Taxes to be recycled not raised in Lib Dems green finance plan

The Liberal Democrats plan to use the tax system to encourage environmentally sustainable behaviour without actually raising the overall rate of tax, Charles Kennedy the Party Leader said in a keynote speech this week.

Speaking at the Delivering the Green Shift event at the National Liberal Club, Mr Kennedy pledged to put the environment at the heart of the Liberal Democrats election manifesto, claiming to be the only party who advocated a joint approach between Treasury and Environment departments to achieve this.

Most of these initiatives were outlined in an article written specifically for edie news by Norman Baker, Liberal Democrat Shadow Environment Spokesman, in August this year (see related article).

“Financial mechanisms have long been used to change behaviour. We propose a similar concept for environmental taxation: summarised as encouraging ‘good’ and discouraging ‘bads’. This Government has been heavy handed in using environmental taxes as purely a revenue raising tool for the Treasury. That undermines public trust,” Mr Kennedy said.

He said he was not proposing higher overall taxes, but using existing taxes to reward environmentally friendly behaviour. However, he stopped short of proposing a ring-fencing, or hypothecation, of taxes specifically for environmental purposes.

The current government, along with most previous governments, has rejected the idea of ring-fencing in general, saying it would reduce flexibility as spending priorities change. However, without ring-fencing, there is no real guarantee that the money will remain focused on its original aims in the long term.

“We are proposing to establish an Environmental Incentive Programme, pursued on a tax-neutral basis with revenue recycled into offsetting tax cuts. The revenue from these taxes will not disappear into a bottomless pit within the Treasury but will be fed back into lower taxes elsewhere.”

Examples of such an approach included reforming Airport Passenger Duty paid by all aircraft, passenger and freight, regardless of the number of passengers, thereby giving incentives to maximise the use of each flight; incentives for more environmentally friendly road vehicles; reforming current Landfill tax into a broader waste disposal tax; and redirecting subsidies that support environmentally damaging activities such as with agriculture and the British Energy bail out giving government subsidy to nuclear power.

Vince Cable, Liberal Democrat Shadow Chancellor, who shared a platform with Mr Kennedy at the event, stressed the need to have an environmental rationale at the heart of economic thinking and vice versa.

“Environmental taxation has been brought into disrepute by the Government who treat it as a revenue raising tool and by making the whole process extremely complicated. We see environmental taxation as a way of changing behaviour using the mechanisms of the market to send clear signals,” Mr Cable said.

The Liberal Democrats would also look at amending the Renewables Obligation to overcome certain market barriers and encourage a more diverse portfolio of renewable energy, as well as looking at introducing a renewable heat obligation (see related story).

Mr Kennedy also used the speech to call on Tony Blair to focus specifically on bringing the US into the consensus on climate change and the Kyoto Protocol, particularly during the presidency of the G8 during 2005.

He said that, moving beyond Kyoto, the way forward was the adoption of contraction and convergence, ie reducing overall greenhouse gas emissions, and sharing emissions out equally across the planet on a head, not a wealth count. Without this arrangement it is unlikely that the developing countries would be willing to sign up to any agreement.

“If Tony Blair is really serious in making his mark in these areas, the greatest single achievement for the UK s G8 presidency in combating climate change would be securing agreement among G8 nations, including the US, that the way forward will be based on this principle of contraction and convergence,” Mr Kennedy said.

By David Hopkins

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