Dr George Stoye

The government has committed itself to raising the share of revenues from green taxes over this Parliament. On its own definition of what constitutes a ‘green tax’, the pledge is on course to be met with ease. Alternative definitions of green taxes based on international convention, however, suggest that the pledge will be missed. We argue that such pledges are not a good guide to a government’s environmental credentials, and green tax policy should be justified by environmental issues rather than an arbitrary revenue target.

New IFS research published today demonstrates the compelling case for road pricing as part of a radical overhaul of the way in which motoring is taxed. Current taxes - excise duties on road fuel and vehicle excise duty - are unable to capture the substantial variation by time and location in the external costs associated with motoring. At the same time, official forecasts from the Office for Budget Responsibility suggest revenues from these current taxes are set to erode significantly in the medium-term. Road pricing would provide not only a more economically rational way of taxing motoring but also a more sustainable tax base.

The UN Climate Change Conference begins in Durban, South Africa, on the 28th November. One of its primary aims is to reach agreement on ways to reduce carbon emissions. Good policy is required to achieve reductions efficiently, including a consistent (preferably global) carbon price. However, a consistent price does not currently exist. Within the UK, there are a myriad of policies in place which create substantial divergences in effective carbon prices. We have some way to go to get the basics right for an efficient national policy; the global challenges will be much greater.