Environment: Eco-tax plans loosen Treasury's grip

New eco-taxes are higher up the agenda than ever before. But the Treasury is worried that such tax reforms could undermine its iron control of the public purse. Nicholas Schoon, Environment Correspondent, reports

Large numbers of Britons would never act to protect their environment unless wasteful, polluting activities were taxed, the environment minister Michael Meacher suggested yesterday.

``Until it hits people's pockets, people won't notice,'' he told a London seminar on green taxation. ``There will always be a significant minority who are not prepared to change without that.'' He added that ministers in John Prescott's Department of the Environment, Transport and the Regions were ``very keen on this agenda'' of taxing pollution, waste and other environmental "bads".

Mr Prescott has said repeatedly that he is interested in how taxation on greenfield development could raise funds to help decontaminate urban sites, erase dereliction and boost new housing developments inside towns and cities.

His department is now drawing up options for such a tax, for submission to the Treasury. But it is not expected to feature in this year's March Budget speech by the Chancellor, Gordon Brown.

Mr Brown has said, both in opposition and in power, that he favours taxation being raised on pollution and waste to discourage environmental damage while lowering taxes on income and employment in order to encourage job creation.

He has already sharply increased duty on petrol, using environmental grounds to justify this, and this is expected to continue. He is also cutting the price of tax discs for low emission buses and lorries and has said he is considering the case for green taxes on quarrying and water pollution.

But the Treasury is putting obstacles in the way of further moves towards eco-taxation. The biggest is its insistence that it should have complete freedom to decide how any revenues raised should be spent. It is strongly opposed to the idea of earmarking income for specified purposes, or "hypothecation".

But hypothecation is seen as necessary for green taxation, not only by environmentalists but within the Department of the Environment. Some of the money raised must be used to encourage "good behaviour" which reduces or eliminates environmental harm.

Transport taxes are a good example. The Department is insisting that money raised by higher taxes on motorists and road charging must be spent on better public transport and cycling and walking facilities.

One possible way out of the impasse is to give local councils the powers to raise eco-taxes, such as congestion charging on roads and new car parking charges for out-of-town superstores and city centre office blocks. They, rather than the central Government's Treasury, can then be legally obliged to spend the money on subsidising alternatives to the car. Another alternative is a classic fudge; while the Treasury retains complete freedom of action in principle, in practice it negotiates behind-the-scenes agreements with Mr Prescott on spending.