable development. As part of our inquiry, we took evidence from the Financial Secretary to the Treasury, as well as from a number of other interested organisations, including the Confederation of British Industry, the Green Alliance, the Institute for Public Policy Research and Friends of the Earth.

Despite the Government's statement of intent on environmental taxation that accompanied the 1997 Budget, our witnesses expressed some scepticism about the Government's continuing commitment to using environmental taxation as an instrument of environmental policy rather than as a cover for raising additional taxation revenue, for the primary benefit of the Exchequer rather than for specific objectives of promoting sustainable development.

The Committee reported in paragraph 12 of its conclusions and recommendations: We regret that the Treasury has retreated from a strategic commitment to environmental tax reform, by diluting the language used in the original Statement of Intent. Together with other factors discussed below, it suggests that the Treasury's approach is indeed ad hoc.

Mr. Gareth R. Thomas

I am surprised by that part of the Select Committee's report. Rather than agreeing that the Treasury has withdrawn from a commitment to environmental taxation, I think that it is merely pausing for breath, having been very radical. Does the hon. Gentleman agree that a green tax commission, which was supported by the Environmental Audit Committee when I was lucky enough to serve on it, might be the way to provide additional support to the Treasury while it considers what further green tax initiatives are needed?

Mr. Francois

I hear what the hon. Gentleman says. As I understand it, the Committee is continuing to push the concept of a green tax commission, and it is for the Treasury to decide whether it wishes to take up the suggestion. The hon. Gentleman suggested that there had been a pause; I would say that it has actually been quite a long pause, and leave it at that.

Another theme that emerged from our inquiry was that if the Government are serious about seeking to derive environmental, as well as purely financial, benefits from so-called environmental taxation, they need to organise themselves accordingly. Specifically, the Treasury needs properly to resource a specialist unit within its ranks to deal with environmental taxation and related sustainable development issues. The Committee made the point that such a unit could also specialise in examining individual departmental sustainable development reports. That subject was touched on earlier and I would like to return to it.

There is also an important issue relating to access to these reports. Departments were expected to produce reports on their sustainable development strategies as part of their submissions for the Treasury's spending review 2002. Our Committee was particularly vexed by the refusal of the Treasury to make available copies of those departmental reports for subsequent examination by the EAC. We argued in paragraph 20 of our conclusions and recommendations: We expect to receive copies of the sustainable development reports submitted by departments as part of Spending Review 2002, so as to be able to audit them in line with our remit from the House. From a sustainable development viewpoint, the reports are obviously of considerable importance, as they lay out the commitment to sustainable development of each individual Department. Taken as a whole, they provide an important illustration of the commitment to sustainable development across government, and are thus key source documents.

As a compromise, the Committee has suggested that the Treasury could make these reports available at least to the National Audit Office, and allow it to audit those documents and report its results to the Committee, which could take a view on its analysis.

Access to these reports is an issue not just for us. Yesterday morning, as part of the Committee's inquiry into the forthcoming world summit on sustainable development in Johannesburg, it took evidence from Sir Jonathon Porritt, who is chairman of the Sustainable Development Commission. The SDC was appointed to advise the Prime Minister and the Government on sustainable development issues, including environmental taxation. In his evidence to the Committee yesterday, Sir Jonathon also raised the matter of access to these departmental reports, and he supported the Committee's desire to be allowed to examine them. As he has the Prime Minister's ear, Treasury Ministers may like to pay some heed to his opinion.

I confess that it was principally the Labour party that argued for the establishment of the Environmental Audit Committee, but that gives it an added responsibility to allow the Committee to do its job. I remind the Minister of the Committee's remit: Consider to what extent the programmes and policies of Government Departments and non-departmental public bodies contribute to environmental protection and sustainable development; to audit their performance against such targets as may be set for them by Her Majesty's Ministers; and to report thereon to the House. To perform that role effectively, it should have access to departmental plans for sustainable development so that it can examine them. I urge the Treasury to drop its opposition to making that information available to the Committee and to allow us to perform the task for which we were originally constituted by the House.

I shall conclude my remarks in the hope that other hon. Members on the Committee will be able to speak. I ask the Minister to give serious consideration to what I have said.

3.52 pm

Mr. Gareth R. Thomas (Harrow, West)

I have long thought that our party's future lay partly in strengthening our environmental credo. We should aspire to be a modern, left-of-centre party delivering year-on-year improvements in public services, and if we are to stay committed to the interests of the many and not the few we need to embrace the environmental agenda more rigorously than we have so far. I believe that new, bold steps in environmental taxation would be a positive move in that process.

I was lucky enough to serve on the Select Committee on Environmental Audit in the last Parliament, and I congratulate its Chair and members on their continued detailed scrutiny of environmental taxation. I apologise to the House, but I have to chair a meeting with the Minister for Industry and Energy to consider how to implement the recommendations of the energy review, so I shall not be able to hear the Financial Secretary's summing up.

By contrast with the mealy-mouthed attitude of some Opposition Members, the Treasury has been responsible for some significantly radical steps on environmental taxation, either through the climate change levy or the incentives to encourage alternative, cleaner fuels. Those steps are making a significant difference to market expectations and to the interest of business in developing environmentally friendly technologies.

However, we need to go much further on energy, transport and waste policy. We should be bolder in our use of environmental taxes and the revenues that they generate, and in our advocacy of taxation across national boundaries to help to solve some of our environmental problems. The point that my hon. Friend the Member for Nottingham, South (Mr. Simpson) made about the urgency of the challenge to deal with pollution, particularly carbon emissions from aviation, is an important example.

There is also an urgency about the need for new consideration of environmental taxes, partly because of the concern raised by the recent report of Cambridge Econometrics about the rise in carbon emissions last year and this year. It is concerned that, despite our ambition of a 20 per cent. reduction in carbon emissions by 2010 on 1990 levels, if its analysis is right, on current trends we will achieve only a 6.5 per cent. reduction. That is a reason to consider afresh the case for a green tax commission. Norway, Sweden, Denmark, Belgium, Canada and the Netherlands already have such a commission.

