1. 0 We have been commissioned by the government to write a report on how the current UK tax system encourages taxpayers to behave in an environmentally friendly manner. In the first part of the report, we will look at three elements of the UK system and outline how they encourage environmentally-friendly behaviour and in the second part, we will compare these elements to measures in place in Sweden.
2. Key Elements of the UK Tax System
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2. 1 Climate Change Levy
2. 1. 1 CCL is a tax on the supply of energy to businesses in the commercial, agricultural and industrial sectors. The tax, introduced in April 2001, works by charging for each unit of energy used therefore the more energy used the more tax business has to pay. It’s an arbitrary way of trying to get businesses to reduce the energy they use and the emissions they produce. The charge per unit of energy varies depending on the commodity used and the pollution that the commodity produces.
For example, electricity has a higher rate of charge (0. 509 pence per kilowatt-hour) compared to gas (0. 177 pence per kilowatt-hour) because it is more damaging to the environment (HMRC, 2013).
2. 1. 2 The government claims the CCL has had a significant impact on reducing the emissions produced by the UK. However, the House of Commons Environmental Audit Committee has an alternate view that the reductions are due to other measures already in place. They believe that CCL rates are not significant enough to influence behaviour (CIOT, 2009).
Another argument suggests that businesses are just passing on the tax by increasing their prices leaving the incidence of the tax with the consumers. If we look at the tax revenues from CCL, we can see that it has never reached its annual target of £ 1 bn, suggesting the tax is ineffective (Annie Reece, 2012).
2. 1. 3 In support of the government claims, there is clear evidence that the annual emissions are on the down - carbon dioxide emissions have decreased by 15. 9% from 1990 to 2010 (Department of Energy & Climate Change, 2013).
It may not be clear whether this is down to CCL but you cannot argue that companies are now far more aware of their emissions.
2. 2 Landfill Tax
2. 2. 1 The UK government introduced the landfill tax in October 1996 in order to meet its obligations under the 1999 EU landfill directive. Before 1996, the municipal waste in the UK was growing at an average rate of 3% per annum up to 21. 63 million tonnes in 1995/96 (European Commission, 2001). However, even after this introduction, the UK remained as one of the biggest producers of waste in Europe.
To combat this, the Treasury implemented a radically increasing rate of landfill tax (CIOT, 2009). There are two types of landfill wastes which are taxed at two different rates. The first type is the normal (active) waste which is taxed at £ 64/tonne and will most likely rise to £ 80/tonne in 2014; the other type is known as inert waste, such as rock and bricks, which is taxed at £ 2. 5/tonne.
2. 2. 2 The general incentive of the landfill tax is to encourage more sustainable waste management and to alter businesses and customers’ behaviour by producing less waste.
However, the tax has not been as effective as expected. The disposal of inert waste has declined but the same cannot be said for active waste. A possible reason for this could be that, although the tax rate of inert waste is much lower than active in absolute value, it is higher in percentage value which means the tax burden on an inert waste producer is heavier than on an active waste producer (European Commission, 2001). Also, active waste is more likely to be weighed at the disposal stage rather than the collection stage, which may result in less incentive for individuals to reduce their waste.
The revenue from the landfill tax is only a small proportion of the total tax revenue to the HMRC, so the large increase of this tax reflects the determination of the government to change waste behaviour rather than raising tax revenue.
2. 3 Fuel Tax
2. 3. 1 In the UK there is a fuel tax that is applied to all Hydrocarbon fuels, including unleaded petrol, diesel, LPG, biodiesel, bioethanol and other fuels that are used in cars. The rate of the fuel duty is usually set during the budget preparation and it consists of an additional tax that is applied to petrol before it is sold.
Currently, the tax levied on the most commonly used petrol and diesel prices are 85p and 85. 93p respectively. Thus, the total price for petrol and diesel is around 136. 26p and 143. 27p respectively as well (BBC Business, 2012).
2. 3. 2 Such taxes are levied by the government to reduce the excessive usage of fossil fuels and in this case oil. Petrol and diesel are both extracted from crude oil and are the most commonly used fuels around the world. The government hopes that the tax will reduce usage because it is directly passed onto the consumers.
