Thursday, October 26, 2006

Can Taxes save the Environment?

If you live in Richmond (and have thus been daft enough to vote Lib Dem into power at the Council) and drive a 4x4 (and have thus been daft enough to spend upwards of 30 grand on a car that has the visual appeal of a tractor) it is likely that from next year you'll face up to £300 for the privilege of parking the monstrosity in front of your house.

"Serves'em well," I hear the world at large say – and I can't but agree, really.

However, plight of Richmond residents aside, a wider issue lurks: are the earnest Richmond councillors on to something, or is it just desperation for more tax revenues?

This is relevant: other London boroughs, as well as politicians farther beyond are rumoured to be considering similar schemes – undoubtedly, waiting to see first what happens to the Richmond earnest councillors at next polling day.

The two questions one must ask are: first, what is the purpose of the tax levy and, second, given the means and the amount, is the stated objective likely to be achieved – and, if so, over what time frame.

The objective, has been widely stated by the policy proponents, is primarily to encourage more “environmentally responsible behaviour” and not to raise more tax revenues – mentioning evidence of the fact that for some, parking tax charges will be substantially lowered (the fact that the mechanism acts in a way that tax revenues do increase should not be however dismissed so lightly).

“Climate change is the single greatest challenge facing the world today," said council leader Serge Lourie. "We can no longer bury our heads in the sand and pretend that it is not happening, or that dealing with it is up to somebody else.” (source:

In this respect, I consider some of the arguments put forward by commentators to be entirely spurious: for example, whether the tax is "progressive" is, in my view, entirely irrelevant.

A “progressive” tax is levied approximately proportionally to one’s income, so that “wealthy” households are charged more than less well off ones – income tax is progressive, VAT is not.
In the matter at hand, it is clear that, regardless of income, if the objective is to encourage (or force, depending on which side of the argument you sit) more responsible, environmentally friendly behaviour, then “progressivism” of the tax is entirely irrelevant.

Indeed, if one follows the argument through, and assumes that polluters are equally distributed over the social spectrum, then the “wealthy” who can still opt for environmental behaviour by “choice” (buying, for example, a Suzuki Verso instead of a Land Rover) require less “convincing” than someone not so well off (able only to afford a 20-year-old, rusting, polluting Ford Fiesta), who has then to be “forced” to buy instead a Vauxhall Agila (pictured top).

In any event, the tax “would rise […] 50% under band F - affecting owners of Ford Mondeo saloons and BMW 3 Series E90 diesels respectively.” (again, from the BBC’s website).

Whatever, let’s suspend belief for a little while, and believe politicians (really) when they say that they really care about the environment, and this is the best way they come up with to save it.

Which brings us back to the second point: namely, is this going to work?

The short answer, I believe, is no.

Put it simply, in percentage terms, the impact of the tax is such that the it will not deter enough people from buying expensive 4x4s, nor, at the other end of the scale, will it be sufficient to offset the higher costs and (much greater) inconvenience of owning a hybrid or electric car.

Let's see: a Renault Espace (band G – taxed at £300 pa) costs in the region of £20,000 (I am not even considering toys such as BMW X5 or Porsche Cayenna: people who can afford such cars at 50 grand+ spend £300 in a month's worth of sun dried tomatoes and Parma ham).

Even at its highest, the tax is less than 2% of the cost, and around 6% the yearly depreciation value plus running costs (estimated at above £5,000 per annum per average UK motorist). I honestly doubt one would be swayed either way by such relatively minor amounts.

So, no biting there – people who are bent on polluting the environment, clogging our roads with monster vehicles, and make generally a nuisance of themselves, will just carry on doing so – minus 200 quid.

Sorry, earnest Lib Dem councilors of Richmond – cunning plan ain't gonna work there.

At the other end of the spectrum (those 15-year-old rusting Mondeos or fumes-spouting Minis) are not let off the hook either: they will see around 30% increases in tax.

But is saving around £150-£250/year going to be sufficient for people to buy instead a Toyota Prius or a crappy electric car? Which isn’t crappy because it’s electric, but because it’s been designed by a Japanese 6-year-old who was unwell the day they explained how to draw at school (it looks that way anyway).

You can buy (on eBay) a P-reg Mondeo for about £2,500 – and with a bit of patience possibly less. One can, for simplicity, assume that in three years' time the value will be approximately nil. Add pollution taxes (at £130 pa) and one gets (linear approximation) roughly £1,100 yearly costs.

A Toyota Prius retails at between £17,000-20,000 and probably depreciates non-linearly over the first 3 years, to let's say around £8,000 – at the proposed Band B tax level of £50, spread depreciation linearly and one gets roughly £3,050 pa

I am ignoring running costs here – and it is well possible that those might reduce the gap further, but we are not looking here to split the hair: we are just trying to assess whether a not-too-sophisticated buyer would be swayed one way or the other to buy an environmentally friendly car.

Let’s see: I save £80/year, but it ends up costing me more than £2,000 more each year: “not a chance, mate.”

As it happens, a much more sophisticated study, conducted by folks whom I can only assume more knowledgeable than myself in such matters (Commons environmental audit committee), has come up with the conclusion that current road tax charges (tax disc) ought to raise to £1,800 for the most polluting vehicle, before they can start affecting behaviour. Given the political courage currently shown by our Government, I would not hold my breath to see this one implemented any time soon.

Which leads one to the only possible conclusion: either our earnest Lib Dem councillors haven't got a clue (which is, indeed, quite likely) or, even more depressingly, this is only yet another “stealth tax” that local councils (squeezed by Whitehall policies and tax raising restrictions) have resorted to, just to make a few more quid.

So much so for the Environment.


Croydonian said...

Indeed, and as some wag once put it, you do not buy a new Rolls Royce if the price of petrol is a major concern. Richmond is tax farming, plain and simple.

Ralph Lucas said...

A fine piece of analysis.

It's hard to find cut-the crap views and information on environmental issues.

Our pavements in SW11 are being relaid on a bed of crushed glass - I am trying to dig up some facts on the energy equation here: fresh sand vs collect glass, transport, crush, transport. No luck so far!

gunslinger said...

Our pavements in SW11 are being relaid on a bed of crushed glass - well you've got to do something with the EU mountain of unrecycled 'recycle' bottles.