A green tax commission could consider carefully how we encourage and give incentives to households to reduce unnecessary energy usage. The Cambridge Econometrics report shows that, if no further action is taken, on current trends there will be a 19 per cent. increase in CO₂ from households by 2010 on 1990 levels. The cut in energy conservation materials that the Treasury initiated—down from 17.5 per cent. to 5 per cent.—is a useful step in the right direction. The suggestion of my hon. Friend the Member for Nottingham, South about stamp duty rebates for households with high levels of energy efficiency is an interesting suggestion that such a commission could explore. In the Netherlands, domestic energy is taxed, but there is a tax-free allowance of 800 kilowatt hours per month for all households, so as not to penalise essential energy use. Households in the Netherlands are also required to meet much higher insulation standards.

I hope that the Financial Secretary will tell the House what further tax incentives the Treasury is considering to encourage the development of renewable energy. There is a huge challenge for us to take forward the recommendations of the recent performance and innovation unit report on energy. It highlighted the fact that, if we are to achieve our 10 per cent. target and the equally realistic target of 20 per cent. energy from renewable sources by 2020, onshore and offshore windfarms will have to be installed and operate at the rate of 1 GW to 2 GW per year in the period 2010 to 2020. Given Britain's current record on renewable energy generation, that is a huge challenge, but it has already been achieved in Germany, Spain and Denmark. Perhaps there is a case for further tax breaks to help to generate new investment in onshore and offshore windfarms, and wave and solar power.

I want to flag up the specific recommendation of the PIU report, endorsed by the chief scientific adviser, that there is a huge need for further funding for low carbon and energy research. I hope that significant action will be taken in that respect under the comprehensive spending review. In the Netherlands, an interesting scheme, supported by tax breaks, has been established to generate private sector investment through green funds, which are regulated by the central bank. The projects that they fund must be approved by the Dutch Ministry of Environment. I encourage my right hon. Friend to explore those points and the possibility of a green tax commission.

There has been a huge rise in the level of litter in the past 10 years. Litter is not the sexiest subject that the House must consider, but there is huge potential for the taxation system to help to solve the litter problem. My hon. Friend the Member for Hayes and Harlington (John McDonnell) flagged up the plastic bags tax in Ireland, which shows the potential of the taxation system for exploring these issues. Another PIU report is being prepared in that area, and I hope that my right hon. Friend is closely engaged in the consideration of the taxation measures that could help to solve some of our litter problems.

I look forward to reading my right hon. Friend's comments in Hansard tomorrow.

4 pm

Mr. Simon Thomas (Ceredigion)

It has been my pleasure and delight to be a member of the Select Committee on Environmental Audit since I came to the House in February 2000. The Committee does a sterling job in holding the Government to account on a wide range of issues. The Environmental Audit Committee's title is a misnomer, as the Committee acts as the House's Select Committee on sustainable development. No other Committee examines the Government's activity in that respect, or holds them to account on those matters.

Increasingly, the Government are adopting the sustainable approach. It is not always perfect, of course, which is why the EAC's scrutiny and reports are needed. However, the EAC's resources are stretched in accomplishing its task. If the Committee, in its role as sustainable development Committee, is going to be fully able to hold the Government to account on these matters, we need the openness referred to by the hon. Member for Rayleigh (Mr. Francois). In addition, the Committee must have the auditing powers and access to research that it lacks at present.

The EAC has proposed a Bill on those matters, which has been taken up as a private Member's Bill by the hon. Member for Bury, North (Mr. Chaytor). I hope that the Government will consider the Bill's merits, as it would be better if they took the initiative. In that way, occasional accusations that the Government are sliding away from some of their commitment to sustainability can be countermanded.

As the hon. Member for Orpington (Mr. Horam) said at the start of the debate, there is more to sustainable development and its promotion by the Government than environmental taxation. Although I shall confine my remarks to the issue of environmental taxation so as to he as brief as possible, I believe that the phrase "environmental taxation" is itself misleading. A better phrase would be "taxation for sustainable development", and it should cover everything that the United Kingdom must try to do.

The first thing to say is that the Government have retreated from their pretty radical and welcome position on environmental taxation. The June 1997 statement of intent on environmental taxation encompassed many things. It stated: Over time, the Government will aim to reform the tax system"— that is, the whole system, not just environmental taxation— to increase incentives to reduce environmental damage. That will shift the burden of tax from 'goods' to 'bads'; encourage innovation in meeting high environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone. That final phrase— to the benefit of everyone"— is what made me consider the statement to be more about sustainable development. It recognised that the environment, social justice and the economy go hand in hand.

Unfortunately, the current statement of intent does not recognise that. The 1999 pre-Budget report said merely that the Government would consider using the tax system on a case-by-case basis. That is a real weakening of the Government's intent with regard to promoting sustainable development through the taxation system.

It was suggested earlier that the Government are merely pausing or taking a breath before moving on to a more radical phase. I do not see where more radical proposals are going to come from, although, of course, I hope that they do appear. The Government are prepared to scatter a few carrots around to encourage and incentivise the "goods", but they seem very wary about using the big stick on the "bads".

The background to the matter is public reaction, such as the protests that greeted the abolition of the fuel duty escalator. If the Government are to lead on these matters, they must explain them to the public.

The Government are to he congratulated on what they have done with regard to Kyoto, for example. They have taken an international leadership role on that matter, and the statement earlier today was worthy. However, the Government have not led the domestic agenda in the same way. If they want to be remembered as the Government who instituted sustainable development and incorporated it fully into the fabric of the UK, they must do much more.

David Taylor (North-West Leicestershire)

The hon. Gentleman mentioned that another hon. Member had said that the Government were drawing breath, but does he agree that they have approached the matter of the aggregates levy like a bull at a gate? The levy is due to be introduced in three weeks, but no detailed regulation covering its implementation and enforcement has been published. Have not the Government been over hasty in some areas of environmental taxation?

Mr. Thomas

I agree, and I shall deal with the aggregates levy in a while.

The energy review that has just been published recommends that the Government should create economic instruments to bring home the cost of carbon emissions. There is therefore another incentive to take such matters further.

The Government must address four principles when they consider environmental taxation. Although not all the principles must always be observed in environmental taxation, accusations that such taxation is a stealth tax can be circumvented if one or more of them are used to underpin the tax. Moreover, the Government must make it clear that the principles are used to underpin the tax. They could do that by means of an independent green tax commission, which the EAC has proposed in the past. I hope that such a commission will be established, but for the moment I shall concentrate on the four principles.

The first is the polluter pays principle. It is well known and widely understood, but it implies ring fencing and hypothecation. The Treasury, under all Governments, has been reluctant to consider that in the past, but increasingly it is seen as a valuable way to put the principle into effect.

