Environment: Polluters' tax aims to clean up rivers

Proposals for new taxes on water pollution were unveiled yesterday. Nicholas Schoon, Environment Correspondent, looks at the options.

Taxes on pesticides, fertilisers, sewage works and factories were all floated in a government consultation paper yesterday. The idea is to use the power of the market to cut water pollution, as well as regulation.

The document points out that while rivers have been getting cleaner, 40 per cent of their combined length in England and Wales is classified as only "fair" or "poor". Further improvement would benefit leisure pursuits, provide cleaner raw material for water companies and boost economic regeneration.

One idea is for companies along a big waterway, such as the Thames Estuary, to trade pollution permits between themselves. Each would be given a right to pump out a certain amount of pollution, and permits to cover that quota. Over time, the quantity of permits would fall - forcing the group of polluters to make an overall cut in emissions.

The companies could then trade these permits among themselves, allowing the free market to set a value. Companies which found it relatively cheap and easy to cut pollution would sell some of their permits to those which faced major expense and inconvenience in doing so. Pollution would be cut - but the trade in permits should ensure it was done in the least costly way. It is a system that has been tried, with some success, for reducing acid-rain air pollution in the United States.

The other main alternative is to tax companies according to the quantity and toxicity of their water pollution. The consultation paper says nothing about how much such a tax could raise, but The Independent understands that at most it would be in the low hundreds of millions of pounds.

The paper is also vague on the question of where the money raised would go. This is because the Government itself is divided. The Treasury remains strongly opposed to allocating the money to any specific purpose. It wants the freedom to spend it as it sees fit. The Department of the Environment, which published the paper, is interested in at least some of the money going into river clean-up schemes and covering the costs of running the taxation system.

The Government's pollution regulator, the Environment Agency, is also keen to get its hands on some of the cash. At present it raises pounds 40m from water-polluting companies by charging them for licences which give them the right to produce pollution up to a certain maximum limit. However, this only covers the workload created by the system irather than environmental damage.