Green taxes 'will not bring substantial funds'

By Rosa Prince, Political Correspondent
Last Updated: 6:01pm BST 10/07/2008

The introduction of green taxes such as bin charges and flight levies will not bring substantial extra funds to the Exchequer, an influential think tank has warned.
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While switching the emphasis of the taxation system may see environmental benefits, a report for the Institute for Fiscal Studies said ministers would be disappointed if they anticipated significant additional revenue as well.

The most economically efficient forms of green taxation, such as carbon trading, could be expected to bring in around £13 billion a year, but the report's authors warned that the actual revenue gain to the Treasury would be well under one per cent of GDP.
Robert Chote, director of the IFS, said: "A significant 'green switch' in taxation has great rhetorical appeal, but this study suggests that enthusiasts often overestimate the available revenues and claim a 'double dividend' of improved environmental and economic performance that may not exist.
"Perhaps of greater concern to the politicians is the fear that they would be punished by the voters for increasing green taxes without being given much credit for reducing other ones."
The authors suggested that measures which penalise those who damage the environment should be accompanied by a corresponding tax cut - such as funding a reduction in fuel duty with a pay-as-you-drive road pricing scheme.
They were critical of bin taxes, saying that charging for household waste was likely to produce "only modest potential welfare gains... at the risk of increased dumping and other avoidance".
The report, Environmental Taxes, was prepared by academics Don Fullerton, from the University of Texas, and Andrew Leicester and Stephen Smith of University College London as a submission to a wider review of the UK tax system by Sir James Mirrlees, the Nobel laureate, due to be published by the IFS early next year. In it, they call on politicians of all parties to base their appeal for more green policies on the environmental benefits, not the potential for cuts elsewhere in the tax system.