The second principle is that the tax burden should be switched away from income and employment, and on to the consumption of resources. That is very important. The hon. Member for Orpington said that sustainable development meant treating the world as though we intended to stay. That is by far the most concise definition that I have heard, but we must switch the tax burden in the way that I described if we are to make that a reality. The difficulty is that we must also bear in mind a commitment to social justice in the matter—after all, the poor should consume in the same way as the rich. The redistribution of resources requires social justice in the tax system.

The third principle is the internalising principle—that the cost of producing goods should reflect real costs rather than actual costs. In other words, the external costs of production should be present in the final price of goods. The obvious example of an UK industry in which that does not happen is nuclear energy, but adherence to the principle can be difficult. For example, in a globalised market, how do we work out external costs? What are the external costs of what Bush has done with steel in the US? Does fuel consumption in this country have external costs in respect of global warming, climate change or the floods in Mozambique? The principle has its difficulties, but I believe that it must be taken into account when any environmental taxation is considered.

The fourth principle is that environmental taxation can be used as a practical policy tool in achieving certain objectives. In other words, the theoretical cost is sometimes less important than whether we use taxation to incentivise a "good" or penalise a "bad". The obvious measure to which the fourth principle applies is the reduction of carbon dioxide emissions. That may entail imposing for a time a certain amount of penalising taxation, as we will be trying to change people's behaviour.

Taxation in such circumstances does not always work, as the Government's change of mind on fuel duties shows. When the fuel duty escalator was introduced in the 1993 Budget, the then Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), said that it was also about achieving a cut in carbon emissions. However, one of the problems for the public was that there was no evidence that the levy would work in that way. Subsequent Governments have produced very little evidence in support of the contention.

More to the point, when the fuel duty escalator was frozen in the 2000 Budget, no evidence was produced about how that would affect traffic congestion, carbon dioxide emissions, or anything else. The Government were very remiss—and very ungreen, if I can put it that way—in not producing that evidence, and they were criticised for that failure by a short, sharp report from the EAC.

Issues relating to, for instance, fuel taxation demonstrate the potential complexity and difficulty of environmental taxation. In fact, the one thing that did stop carbon dioxide emissions from transport and reduce traffic congestion by—I think—5 per cent. was the fuel duty protest. That week in September achieved something that taxation has not been able to achieve.

The problem with transport costs is that the point at which taxation really bites and starts to reduce road transport is the point at which, by definition, it, becomes unacceptable to the public. There must be alternative incentives, perhaps involving road pricing or public transport.

We must also ensure equality of choice throughout the country. At present, environmental taxes such as fuel taxes penalise the poorest rather than the richest The hon. Member for Reading, East (Jane Griffiths) gave a good example relating to liquefied petroleum gas. There is not a choice in rural areas such as mine. There are only 93 fuel stations in Wales providing LPG, which means that it would be difficult to travel around Wales using LPG alone. I think that there are only five such stations in my county.

The hon. Lady said that 50,000 vehicles were running on LPG. As she may well know, the official registered figure is 26,694. Until the infrastructure is in place, whether for LPG or for biodiesel, people will not make the choice. Sometimes an incentive is needed. The power shift programme, which helps people to convert their vehicles, applies only to new vehicles. The vast majority of my constituents live in rural areas and drive older vehicles.

Government policy in this respect has not been a complete failure, as is demonstrated in the Environmental Audit Committee report. I was disappointed, however, that the idea of a pesticide tax had been shelved. I feel that that should be looked at again, and that more research should be conducted into how voluntary regulation is working.

Landfill tax presents a clear example of our failure. It should be given a much higher priority. I think it was the Environmental Audit Committee that suggested a rate of £25 per tonne. I am particularly worried about the fact that the tax is still only £2 a tonne for inert wastes. There is a mismatch between the landfill tax and the aggregates tax, which, we have been told, is intended to reduce primary extraction and encourage the use of secondary materials. Given a tax of only £2 a tonne on inert wastes, I do not see how the landfill tax can work hand in hand with the aggregates levy.

As the hon. Member for North-West Leicestershire (David Taylor) said earlier, some of us were in the House within a month of the implementation of the aggregates levy. Many of us who claim to be environmentalists have found ourselves wrestling with the question of how we can support the levy in its present form. My particular worry is that the way it is currently being implemented may lead to the closure of the smaller quarries. For instance, a quarry in Ystradmeurig in my constituency supplies the road stone for my constituency and neighbouring constituencies. If it closed, there would surely be more road transport because of the need to transport the material, and more carbon dioxide emissions.

Mr. Gummer

Is it not also true that the sheer business of getting out stone that is necessary leaves behind a good deal of waste that will be classified as virgin material and will therefore cause real defacement and trouble in such beautiful parts of the countryside as the hon. Gentleman's constituency?

Mr. Thomas

That may well be so. I am given to understand that the maximum amount of hard waste that could be recycled would be only 1 or 2 per cent. of virgin aggregates.

Imports also give rise to concern. Although imported aggregates will be taxed, by-products will not, although they are taxed in this country. I fear that the market will be flooded by imports, which will need to be transported for long distances.

Mr. Roy Beggs (East Antrim)

Does the hon. Gentleman accept that the most disastrous impact of the aggregates levy will be experienced in Northern Ireland? It will necessitate the relocation of jobs in the Irish Republic, where there are nearly 300 miles of border and 400 crossing points. We know of the problems with tobacco and oil smuggling; now there must be a new incentive for dodging tax on aggregates. Surely the Government should conduct research into all the implications, including the human hardship that would be caused, and—even at this late stage—defer the imposition of the tax on 1 April until further consideration has been given. I hope that would also avoid the embarrassment that may result—

Madam Deputy Speaker (Sylvia Heal)

Order. The hon. Gentleman is wandering into a speech rather than making an intervention.

Mr. Beggs

I understand that there is to be a judicial review.

Mr. Thomas

I thank the hon. Gentleman for his comprehensive intervention. I too understand that a judicial review is to be initiated soon. I also understand that the aggregates tax is to be phased in Northern Ireland. The issues have not been resolved, however, and they need to be resolved if there is only a month to go.

David Taylor

Is it not the case that the proposed level of the tax, £1.60 per tonne, is three to four times the profit margin of typical companies? That, moreover, is based on very poor-quality research by an obscure company that has now gone into liquidation. It consulted only a few people, and only one in 10 said they would be willing to pay anything towards the so-called closure of their local quarries. Should the Government not rethink the tax?

