Caution urged on green tax effect

By Roger Harrabin Environment analyst, BBC News

The 2000 fuel protests were evidence of the public reaction to green taxes

The think-tank IPPR has warned the UK Chancellor not to use green taxes to plug the hole in government finances.

Its new research shows that government could gain £3.5bn a year through a carbon tax on homes and vehicles.

But IPPR says this would harm the poor unless ministers give back all the cash in the form of benefits, tax breaks and home insulation.

A government source insisted that increased green taxes did have a role to play in future.

The left-leaning Institute for Public Policy Research has developed a computer model to assess the benefits and drawbacks of environmental taxes.

The preliminary findings suggest that taxes can prove a useful tool in achieving environmental objectives. But IPPR says it would be a mistake to use them to raise money because unless they are counterbalanced, they inevitably hit the poorest hardest and are mistrusted by the public.

Poor factor

IPPR wants the government to scrap the term "green taxes" altogether because people associate it with "stealth taxes". It suggests "brown taxes", although the government source told BBC News this term would be unlikely to find favour.

He said the government had been "torched" by public reaction to green taxes ever since the fuel protests of 2000. Ministers had been particularly shocked when they launched the recent Renewable Heat Incentive (subsidising renewable home heating) to find the initiative reported on the front of the Daily Mail newspaper as a stealth tax story.

"We were horrified," he said. "Don't they realise that government initiatives have to be paid for somehow?" He stated that green taxes would have to be raised in future in order to help plug the hole in government finances but admitted that government would tread "very nervously".

The Chancellor will deliver his second budget on 22 April

An independent cross-party Green Fiscal Commission will publish a report shortly claiming that government climate policies will be impossible to fulfil unless the price of pollution is raised.

All the major political parties agree there are economic benefits of shifting taxes from work and investment to pollution. But all are wrestling with how to shield the poor and how to carry a public made cynical by a lack of clarity on the purpose of green taxes.

Headline battle

During the fuel protest, Gordon Brown, then Chancellor, said green taxes were designed to combat pollution, whilst Tony Blair said they were designed to raise money for schools and hospitals.

It is theoretically possible for both statements to be true, but ministers have failed to articulate the aims of their green tax programme.

The government source admitted that ministers had failed to communicate properly on the issue. He also blamed green pressure groups for failing to come to the aid of green taxes when they were attacked in the media.

The former government adviser and Greenpeace director Stephen Tindale wrote a report on green taxes for IPPR in 1996. It was called "Pollution Payments" and Mr Tindale suggested this epithet should be resurrected.

The government source said it did not matter what the government called the taxes as the media would call them whatever made the best headline.

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