Environmental Taxes in the UK
BEA2002 Group Report Assignment
Ben Dance, Liwei Rao, Qi Gao, Nellie Ho and Ahmed Mujtaba
1.0 We have been commissioned by the government to write a report on how the current UK tax system encourages taxpayers to behave in an environmentally friendly manner. In the first part of the report we will look at three elements of the UK system and outline how they encourage environmentally friendly behaviour and in the second part we will compare these elements to measures in place in Sweden. 2. Key Elements of the UK Tax System
2.1 Climate Change Levy
2.1.1CCL is a tax on the supply of energy to businesses in the commercial, agricultural and industrial sectors. The tax, introduced in April 2001, works by charging for each unit of energy used therefore the more energy used the more tax a business has to pay. It’s an arbitrary way of trying to get businesses to reduce the energy they use and the emissions they produce. The charge per unit of energy varies depending on the commodity used and the pollution that the commodity produces. For example, electricity has a higher rate of charge (0.509 pence per kilowatt hour) compared to gas (0.177 pence per kilowatt hour) because it is more damaging to the environment (HMRC, 2013). 2.1.2 The government claims the CCL has had a significant impact on reducing the emissions produced by the UK. However, the House of Commons Environmental Audit Committee has an alternate view that the reductions are due to other measures already in place. They believe that the CCL rates are not significant enough to influence behaviour (CIOT, 2009). Another argument suggests that businesses are just passing on the tax by increasing their prices leaving the incidence of the tax with the consumers. If we look at the tax revenues from CCL, we can see that it has never reached its annual target of £1 bn, suggesting the tax is ineffective (Annie Reece, 2012). 2.1.3 In support of the government claims, there is clear evidence that the annual emissions are on the down - carbon dioxide emissions have decreased by 15.9% from 1990 to 2010 (Department of Energy & Climate Change, 2013). It may not be clear whether this is down to CCL but you cannot argue that companies are now far more aware of their emissions. 2.2 Landfill Tax
2.2.1 The UK government introduced the landfill tax in October 1996 in order to meet its obligations under the 1999 EU landfill directive. Before 1996, the municipal waste in UK was growing at an average rate of 3% per annum up to 21.63 million tonnes in 1995/96 (European Commission, 2001). However, even after this introduction the UK remained as one of the biggest producers of waste in Europe. To combat this, the Treasury implemented a radically increasing rate of landfill tax (CIOT, 2009). There are two types of landfill wastes which are taxed at two different rates. The first type is the normal (active) waste which is taxed at £64/tonne and will most likely rise to £80/tonne in 2014; the other type is known as inert waste, such as rock and bricks, which is taxed at £2.5/tonne. 2.2.2 The general incentive of the landfill tax is to encourage more sustainable waste management and to alter businesses and customers’ behaviour by producing less waste. However, the tax has not been as effective as expected. The disposal of inert waste has declined but the same cannot be said for active waste. A possible reason for this could be that, although the tax rate of inert waste is much lower than active in absolute value, it is higher in percentage value which means the tax burden on an inert waste producer is heavier than on an active waste producer (European Commission, 2001). Also, the active waste is more likely to be weighed at the disposal stage rather than collection stage, which may result in less incentive for individuals to reduce their waste. The revenue from the landfill tax is only a small proportion of the total tax revenue to...
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