Mr. Thomas

I agree that a research programme that merely asks how much people would be prepared to pay for the closure of a local quarry is, in fact, no research programme. That underlines the need for a genuinely independent environmental tax—green tax—commission to perform such research and inform Members. That would enable us to hold the Government to account.

The report also suggests the introduction of an incinerator tax. That has prompted great interest in Wales, where a couple of incinerators are proposed—one in Crumlin Bowers and one in the Wrexham area. The proposal has given the Committee a higher profile in the Welsh media, but I think it should be considered carefully.

As was mentioned earlier, we recently returned from Germany, where I noted that incineration was counted as a renewable in the energy programme. I do not think we want to consider it as such in this country, and I hope the Government will resist the idea.

I think we may see some innovative schemes. I am certainly interested in what Ireland has just done about carrier bags. Finding them 15 miles away from the nearest supermarket, on top of a mountain, is not a very pleasurable experience when one is taking a walk. It is obvious that something must be done about packaging. I also think that the points made about an aviation tax are central. It was excluded from the Kyoto protocol, deliberately. The arrangement dates back to, I think, the Copenhagen principles. It is a very old agreement, and it needs to be reviewed. The Government have an opportunity to take the lead.

We also need to increase the opportunity for biodiesel to be used in this country. A 20p rebate has been announced, but according to information I have received from Cargill plc a further reduction of about 15p is needed, giving an overall rate of 10p per litre", which would be sufficient to ensure … a commercially viable … industry". That is the important thing. We should not use taxation just to subsidise things; we should use it to help the market and to produce a commercially viable situation.

The Government have taken some major steps, especially in their first year We have yet to see them do so in their second term. The problem is that some of their steps forward have been followed up by a lack of co-ordination, or a lack of joined-up government, and certainly by a lack of momentum.

4.19 pm

Mr. Mark Lazarowicz (Edinburgh, North and Leith)

I join in the chorus of congratulation to members of the Environmental Audit Committee on producing an excellent report. It is hard-hitting, but, with one slight qualification, it hits the right targets, and I sincerely hope that its recommendations will be reflected in practical policy outcomes sooner rather than later. I look forward to hearing what my right hon. Friend the Minister has to say about the recommendations.

In a necessarily brief contribution to the debate, I want to highlight three areas in which the need for a more comprehensive use of environmental taxation measures is particularly important, the first of which is waste. I draw the attention of the Minister and the House to early-day motion 851, on sustainable waste strategy, which contains ideas developed by the Socialist Environment and Resources Association and Friends of the Earth. It has the support of some 60 Members across the political parties, and I commend it to Treasury Ministers. I look forward to hearing the Minister's comments on it.

Several hon. Members have referred to the second issue that I want to comment on: the lack of a tax on aviation fuel, which must be addressed and cannot be ignored for ever. Air traffic is a major and fast-growing source of noise and pollution. It is true that improvements in technology have reduced noise, but that has been outstripped by the great increase in the number of flights. If the sector grows unchecked, there will be consequences not only for atmospheric pollution but for noise pollution, affecting those unfortunate enough to live close to increasingly busy airports.

Even 10 years ago, emissions from international aviation accounted for about 3.5 per cent. of man-made global warming. According to the current UK trend, aviation is the fastest-growing area of carbon dioxide emission in this country. As has been pointed out, aviation fuel is exempted from taxation by international agreement. I urge the Government to take international steps—I do not suggest that the problem can be dealt with solely at a UK level—to tackle pollution from aircraft fuel emissions, and the consequences of noise pollution.

I suggested that we should deal with air travel pollution by taxing aviation fuel, but perhaps that is not the right way to control the growth of air travel. The Institute for Public Policy Research, which is held in high regard by the Treasury, made several recommendations on emissions trading in respect of aviation fuel that are worthy of consideration. It also made some interesting recommendations on regional airports and the need to control air travel in parts of the country where growth is particularly heavy. Expanding airports in the south to provide extra capacity for short-haul air travel is surely the wrong strategy. If we invest in high-speed rail, we could easily achieve a real transfer from air travel to rail travel for journeys of 400 miles or less. That is another example of the way in which environmental policy and transport policy are closely interlinked.

David Taylor

Does my hon. Friend anticipate as keenly as I do a more coherent and well-directed environmental framework within which regional airports can operate, once the Government's 30-year aviation strategy is eventually announced? It is important that regional airports do not expand to take the surplus decanted from London airports without an environmental framework in place to protect their local populations.

Mr. Lazarowicz

My hon. Friend makes a valuable point. It is ironic that much of the increase in air traffic in the UK—at regional and international airports—could be met by a transfer to rail, rather than by simply ratcheting up the increase in domestic air travel.

The third and final issue that I want to address is the political hot potato of fuel duty on vehicles, which has given rise to much political opportunism over the years. Although I am in no sense criticising the Environmental Audit Committee, I note with interest that, despite its otherwise bold recommendations, this is one area in which it was somewhat coy. It said that the Government must consider all options for containing the growth of road traffic", without exploring in much detail the available options. I know that the Committee had already discussed the matter, but I hope that it will return to it in due course.

There are important issues associated with tax on vehicle fuel that cannot be ignored or dumped. Road transport produces one quarter of all carbon dioxide emissions in this country. Making motoring more expensive in real terms must be one of the methods used to bring down that pollution. Other methods—persuading motorists to use lower emission fuel, and investing in alternative forms of transport—are also important, but if we are really to tackle the problem we must use all those methods, including a rise in real terms of vehicle fuel taxation.

After all, the likelihood is that the cost of motoring will fall in real terms in the next 10 years, for a number of reasons. In the UK in particular, car prices are likely to fall in real terms. Perversely, if fuel duty stays the same as fuel efficiency increases, motorists will be encouraged to use their cars more, instead of switching to public transport, thus bringing no benefit to atmospheric pollution. Traffic congestion would also increase.

Likely falls in the cost of motoring contrast with the cost of bus and rail travel, which, according to current trends, is at best likely to remain static, and may increase in real terms. Set against the cost of public transport, a reduction in the cost of private motoring will do nothing to encourage people to use public transport, but cause big problems in the delivery of the Government's 10-year transport plan.

I realise that these issues are difficult to discuss in the climate since the fuel protest, but a steady, real-terms increase in fuel duty is necessary to keep the cost of motoring stable, encourage more people off the roads and on to bus and rail, and create a level playing field. Many environmental organisations, such as Friends of the Earth, have made detailed and comprehensive proposals about vehicle fuel taxation, and I urge the Minister and the Chancellor of the Exchequer to take account of them in the forthcoming Budget proposals.

