Let’s call time on tax tinkering

Boris Johnson at the wheel

Boris Johnson at the wheel

The UK tax code is notoriously complex.  As long ago as 2009 we had the longest tax code in the world – read the Telegraph story here –  and it’s only got worse since then.  Everyone agrees that we need tax simplification, but no one can deliver it.  And politicians are always coming up with ideas for clever new ad hoc complications.  This time it’s BoJo. 

Just a few years ago we were being urged to switch from petrol cars to diesel, because diesel produces less COemissions per mile than petrol.  So we could save the planet (if you believe in that kind of stuff).  Now bien pensant opinion has decided that the negative health effects of particulates in diesel exhaust (in terms of respiratory diseases) is even more serious than global warming, so the advice is turned on its head.  Please switch back from diesel to petrol.  The average punter will be saying “Make yer mind up!”.

But Boris has taken this to heart.  He wants to have heavier congestion/pollution charges in London for diesel vehicles.Telegraph piece  And he promises to lobby George Osborne for a national increase in diesel duty, to make petrol more attractive.

I always thought that BoJo was a conservative, and if a conservative wants to create a differential, he should call for a cut in petrol duty, not a hike in diesel duty.  The British economy (and the long-suffering motorist) are taxed far too much already.

Then again, these things change on a fashion and a whim.  Diesel good yesterday.  Petrol good today.  But drivers buy cars for several years — indeed we are constantly urged to replace them less often, to reduce waste.  And auto companies plan for years ahead.  Jaguar, for example, are busy building an engine plant in Wolverhampton employing 1400 people.  What an excellent thing.  But should they build petrol or diesel?  Or does BoJo expect them to turn on a dime, halfway through construction?  It’s all very well politicians coming up with their latest fad, but they’re imposing heavy burdens on consumers and on industry, who will have made expensive long-term decisions already.

It’s not just petrol and diesel.  There’s talk just now of taxing sugar.  But a few years ago the bugbear was carbohydrate.  Potatoes and pasta made you portly.  Then it was fat.  Now the culprit is sugar.  If opinion is swinging like a weather-vane, that’s not a good basis for tax tinkering.

George Osborne’s “Carbon Floor Price” is another clever idea that looked good on the back of an envelope, but was fraught with unintended consequences and perverse incentives.  He started with the European Emissions Trading System (ETS), which has disastrously failed to achieve even its own objectives (and they were bad objectives to start with).  Oversupply of carbon credits has been massive, and the price of emissions has been trivial, so we have a vast bureaucratic machine (and thousands of jobs trading carbon futures) for no perceptible result.

The sensible response would have been to dump the ETS.  But no.  George wanted a quick fix, so he announced a Carbon Floor Price (CFP)  If the price of emissions was too low, George would add a surcharge to bring it up to his approved level (making a nonsense of the claim that the ETS was “a market mechanism”, by the way).  As a solution, this was no better than a sticking plaster.  In fact, worse.

If the gap was small, the CFP would have little effect.  But if the gap were substantial, it would have the following effects:  It would

  • Add to industry’s costs — but only in Britain
  • Put British industry at a competitive disadvantage to the rest of Europe
  • Deter investment in the UK
  • Move jobs and industries and investment out of the UK altogether

Indeed the effect on energy-intensive businesses was so great that they were obliged to tell the Treasury a few home truths, as a result of which a range of extensions was cobbled together for those industries – report  But since those industries produce most of the emissions to start with, exemptions would largely destroy the primary objective of the CFP.

The result?  More bureaucracy, more market distortion, higher prices, lower growth, fewer jobs, not much revenue, and a failure to achieve the original objective.  Nigel Lawson’s famous remark about “teenage scribblers” comes to mind.  But now they’re scribbling in the Treasury.

One of the greatest problems facing industry and investors today is regulatory uncertainty.  Who’s going to invest £12 billion across sixty years in a nuclear power station while governments in Japan and Germany just arbitrarily close down their nuclear fleets?  And it’s not just nuclear.  The EU (you’ll not be surprised to hear) is at it too, with bio-fuels.  Not strictly a tax example, this, but an example of how politicians pursue their latest fads and insights with a supreme disregard for the industrial mayhem they cause.

