Economic Instruments Overview (UK)

Background
Development and implementation of economic instruments in the UK
Environmental measure
Climate change levy
Aggregates Levy
Landfill Tax
Pesticides voluntary agreement
Establishing the long-term goal
To meet Kyoto and Government climate change targets
To tackle environmental costs of aggregate extraction including noise, dust, visual intrusion, biodiversity loss. Research between 1997 and 1999
To internalise environmental costs of landfill e.g. methane emissions, nuisance, groundwater pollution, to give better price signals for alternatives to landfill, and to assist in meeting waste targets in most efficient way
DETR report 1999 floated a possible pesticides tax. Aim to minimise pesticide use, which has impacts including water pollution and damage to diodiversity, consistent with crop protection.
Long Consultation period
Advisory Committee on Business and the Environment report early 1998. Followed by Marshall Task force in 1998 and consultation on tax design in 1999 to 2000.
Excessive consultation with industry from 1998
Tax originally introduced in 1996. Present policy based on review and consultation of tax announced in Jan 1998
Consultation with the British Agrochemicals Association on possible voluntary action from 1999 to 2001.
Early signal that new or additional intervention likely to be necessary
Announcement of Marshall task force in March 1998
Likelihood of intervention evident following research phase in 1999
1998 review of landfill tax signalled that increases likely to be necessary
Evident following DETR report in 1999
Active Evidence collection
Marshall task force in 1998
Independent research and consultation with the industry followed extensive work with the industry on design and practical implementation
Continued evidence collection on the tax and the effects of the credit scheme
Independent research followed by consultation with the industry
Early signal of choice of economic instrument
CCL announced in budget 1999 for implementation in 2001
Levy announced in Budget 2000 for implementation in 2002
Escalator announced in 1999 Pre-Budget report to take effect from April 2000
Voluntary package agreed by Budget 2001
Recycling of revenue
Introduction of Levy accompanied by a 0.3% employer NICs cut and support for energy efficiency and renewables.
Introduction of Levy accompanied by a 0.1% employer NICs cut and £35m sustainability fund.
Introduction of tax accompanied by a 0.2% employment NICs cut. Revenue also recycled through the landfill tax credit scheme.
Likely to be past of any tax measure (if voluntary package is not successful)
Willingness to consider a voluntary approach
Negotiated agreements with energy intensive sectors in return for reduced rate of levy
Option of a voluntary agreement discussed with the industry but final proposal for a voluntary package was not acceptable to the government.
All decisions taken following consultation with the industry
Voluntary approach has been adopted rather than a tax
Commitment to support investment in new technology to ease adjustment
Enhanced capital allowances for investments in energy saving technologies for 2,500 products and £50m per year for Carbon trust and renewables.
£35m per year Sustainability Fund to reduce demand for virgin aggregates by promoting greater use of alternatives and deliver local environmental benefits.
Landfill tax credit scheme, currently of some 135m pounds per year, recycles funds to projects including sustainable waste management projects

Compensation and relief for hard hit groups
Revenue neutral for manufacturing as a whole., exemptions for renewable energy and CHP, 80% discounts for energy intensive sectors that have entered into negotiated agreements to increase energy efficiency and reduce emissions. Levy does not apply to domestic sector given problems with fuel poverty.
Revenue recycled via a 0.1% employer NICs cut. Phasing in levy for N. Ireland for aggregate used in processed products.
0.2% employer NICs cut offsets costs to business

Commitment to ongoing monitoring and evaluation
Rates reviewed annually as part of Budget Process. Levy's impact will be evaluated by Customs and environmental outcomes will be published in Pre-Budget Reports and budgets.
Rates reviewed annually as past of Budget process. Levy's impact will be evaluated by Customs and environmental outcomes will be published in Pre-Budget Reports and Budgets.
Rates Reviewed annually as part of Budget process strategy unit report on waste policy. Consultation on the landfill tax credit scheme in 2002.
Voluntary package overseen by a steering group involving a range of stakeholders. Report on progress in Budgets and Pre-Budget reports
Commitment to future flexibility in policy
e.g. Budget 2002 announced complete exemptions for electricity generated from CHP or coal mine methane, and certain recycling processes. The world's first economy-wide greenhouse gas emissions trading scheme was launched in April 2002 including link to CCL negotiated agreements.
Government keeping the tax under review
Budget 2002 signalled that the government anticipates a significant raise in the landfill tax in the medium term to meet sustainable waste management goals. Considering the case for a tax on incineration
Depending on the success of the voluntary package
Commitment to work internationally if possible
Promotion of the UK approach on tax and emissions trading at European and international level, including taking an active role in negotiation of relevant EU directives.

Note: NICs: employers' national insurance contributions. Source: HM Treasury, 2000, Table 7.1, pp42-43.

References
HM Treasury, 2000, Development and Implementation of Economic Instruments, HM Treasury, Tax and the Environment: using Economic Instruments, Nov 2002.

