Matching taxation principles with environmental policies
A HM Customs & Excise case study

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Page 7: Some UK environmental taxes

In recent years the UK government has diversified the range of taxes intended to contribute to environmental improvement. In addition to the well-established taxes on, for example, car ownership and fuel consumption, there are now operating in the UK:

  • Landfill Tax
  • Aggregates Levy
  • Climate Change Levy.

These taxes are aimed principally at firms, in their capacity as producers. HM Customs & Excise is responsible for their efficient administration.

The Landfill Tax obliges many producers of waste products to pay a tax each time they take or send away waste for dumping. The tax aims to encourage waste producers to:

  • produce less waste
  • recover more value from waste e.g. through recycling or composting
  • use more environmentally friendly methods of waste disposal.

The tax applies to active and inert waste disposed of at a licensed landfill site. Its effect has been to make it more expensive for firms simply to dump waste materials. The government hopes and expects these firms to look to save themselves money by producing and dumping less waste.

The Aggregates Levy is a response to the environmental costs associated with quarrying operations (noise, dust, visual intrusion, loss of amenity and damage to biodiversity). Its objective is consistent with the government's statement of intent to reduce demand for aggregates (e.g. crushed stone, gravel, chips) and to encourage the use of alternative materials and recycled materials wherever possible.

The Climate Change Levy is charged on businesses that supply electricity, gas, coal and coke to industrial and commercial consumers. It is imposed at the time of supply to industrial and commercial consumers rather than at the time of consumption by end-users. Its effect is to make energy suppliers think twice before encouraging their customers to boost their own consumption of energy. It represents an attempt to make producers less interested in 'selling more' and more interested in encouraging their own consumers to make the most efficient use of the energy supplies that they already receive.

Oils (including road fuels) are subject to excise duty. At the time of each Budget, the Chancellor of The Exchequer reviews the rates for the various duties on different types of fuel, after taking into account relevant economic, social and environmental factors e.g. hardship for people living in remote rural areas; levels of vehicle exhaust pollution in inner cities; representations from interest groups within the fuel, power and transport industries.

The Green Fuel Challenge, first announced in the Pre-Budget Report 2000, has demonstrated the Governments commitment to a range of road fuels, e.g. sulphur-free fuel, in order to deliver air quality and climate change benefits both now and into the future.

HM Customs & Excise | Matching taxation principles with environmental policies