HC Deb 19 May 2004 vol 421 cc303-10WH

4 pm

Norman Baker (Lewes) (LD)

I am very pleased to have secured this short debate on what I regard as an important concept.

Mr. Deputy Speaker (Mr. Frank Cook)


Norman Baker

You want me to put my jacket on, Mr. Deputy Speaker. It is very warm in here. Perhaps we should try to amend House of Commons procedures as well as address environmental matters in this debate.

I am also pleased that the Minister is present; I recognise that he understands these matters and I was impressed by a parliamentary answer that he provided for me on 26 January, when he set out in three pages what he and his Department had been doing about them. I am glad, too, that my hon. Friend the Member for Twickenham (Dr. Cable) is present; he is the Liberal Democrat shadow Chancellor, and he takes these matters seriously. I hope that we can move towards a cross-party consensus on this important issue.

Sir David King, the Government's chief scientific adviser, said that climate change is the most significant threat that we are facing, more so even than terrorism. That underlines how important it is that all Departments and all sectors of society pull together to tackle it. As a Chinese proverb advises, if we carry on going down the road that we appear to have chosen there is a very real danger that we might end up where we are heading. That should be avoided if at all possible. A business-as-usual approach will not work in dealing with climate change. A change in behaviour is required.

I am a great believer in trying to persuade people to change behaviour rather than forcing them to do so, if that is at all possible. There is a role for particular bans—on highly dangerous chemicals, for example—and for regulation, but there is also a role for economic instruments. They can be both more palatable and more effective on occasions. We should work with the grain of human behaviour; I know that the Minister understands that. If the economic indicators are right and if externalities are properly costed in, it should be cheaper to do the right thing rather than the wrong thing.

I will begin by asking the Minister about GDP. Economic growth is not the only measure of economic success, let alone happiness. He may have seen a MORI opinion poll that strikingly demonstrated that since 1973 GDP has increased in real terms by about 70 per cent. whereas life satisfaction has not increased at all; it has stayed exactly where it was in 1973. That demonstrates that the superficial link that some may perceive between economic growth and life satisfaction—or happiness, in layman's terms—simply does not exist.

It is a fact that a lot of growth damages the environment and undermines sustainable development. The Minister may know that Jonathan Porritt, the chair of the Government's Sustainable Development Commission, has called for an index of sustainable economic welfare. What are the Government doing to develop an alternative to GDP in order to build in sustainability and to ensure that the problems that I have referred to can be countered—particularly the problem that sudden growth can be detrimental to the environment and sustainable development?

There is no question but that using economic incentives or disincentives can work. That is clear from, for example, the differential introduced by the previous Conservative Government on unleaded petrol, which led to a marked shift in behaviour in a short period with people moving from leaded to unleaded petrol. Society and successive Governments have not capitalised on that as much as they might have done.

We appear to raise a lower percentage of our tax income from environmental taxation than many other countries. I refer the Minister to a written answer given by the Minister for the Environment on 6 January 2004 at column 256W. That answer states that 2.85 per cent. of our taxation income came from environmental taxation. That is a lower proportion than in many countries. Even Turkey has a figure of 3.79 per cent., and for the Netherlands it is 3.65 per cent., for Austria 3.01 per cent., and for Denmark 4.7 per cent. That is disappointing, and I would have hoped that the Minister and his colleagues would have done more to advance the idea that taxation, while not increasing as an overall take, can be shifted away from useful things such as employment on to things we do not want such as pollution. I suggest to the Minister that there is scope for doing that. My second question for the Minister is: do the Government agree that a higher percentage of tax should be related to environmental outcomes and objectives and would he consider setting a target as Sweden does to raise taxation in that way?

I come now to some specifics and suggest to the Minister that there are areas where we have failed as a society—I am trying to be non-political here—and where Governments could have done more to ensure the environmental outcomes that they want by means of economic instruments. Waste is a matter that I raised with the Minister briefly at Treasury questions last week, and I have a chance to expand on that now. I said that we all sign up to the Government's waste hierarchy—minimisation, reuse, recycling and then on to incineration and landfill, the two options that are officially classified by the European Union as waste disposal techniques—but that the economic incentives that are in place prejudice the delivery of that hierarchy.

It is still quite cheap to landfill. Although the Government are increasing the landfill tax and I welcome that, it is still an attractive option for many businesses, individuals and councils. There is no tax on incineration, despite the fact that it has been downgraded in the hierarchy by the EU and is now officially a disposal technique. There is a requirement in the EU landfill directive to move away from landfill quite quickly, but unless we have real incentives in place for minimisation, reuse and recycling, councils will inevitably move towards a chain of incinerators throughout the country. It is more attractive financially and it is easier.