The Government have made a very good start by using environmental taxation as an important weapon in their armoury to promote environmental sustainability in this country. As we have discovered in today's debate, it is easy in theory to call for environmental taxation measures, but specific measures often give rise to considerable opposition on both sides of the House, because of their possible impact on individual constituencies. I praise the Government for so far resisting calls to draw back from environmental taxation measures, and I urge them to be consistent by taking forward that policy and building on the Environmental Audit Committee's excellent proposals.

4.29 pm

Sue Doughty (Guildford)

I will be brief as I know that time is running short. As a member of the Environmental Audit Committee, I pay tribute to our Chairman, who drove us hard but with a lot of kindness to get us where we are today, and to the people who support the Committee, who did a tremendous amount of work.

I was surprised by some of the comments about changing policies on tax because the Select Committee report says that we need to keep reviewing what works and what does not. That is a strong theme throughout the report. The Government started very well in 1997, and we were all pleased to see the work to set up an environmental taxation regime. We look forward to further developments. It would be easy to be rude about the Government, but their heart is in the right place; they have simply slowed down a little too much for comfort.

We need to use the opportunities presented to us in the Treasury approach to see what changes can be made. As other hon. Members have said, the Treasury needs an internal unit for sustainable development to look at not only fiscal development but the outcomes and effects of fiscal work. We need research and promotion of environmental tax policies. We need resource productivity indicators. I saw examples of those in Germany last week; we need them here so that we can find out whether we are on the right track.

We need to monitor the adequacy of environmental appraisal in new policy proposals and the impact of existing environmental tax policies. It is important that we co-ordinate the work of other Departments in which the Treasury is taking a lead, and we must ensure that Departments submit their sustainable development reports. We need to consider exciting changes. We have been talking about biofuels, which are wonderful. Our rural industries are ailing, and biofuels provide opportunities for rural regeneration.

We are concerned about home energy conservation. We do not seem to be doing enough for the fuel-poor, and we should do more to encourage the fuel-rich to use devices such as energy-saving light bulbs. Could we not give tax breaks on such items to encourage people who leave their lights on all day to do so much more cheaply? It is not the fuel-poor but the fuel-rich who burn excess fuel, and we are doing nothing to encourage them to use energy much more efficiently. Home energy conservation measures target the fuel-poor, but the fuel-rich are important if we are to achieve sustainability.

There is much more to be done, and I hope that the Budget includes major increases in landfill and incineration taxes. Many Members on both sides of the House, including the Deputy Prime Minister, who is not present, and me, have deep concerns about sustainable waste management. We look to the Treasury to support us in encouraging councils to take a new approach to achieving sustainable development.

Mr. Bruce George (Walsall, South)

On a point of order, Madam Deputy Speaker. I have been sitting here for 20 minutes enthralled by this truly important subject. As Chairman of the Defence Committee, I point out that we have an equally important subject, terrorism, to discuss. I know that this is not strictly within your terms of reference, but may I, through you, implore my colleagues to take note that, if equity is to be taken into account, this debate should terminate at 4.40 pm, after which my colleagues and I will become a little irritated. I plead with you to invite our colleagues to finish the debate no later than that.

Madam Deputy Speaker

I am afraid that the right hon. Gentleman is correct: that is not a point for the Chair.

4.34 pm

Ms Joan Walley (Stoke-on-Trent, North)

I am sure that everyone will be relieved to hear that I will be as brief as possible.

Whatever has been said about the urgency with which we need to proceed to the next debate, the whole point of the Environmental Audit Committee is to talk about putting environmental issues at the heart of Government. We want not only annual reports to Parliament but Ministers in all Departments considering the detail of the Committee's work. Those proposals have been on our agenda for a long time. We want to make sure that Ministers leave Parliament today ready to implement our recommendations.

We have had a thorough debate, and It falls to me, as vice-Chairman of the Committee, to impress on the Minister the urgency with which he should address the points that have been made. Our Committee is cross-cutting, and in many areas of policy the Government have, thankfully, recognised the importance of cross-cutting reviews and working parties. It is essential that environmental issues are at the heart of what the Treasury does. That means that we will get the right forms of environmental taxation. It falls to the Minister to tell us how the Treasury will implement our recommendations.

Many points have been made. My hon. Friend the Member for Bury, North (Mr. Chaytor) has introduced a private Member's Bill that, if successful, would mean that the Committee had resources on the scale that is available to the Public Accounts Committee. The proposals of my hon. Friend the Member for Nottingham, South (Mr. Simpson) are even ahead of those of the Environmental Audit Committee. The hon. Member for Rayleigh (Mr. Francois) said that the sustainable development reports that are available to the Treasury need to be made fully transparent and they must be available to Parliament through the Select Committee. Will the Minister tell us what he is going to do about that?

We are still mystified about what happened to the pesticides tax. If ever there was a case of wanting to put the polluter pays principle at the heart of policy, the pesticides tax is it. I urge the Minister to look at that again. We have not had a satisfactory response, and we need to keep a close watch on the arrangements whereby the water companies have to pay for the clean-up mechanism.

These issues are at the same time both local and global. I urge the Minister to consider urban development and the nonsensical situation of having zero-rated VAT on greenfield site development. We have heard about the recycling of brownfield sites—what happened to that proposal? [Interruption.] Whatever conversation he may be having at the moment, will the Minister, when he winds up the debate, tell the House why the Government have not even carried out the research that would enable us to make proposals to encourage investment in the recycled brownfield sites that are so badly needed? I want to congratulate the Government on what they have done, but will the Minister tell us, even if he cannot provide the information to Parliament this afternoon, how we can deal with state aid rules and how we can find money to match the concessions that have been made on environmental issues?

We heard much about the climate change levy. I say to the right hon. Member for Suffolk, Coastal (Mr. Gummer) that the ceramics industry has shown that the levy can work and make a real difference. Today the Government have ratified the Kyoto protocol, and we can now proceed with emissions trading.

Many issues have been raised, and there is no time to deal with them now. The recommendation for a green tax commission has been before the Government for five years. Does the Minister understand that if we are to avoid another conflict over fuel, we need a green tax commission to raise public awareness and to encourage as many people to engage in the environmental debate as took part in the "Pop Idol" debate on television a short time ago?

