From the TUC

Green taxes threat to jobs, fuel poverty?

27 Oct 2009, by in Economics, Environment

Radical reforms to the tax system are needed to meet our climate change targets, shifting the tax burden from labour (income tax, NI) to carbon emissions, according to the Green Fiscal Commission. Launching the report, Commission chair Prof Paul Edkins called it a “tax shift, not a tax increase.”

Welcome though these ideas are,  they involved unresolved impacts on jobs and fuel poverty.

The numbers are huge, £150bn shifting away from labour to carbon taxes by 2020, including 10% off NI, the basic rate cut to 18% or lower, 10% on petrol duty and the widely reported £3,300 tax on new cars.

The whole shift would lift the proportion of environmental taxes in the system from 7% to 15% by 2020, creating 455,000 jobs through demand changes and reinvesting green tax revenues in green technologies.

All three Party people with Edkins on the platform were as one in the need for a new vision of the tax system. Greg Barker, Shadow Minister for Climate Change, called for “big thinking and bold measures”. Some of us in the audience were less convinced by his analogy with Geoffrey Howe’s first Budget in 1979.

Shifting the tax take to carbon emissions will inevitably push up energy prices even faster than already acknowledged in the Government’s Low Carbon Transition Plan: 31% on domestic energy prices, 35% for industry. The TUC and industry bodies are worried that these are underestimates, fearing price rises at twice that rate.

So two concerns stand out in the report – both to do with the need for a just transition to a low carbon future, and both about the distribution of impacts of green tax reforms.

  • Increasing fuel poverty – already at 4.5 million households. Even after home insulation measures the study admits there will “still be a hard core group of fuel poor, about 30% of them, who cannot be lifted out of fuel poverty [so that] … fuel poverty will actually increase to 2016”.
  • Carbon leakage – aka driving energy intensive industries to the wall. The study proposes the complete abolition of free emission allowances for industry against efficiency benchmarks, as currently proposed, by 2020. Not good news for our heavy energy users like steel, aluminium, cement, bricks and ceramics, certain chemicals, already highly nervous about the impact of tougher climate change targets.

The promised 455,000 new jobs looks less bright after such losses are taken into account, let alone the carbon leakage involved. For the TUC, answers are needed to these distributional impacts of green tax reform.

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