The Government should consider variable charging for waste collection, for example. The strategy unit in its report "Waste not, want not" recommended that, but the Government subsequently said that although they did not oppose the strategy unit's recommendation more work needed to be carried out in conjunction with the Local Government Association before any pilot schemes could be considered. That was some time ago. We have heard very little about it since then. Could the Minister tell us where we are on variable charging?

The LGA appears to have reached the conclusion that nothing will happen for the foreseeable future. Councillor Kay Twitchen, the chair of the waste and environmental management executive of the LGA, said: We are disappointed that the Government appears to have decided that direct charging will not be piloted in the current Parliament. Can the Minister clarify whether that is the case?

Variable charging would have given a direct incentive to householders to minimise the amount of waste that they throw away. It could encourage them to use reusable rather than disposable nappies. DEFRA has given that considerable attention. The previous Minister for the Environment considered it a priority. Up to 4 per cent. of the waste stream comes from disposable nappies, but there is no incentive for individuals not to use them if they can simply throw them away and have them taken to the dump. There is no relation between what they pay and the volume or weight of what they throw away.

Does the Minister have any proposals for a plastic bag tax? He will know that the previous Minister for the Environment recommended it, and the indications from Ireland appear to be that it is successful. I accept that a life-cycle analysis has to be carried out to demonstrate whether there is genuinely an environmental benefit. I suspect that there is, but I am happy to be proved wrong on that. Nevertheless, gigantic numbers of plastic bags are being used in this country. According to a report I compiled recently, the six major supermarkets alone use 17 billion plastic bags a year. That is enough to cover England within three years and that is without the other plastic bags from the other multiples and other users. There is an issue there that the Government need to address.

Transport is an area where the Government have not managed to use economic instruments at all well to deliver their objectives. When they came to power in 1997 they wanted to see a reduction in car use for reasons relating to the environment and social inclusion, and a fair means of making air users pay their way. They also wanted there to be a move towards public transport for social and environmental reasons, but that simply has not happened.

All that the airlines have done is introduce the air passenger duty, which is not an environmental tax. It bears no relation to the number of passengers on a plane, or to the plane's carbon emissions. Does the Minister agree that it would be sensible to replace that duty with something that relates to a duty on each aircraft—freight as well as passenger—so that airlines have an incentive to fill up their planes rather than run them half empty as they sometimes do? Does he also agree that it would be sensible to boost regional airports by deregulating controls and the income of airport operators? Such a move would lead to an increase in landing charges in the south-east, which are already among the lowest in the world.

The Government could do more, but their policy appears to be to wait to see whether the environmental impact of airlines could be dealt with through an emissions trading scheme at European Union level in 2008 and beyond. I happen to be in favour of an emissions trading scheme, and I recognise the good work that the Government have done on emissions trading in other areas. However, what is plan B if that emissions trading scheme does not happen? We need alternatives, but we do not appear to have them.

The Government's surface transport arrangements have also disappointed me and many others. The Minister is facing calls for a cut in fuel duty, which the Prime Minister faced again today in the Chamber. In the past 30 years, the cost of motoring has gone down by 5.2 per cent. in real terms, the cost of travelling by train has risen by 84.3 per cent. in real terms, and the cost of travelling by bus has risen by 70.6 per cent. I would have preferred the Prime Minister to quote those figures earlier today, and to show that those who are worried about the cost of motoring have actually had it very good in the past 30 years. Bus and train users should be the ones who are moaning. A more defensible historical position, not to mention a more defensible environmental position, would be very welcome from the Government. I do not want the Government to be bulldozed into cutting fuel duty, which would be inappropriate given the historical perspective that I described.

Since the Government came to power in 1997, the cost of travelling by car has fallen by 4.8 per cent., the cost of travelling by train has risen by 3 per cent., and the cost of travelling by bus has risen by 8.2 per cent. Economic indicators show that the Government have clearly failed to address transport in general. A big road-building programme is still going on, but an answer from the Department for Transport to me yesterday indicated that Labour has managed to build less than one mile of railway a year since it came to power. Clearly, there are no incentives to bring about a sustainable transport policy.

I accept that the Government introduced a climate change levy, and I say hooray to that as they have recognised to some extent the need to tax emissions. That is, however, an inflexible tax. It does not deliver as much as it might, and it is not as clean as a carbon tax would be. It is perfectly possible to move towards a carbon tax, but in an answer to me on 8 January, the Minister explained that he did not want to do so, mainly because he did not want to affect domestic energy users. I am conscious of the impact of energy costs on the poor, but the Government could deal with that through the social security system, the warm front initiative or other measures that they claim to have going, rather than excluding that whole sector from the carbon tax. The poor should be included.