I hope that we can have more debates on environmental issues because many hon. Members, including those who are not on the Select Committee, have a great interest in the subject. It is now incumbent on Parliament to see how more time can be made available, so that the Government can respond without undue haste and the threat of the clock ticking away, as it is this afternoon.

4.39 pm

Mr. David Lidington (Aylesbury)

I congratulate all members of the Environmental Audit Select Committee and, in particular, my hon. Friend the Member for Orpington (Mr. Horam) on their report, which is an important and wide-ranging piece of work. I note that today my hon. Friend is celebrating his birthday. He will regard the opportunity of this debate as the icing on his cake.

The hon. Member for Stoke-on-Trent, North (Ms Walley) and other hon. Members from all sides pointed out that the debate and the report cut across Whitehall departmental boundaries. My right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) in particular noted that it brings us into debate about European and international policy, not just policy that is the sole responsibility of those of us who legislate at Westminster. Emissions trading, for example, is covered by a British scheme, a European scheme and, at some stage in the not too distant future, a global scheme. We shall have to make all three work and mutually compatible.

I am aware of the point made by the right hon. Member for Walsall, South (Mr. George), so I will concentrate on a few key aspects of the report rather than do justice to its entire contents. It is a trenchant report and I hope that the Minister will take seriously the criticisms made by a Committee that spans the party membership of the House. The Committee talks of a desperate need for greater clarity in the presentation of figures to do with environmental measures; and of the Treasury failing to provide adequate leadership and coordination across central Government. The report calls for much greater use of specialist expertise, both within the Treasury and Whitehall more generally to track the practical effectiveness of environmental measures, including environmental taxes once they have been legislated for.

I want to focus in particular on the aggregates levy and the climate change levy. As the hon. Member for Truro and St. Austell (Matthew Taylor) pointed out, the aggregates levy already appears to be having a beneficial effect on the prospects for the use of china clay waste in Cornwall. I have read that the same is true of slate quarry waste from parts of Wales. But it is undoubtedly true also that there are serious worries in other parts of the quarrying and aggregates industry about the impact of the levy on its ability to compete, particularly with overseas rivals. The point was made strongly by the hon. Member for East Antrim (Mr. Beggs) when he drew our attention to the particular difficulties of the Province. I read, for example, that in Scotland a £20 million project to increase trade at Peterhead bay harbour is under threat because the impact of the aggregates levy will be to impose an additional £1.5 million on the cost of that project, putting 500 actual or prospective jobs in that hard-pressed area at risk.

Whatever the arguments about the principle of having an aggregates levy or the shape which the Government have chosen for that tax, there can be no excuse for the botched way in which the Government are seeking to introduce it. As the hon. Member for North-West Leicestershire (David Taylor) pointed out in an intervention, we are now about three weeks away from the date when the levy comes into force and firms start having to pay it, yet businesses do not have available the detailed regulations which will govern the implementation of that new tax. Worse still, the Government announced on 28 November last year that they were going to amend the Finance Act 2001 on which the aggregates levy is based.

The Government are proposing no fewer than 10 changes, which presumably will have to be legislated for in this year's Finance Bill. We are unlikely to know its contents before May. I imagine that those changes will be imposed retrospectively. It is hugely unfair on businesses to leave them trying to cope in this state of limbo. The Government, as I hope the Financial Secretary will have the grace to concede, have breached seriously their guidelines for giving businesses a minimum of 12 weeks between the publication of new regulations with which they are expected to comply and the date at which those regulations come into force. I do not believe that there is an adequate excuse for treating businesses in that way.

As my right hon. Friend the Member for Suffolk, Coastal pointed out, when one looks at what the climate change levy is likely to deliver in terms of reduced carbon emissions, it is small beer in terms of what the country has signed up to under Kyoto and other international agreements. It will bear heavily on particular sectors of industry. In practice it will transfer money away from manufacturing at a time when manufacturing is in recession and away from small service businesses employing part-time or low-paid workers, to service businesses employing a lot of people. Banks, for example, will probably benefit from the way in which the Government have chosen to introduce the levy.

The Financial Secretary will be familiar with the criticisms made by the Engineering Employers Federation on behalf of its members over many months, but other industrial representatives are making similar criticisms. The British Rubber Manufacturers Association says that the levy will add 1 to 2 per cent. to its production costs. Representatives of firms making industrial gases through to the trade associations for convenience stores and for high street launderettes, each from their different perspective, are making comparable criticisms of the disproportionate impact that the levy is likely to have on them, with them paying far more out than they will receive in national insurance rebates, and of the complexity of the levy for small businesses in particular having to deal with the paperwork that it entails.

The National Farmers Union estimates that the agricultural sector will pay out some £25 million in climate change levy and receive only about £9 million back in national insurance rebates. It is a badly designed tax. As the Secretary General of the United Kingdom Aluminium Federation said last year: If ever a group sat down to design a racehorse and finished designing a camel, it was those Government Departments responsible for the climate change levy. Part of the problem arises from the fact that the Government have decided to link eligibility to enter a climate change agreement with the integrated pollution prevention and control regulations part A. The problem is that the IPPC is a system designed to capture the biggest polluters, not necessarily the biggest users of energy, so some big users of energy are excluded from the whole system of climate change agreements. The makers of industrial gases account for about 1 per cent. of the UK's entire consumption of electricity, yet they are ineligible to enter a climate change agreement. That sector faces an annual tax bill of perhaps £13 million in the first year and is likely to get rebates of perhaps £500,000 in national insurance contributions. The Cold Storage and Distribution Federation says that its members too are big energy users but are ineligible under the IPPC, yet for these companies up to 10 per cent. of total costs can be in electricity alone.

The climate change levy will distort markets and put some British industries at a competitive disadvantage with their rivals elsewhere. British glassmakers have a climate change agreement, but their German competitors—who account for a quarter of the entire EU glass output—are exempt from such a tax altogether.

The levy will even have some perverse environmental effects. In the steel industry, if a company uses acid to remove oxide scales—known as "pickling" in the industry—it can join a climate change agreement. However, if it uses a better, more environmentally friendly process—mechanical descaling—it falls outwith the IPPC regulations, and so is barred from entering the climate change agreement. Perversely, therefore, it will face a bigger bill from the levy as a result of having introduced a more environmentally friendly industrial practice.