A few years ago, the EU was hooked on biofuels.   Wonderful, clean, carbon neutral — the answer to a maiden’s prayer.  So we mandated that 10% of petrol and diesel should be bio-fuel.  That was quite a headache for the industry (both petrochemicals and automotive) but they got on with it and made the best of it.

A Finnish company called Neste  (nothing to do with Nestlé) made a huge investment in a biofuel refinery in Singapore — around €550 million.  Then we in the European parliament started to realise that biofuels had downsides.  They require energy (implying emissions) in the raising and processing of biofuels crops, so the net emissions saving is less than first thought of.  Then a second bombshell struck.  Mounting evidence showed that committing large land areas to bio-fuels meant that other marginal and previously undeveloped land was brought under cultivation to replace the food crops lost to biofuels.  But this process — known as “Indirect Land Use Change” or ILUC — creates a new and massive carbon emission problem.  Add it all up, and the emissions savings achieved by biofuels may be trivial, or even negative.

As this became clear, the parliament rushed to change that 10% target to a more modest 5% — cutting Neste, and its investment, off at the knees.

The lesson couldn’t be clearer.  Turning clever ideas and passing fads into tax policy does more harm than good, increases regulatory uncertainty, and discourages investment.  We need tax policies that are clear, consistent and transparent, and (at least to an extent) predictable.

 

 

 

 

 

 

 

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13 Responses to Let’s call time on tax tinkering

  1. Me_Again says:

    Excellent piece Roger. Incidentally in the early 90’s the Hong Kong government started a ban on diesel vehicles on the island during day time, because, you guessed it, the soot from the diesel caused huge problems in an already grid locked city.

  2. Brin jenkins says:

    We seem to to have too many people in England, plain over populated!

    Why would this be? As a result of pressure on our population levels in the 1960’s we were advised to attend family planning clinics, use condoms, the pill, coil and restraint. We did, and it was heeded and successful.

    So why now is our population so high? We had heeded the advice, and reduced our reproduction to less than 1.4 per head of population.

    The sums don’t add up for me, who might have been responsible for these distorting these population figures, and why?

  3. Jane Davies says:

    The carcinogenic particulates in diesel exhaust emissions has been known about for decades, so why this about face now?

    Brin I’m assuming your comment was written with tongue in cheek? We all know why the population level has multiplied unless one has been living in a cave for the last 30 years!

    • DICK R says:

      The carcinogenic properties of many substances are measured against often unrealistic dosages using vast amounts on laboratory mice which when extrapolated to humans requires ingesting about 50 tons a day for a similar effect.

  4. dave roderick says:

    To Launch Fracking in the UK, Property Owners get shafted
    by Don Quijones • August 3, 2014
    Millions of property owners in the UK face the prospect of drilling on their land, without thei

    http://wolfstreet.com/ click on this link and scroll down to item

    if fracking is going to take place then surely the people affected should be properly compensated

  5. David says:

    I am sure these mps, mep,s have had in the main, wonderfull, education, in many cases expensive private, yet they still screw up, coming up with gigantic cockup schemes like the ones you mention, how do they get voted in, they are rubbish at their jobs.

    • Roger Helmer MEP says:

      Some of them have so much self-confidence they can make any number of mistakes. I like a quote from a novel I once read: “Tell a man he can do no wrong, and he’ll go right out and do it”!

      • David says:

        Hi Roger, Maybe its wrong to blame the MEP,s entirely, as its the commissioners who propose these crazy schemes, ie CFP, CAP, there are plenty more I am sure.

  6. Ex-expat Colin says:

    Certainly too many people in London and the SE. I have a property on the SE border of London and thats a noisy, overcrowded place to be. I had enough of that place in 1961 and it wasn’t crowded then…smelly/foggy from the Thames and chimneys..

    If you invite so many to work and live in such places vast volumes of vehicles accompany that attraction. Thats apart form everything that circles around London…loads of them and jamming too frequently for too long around Heathrow.

    Just try and turn that lot around? Or better create some added taxes for the sitting ducks with property and vehicles – change as required or more like add to.

    Somehow its just going to get worse I think.

  7. Jane Davies says:

    I have just received this, it is a bit long but stick with it……
    ABOUT Co 2 EMISSIONS.

    Ian Rutherford Plimer is an Australian geologist, professor emeritus of earth sciences at the
    University of Melbourne, professor of mining geology at the University of Adelaide, and the director of multiple mineral exploration and mining companies. He has published 130 scientific papers, six books and edited the Encyclopedia of Geology.