Thus, not only would this measure rake in millions for the government, but it would also reduce the carbon footprint which is a concern for the countries like the UK.
2. 3. 3 As a result of these 527 million fewer litres of petrol and diesel were sold in the UK last year, as individuals and companies chose to drive less, according to Edmund King, president of the Automobile Association. The government has faced a lot of criticism from some groups about the tax and praise from others such as various environmental group and agencies (BBC Business, 2012). . 3. 4 In particular, "a review by Lord Heseltine into governments continued support for low and ultra-low carbon vehicles" was deemed helpful by SMMT chief executive Paul Everitt.
2. 3. 5 Separately, changes to capital allowance and tax relief rules, as well as the car fuel benefit charge, should help "green the UK's business fleet", according to Mike Moore, an automotive analyst with Deloitte, a consultancy. He also added “This means that businesses should seriously consider the carbon footprint of their fleet in order to control costs. (D Martin, 2012).
3. 0 Comparison with Sweden
3. 1 Climate Change Tax
3. 1. 1 In Sweden, there is a variety of green taxes related to climate change. Sweden was the first country in Europe to introduce a green tax in 1991 when they brought in the Energy and Carbon Dioxide Tax (Swedish Environmental Protection Agency, 2000). This introduction, ten years ahead of the UK, shows that the Swedish government was much more aware of the damage their behaviour was causing than the UK government.
3. 1. 2 The Swedish Energy and Carbon Dioxide Tax works by charging the user for the amount of CO2 produced, unlike the UK CCL which charges in respect of the source of energy. Both have the same impact on behaviour as they both encourage taxpayers to reduce the amount of energy they use and the emissions they produce. Over the years, there has been a significant increase in the tax rate to continue the fight against climate change. The increase has been so great that Sweden now has the highest carbon tax rate worldwide (Government Commission of Measures against Climate Change, 2000).
3. 1. 3 Unlike we found in the UK, it has had a huge impact on individual and business behaviour. There has been a 9% reduction in gas emissions in the past decade even though the economy has grown 44%. At present, the general CO2 tax rate amounts to more than 100 EUR/tone; this is a much larger burden than the UK’s CCL rate (Swedish National Energy Administration, 2000). This may explain why the Swedish Tax has changed the behaviour so much more.
3. 1. 4 In the UK, we found that it is not clear which tax is causing a reduction in emissions.
However, in Sweden, the CO2 tax has contributed significantly to reducing fossil fuel consumption, particularly the situation for the household, service sectors and district heating production, where the full CO2 tax rate is applied (Developing Green Taxation – Summary of a Government Assignment Report 5390, 2004).
3. 2 Landfill Tax
3. 2. 1 The current landfill tax in Sweden, which was introduced in January 2000, is very similar to the tax in the UK in that it aims to prevent the increase of waste generated.
However, Sweden also uses their tax to try and encourage the use of the waste to generate energy while minimizing health and environmental effects to humans (European Topic Centre on Sustainable Consumption and Production, 2009). The tax rate started off at €26/tonne and has increased to €47/tonne (£ 40) (Scottish Government Rural Environment Research, 2008). This is lower than the rate in the UK (£ 64/tonne) which suggests that waste management is not as big an issue in Sweden when compared to the UK.
3. 2. 2 Before 2000, landfill only went down by 2% p. a., but after the implementation, it began to decrease by 13. 6% p. a. between 1999 and 2006. At the same time, recycling in the country increased by 4. 6% p. a (European Topic Centre on Sustainable Consumption and Production, 2012). In 2009, revenue from landfill tax was only 15% of that in 2000, which proves that the tax has provided a good incentive in Sweden to reduce waste; unlike the UK where the tax has been arguably ineffective (European Topic Centre on Sustainable Consumption and Production, 2012).
