The light for change What people think about environmental tax reforms Summary

The UK tax system is not fit for the including those that change the cost of challenges of the 21st century, including different behaviours and of consumption. the environmental emergencies we face. The findings show: Transforming tax will be essential to fairly and efficiently achieve a net zero, People want government to do, and sustainable economy. spend, more on environmental action People expect meaningful action and As part of our TransformTax project, we more funding for it from government, are working with the research agency with a strong majority – 80 per cent – BritainThinks to understand the public’s believing the government should be view of using the tax system to encourage responsible for dealing with more sustainable choices. In March 2021, , and 62 per cent BritainThinks surveyed a representative wanting higher government spending to sample of 2,076 members of the UK address them. public.1 People believe they can do more, too The results are unequivocal. People also believe responsibility Sustainability is a primary concern, and extends to them: around two thirds think the public believes those who cause the it is important to change their own most environmental damage – whether lifestyle to tackle and a businesses or individuals – should be similar proportion say they have already held to financial account. There is strong made some changes. support for the principle of green taxes, Greening the tax system is widely This gives the government a clear supported mandate to start to green the tax system. Green taxes, which would help people Time is of the essence to develop robust and companies make more changes, proposals that will deliver the change are also strongly supported. Six in ten people want to see. It will be important (59 per cent) people support using the for well designed reforms not only to tax system to make environmentally have positive environmental impact damaging behaviours more expensive and avoid unintended consequences, with only one in ten (12 per cent) but also to be fair, acceptable and opposing the idea. understandable to taxpayers. Taxes related to carbon, unsustainable It is crucial that taxes are used where consumption and material use are also they are the best option, rather than supported regulation or other measures, or where A majority of people support carbon they can usefully build on other taxes on both producers and consumers, approaches. Tax is not the whole answer as well as greening the VAT system and to any of the environmental challenges implementing new material taxes. we face. But careful reforms are an Although road pricing is less popular important part of the broad set of policy than other proposed measures, people measures that will shift the UK on to a are still more likely to support it than much more sustainable path, and deliver oppose it. the green recovery the prime minister has promised. Introduction Tax and the environment in the UK

The tax system is one of the most The National Audit Office (NAO) has also powerful tools the government has to identified five large areas of tax relief deliver on its policy ambitions, shape the that work against the government’s economy and change the behaviour of environmental goals while costing the people and businesses alike. When it state nearly £17 billion in lost revenue comes to the environment, it is currently each year.5 These include reduced VAT on not being used to anything like its full domestic fuel and power, zero VAT on potential. domestic passenger transport, including flights, and reduced or no fuel duty on UK taxes with a positive environmental diesel used in off-road vehicles and impact account for only seven per cent of kerosene used as heating fuel. tax revenue, and those with an explicit environmental purpose (the Climate As we have previously shown, and the Change Levy, Carbon Price Support, NAO’s evidence supports, there are Landfill Tax and Aggregates Levy) particular problems with VAT, the UK’s account for even less: only 0.5 per cent of tax on consumption, that urgently need total tax revenue.2,3 This falls well short to be addressed. Currently, VAT of the potential demonstrated in some discourages activities that would lead to OECD countries.4 more secure jobs and a greener, healthier society, while it encourages those that damage our environment, make us unhealthy and suppress job creation.6 The Treasury has, so far, been reluctant In this report, we present the results of a to put its weight behind the survey of 2,076 members of the public, government’s stated aims to create a net conducted by BritainThinks in March zero, sustainable economy, with little 2021. It shows the government has a action on either taxation or spending for very clear public mandate to green the the transition. However, the Net Zero tax system. This does not mean all Review it has commissioned, due out changes will automatically be later in 2021, is a perfect opportunity to acceptable. Careful design of tax policy initiate a transformation of the tax will be necessary to ensure public system. In fact, the stated aims of the support and lasting benefit to the review suggest it will do this, at least environment. when it comes to climate change, pledging analysis of how households, businesses and the taxpayer should all contribute to the transition required.7 The environment is a primary concern

Despite the many challenges facing the The survey also revealed that, in every UK, people are extremely concerned part of the UK, it was one of the top four about the environment and climate concerns, and it was chosen equally by change, ahead of crime, poverty, men and women (33 and 32 per cent, immigration and education. Asked to respectively).8 It was notable, though, identify three priorities from a list of 11 that it was a slightly higher priority for options, the public ranked the both younger and older groups, with 35 environment and climate change a close per cent of 18-34 year olds and 37 per third, at 32 per cent, behind the economy cent of those over 65 choosing it. and employment (38 per cent), with healthcare, unsurprisingly, in top place at 51 per cent. Q: Excluding Covid-19, which of the below issues are most important to you?

