Pete suggests

Email registration

Free weekly email update

Great products and special offers for Spectator readers

Click here for great value events

Click here for exclusive articles, offers, tasting notes and discussion

Oooooh! Goodie!

Thursday, 3rd April 2008

This is just what we need, isn't it?

The best thing about the free bus pass for over 60s is that it could create a brand new lobby group for buses.

Yes, yes! Another special interest group lobbying to collect more money from your and my pockets! To be spent on their interests, not ours! Aren't we just such lucky people to be living in such exciting times?

What's rather more depressing is that the justification for this is, to be polite, a little weak.

Government should openly link price to carbon emissions, in policy and in practice, through spending and taxation. In a low carbon economy, the real cost of travelling by car or by bus must reflect the real cost in terms of climate change. Public transport fares should reward people for choosing low carbon travel, while the cost of motoring should reflect its higher carbon cost.

OK, great, that's called Pigou Taxation. We've been told by Lord Stern and others that this is exactly what we should do in the face of climate change.

Super: hey, even I agree so it must be a particularly whacky, hip and with it idea.

So, just what is the real cost in terms of climate change? We've been told that by My Noble Lord as well: $85 per tonne CO2. Or 11p on a litre of petrol.

And as the current fuel duty is north of 50p on a litre, we're already paying more than the real climate cost of the use of a car. To be more precise, 23p has been added to the duty on a litre since the fuel duty escalator was introduced in 1993: so we're already paying for it twice over.

Now this is something that I noted for myself so it must, of course, be wrong. Although, as Tim Harford points out, others are wrong with me:

On the other, the tax on petrol, which raises far more money than any other green tax in the UK, is a lot higher than can reasonably be justified on environmental grounds and was raised still further in the recent budget.

That conclusion comes from the environmental economists Ian Parry and Kenneth Small, who tried to estimate the appropriate gasoline tax in the US and the UK, taking into account congestion, pollution, and the fact that gasoline tax revenue would allow other taxes to be cut. They concluded that US gasoline tax should be more than doubled, while UK gasoline tax should be roughly halved. Green taxes are a good thing – but we all know that you can have too much of a good thing.

That's the problem politicians have when someone comes up woth a calculation for an optimal tax rate: they're so often below what the thieves are already charging.