3. 2. 3 Sweden has also successfully implemented schemes which divert landfill to recycling or to waste-to-energy power plants, where it is burned as fuel. According to the most recent figures from Eurostat, only 1% of waste from Swedish households ends up in the landfill. This is much lower than the same figure for the UK of 48% which suggests the recycling schemes in place in the UK are not effective (Care2, 2012). The beverage industry in Sweden has a return rate of over 90% on glass and plastic bottles which shows the tax affects businesses behaviour as well as households (Scottish Government Rural and Environment Research, 2008). 3. . 4 From this comparison, it seems apparent that the UK could learn from Sweden and change people’s behaviour more effectively by implementing and encouraging a better recycling scheme rather than penalizing people through taxes.
3. 3 Fuel Tax
3. 3. 1 The fuel tax in Sweden comprises of an energy tax and a carbon tax. A tax is placed on top of the price of petrol in the same way that the UK government do. The total tax (including value-added tax) has been 6. 875 kr (about £ 0. 6913) per litre since January 1, 201. This rate is lower than the tax in the UK which again suggests that the consumption of fuel is less of an issue.
3. 3. 2 The energy tax contains excises on motor vehicle fuels, the average proportion being 3. 4 points in EU. Sweden is the country has second-highest percentage (4. 9 points) among the EU member states. This tax is similar to the vehicle road tax in the UK.
3. 3. 4 There is a significant difference in the revenues of fuel tax in the UK and Sweden. In the UK, the proportion of the revenue of fuel tax amounts to more than 90% of the total energy taxes revenue, while the percentage for Sweden is only slightly above 50 %.
The tax revenues on natural gas and electricity are the main reasons that result in this different situation. Sweden collects the most revenues from electricity and natural gas taxes (about 30 %). In contrast, the United Kingdom only receives negligible revenues on related items (less than 2 %) (Taxation trends in the European Union, 2009).
3. 3. 5 As is well known, Sweden has a high international profile in environmental policy all over the world. The revenue from environmentally-related taxes is however not particularly high in this country.
On the other hand, the revenue from green taxes in Sweden has been steady rather than a decline in recent years, which is in contrast to the trend in many other countries (Swedish Tax Policy: Recent Trends and Future Challenges, 2010).
- CIOT, 2009. Green Tax Report. [online]. Available at: <http://www. greentaxreport. co. uk/> [Accessed 28 January 2013].
- HMRC, 2013. Climate Change Levy Rates from April 2012. [online]. Available at: <http://customs. hmrc. gov. uk/channelsPortalWebApp/channelsPortalWebApp. portal?nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_PROD1_031183&propertyType=document> [Accessed 28 January 2013].
- Annie Reece, 2012. Landfill Tax Revenue Set to Increase. [online]. Available at: <http://www. resource. uk. com/article/UK/Landfill_tax_revenue_set_increase> [Accessed 28 January 2013].
- Department of Energy & Climate Change, 2013. GHG Inventory summary Factsheet. [online]. Available at: <https://www. gov. uk/government/uploads/system/uploads/attachment_data/file/39729/5558-all-gas-factsheets-as-single-document. pdf> [Accessed 28 January 2013]. European Commission, 2001.
- Study on the Economic and Environmental Implications of the Use of Environmental Taxes and Charges in the European Union and its Member States. [online]. Available at: <http://ec. europa. eu/environment/enveco/taxation/pdf/ch15_uk_landfill. pdf> [Accessed 27 January 2013]
- BBC Business, 2012. Fuel duty rise cancelled by chancellor. [online] Available at: <http://www. bbc. co. uk/news/business-20592706 > [Accessed 11 February 2013].
- BBC Business, 2012. Budget 2012: Fuel duty increase gets go-ahead. [online] Available at: <http://www. bbc. co. uk/news/business-17458423> [Accessed 10 February 2013].
- D Martin, 2012. We're the fuel tax capital of Europe: British motorists pay up to 60% duty and VAT on petrol - the highest figure in the EU. [online] Available at: <http://www. dailymail. co. uk/news/article-2107374/Fuel-tax-British-motorists-pay-60-duty-VAT-petrol. html> [Accessed 11 February 2013].
- Care2, 2012. The Environment and Wildlife Cause. [online. ] Available at: <http://www. care2. com/causes/sweden-is-so-green-it-has-to-import-garbage. html> [Accessed 5 February 2013].
- European Topic Centre on Sustainable Consumption and Production, 2009. Fact Sheet for Sweden. [online. ]
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