1.  This evidence addresses issues regarding Domestic Tradable Quotas (DTQs) raised in the oral evidence session of 1 December 2004 which it was not possible to fully explore within the session.

DTQS: LIKE A POLL TAX?

  2.  In Q282, it was remarked that DTQs brings to mind the Poll Tax, a tax "which also claimed the principle of equity, but somehow did not quite sell itself to the British public". Again, in Q284, it was suggested that, when conducting our research, we "remember the Poll Tax".

  3.  No-one has previously drawn a parallel between DTQs and a poll tax and we can only imagine that such a parallel was drawn because both measures involve a flat rate. However, we would strongly emphasize that they involve a flat rate in completely opposite ways. Under a poll tax, everyone is obliged to give a fixed quantity (of money) to the state. This makes a poll tax (deeply) regressive. In marked contrast, under DTQs, individuals actually receive, free of charge, a fixed quantity (or carbon units) from the state. This makes DTQs broadly progressive.

DTQS: HOW PROGRESSIVE?

  4.  Just how progressive are DTQs? A pure carbon tax (ie without any sort of compensation) leaves all low-income individuals worse off and is regressive. By contrast a pure DTQs scheme (ie without any sort of compensation) is highly progressive—in that 70 per cent of individuals in the lowest two deciles would be better off under DTQs than prior to the introduction of a scheme.[7]

DTQS: FAIR OR NOT?

  5.  Indeed, it is the very progressiveness of DTQs that is at issue in Qs277-278. Here it is suggested that DTQs "move wealth" from "wealth creators" to "non-wealth creators" by means of transfer payments. However, it is important to note that, under a pure DTQs scheme, no transfer payments are actually made. Instead, there is simply the buying and selling of carbon units on the national carbon market. These market transactions result from the equal per allocation of carbon units under DTQs.

  6.  If one holds that the all adult individuals receiving an equal share of carbon units is just, then the distribution of wealth which results would also seem to be just. So, is an equal per capita allocation of carbon units just? Clearly, it is not self-evidently unjust, given its endorsement by the Royal Commission for Environmental Pollution and given the strong and growing support for the "Contraction And Convergence" idea. And, as noted in paragraph 16 of our original written evidence, there is substantial support within the academic literature on justice for such an allocation.

DTQS: DISADVANTAGING THE COUNTRYSIDE AND THE ELDERLY?

  7.  Q281 raises the issue of how a DTQs scheme would affect the elderly and those living in the countryside. We would not see any problem if a wealthy household chose to move to the countryside where their carbon emissions would be higher. They would simply have to bear the consequences of this lifestyle choice. However, what about a poorer household that has always lived in the countryside? As noted in paragraph 4, 70 per cent of poorer households would currently be better off under a (pure) DTQs scheme than prior to the scheme. Even if only, say, 60 per cent of poorer households in the countryside would be better off, still only 40 per cent would currently be worse off, compared with the 100 per cent who would be so under a (pure) carbon tax.

  8.  By the time a DTQs scheme was implemented—say 2012, if based on the ID card scheme—the Government would hopefully have achieved its goal of ending fuel poverty in vulnerable households. The improvements in housing stock needed to achieve this goal would mean that, under a DTQs scheme implemented towards the beginning of the next decade, the number of households made worse off by a DTQs would be substantially less than the current 30 per cent and it is envisaged that any compensation mechanisms deemed appropriate would therefore be feasible.

  9.  The arguments made above with regard to low-income households in the countryside also hold with regard to the low-income elderly.

DTQS: TOO DIFFICULT TO UNDERSTAND?

  10.  To enable the public to become familiar with the workings of a DTQ scheme, "leadership, awareness-raising and education"[8] would clearly be necessary prior to its introduction. Nevertheless, would DTQs be too difficult for some people to grasp (Q279-281)? This is an important question and one which requires careful research. However, it should be noted that people can opt out of having to calculate in carbon units and can convert their experience of the DTQs scheme into something very similar to a tax. An individual is perfectly free to sell their carbon units immediately upon receipt (and this could be done automatically). Then, whenever they purchase fuel or electricity, the necessary carbon units will be purchased by the vendor on the national market and sold to the individual who then surrenders them in the usual manner. All the individual will experience is a surcharge on the cost of their fuel or electricity—essentially a carbon tax.

DTQS: MIRED IN BUREAUCRACY?

  11.  Q283 wonders whether DTQs would be highly bureaucratic. The scheme uses information technology to minimize bureaucracy and make carbon unit transactions as effortless as possible. Carbon units can be surrendered with the swipe of a card or by direct debit and can be bought and sold over the phone, online or in person at banks and post offices.

  12.  For a DTQs scheme to operate successfully, government must be able to open a carbon account and provide a carbon card for all eligible individuals. Furthermore the enrolment process must ensure that people cannot fraudulently open more than one account. How bureaucratic would such an enrolment process be? The planned ID card scheme aims to authenticate individuals' identity to a very high level of assurance. Hence basing DTQs on a successfully implemented ID card scheme would eliminate the possibility of multiple applications for carbon accounts and would make enrolment in DTQs relatively straightforward.

  13.  However, as the recent Home Affairs Committee report on ID cards notes, the proposed scheme is "unprecedentedly large and complex" and "the Government's record on large-scale IT projects is not encouraging".[9] Given this, it is perhaps prudent to consider how a DTQs scheme could be implemented if, as a result of technological or procurement difficulties, the ID card scheme did not proceed. In the absence of an ID card scheme, one possibility would be to base enrolment around passports and driving licences, currently the two documents that provide the highest assurance of identity. Our initial research suggests that enrolling individuals via the UK Passport Service (UKPS) and Driver and Vehicle Licensing Agency (DVLA) over a six-year period could be achieved without imposing an unmanageable extra workload on these services.

22 December 2004

8   Defra (2004) Energy efficiency: The Government's plan for action, The Stationery Office, p 3. Back

9   House of Commons Home Affairs Committee (2004a) Identity Cards: Fourth Report of Session 2003-04. Vol I, (HC130-1), Stationery Office, London, pp 23, 55. Back