51%

38%

32% 29% 28%

22% 21% 19% 17%

8%

4%

Healthcare Economy Environment Crime Poverty and Immigration Education Housing and UK/EU Taxation and Transport and and climate inequality homelessness relationship tax reform employment change People expect meaningful government action and funding

A strong majority (80 per cent) of people stories, such as the repeated failure believe the government should be to improve the sustainability of the responsible for dealing with environmental nation’s homes. issues and 62 per cent want to see more On the one hand, this could present spending to tackle them. Only 17 per cent a barrier to the implementation of think that spending should go down. green taxes and many other types of It should be noted, though, that our environmental policy, unless public survey showed that estimations of the confidence is improved by the government government’s ability to deal with climate matching its stated ambitions with clear change are low: only a third are confident and consistent action. about the government’s ability to deal On the other hand, unlike targets and with climate change, compared to over promises of future changes, tax reform half (52 per cent) who are not confident. can quickly and directly affect This could stem from a general cynicism behaviours with an impact on the about the government’s ability to tackle environment, and so an ambitious and major societal problems, but also from consistent approach to greening tax will inconsistent approaches taken by the enable the government to immediately government on the environment. This improve its environmental credentials. includes the diesel scandal, frequent policy changes and high profile negative When presented with the following pairs of statements, most people said...

...the government should be responsible ...the government should increase spending for improving the environment on environmental issues

80%

62%

21% 17%

10% 9%

The government should The government should Don’t know The government should The government should Don’t know be responsible for not be responsible for increase spending to decrease spending to tackling environmental tackling environmental address environmental address environmental issues issues issues issues People feel personally responsible

People believe that they, as well as Barriers to action include cost and a lack government, should be responsible of information, with 32 per cent saying for tackling the climate crisis, with they cannot afford to change their 63 per cent indicating that they should behaviour, while 23 per cent say they change their own lifestyles and 64 per still do not know what they need to do cent saying that they have already made to tackle climate change. changes. Reducing energy use and Even those who know how they need to buying fewer new products or more change their behaviour would benefit sustainable products were the most from taxes designed to make damaging common changes people claimed to activities more expensive and have made. Alterations to travel and diet sustainable activities more attractive. were less common but still significant, In this way, well designed and explained especially among younger groups: 44 reforms could help shift norms across per cent of people between 18 and 24 society and address both the cost and say they have changed how they travel, information barriers. while 41 per cent of people aged 25-34 say they have changed their diet. When presented with the following statements, most people said...

...they need to change their lifestyles ...and they have started to make some to address climate change changes to their lifestyle

63% 61% 59%

37%

31%

24%

13%

It is important for me to There is little point in Don’t know I have reduced the I have bought fewer I have changed the I have changed my change my lifestyle and changing my own amount of energy I new products, or way I travel to help diet to help tackle behaviours to help lifestyle and behaviours use at home to bought products tackle climate climate change tackle climate change to tackle climate change help tackle climate produced more change as others are unlikely to change sustainably, to make changes help tackle climate change People believe the tax system should drive sustainability

The tax system is very underused in the Perhaps surprisingly, almost half those effort to address climate change and surveyed (47 per cent) said they were reverse nature’s decline. Over half of prepared to pay more in taxes to fund people recognise that the tax system, in public services while only a third (34 per general, is not fit for purpose (51 per cent) were prepared for some cuts rather cent) and 59 per cent support the use of than higher taxes. Those over 65 were tax to tackle these existential crises by more likely to be willing to pay more making environmentally damaging taxes, with 55 per cent supporting the behaviours more expensive. Even more idea. And 59 per cent of those who (62 per cent) are in favour of using tax to selected climate change as one of their make environmentally beneficial top three priorities were also willing to behaviours less expensive.9 pay more tax. When presented with the Q: To what extent do you support or following pair of statements, oppose using the tax system to make most people said... environmentally damaging behaviours more expensive?

