Treasury and tax departments have little understanding of whether the four taxes classified as ‘environmental taxes’ have achieved their aims, or of how the tax system as a whole can support environment goals, according to new findings by the Public Accounts Committee (PAC). The committee also found little understanding or planning for changes in revenues such as the exoected decline in fuel duty. The report comes shortly after research that showed public support for using the tax system to further environment and climate objectives and amid growing calls for a delivery plan for the UK’s Net Zero target. The PAC said there was a “a lack of leadership and coordination” that “mirrors findings in our recent reports on achieving government’s long-term environmental goals and achieving net zero”. It says environmental assessments should be made for all taxes.

The PAC said that HM Treasury and HMRC have a “very limited view of the role of tax”, with a “limited understanding of the environmental impact” of taxes, and were unable to explain to the Committee “how the tax system is used in achieving the government’s environmental goals”.

Just four taxes – the Carbon Floor Price, Climate Change Levy, Landfill Tax and Aggregates Levy -  have specific environmental objectives and departments have not tracked  the impact of measures such as tax reliefs on energy saving.

Given the Treasury’s cross-government remit, it is “disappointing to see the silo thinking we often see in other Whitehall departments extending to the Treasury itself”. It said the Treasury should “aim to become an exemplar finance department in supporting government’s environmental goals like net zero; and, by COP26 in November 2021, set out a clear vision of how it will work to help the UK achieve net zero”.

By the next budget, it should set out a timetable for how it will consult on options for replacing declining revenues from fossil fuels including fuel duty and set out its thinking on how taxes could evolve.

In future, the PAC wants Treasury to publish an environmental impact statement with every tax change considered and ensure that it can assess whether environmental taxes are achieving their objectives.  That includes assessing the impact on other departments’ responsibilities, which the PAC says is considered too little by the Treasury.

Libby Peake, head of resource policy at Green Alliance, said: “This damning report is vital reading for the Treasury ahead of the Net Zero Review. Tax is not being used to its full potential to achieve the government’s environmental goals. That the impact of the few existing environmental taxes on behaviour is not even being adequately monitored is also extremely worrying. For the Treasury – and the rest of society – to play a full role in the transition to a net zero, nature-rich economy, all tax measures must be assessed against their environmental impact.

“The UK public are ahead of the government on the need to green the tax system. Our recent survey with BritainThinks found that six in ten people want the tax system to make environmentally damaging behaviour more expensive. As we switch to electric vehicles, the Treasury needs to replace fuel duties and do more to encourage people sustainable travel options, such as public transport, walking and cycling. Whether this is through road pricing or other tax measures, starting the conversation is vital to ensure these changes are fair and carefully designed.”

Read the full report here