    Born 12 February 1946 (age 67)
    Residence Australia, Nationality Australian.
    Fields
    Earth Science, Geology,Mining Engineering Institutions University of New England,
    University of Newcastle, University of Melbourne, University of Adelaide.
    Alma mater
    University of New South Wales,Macquarie University.
    Thesis
    The pipe deposits
    of tungsten-molybdenum-bismuth in eastern Australia (1976)
    Notable awards
    Eureka Prize(1995,2002),Centenary Medal(2003), Clarke Medal
    (2004)

    Where Does the Carbon Dioxide Really Come
    From?

    Professor Ian Plimer could not have said it better!
    If you’ve read his book you will agree, this is a good summary.

    PLIMER: “Okay, here’s the bombshell. The volcanic
    eruption in Iceland . Since its first spewing of volcanic ash has,
    in just FOUR DAYS, NEGATED EVERY SINGLE EFFORT you have made in
    the past five years to control CO2 emissions on our planet – all
    of you.

    Of course, you know about this evil carbon dioxide that
    we are trying to suppress – it’s that vital chemical compound that
    every plant requires to live and grow and to synthesize into
    oxygen for us humans and all animal life.

    I know….it’s very disheartening to realize that all
    of the carbon emission savings you have accomplished while
    suffering the inconvenience and expense of driving Prius hybrids,
    buying fabric grocery bags, sitting up till midnight to finish
    your kids “The Green Revolution” science project, throwing out all
    of your non-green cleaning supplies, using only two squares of
    toilet paper, putting a brick in your toilet tank reservoir,
    selling your SUV and speedboat, vacationing at home instead of
    abroad, nearly getting hit every day on your bicycle, replacing
    all of your 50p light bulbs with £5 light bulbs ….. well,
    all of those things you have done have all gone down the tubes in
    just four days.
    The volcanic ash emitted into the Earth’s atmosphere in
    just four days – yes, FOUR DAYS – by that volcano in Iceland has
    totally erased every single effort you have made to reduce the
    evil beast, carbon. And there are around 200 active
    volcanoes on the planet spewing out this crud at any one time –
    EVERY DAY.

    I don’t really want to rain on your parade too much,
    but I should mention that when the volcano Mt. Pinatubo erupted in
    the Philippines in 1991, it spewed out more greenhouse gases into
    the atmosphere than the entire human race had emitted in all its
    years on earth.
    Yes, folks, Mt. Pinatubo was active for over one year –
    think about it!!!!

    Of course, I shouldn’t spoil this ‘touchy-feely
    tree-hugging’ moment and mention the effect of solar and cosmic
    activity and the well-recognized 800-year global heating and
    cooling cycle, which keeps happening despite our completely
    insignificant efforts to affect climate change.

    And I do wish I had a silver lining to this volcanic
    ash cloud, but the fact of the matter is that the bush fire season
    across the western USA and Australia this year alone will negate
    your efforts to reduce carbon in our world for the next two to
    three years. And it happens every
    year.
    Just remember that your government just tried to impose
    a whopping carbon tax on you, on the basis of the bogus
    ‘human-caused’ climate-change scenario.

    Hey, isn’t it interesting how they don’t mention
    ‘Global Warming’ anymore, but just ‘Climate
    Change’ – you know why? It’s because the planet has
    COOLED by 0.7 degrees in the past few years and
    these global warming bull artists got caught with their pants
    down.
    And, just keep in mind that you might yet have an
    Emissions Trading Scheme – that whopping new tax – imposed on you
    that will achieve absolutely nothing except make you poorer.
    It won’t stop any volcanoes from erupting, that’s for sure.

    But, hey, relax……give the world a hug and have a nice day!”

    • catalanbrian says:

      With all these things going on we should increase our resolve to reduce man made CO2 emissions, rather than just ignoring it. And the comment on cooling in the “past few years is” just wrong. The increase has been less, that’s all.

  8. Me_Again says:

    Excellent Jane. Focuses the mind a little…..

  9. George Morley says:

    Hey Jane, I missed out on reading this earlier but your comment is so right and I recall Lord Christopher Monckton giving out similar information about the ‘Global Warming’ and Al Gore refused to meet him in debate. That says something ! He speaks so well, I only wish he would take up the frozen pension issue.

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