Indirect and environmental taxes
Andrew Leicester
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IFS hosts two ESRC Research Centres.
Main indirect tax changes
• Excise taxes: to escalate or not to escalate?
– Alcohol, tobacco: RPI+2% escalator until 2014-15 remains
– Fuel: escalator abandoned
• Alcohol and tobacco: restructure rates to influence product choice
– Beer: reduce tax on weak beer, raise tax on strong beer
– Tobacco: restructuring to target duty rises on cheap products
• Main environmental measures
– A ‘fair fuel stabiliser’?
– Carbon price floor
– Aviation taxes
• Implications for environmental tax receipts?
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Oil, fuel duties and the ‘fair fuel stabiliser’
• Major changes to fuel duty plans
– RPI + 1p escalator to 2014-15 abandoned, immediate 1p cut in duties
– RPI uprating for April 2011 deferred until January 2012
– RPI uprating for April 2012 deferred until August 2012
– Real duty 5p lower by April 2014 than before, pump prices 6p lower
– Overall cost £1.9 billion in 2011-12, rising to £2.1 billion in 2014-15
• Increase in supplementary charge on North Sea oil and gas
– Charge increased from 20% to 32%
– Raises £1.8 billion in 2011-12, rising to £2.1 billion in 2014-15
• Policies reversed if ‘sustained’ fall in oil price below $75/barrel
– ‘Stabiliser’: real duty rises resume if oil prices fall
– Current price $115; forecast oil price above $75 every year ahead
– Oil at $75 at last Budget when escalator maintained
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A “fair fuel stabiliser”?
• Chancellor acknowledges no revenue windfall from high oil price
– ‘Easing the burden’ for motorists is not a free lunch
– North Sea oil producers have picked up the bill
– Not for the first time: Budget 2002 and Budget 2005 both saw
increases in North Sea oil taxes and cuts in fuel taxes
• Reform is not a ‘stabiliser’ in any meaningful sense
– No direct link between oil price and the duty rate
• Formal stabiliser hard to implement, unclear economic rationale
• Government should think about longer-term reforms to motoring
taxes
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Carbon price floor
• Tax (carbon price support rate) on fuel used to generate electricity
• Varies according to carbon content of fuel
• Initial rate £4.94/tonne CO2 in 2013-14, raises £740 million
• ‘Tops up’ EU ETS carbon price
– Aim to provide more certain path of carbon prices
– Trajectory from £16 per tonne of CO2 in 2013 to £30 in 2020
– Could help improve incentives to invest in low-carbon fuel
• Will raise household and business electricity bills
• Moves a bit closer to consistent carbon price
– But not much
– And offset by energy taxes that don’t vary by carbon
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Air Passenger Duty
• Deferred inflation rise in APD rates until next year
– Costs £145m in 2011-12
• Coalition agreement pledged to reform APD into a per-plane tax
– Similar policy consulted on and rejected by Labour
• Government now concerned about legality of per-plane tax
– Looks set to reform existing APD again
• Aviation in ETS from 2012 – deals with carbon emissions
– Residual role for domestic tax
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Raising the share of green taxes
“Green taxes will increase as a proportion of our total tax revenues,
as we promised.”
― Budget statement
• Promise kept?
– We estimate the target is on course to be hit
– But margin down from £2.6 billion before the Budget to £1.4 billion
– Fuel duty revenues down by £2.1bn
– Offset by carbon price support
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“The greenest government ever”?
• Move to direct carbon pricing of electricity welcome
– Missed opportunity to consolidate range of prices in different sectors
• Some new non-tax green measures
– Green Investment Bank, carbon capture and storage pilots
• Fuel duty cuts reminiscent of Labour approach to ‘stabilisation’
– Lower duty rates will raise transport emissions
• Substantial changes to aviation taxes appear unlikely
• Not much room left on green tax target
– Still not clear what government thinks this means
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Apr 2014
Apr 2013
Apr 2012
Apr 2011
Apr 2010
Apr 2009
Apr 2008
Apr 2007
Apr 2006
Apr 2005
Apr 2004
Apr 2003
Apr 2002
Apr 2001
45
Apr 2000
50
Apr 1999
Apr 1998
Apr 1997
Duty rate (Apr 2011 prices), p/l
Real-terms fuel duties
70
65
60
55
Pre-Budget 2011
Post-Budget 2011
40
Implicit carbon taxes
2013/14
2010/11
Gas for heating
Households
Gas-fired electricity
Coal-fired electricity
Gas for heating
Businesses
Gas-fired electricity
Coal-fired electricity
0
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10 20 30 40 50 60 70 80
Tax (per tonne of CO2), 2010 prices
Raising the share?
9%
Others
Share of total receipts
8%
7%
6%
VED
5%
4%
APD
3%
2%
1%
Fuel duty +
VAT
0%
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
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