Unusually, the Environmental Audit Committee could not reach a consensus for today’s report, Vehicle Excise Duty as an environmental tax. Those of us frustrated with the government’s misuse of green taxes took the step of issuing a minority report.
The official select committee report makes some sensible recommendations, not least the suggestion that on new cars, the government’s application of green taxes could be bolder. However, the key point where we disagreed with the rest of the committee was on the proposal that the government’s new Vehicle Excise Duty (VED) regime should, under the guise of a “green tax”, be applied retrospectively, to cars bought since March 2001.
Used effectively, green taxes should encourage a shift towards environmentally-friendly behaviour. They should prompt individuals to make greener choices. How, then, can a tax be called green, when it cannot change behaviour because it applies to a choice (of car) that has already been made?
For green taxes to succeed, the public needs to buy into the theory behind them: that they are about changing behaviour, not raising revenue. Calling a tax “green” when it has no power to change behaviour is a piece of deception on the part of the government, which will serve to undermine the success of green taxes in the long term. Greenpeace executive director John Sauven put it very simply when he said the proposal “gives green taxes a bad name”.
Retrospective VED will be ineffective as an environmental tax, because cars bought since 2001 will not be taken off the road as a result of the new VED plans. These cars are already in the marketplace. Those that are traded in as their owners go greener will simply end up on the secondhand market, from which three-quarters of cars are bought in the UK each year. Their lower resale value will mean owners are less able to upgrade to a greener model.
Several other countries use car scrappage schemes, and this is something that is certainly worth further consideration in the UK. In France, Spain, Denmark and elsewhere, car scrappage schemes have given motorists financial incentives to replace their cars with greener models. The government has taken advice from the Commission for Integrated Transport on scrappage schemes, but does not appear close to introducing a scheme.
A disproportionate impact on low-income households, which replace their car less often and will be worse-placed to do so under the new VED regime, is a major concern. But the really unfortunate thing is that the government has not even modelled the impact on low-income households that the new taxes will have. At the same time as they are being clobbered with higher fuel and food prices, the last thing they need is to stump up more than their fair share for VED.
I desperately want to see green taxes work. Further down the line, I also want to see a more refined approach in the form of road-user charging. But, fundamentally, I don’t want the whole idea of green taxes to be discredited from the outset by a scheme that misleads the public into believing that green taxes are just stealth taxes by another name.