Carbon Tax (Hansard, 25 January 1999)

§ Lord McIntosh of Haringey
My Lords, the Government are not in favour of introducing new taxes on domestic fuel and power. With regard to business, the Government are considering the recommendations of the report of the noble Lord, Lord Marshall, on The role of economic instruments and the business use of energy in the context of their wider strategy on climate change.

§ Lord Taverne
My Lords, in addition to considering the very valuable recommendations of the Marshall Report, will the Minister note the findings of an authoritative article in the November issue of Fiscal Studies, which I am sure he peruses avidly from cover to cover? It demonstrates that if the proceeds of a carbon tax, or other energy taxes, were used to reduce employment taxes there would be a significant increase in GDP, employment and the disposable income of all social groups. Will the Minister draw those findings to the attention of the Treasury?

§ Lord McIntosh of Haringey
My Lords, I believe that the noble Lord is hinting obliquely that carbon taxes as applied to domestic households are regressive in tax terms and that the Institute of Fiscal Studies is suggesting ways in which that regressive nature of such taxes could be reversed. It is a useful suggestion and I will indeed draw it to the attention of the Treasury.

§ The Countess of Mar
My Lords, perhaps I, too, may make a useful suggestion. If a carbon tax were levied could part of it be ring-fenced in order to make a contribution to the planting of trees on marginal land in this country? Trees are known to absorb carbon, they are beautiful and they serve a useful function.

§ Lord McIntosh of Haringey
My Lords, I agree that that is a useful suggestion. We are being most constructive this afternoon. However, I am not sure whether the question is intended to refer to carbon tax across the board; in other words, including domestic households. If, like us, the noble Countess is looking principally at the different taxes for business on fuel and 798 power, the intention would be that the revenues would be recycled to business. However, that would include energy efficiency purposes. If the noble Countess can persuade the Government that planting trees is an energy efficient use of public money I have no doubt that she will go far.

§ Lord Dixon-Smith
My Lords, a carbon tax is a concept with which the House will instinctively have sympathy. Of course, it is a novel idea and still capable of a great deal of development. May I invite the Minister to explain clearly the distinction between a carbon tax and a fuel duty?
I understand the Minister's argument about the need to distinguish between taxing business and the domestic sector. Bearing in mind that about 30 per cent. of the nation's energy demand comes from the domestic sector, does he consider that the distinction is wholly appropriate? Does he also believe that a variation might have to be made bearing in mind the need for all sectors to make a contribution towards the most effective use of energy?

§ Lord McIntosh of Haringey
My Lords, in inviting me to give a definition, the noble Lord is inviting me to over-simplify. I must do so in order to follow his invitation. Broadly speaking, a fuel duty is intended primarily to raise money. On the other hand, presumably a carbon tax is intended to reduce emissions of carbon dioxide which are measured in millions of tonnes of carbon. It would be calculated on the basis of a million tonnes of carbon emitted into the atmosphere rather than on a fund-raising basis. I am sorry, I have forgotten the second part of the noble Lord's question.

§ Lord Dixon-Smith
My Lords, the second question related to the need for the most effective use of energy in the domestic sector.

§ Lord McIntosh of Haringey
My Lords, I do not entirely agree with the noble Lord's figures. Emissions from the domestic sector account for about 25 per cent. rather than 30 per cent. of the total. They are, on the whole, stable, whereas emissions from industry, which is 40 per cent. of the total, are declining. The area where emissions are rising is transport. If we are to meet the criteria as laid down, and our own obligations under the Kyoto protocol, it is clear that industry and transport will have to bear the brunt of the burden.

§ Lord Newby
My Lords, does the Minister agree that, given that six members of the EU already have a carbon tax and that if one were to introduce a carbon tax in this country it would be unfortunate if British industry were put at a disadvantage, this is one area in which the harmonisation of taxation across the EU could be helpful in achieving a major public policy goal; namely, achieving our targets under the Kyoto protocol.

§ Lord McIntosh of Haringey
My Lords, I do not accept the noble Lord's premise or his conclusion. Yes, it is true that six countries in the EU—mainly Scandinavian countries—have a carbon tax. However, 799 I have made it clear that we would not accept a carbon tax for domestic households because of the regressive nature of such a tax. However, we believe that it is possible to meet our obligations under the Kyoto protocol partially by taxes on industry and transport and partly by increased efforts in energy efficiency. That is a very important target and includes combined heat and power. Furthermore, by 2008 there will be available the possibility of tradeable emission permits to which the noble Lord, Lord Marshall, referred in his report and which we are studying very carefully.

§ Viscount Mersey
My Lords, given that the Government are anti-global warming, how do they justify the moratorium on combined cycle gas turbine power stations and the continuation of coal-fired power stations, the latter of which emit more carbon?

§ Lord McIntosh of Haringey
My Lords, there is no single solution which will meet all possible objectives. The moratorium on the use of gas for non-premium uses, to which the noble Viscount is referring, cannot be continued for ever. The disruption of our sources of energy which has resulted from the precipitate rush to gas-fired power stations is dangerous. For that reason, we called for a moratorium and are thinking carefully about alternatives.

§ Lord Peston
My Lords, I accept my noble friend's argument that a carbon tax or a tax on energy used by households may well be regressive. However, is he convinced that that is a decisive argument? It would be true to say that all sorts of efficiency-raising measures may be regressive, but why do we have an income tax and a social security system and then worry about indirect taxes when it comes to regression? Surely we could offset this simply through income tax and the social security system if efficiency gains resulted as well.

§ Lord McIntosh of Haringey
My Lords, my noble friend uses the careful word "decisive". I do not say it is an overwhelming argument, but the Government's decision to reduce VAT on domestic use of fuel and power to 5 per cent. was a change which benefited all households and not just those who pay income tax. My noble friend's alternative would not apply to the poorest households, and for that reason I insist that we are against regressive taxation.

§ Lord McNair
My Lords, while the Minister is considering the helpful suggestion of my noble friend Lord Taverne, will he consider also the possibility of replacing all direct taxation with unified national indirect taxation based on primary energy at the point where it first comes into the system? That enables a basic income to be paid which would solve the problem of his noble friend.

§ Lord McIntosh of Haringey
My Lords, of course, we will consider anything. I believe that that suggestion first came forward in the 1950s in a book by 800 I. M. D. Little called The Price of Fuel. My noble friend Lord Peston will confirm whether or not I am right on that. It is therefore a suggestion which has been around for a considerable time.