When the Minister replies, will he say something about the private finance initiative and public procurement? PFI contracts in the private and public sectors seem to fail to take account of environmental consequences. What is the Minister doing to ensure that PFI contracts in the public sector reflect good environmental performance? I am not sure that that is being done. What is he doing to ensure that public procurement also reflects good environmental standards? The Government are the largest procurement agency in the country. In the EU, 16 per cent. of procurement is funded from the public purse. We therefore need to ensure that the Government lead. If they do so, the private sector will follow. The Government can provide such a real lead, but so far they have shown themselves to have a blind spot on the matter.

Lastly, I should point out to the Minister the cost of doing nothing. It is not simply greenies who are saying how good it would be to improve the environment. The cost of doing nothing is substantial, and the parliamentary answers that I have received from Ministers—copies of which I can give the Minister if he wishes—demonstrate that there is an annual cost of at least £65 billion from not doing the right thing for the environment. That arises from the costs of congestion, flooding, water leakage, agricultural impacts, energy waste, nuclear liabilities, and so on. It is in the Treasury's interest to get this right, as it is in the pole position to lead. The Minister understands the issues, and if the Treasury took the lead even more than at present, we could have not simply a better economy in this country, but far better contributions toward our fight on climate change.

4.15 pm
The Economic Secretary to the Treasury (John Healey)

I begin by congratulating the hon. Member for Lewes (Norman Baker) on securing this debate and on the measured way in which he has introduced it, although perhaps it is less of a debate and more of an extended Question Time. Rather than reading from the script and notes that I prepared earlier, I shall do my best to deal with the range of points and direct questions that he put to me. I pay tribute to him and his active interest in such issues, not just in terms of his Front-Bench responsibilities, but as a Back Bencher. I was pleased to be invited to the all-party parliamentary environment group last week, which he chairs, and was honoured to be the guest at its recent luncheon.

The hon. Gentleman is right about the seriousness of the problems that we face with the environment, the role of the market and the case for policy interventions where there are failures of the market or where its operation has serious environmental consequences. He is right, too, that our record since 1997 demonstrates that economic incentive and instruments can work in achieving environmental aims. He attributed the policy of the change in duty on leaded petrol to the previous Government. I am not so certain about that, but I should say that since 1997, we have made very direct and effective use of marginal differences in duty rates, in order to transform the market for fuel to ultra-low sulphur diesel and petrol.

From 1 September this year, there will be a 0.5p per litre differential in favour of sulphur-free fuels. Having worked with the industry, and recognising all the work that the industry has put in over the last couple of years to prepare for that, we expect that that will lead to an almost universal overnight switch to sulphur-free diesel, and that in a few months' time—definitely by the end of the year—there will be a universal switch to sulphur-free petrol. That is a good example of the use of an economic policy or instrument driving behavioural change to achieve environmental ends.

I turn to the series of questions that the hon. Gentleman put to me. On the alternative measure of growth, the most productive area here is not looking for an alternative to the policies for growth, but ensuring that in preparing economic policies—particularly those to support the growing, stable economy that we have put in place since 1997—environmental concerns play a mainstream part in that process. I shall explain how that is formally built in to the way that the Treasury has dealt with such issues since 1997.

The question of taxation and the environment is an interesting point that is capable of being debated for a longer time than we have available. However, it is not sensible simply to focus on the proportion of GDP, or the total sums, taken by environmental taxes. First, it does not include all environmental taxes, particularly tax incentives such as enhanced capital allowances, our new scheme for energy efficiency among private landlords, and VAT reductions. Secondly, if environmental taxes are effective, we have to expect the revenue from them to decline over time. Thirdly, some of the most significant environmental tax reforms have been about restructuring existing taxes, rather than introducing new ones, and have included graduated VAT, changes to the company car tax and, to some extent, the proposals on company van taxation in the current Finance Bill. Those have either been broadly neutral in revenue terms or have led to a reduction in Government revenues, although it is misleading to interpret that as not supporting environmental objectives or succeeding in having an environmental impact.

I turn now to waste and the question of incineration. I noted the hon. Gentleman's welcome for the landfill tax and the projected increase in its rates, particularly from next year onwards. Part of the purpose in making that decision and signalling it early was to help drive the diversion away from landfill and to encourage the market to think more about reuse and reduction of waste. Currently, less than 10 per cent. of municipal waste is incinerated while almost 16 per cent. is recycled or composted. The rate of increase in recycling is far greater than the rate of increase in incineration, which suggests that the mechanisms that we have in place, far from incentivising the incineration that the hon. Gentleman mentioned, are having the impact on recycling and local authority targets that we seek.

