MPs call for purchase tax on high CO2 vehicles

The Government has undermined public trust in green taxes by appearing to use them as a revenue raising tool rather than a serious attempt to change environmentally damaging behaviour, according to a new report by MPs.

Members on the House of Commons Environmental Audit Committee single out two recent tax changes for particular criticism:

• Cutting a penny off fuel duty while providing no new incentives to switch to lower carbon alternatives sends the wrong signals

• Proposed changes to air passenger duty will do nothing to reduce emissions or make it a more effective environmental tax

The committee is calling on the Treasury to adopt a coherent strategy for environmental taxation, setting out its objectives and rationale, the basis on which rates are set, and how their impact will be evaluated.

Chair of the Environmental Audit Committee Joan Walley MP said: "The Treasury needs to stop giving green taxes a bad name.

“Recent budgets have created the perception that environmental taxes are simply being used to pinch extra pennies from people.

“Politicians should use green taxes more carefully to challenge and change the most polluting activities. The Government must put its money where its mouth is and put greening the economy at the heart of its plan for growth."

Instead, the committee suggests that the Government should consider introducing greater incentives to encourage motorists to switch from polluting cars to lower carbon alternatives.

It says additional tax measures could be taken to encourage the uptake of electric vehicles such as a ‘feebate’ scheme.

This would see a new purchase tax introduced on relatively high carbon dioxide emitting vehicles, which would subsidise the cost of lower-emitting vehicle within the same class.

The report says: “The Government should consider partially hypothecating revenues from fuel duty to invest in low-carbon alternatives. But perhaps most importantly, the Treasury needs to set out a clear vision and strategy for motoring taxation to demonstrate what transport policy objectives it is seeking to support.

“Until it does so, it will be open to accusations of sending mixed messages to motorists and undermining taxpayers’ support for such environmental taxation.”

Motoring taxes which meet the definition of environmental taxes are fuel duty, VAT on fuel duty and Vehicle Excise Duty, although HM Treasury does not classify fuel duty as an environmental tax.