UK: Taxing Pesticides

Last Updated: 3 July 2001
Article by Jeremy de Souza

Ever since the Government’s "grey" paper into Environmental Instruments in November 1997, a tax on the use of pesticides has been on the agenda. The conclusion drawn from officially commissioned research is that environmental damage is still being done from the use of pesticides which cannot be traced back to misuse or non-compliance with regulations. It is therefore said that "the existence of these residual environmental and health impacts provides a clear rationale for additional instruments to support the existing pesticide minimisation policy".

The Fiscal Option

The idea is to provide an incentive to the development of alternative methods of pest control by increasing the cost of pesticides, and relatively more so for the more hazardous ones.

  1. The instrument currently under consideration is a "charge" based on a combination of weight and hazard potential. The latter element will be the more important and involves allocation into five bands.
  2. The relationship between the bands has not yet been determined but may either be "arithmetic" or "geometric". Under the former, the same weight of pesticide in band five involves payment of a charge five times than for band one. Under the latter, it is 16 times higher.
  3. The tax point will probably be "first sale or use", so that imports can be caught and exports exempted. The European legal prohibition on the taxation of imports as such is likely, however, to complicate the collection process.

What Of The Farmer?

According to official sources:

  1. The end result for farmers is that a rate of "charge" intended to increase the price by 30 per cent will result in a cost increase to them which has been calculated, on two different "pass through scenarios", at either 50 per cent or 80 per cent, with the latter seeming more likely.
  2. 280 farms (two per cent of the total), many of them in the south east, will be put completely out of business.
  3. There would be a loss of between 1,000 and 2,000 full time jobs.
  4. Overall farm earnings would be reduced, long-term, between one per cent and two per cent. In the short-term the reduction has been estimated to be three per cent, as against 1996 figures (a year in which, it should be noted, farming was considerably more prosperous than it now is).

How Reliable Are These Estimates?

An examination of the methodology adopted to arrive at the estimate recorded in (b) above suggests that the effect on atypical mixes of farming has not be estimated with any degree of reliability. This is a matter of particular concern because other parts of the official documentation reveal that:

  1. The effect on apple growers will be particularly severe. The use of pesticides is needed in order to achieve the "appearance" quality required by supermarkets, and the presence of foreign competition will prevent recovery of the additional cost.
  2. Potato growers, whose marketing arrangements have changed over the last few years, are also in a competitive market and will also be faced with difficulties.
  3. Growers of crusanthymums and roses have also been identified as likely to be at a competitive disadvantage.

Each farming business therefore needs to consider what effect the introduction of a tax on pesticides might have not just on its profitability, but also on its continued viability.

The Official View

The suggestion is that biological control and active pest management would be "enhanced" by the "use of Government revenues" making the pesticide alternative more expensive. If precedent is anything to go by, the increased Treasury take would be compensated for by a reduction in employers’ national insurance contributions. As farmers now employ relatively little labour, this is unlikely to be of much interest to them.

Reality

In the real world, the introduction of a pesticides levy would be yet another tax on rural business, and at a time when the economics of farming are so bad that the Inland Revenue have introduced a special extra statutory concession extending the five year "hobby farming" disqualification period to seven years.

Landfill tax was introduced in 1996, inheritance tax on farm workers’ cottages began to be levied in 1999, climate change levy is to come in April 2001 and aggregates levy in April 2002.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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