Friday, September 07, 2007

The Liberal Democrats on green taxes

The Liberal Democrats have responded to The Case Against Further Green Taxes. They make two arguments. First, they contend that Stern is more accurate because it is based on more up to date science than the other studies. It isn't. Then they make a point that we knew would come up and did address; what about externalities to road transport other than greenhouse gas emissions?

This argument doesn't stand up to scrutiny. I've responded to both their charges here, take a read. This section summarises why you can't justify Fuel Duty by just adding more and more externalities:

"The second argument assumes the simplistic view that all externalities are the same and should be responded to with increased taxation. This is not the case and is not accepted in other parts of the economy. We do not place special taxes on sports classes because someone can injure themselves playing sport, and is almost certain to playing some sports like Rugby. We don’t place special taxes on nightclubs and factories on the grounds that they are noisy although this is also an externality.

For most local externalities our response has always been regulation to ensure that they do not go beyond safe levels. We do regulate road transport: we limit speeds, require that people get regular safety checks for older cars, force people to wear seatbelts, test people’s ability to drive, prosecute those who drive unsafely. All of this is designed to control casualties (we have other rules to control noise and pollution). There is no reason, beyond political victimisation, why this should not be enough for road transport while it is accepted as sufficient in other activities.

Fuel Duty and Vehicle Excise Duty are entirely unsuitable to correct for congestion. If you drive on a deserted road in the Scottish highlands during the small hours of the morning you pay exactly the same rate as someone fighting their way to work through an urban rush hour. This means that the tax doesn’t create an incentive to drive at times and in places where you do not create a cost to other drivers.

The problem of congestion could be solved by building roads. The number of drivers doesn’t change that much over time so demand for roads is limited by the number of miles they can drive. Fuel Duty and Vehicle Excise Duty could be cut massively with plenty of room in the budget to get plenty of new roads built."

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