B1.1.1 Financial Instruments


Financial Instruments may be called taxes, levies or credits. There are different types, but they usually impose a fee of some sort relating to environmental impact. The aim of such instruments is often to encourage organisation to use less of a natural resource. For example, the landfill tax encourages companies to find alternative methods of waste disposal (as landfill space is running out) through making disposal at landfill very expensive.

Everyone in the UK is subject to an environmental tax of some sort. Council Tax bills include an amount provided to pay for refuse disposal. This is an example of an instrument with no incentive. At present your Council Tax Bill is the same regardless of how much waste you produce or recycle.

Car Tax is related to vehicle emissions, as is Company Car Tax. Both of these aim to encourage people to drive less polluting cars. The tax on fuel may also encourage people to drive more efficient cars.

However, many consider that for any financial instrument to be effective in meeting an environmental objective, it must be ring-fenced. For example, if revenue obtained from car tax and fuel duty was spent purely on developing the public transport infrastructure, people may be encouraged to leave their cars behind and catch a bus or a train.

Example of environmental financial instruments include:

  • Landfill Tax
  • Aggregates Levy
  • Climate Change Levy
  • Enhanced Capital Allowances
  • Land Remediation Tax Relief