PwC comments on HM Treasury Environmental Tax definition

PwC analysed a group of ‘Planet Taxes’ in the recent 2011 Total Tax Contribution(TTC) survey for The Hundred Group. The Hundred Group of companies represent 80% of the market capitalisation of the FTSE 100. Planet taxes included a range of taxes and duties levied on the supply, use or consumption of goods and services which are potentially harmful to the environment.

In the 2010/11 survey period, The Hundred Group participants paid £0.9bn (1.6% of Total Tax Contribution) in environmental taxes assessed in the study. This is the smallest contribution by category of tax examined in the report.

While the government last year removed Air Passenger Duty (APD) from its environmental tax definition, it was included in the Total Tax Contribution analysis for the fiscal year 2010/2011, as it was still categorised as an environmental tax at that stage.

Under this definition, despite increases last year to APD and landfill tax, the trend shows that over the last year, payments for planet taxes overall have decreased by 3.4% for those companies in the survey reporting these taxes in both the 2010 and 2011 surveys.

In the face of a recession and the need to repair public finances, recent budgets have had little impact on planet taxes, and they continue to be a small contributor to government revenues.

Planet Taxes* borne and collected by The Hundred Group in 2010/2011

Planet taxes borne (defined as environmental taxes)	£s 2010/2011	% of Total Tax Contribution
Climate Change Levy	68.8m	0.1%
Aggregates Levy	54m	0.1%
Landfill tax	36.6m	0.1%
Environmental taxes borne	159.4m	0.3%
Other planet taxes borne
Air passenger duty	35.2m	0.1%
Vehicle Excise duty	74.8m	0.1%
Congestion charge	3.7m	0.1%
Total planet taxes borne	273.1m	0.6%
Planet taxes collected
Climate Change levy	106.9m	0.2%
Landfill tax	141.5m	0.2%
Environmental taxes collected	248.4	0.4%
Other planet taxes collected
Air passenger duty	421.3m	0.6%
Total planet taxes borne and collected	942.8m	1.6%

 *Planet taxes did not include ETS payments in this analysis.Carbon Price Support and Carbon Reduction Commitment were not active in 2010/11 tax year.

The government expects green tax revenues to double in the next three years, almost entirely from carbon pricing. The biggest revenues comes from auctioning of EU Allowances - previously companies in the EU emission trading scheme got free allocations - with the carbon price floor providing a further boost from 2014.

Jayne Harrold, environmental tax specialist, PwC commented

“There’s no doubt that the increase in vehicle excise duty and the rising cost of fuel in particular has probably contributed to more energy efficient decision making by consumers, but whether that is environmentally motivated is another thing.”

“The definition of environmental taxation is significant if this is more than an exercise in statistics. It could be a helpful platform for use by government to establish a clear environmental tax policy to help meet its green commitments."

"The real issue will be how to deliver the positive environmental impact without adding burdens onto business or households. With the increasing range of taxes and forecast increased tax take, business needs to understand the environmental taxes it is paying, and how to manage and control those taxes through behaviour change."

Richard Gledhill, partner, sustainability and climate change said

"By itself, the definition of green taxes isn't going to provide a new boost to the green economy. But it will provide a benchmark against which to judge future changes.

"The economic downturn has masked the scale of the challenge we face to meet a 34% reduction by 2020 and at least 80% by 2050. The UK increased its emissions intensity by 3.5% in 2010, and now needs to reduce it 5.6% per year every year to 2020, with broad low-carbon reforms across every sector needed to achieve that.

“Carbon pricing in the UK is set to ratchet up, come what may, because of the carbon price floor. So companies really do need to take energy efficiency seriously. Higher carbon pricing means higher electricity prices, for business and the consumer.

"Green taxes will have an important role to play in driving this change, but they need to be good as well as green. I'd add simple and consistent to the definition of a good green tax. But you also need to look at the totality of taxes - overlapping policies and taxes can blunt the incentive."

Notes:

1. The Hundred Group represents the views of the finance directors of FTSE 100 and several large UK private companies. Member companies represent over 80% of the market capitalisation of the FTSE 100, collectively employing over 7% of the UK workforce and in 2011, paid, or generated, taxes equivalent to 13% of total UK Government receipts.

2. Overall the Total Tax Contribution for the entire membership was £67.7bn, equivalent to 13% of the total UK government receipts for the year.

3. Legislative changes to planet taxes in 2011 were: APD rates increased from 1 November 2009 and a four band structure was introduced based on geographical distance from London to the capital city of the relevant country, and class of travel. There were no changes in the aggregates flat rate of £2 per tonne in this survey period, but from 1 April 2012, the rate will increase to £2.10 per tonne. For landfill tax, the rate per tonne increased from £40 to £48 from 1 April 2010. From April 2011, the rate per tonne went up to £56.