...won't they raise less over time?
This question is on many lips. Those of Nick Robinson for example.
Here's my answer: No they won't.
Demand for energy is fairly inelastic. Most users do not think much about the cost when switching on a light or driving to the shops. This means that we are a long way from the peak of the Laffer Curve in the eco-tax rates we're proposing to apply.
Prosperity is increasing, demand for energy is increasing, so the potential for eco-tax revenues is increasing and will go on increasing. The threat to prosperity is minimal or negative because we are reducing other taxes at the same time. So society will be richer in future and therefore willing to pay even more for energy.
This does not mean that eco-taxes fail. They succeed in reducing demand a little from what it would have been otherwise, and they succeed in raising revenue, allowing other taxes to be cut. These are both big positives.
Now perhaps there is a case for i) much bigger eco-taxes, that cause significant reductions in consumption, and ii) bigger still that lead to reductions in eco-tax revenues. And then we could have a lot more than 2p off income tax. Or perhaps that policy would be disproprotionate to the problem. But it is laughable to consider the hypothetical spectres of that policy to apply to this policy of only £8bn in eco taxes.
Tags: ecotaxes, Green taxes