Bad news for cyclists as Government backtracks on definition of VED as an environmental duty

The Treasury has published its definition of environmental taxes, hoping to resurrect the tag of being the “greenest Government ever.”

According to a press release, any tax is “environmental” if it is:

“explicitly linked to the Government’s environmental objectives; the primary objective of the tax is to encourage environmentally positive behaviour change; and the tax is structured in relation to environmental objectives, for example: the more polluting the behaviour, the greater the tax levied.”

While the climate change levy and other environmental taxes make it into the mix, vehicle excise duty doesn’t.

Economic Secretary to the Treasury Chloe Smith said:

“We want a clear approach that delivers a positive environmental impact without adding burdens onto business or households.”

Yes, this is the Chloe Smith recently seen to be woefully out of her depth when interviewed about the fuel duty u-turn by Jeremy Paxman on Newsnight.

Has Smith – or, more likely, her officials – made a mistake by omitting VED?

Apparently not. An addendum says:

“The Government recognises that other taxes can deliver environmental benefits, but their aim is not environmental but revenue raising. These are specifically excluded from the Treasury definition and include taxes such as Vehicle Excise Duty, Fuel Duty and Air Passenger Duty.”

Such talk plays into the hands of those of feel there’s a “war against the motorist” and that car tax is just another grubby way of fleecing “hard-working families”, and has nothing to do with getting people to choose less polluting cars. And defining VED as a “revenue generator” will be grist to the mill to those who believe “road tax” pays for roads (it doesn’t, roads are paid for out of general and local taxation but this doesn’t stop cyclists being verbally and physically attacked for “not paying road tax.”)

Yet this re-definition of Vehicle Excise Duty as a revenue raiser first and foremost goes against all previous advice. VED is short for GVED. GVED stands for graduated vehicle excise duty and refers to the way the more polluting the motor, the more duty levied. A car in VED band A emits less than a car in VED band M so pays zero VED.

In the 1990s, the Royal Commission on Environmental Pollution recommended that VED – then charged at a flat rate – ought to be graduated in order to encourage environmentally-friendly motoring: motorists would be financially encouraged to buy less polluting cars. GVED was duly introduced in the 1998 budget. In 2006, the rate of VED for the lowest-emitting cars (<100g/km in Band A) was reduced to £0.

A June 1998 technical report from the Parliamentary Office of Science and Technology devoted eight densely-argued pages to the environmental aspects of the recently introduced GVED:

“The March 1998 Budget included proposals for an environmentally-graduated Vehicle Excise Duty (VED) for cars, with the least-polluting cars attracting the lowest annual charge. This proposal fits with the stated aims of successive governments to use “market mechanisms” to achieve environmental goals.”

In 2008, Parliament’s Environmental Audit Committee issued a report called ‘Vehicle Excise Duty as an environmental tax.’

The committee recognised that the Treasury was lukewarm on whether VED was an efficient means of generating behaviour change and noted that:

“The Treasury must develop a proper communications strategy for its green taxes, to explain the purpose behind them, to increase preparedness to pay, and to intensify the message of behavioural change they are meant to convey. It should look again at hypothecating VED revenues to areas such as public transport, or by matching levies on high emissions vehicles with discounts on low emissions vehicles. This might increase both the environmental benefits of VED changes and the level of public support for them.”

The committee added:

“We have previously examined and strongly supported the principle of using VED as an environmental tax, notably in our 2006 report on Reducing Carbon Emissions from Transport.”

The Treasury argues that VED, unlike the Climate Change Levy which was created as an environmental tax, is a “pre-existing tax…made sensitive to environmental concerns”. As such, in the eyes of the Treasury, VED has never been a real environmental tax and the new definition of what is and what isn’t an environmental tax takes VED out of the picture. Motormouths, such as Jeremy Clarkson, will no doubt latch on to the Treasury’s new definition. Thanks for nothing, Chloe.

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