As other hon. Members have said, a complex system of administration has presented small businesses in particular with difficulties. The British Printing Industries Federation pointed out that a printing company will not only be expected to spend a considerable amount of time filling in the necessary forms but will then have to calculate how much of its energy is used in the printing process as opposed to warehousing, offices and dispatch, which are not eligible for the discount. It concludes that many companies just give up at this point. There are many other subjects on which I would wish to press the Minister, such as the Curry report's reference to the need for more incentives for biofuels and the Government's timetable for consultation on the landfill tax credit scheme. Why have the Government chosen to reject, according to a written answer on 4 March, the idea of a tax on incinerators?

I want to conclude with another theme that has come through strongly from the Select Committee report: the need for much greater openness on the part of the Government in general and the Treasury in particular about how they research and track the effectiveness of their environmental policies. Paragraph 39 of the report states that there is very little public knowledge of what research the Treasury is in fact carrying out. It quote Friends of the Earth as saying: We are not always clear about what research they are doing". In paragraph 41, the Select Committee calls for a detailed environmental appraisal to be published as a supporting document for every future pre-Budget report. In paragraph 52, it again calls on the Government to make sustainable development reports from Departments subject to scrutiny and audit.

I understand the Government's argument that the sustainable development reports are part of the process in Government for considering plans for a Budget document or public spending decisions, and that they should be kept confidential until those decisions are made and announced. However, I cannot for the life of me understand the case for keeping those reports and analyses secret even after the decisions have been made and announced. It will make for better parliamentary scrutiny and, even more important, better policy-making in the interests of our country and its people if the Government are prepared to be more open about the criteria that they use to introduce and design environmental taxes than they have chosen to be hitherto.

4.54 pm

The Financial Secretary to the Treasury (Mr. Paul Boateng)

This has been an excellent debate. The number and quality of the contributions are a credit to the Committee, its Chairman and the seriousness of the subject matter. I exempt from those opening remarks the contribution of the hon. Member for Aylesbury (Mr. Lidington) and the hon. Member for Truro and St. Austell (Matthew Taylor) who—characteristically, I am afraid—is not in his place. Their contributions were hackneyed, ill-informed, partisan and grudging in the extreme about the Government's undoubted achievements in this field. However, this has been a welcome opportunity for the House to consider these matters. I share the view of some right hon. and hon. Members that the House does not spend as much time as it ought in considering environmental matters, so this debate is all the more welcome.

The Government's central economic objectives include the promotion of high and sustainable levels of growth and high levels of employment—growth must be stable and environmentally sustainable. Quality of growth matters, not just quantity. Delivering sustainable growth is a task that falls across Government. It is a core feature of economic policy under this Administration. The Treasury is committed to that goal. How and what we tax sends clear signals about the economic activities that we believe should be encouraged or discouraged, and the values that we wish to entrench in society. Just as work should be encouraged through the tax system, environmental pollution should be discouraged.

To that end, the Government have implemented a range of policies across the tax system to deliver environmental objectives. That is an ongoing and incremental programme. Over time, the Government will aim to reform the tax system and increase incentives to reduce environmental damage. That will shift the burden of tax from "goods" to "bads", encourage innovation in meeting high environmental standards and deliver a more dynamic economy and a cleaner environment to everyone's benefit.

I therefore take exception to the suggestion made by the right hon. Member for Suffolk, Coastal (Mr. Gummer) that this Government, and the Chancellor in particular, do not have much interest in environmental matters. He bemoaned the fact that the Chancellor was not present this afternoon. At the same time, he suggested, Janus-like, that somehow the Treasury had no business introducing the climate change levy because it is not an environmental Department. He cannot have it both ways. [HON. MEMBERS: "Janus-like?"] That means looking both ways.

The Chancellor has put environmental considerations at the heart of the Treasury. To suggest otherwise is to try it on; the right hon. Member for Suffolk, Coastal knows better than that. I know that in some quarters he is regarded as a saintly figure in relation to the environment. My view is that his role is more impish than saintly, although I am prepared to accept that he is at least a candidate for beatification. That is to be welcomed, but I am a little sceptical about the evidence. Be that as it may, he ought to give some recognition to what the Government have achieved. I hope that he will take advantage of future opportunities to do that.

Of course, environmental taxation must meet the general tests of good taxation. It must be well designed and meet objectives without undesirable side effects. It must keep deadweight compliance costs to a minimum. Yes, we must be concerned about such costs and ensure that the distributional impact is acceptable. Care must be taken of the implications for international competitiveness, and that is our role in relation to the climate change levy. Far from accepting the strictures of the hon. Member for Aylesbury, I would argue that we have done just that. Where environmental taxes meet the tests, the Government have used them and will continue to do so.

The launch of our statement of intent on environmental taxation in 1997 gave a clear indication of what the Government were determined to achieve. We have taken crucial steps forward, but we are the first to accept that there is more to do. However, credit should be given for the steps that we have taken. Indeed, credit has been given by independent, objective observers.

I note the contribution of the hon. Member for Rayleigh (Mr. Francois). I well remember him in his previous incarnation as the Conservative candidate in Brent, East. He showed all the necessary characteristics of a Conservative candidate in the borough of Brent. He was of brave heart and also demonstrated remarkable fleetness of foot. Both characteristics are necessary for someone who champions the Conservative cause in a borough such as mine. I am delighted that he has found a happy billet in Rayleigh and, no doubt, he has made and will make a distinguished contribution to the Committee on which he serves.

The hon. Gentleman is wrong to suggest that our commitment has lessened, that the pace of reform has slowed or that there is insufficient leadership from the Treasury. Over the next year, we will deliver on a number of important commitments, with the introduction of the new company car tax system and a new levy on aggregate extraction. I know that the Environmental Audit Committee has supported many aspects of these policies as we have demonstrated their efficacy.

Developing new tax systems has taken time. Much consultation with business, environmental groups and others has been required. I am sure that hon. Members will acknowledge and support the principle that consultation should be built into the policy process. Of course, we could move more quickly by implementing policies that had not been developed in that way, but that would be a false economy and, ultimately, would slow the pace of the reform that the overwhelming majority of those who have spoken in the debate want to happen. We have taken time to get our proposals right and to ensure that, as we protect the environment, we avoid adversely affecting either the businesses that drive economic growth or progress against our wider social objectives.

We have also been making new proposals. I should like to draw the House's attention to several recent announcements, mainly because they demonstrate the importance of sustainable development to Government strategy and because they effectively challenge some of the conclusions of the Environmental Audit Committee's report.