The hon. Gentleman will be aware of the study that the Government recently published into the health and environmental impacts of waste management methods. He will know that it is essentially a review of the scientific base and that a second report is due shortly to assess the economic impact of policy measures. I hope that that will give us a better base and sense of proportion for the policy debates that we need to have to ensure the best future mix of policy instruments required to deal with the waste management challenges and targets.

The hon. Gentleman's point about aviation and the EU emissions trading scheme was put to me last week at his all-party parliamentary group lunch. As I said then, we believe that the aviation industry should be included in the second stage of the scheme. We have started working hard to achieve that end and have identified it as one of the priorities for the UK presidency of the EU in the second half of 2005. As I confirmed to the lunch and as can be seen from the Budget and pre-Budget documentation and in the aviation White Paper, we are continuing work on whether any short-term measures are necessary to try to make the aviation industry pay its way for the environmental costs that it brings and improve its environmental performance.

On motoring, I noted that the hon. Gentleman's argument was essentially in favour of raising fuel duties further. He mentioned public procurement, and I was at Customs house this morning, as the Minister responsible for Customs, to take the keys of the first of 42 dual-fuel petrol-electric Hondas, of which Customs was taking delivery. That is a significant step in greening the car fleet and a good example of how public procurement can have environmental objectives and how a concern for the environment can become part of mainstream Government procurement decisions.

More broadly, there is probably no difference between the hon. Gentleman and me. The quality of the environment affects everybody's quality of life and we all have a responsibility to safeguard the environment for our children and future generations, and for the country as a whole. To meet that obligation, the Government have the clear aim of improving the quality of the environment, both now and in future, as part of the wider strategy of achieving sustainable development.

The term sustainable development is often used, but it is rarely properly defined. For me, it means meeting four objectives at the same time—social progress and recognising everyone's needs; effective protection of the environment; the prudent use of natural resources; and the maintenance of high and stable levels of economic growth and employment.

Delivering sustainable development is obviously a cross-Government task. However, it is a core feature of economic policy, and it is a goal to which the Treasury is formally and publicly committed Indeed, one of our departmental objectives is to protect and improve the environment by using instruments that will deliver efficient and sustainable outcomes, through evidence-based policies. In other words, we will be using policies that the hon. Gentleman described as going with the grain of the market.

The Government believe that markets provide the best means of allocating an economy's resources. However, many markets are subject to imperfections and failures, and that is particularly true for environmental matters. Markets fail when the private returns that an individual or a firm receives for carrying out a particular activity are at odds with the benefits for society as a whole. That means that environmental objectives can sometimes be achieved only through society acting collectively rather than by people acting individually. Indeed, the hon. Gentleman ended by stressing the cost of doing nothing.

Evidence of the nature of market failure may mean that we have to use a range of policy instruments, including economic instruments, and the Government are committed to using such a range of policy levers to pursue environmental objectives when appropriate. In some cases that may be done through taxation, in others through trading schemes; it could also be done through tax credits or public spending. In some cases, it may be done by regulation or through voluntary agreements; and in many cases they will be supported by information publicity campaigns.

Norman Baker

I am grateful to the Minister for answering my questions and responding positively; it does not always happen. Will he say how the Government view the widening gap between transport costs? Motoring is getting cheaper, even now, and the cost of using trains and buses is increasing. Not only is that bad for the environment, but it is bad for the Government's social inclusion policy. What will the Government do about that; or is it a matter for market forces, and outside the Government's control?

John Healey

It is absolutely not only for market forces. I listed the range of policy interventions at our disposal, and the hon. Gentleman did not mention the huge investment in public transport that has been made under this Government. One cannot get a full, clear and accurate picture to support such a contention unless one takes those sorts of factors into account.

In many ways, the UK is now rightly regarded as a world leader in the development of economic instruments for the achievement of environmental objectives. For instance, we had the first economy-wide emissions trading scheme, and our climate change levy broke new ground, as did our aggregates levy and the sustainability fund associated with it.

There is more to come. The landfill allowance trading scheme is to be brought in next year; and the EU emissions trading scheme is due to start in January 2005. However, the Government continue to believe that in certain situations, where specific behaviour changes are required, voluntary agreements should also play a part.

When necessary, we have demonstrated that we are willing to go through extensive processes to ensure that we get our policies right—or at least get the best possible balance between the competing interests that inevitably come into play. In our policy making, including on the environment, we will always consider the wider implications for businesses, communities and other stakeholders, and we will continue to consult widely.

We will continue to work at the local and the international level to improve awareness of the environmental challenges faced by the world, and we remain determined to help drive the commitment needed to face those challenges together.

Question put and agreed to.

Adjourned accordingly at half-past Four o'clock.