...the tax system does not work well

59%

51%

31%

21% 18%

12% 8%

The UK’s tax system The UK’s tax system Don’t know Support Neither support Oppose Don’t know is not fit for purpose works well nor oppose and needs to be transformed There is widespread support for specific types of green taxes

In addition to understanding general production more expensive and could attitudes towards taxes and make those that emit less carbon less sustainability, we asked about particular expensive, encouraging more green types of green taxes the government purchases. It would be charged at the might adopt. These were explained to point of sale. those surveyed as follows:10 Green VAT: This is an adjustment to the Carbon tax on producers: This puts a current VAT system, which already price on carbon emissions and is already influences consumer decisions and paid by some producers but could be purchases. It would increase the prices extended. The price is set by the of environmentally harmful products for government in line with its environmental manufacturers and consumers and targets. The tax would be collected at the decrease the price of environmentally point of emission (ie making production beneficial products. For example, new more expensive for firms. Businesses house building incurs no VAT, but may or may not pass these costs on to repairing and renovating existing houses consumers). is charged at the full rate (20 per cent). This could be reversed under a Green VAT Carbon tax on consumers: This would be approach. a new tax to ensure the environmental cost of a product is reflected in the price Material tax: This puts an additional consumers pay. The tax would make price on new materials such as steel or goods that emit more carbon in concrete and makes it more expensive to

A majority of the public think most types of green taxes are a good idea

Carbon tax on producers

18% 39% 26% 3% 2% 11%

Carbon tax on consumers

16% 37% 25% 8% 4% 9%

Green VAT

18% 36% 26% 6% 3% 12%

Material tax

16% 35% 28% 8% 4% 9%

Road pricing

10% 27% 28% 15% 9% 11%

Very good idea Good idea Neutral Bad idea Very bad idea Don’t know extract and use them. It aims to reduce Support is consistent the need to extract more materials, encourage alternative or recycled For most green tax policies, the majority materials, as well as reducing the of people thought that the more detailed amount of materials that go to landfill or policy proposals were a good idea. Even incineration. in the case of road pricing, there is greater support (37 per cent) than opposition (24 Road pricing: Currently, fuel and vehicle per cent). This remarkable consistency taxes are charged on petrol and diesel across the proposals could signal general cars because of the carbon emissions support for the principle of green taxes, they produce. As more people begin to rather than the specifics of each policy. drive electric vehicles, this tax revenue will decrease. A potential way to replace Some changes, like greening VAT, are it could be road pricing, which would tax relatively straightforward and should drivers when they enter areas of high quickly be implemented. Others, like congestion or based on the distance they road pricing or further carbon taxes, drive. Road pricing would tax negative need more careful consideration in impacts from driving, aside from carbon, design and implementation. The such as congestion, traffic noise and government should be examining environmental impacts, like options to determine what will be particle from tyre wear. most beneficial to the environment, economy and society, and then laying the groundwork for long term reform. A mandate for ambitious transformation

These findings back up the pollution), with 75 per cent supporting it, recommendations of the recent UK compared to just 12 per cent who think Climate Assembly, where 83 per cent of the costs of pollution should be evenly its members supported green taxes on shared. This principle could be producers, products and services.11 It embedded effectively through tax adds to the growing weight of evidence changes, which makes it all the more that the government has a mandate to worrying that the government will be change the tax system. Taxes should be exempting the Treasury from its used to drive behaviour that will create environmental principles, including the an economy fit for the future, producing polluter pays principle, being developed as little carbon as possible and using to guide government decisions.12 resources efficiently to protect the environment. Careful design is needed, as support is Our survey shows there is also support not guaranteed for a broad range of environmental issues to be addressed by taxation, with It should be noted that support for two thirds saying green taxes should green taxes is not unconditional. The cover additional environmental impacts, proportion of people that said specific as well as carbon. In addition to support reforms were ‘very good’ ideas was for green taxes, the idea that the much smaller than those that said the ‘polluter pays’ is supported (including ideas were ‘good’, with more than a when it is individuals who cause quarter staying neutral on all options. Framing matters. While 59 per cent of Public acceptance must be considered at people support “using the tax system to an early stage of development including, make environmentally damaging crucially, the impact on lower income behaviours more expensive” and even households. Any regressive outcome more support using tax “to make must be prevented or mitigated by environmentally beneficial behaviours commensurate government action.13 less expensive” (62 per cent), only 31 per With such clear support for green cent support the general approach of reforms to the tax system and plans for a “using the tax system to try and change green recovery in development, the people’s behaviour”. The government, priority now is for the Treasury to therefore, needs to be very careful about embrace this mandate for change. It new tax design as well as communicating must act with urgency to deliver the well the reasons for change. designed tax policies people want to see It should always be clear why taxes are for a greener, healthier society in future. being used and how they are being tailored to make them appropriate to the circumstances in which they are applied. Next steps for TransformTax