The Committee argues that we are not taking our strategy forward, yet we have made important progress on cleaner fuels and the pre-Budget report contains important new proposals on the green technology challenge. The Committee claims that we are not consulting stakeholders on new proposals, yet we are regularly meeting green non-governmental organisations and discussing new ideas with other Departments.

The Committee asserts that there is insufficient appraisal of the impact of Budget measures, yet the pre-Budget report appraisal contained for the first time a link with the sustainability indicators of the Department for Environment, Food and Rural Affairs. Surely, the Committee should welcome that. The Committee opines that the Treasury is showing insufficient leadership, yet we have published guidance on sustainable development, required Departments to produce reports alongside their spending proposals and have agreed testing public service agreements on environmental targets. That must be, and is, good news.

Let us turn to our new proposals. The Government have published the "Powering Future Vehicles" draft strategy, which is an important document considering the road vehicles of the future and the engines and the fuels needed to power them. The Treasury is a co-signatory to the document, which is an expression of our commitment to the environmental challenge. In the pre-Budget report, we confirmed that we will support this strategy with further tax incentives to be considered in the run-up to the Budget.

The pre-Budget Report also confirmed that the Government will seek to introduce further tax incentives to support environmentally friendly investment in three important areas. The green technology challenge envisages enhanced capital allowances for a further range of energy-saving technologies, for cleaner fuels and vehicles and for minimising water use and improving water quality. That is not the sign of a Government who have lost their way or who are pausing to gather breath; it is the sign of a Government who are committed to new initiatives, to the consultative process and to ensuring that stakeholders are with us on the changes that are necessary. We are moving forward.

I want to say a word about stakeholders, because we have made it absolutely clear that they had to be central to the development of new measures. That is why the climate change levy was preceded by Lord Marshall's taskforce on economic instruments and the business use of energy. That is why the aggregates levy was the subject of extensive discussion with the industry, including detailed consideration of the industry's proposals for a voluntary package, which we were not prepared to accept. Furthermore, our treatment of the issue of pesticides should not give anyone cause to believe for one moment that, if the voluntary approach does not work, we will hesitate to legislate. Make no bones about it: we will. We are determined to give the voluntary route a chance, but if it fails, no one should be in any doubt as to the determined action that will be taken.

The non-governmental organisations are with us on this. Chris Hewett, senior research fellow of the Institute for Public Policy Research, said in an article in New Economy that there is no doubt that Labour has been the greenest government Britain has ever seen". Norman Glass, of the National Centre for Social Research, said: What has been particularly striking has been the role of the Treasury in achieving this. Far be it from Treasury Ministers to blow the trumpet of the Treasury—that would never do—but to suggest that the Treasury has been holding back progress does not give credit where credit is due.

However, it is important that, as we propose new tax measures, we should have that vital dialogue with other relevant Government Departments—the Departments for Environment, Food and Rural Affairs, for Transport, Local Government and the Regions and of Trade and Industry. We are still very much in the market for new environmental tax measures, where a good case is made and the conditions set out in the statement of intent are satisfied.

On appraisal, it is absolutely vital that even policies designed and implemented with the support of stakeholders should pass their reality check. That is why we are committed to a full and frank system of appraisal. We are committed to an evaluation of the environmental impact of all Budget measures. That was not a characteristic of the Government of which the right hon. Member for Suffolk, Coastal was a member. They never issued clear guidance to all Departments on how to undertake environmental appraisals. They never ensured that the links between Budget measures and sustainability were made clear. All these measures will have a significant impact on the environment, and will serve an environmental purpose, so I absolutely reject the charge that the pre-Budget report fails to capture comprehensively the environmental impact of Budget measures; it does.

On leadership, no one should doubt our determination. Departments with a public service agreement have been requested to produce a sustainable development report, to be submitted alongside the analysis of resources in spring 2002. We do not discourage the establishment of PSAs with sustainability impacts. Many PSAs have a direct impact on the achievement of our sustainable development targets. Merely adding the words "sustainable development" to PSA targets would not increase that impact. We are determined, however, to ensure that they do make a difference.

It is perfectly true that sustainable development reports will not be published. Why not? Because they are internal documents, intended to clarify Departments' thinking about the implications of their policies. That is what they are for. They are not meant to be glossy brochures where the by-product is yet another reduction in our stock of timber. They are working documents, designed to achieve a specific result, and we are determined that they should do so.

Let us have no illusions about what would happen if the Treasury announced an intention to allow other bodies—the Environmental Audit Committee or the National Audit Office—to audit the Departments' efforts. The hon. Member for Orpington (Mr. Horam) knows very well the way of Departments. He has served as a Minister. He knows the disciplines of preparation for a spending round and he knows that the awareness of a forthcoming audit would inhibit the analysis of Departments, because they would have an eye on what would subsequently be made public.

We are serious; we want the output of those Departments in the process to add value to the work. We do not want it to be a box-ticking exercise. Nevertheless, in the aftermath of this process I would be happy to consider with the hon. Gentleman and the Committee how best we can ensure that it is demonstrably a real process, which has made a real difference, and we are only too happy to receive any ideas that he and the Committee have about how best we can do that, subject to the caveats that I have given.

I challenge the notion that the Treasury is not offering sufficient leadership. PSAs, sustainable development guidance, sustainable development reports and the integration of sustainable development into the spending review all suggest otherwise.

I do not accept that the policy is too complex. It is a complex world; the environmental challenge is complicated and our policy response must capture that complexity, not superimpose an artificial simplicity that would be bad for business, society and, ultimately, the environment.

Time marches on, and I am aware that another important subject will be debated this afternoon. However, I want to ensure that right hon. and hon. Members understand the seriousness with which we take this subject. I will seek to address in correspondence a number of the other points that have been made by right hon. and hon. Members. In conclusion, I would argue that we have done a lot, but that there is still more to do. We are grateful to the Committee—and its distinguished Chairman, the hon. Member for Orpington—for the commitment and determination that it displays in its work in challenging the Government to do yet more. I do not believe that the House or future generations, to whom we are ultimately accountable, will find us wanting in that respect.

5.11 pm

Mr. Horam

I waive my right to reply in view of the immense frustration felt by my fellow Select Committee Chairman, the right hon. Member for Walsall, South (Mr. George).

Madam Deputy Speaker

I thank the hon. Gentleman.

Question deferred, pursuant to paragraphs (4) and (5) of Standing Order No. 54 (Consideration of estimates &c.) and Order [20 November 2000].