Tax and the environment

Latest information

Chapter 7: Supporting low-carbon growth of the 2009 Pre-Budget Report contains the latest announcements on environment and transport taxes, and their link to wider Government policy.

Environment and transport taxation policy

Objectives

Environment and Transport Tax policy is guided by three of the Treasury's Departmental Strategic Objectives:

Protecting the environment in an economically efficient and sustainable way;
Maintaining sound public finances - ensuring that the tax yield is sustainable and risks managed; and
Promoting the efficiency and fairness of the tax system.

As such the Treasury aims to develop tax options that support the Government’s environment policy, while maintaining sound public finances. Transport taxes can also have a positive impact on the environment, but are primarily revenue raising instruments.

Economic Instruments and the Environment

More specifically on tax, the Treasury/Government's strategic approach to environmental taxation is set out in various forms in a number of places:

Statement of Intent on environmental taxation (1997) – it stated that the Government will aim to reform the tax system to shift the burden of tax from ‘goods’ (e.g. employment) to ‘bads’ (e.g. pollution). It also made clear that environmental taxation must meet the tests of good taxation (e.g. economic efficiency and fairness, maintaining long-term sustainability of public finances; deliverability and effective risk management).
Tax and the environment: using economic instruments (2002) (published alongside the PBR in 2002) – set out the framework for using the tax system – as part of a wider range of instruments to contribute to an effective environmental policy.
In PBR 2005 - Chapter 7: Protecting the Environment, the Government reiterated its commitment to this framework by setting out its Principled Approach, which distils the key criteria for environmental tax strategy going forward.