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Background

Development and implementation of economic instruments in the UK

Environmental measure	Climate change levy	Aggregates Levy	Landfill Tax	Pesticides voluntary agreement
Establishing the long-term goal	To meet Kyoto and Government climate change targets	To tackle environmental costs of aggregate extraction including noise, dust, visual intrusion, biodiversity loss. Research between 1997 and 1999	To internalise environmental costs of landfill e.g. methane emissions, nuisance, groundwater pollution, to give better price signals for alternatives to landfill, and to assist in meeting waste targets in most efficient way	DETR report 1999 floated a possible pesticides tax. Aim to minimise pesticide use, which has impacts including water pollution and damage to diodiversity, consistent with crop protection.
Long Consultation period	Advisory Committee on Business and the Environment report early 1998. Followed by Marshall Task force in 1998 and consultation on tax design in 1999 to 2000.	Excessive consultation with industry from 1998	Tax originally introduced in 1996. Present policy based on review and consultation of tax announced in Jan 1998	Consultation with the British Agrochemicals Association on possible voluntary action from 1999 to 2001.
Early signal that new or additional intervention likely to be necessary	Announcement of Marshall task force in March 1998	Likelihood of intervention evident following research phase in 1999	1998 review of landfill tax signalled that increases likely to be necessary	Evident following DETR report in 1999
Active Evidence collection	Marshall task force in 1998	Independent research and consultation with the industry followed extensive work with the industry on design and practical implementation	Continued evidence collection on the tax and the effects of the credit scheme	Independent research followed by consultation with the industry
Early signal of choice of economic instrument	CCL announced in budget 1999 for implementation in 2001	Levy announced in Budget 2000 for implementation in 2002	Escalator announced in 1999 Pre-Budget report to take effect from April 2000	Voluntary package agreed by Budget 2001
Recycling of revenue	Introduction of Levy accompanied by a 0.3% employer NICs cut and support for energy efficiency and renewables.	Introduction of Levy accompanied by a 0.1% employer NICs cut and £35m sustainability fund.	Introduction of tax accompanied by a 0.2% employment NICs cut. Revenue also recycled through the landfill tax credit scheme.	Likely to be past of any tax measure (if voluntary package is not successful)
Willingness to consider a voluntary approach	Negotiated agreements with energy intensive sectors in return for reduced rate of levy	Option of a voluntary agreement discussed with the industry but final proposal for a voluntary package was not acceptable to the government.	All decisions taken following consultation with the industry	Voluntary approach has been adopted rather than a tax
Commitment to support investment in new technology to ease adjustment	Enhanced capital allowances for investments in energy saving technologies for 2,500 products and £50m per year for Carbon trust and renewables.	£35m per year Sustainability Fund to reduce demand for virgin aggregates by promoting greater use of alternatives and deliver local environmental benefits.	Landfill tax credit scheme, currently of some 135m pounds per year, recycles funds to projects including sustainable waste management projects
Compensation and relief for hard hit groups	Revenue neutral for manufacturing as a whole., exemptions for renewable energy and CHP, 80% discounts for energy intensive sectors that have entered into negotiated agreements to increase energy efficiency and reduce emissions. Levy does not apply to domestic sector given problems with fuel poverty.	Revenue recycled via a 0.1% employer NICs cut. Phasing in levy for N. Ireland for aggregate used in processed products.	0.2% employer NICs cut offsets costs to business
Commitment to ongoing monitoring and evaluation	Rates reviewed annually as part of Budget Process. Levy's impact will be evaluated by Customs and environmental outcomes will be published in Pre-Budget Reports and budgets.	Rates reviewed annually as past of Budget process. Levy's impact will be evaluated by Customs and environmental outcomes will be published in Pre-Budget Reports and Budgets.	Rates Reviewed annually as part of Budget process strategy unit report on waste policy. Consultation on the landfill tax credit scheme in 2002.	Voluntary package overseen by a steering group involving a range of stakeholders. Report on progress in Budgets and Pre-Budget reports
Commitment to future flexibility in policy	e.g. Budget 2002 announced complete exemptions for electricity generated from CHP or coal mine methane, and certain recycling processes. The world's first economy-wide greenhouse gas emissions trading scheme was launched in April 2002 including link to CCL negotiated agreements.	Government keeping the tax under review	Budget 2002 signalled that the government anticipates a significant raise in the landfill tax in the medium term to meet sustainable waste management goals. Considering the case for a tax on incineration	Depending on the success of the voluntary package
Commitment to work internationally if possible	Promotion of the UK approach on tax and emissions trading at European and international level, including taking an active role in negotiation of relevant EU directives.

Note: NICs: employers' national insurance contributions. Source: HM Treasury, 2000, Table 7.1, pp42-43.

References

HM Treasury, 2000, Development and Implementation of Economic Instruments, HM Treasury, Tax and the Environment: using Economic Instruments, Nov 2002.