This survey was conducted for Green Alliance’s TransformTax project, supported by the Joseph Rowntree Charitable Trust, to judge public opinion about green tax reform. Subsequent work will include a citizens’ jury, also conducted by BritainThinks, to provide a deeper understanding of people’s attitudes and establish underlying principles that should be used to guide decisions around green reforms to the UK’s tax system. We will be issuing further recommendations in 2021 to inform policy and build on the clear public appetite to transform tax. Endnotes

1 The survey was conducted online between 26 and 28 March 2021. 10 In some cases, for brevity, these explanations have been Participants were nationally representative, and from all four UK shortened. They are, however, substantially the same as nations. the information people were presented with in the survey. 2 According to the OECD, in 2019, 6.84 per cent of UK tax revenue was The precise wording used can be found at: environmentally related. See: OECD.org, ‘Environmental taxation’ www.green-alliance.org.uk/green_light_for_change.php 11 3 National Audit Office (NAO), February 2021, Environmental tax UK Climate Assembly, 2020, The path to net zero measures 12 Treasury activities – including taxation, spending and allocating 4 OECD stats show that, in countries including South Korea and resources – are currently exempt from the environmental Croatia, environmental taxation accounts for around 11 per cent of principles that the government is setting out through the total tax revenue. OECD.org, op cit Environment Bill. As part of the repatriation of environmental law after Brexit, through the bill process, the government has issued a 5 NAO, 2021, op cit draft policy statement on environmental principles, covering 6 Green Alliance, 2020, Added value: improving the environmental ‘integration’, ‘rectification’, ‘precaution’ and ‘prevention’, as well and social impact of UK VAT as ‘polluter pays’. Together, they are intended to guide ministers 7 HM Government, 2 November 2019, ‘HM Treasury’s review into and to put environmental considerations at the heart of policy funding the transition to a net zero greenhouse gas economy: making. However, as it stands in both the draft policy statement terms of reference’ and the Environment Bill itself, Treasury activities, along with defence activities, are exempt from having to even consider the 8 Respondents were split into the devolved nations and, in England, principles. See: Defra, 10 March 2021, Draft environmental to North, South, Midlands and London. principles policy statement 9 Our research also showed widespread support for some of the tax 13 For some green tax reforms, a substantial body of evidence policies with environmental benefits that are currently in place: the indicates it is possible to minimise harm to poorer households. tax, which will apply to packaging with less than 30 per Previous research has shown, for instance, that it is possible to cent recycled content, was supported by 70 per cent and removing end the VAT subsidy on household energy, while benefiting the VAT on products, like insulation and solar panels, was supported majority of low income households, if appropriately designed by 69 per cent (the question also asked about electric vehicles, redistributive packages are used. See, for example: Joseph which are subject to full VAT; currently energy saving materials can Rowntree Foundation, 2013, Designing carbon taxation to protect receive reduced VAT). Not charging vehicle tax on electric vehicles low income households; Institute of Fiscal Studies, 2013, was slightly less popular, with 48 per cent supporting the practice Household energy use in Britain: a distributional analysis; and A and 21 per cent opposing. The outlier in this category was fuel Advani and G Stoye, June 2017, ‘Cheaper, greener and more duty: people were more likely to oppose fuel duty on petrol and efficient: rationalising UK carbon prices’, in Fiscal Studies, volume diesel than support it by some way, with 24 per cent support 38, issue 2 compared to 46 per cent opposition.

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This report is part of our TransformTax project, which is generously funded by the Joseph Rowntree Charitable Trust