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Designing subsidies for people and the environment

Tom Kenny

Our policy officer Tom argues that subsidies need to be refocused on promoting social and environmental value. How might we engineer a system of subsidies if developing it from scratch today?

Subsidies and taxes can move the market towards creating fewer negative externalities and/ or more positive externalities. In other words the government can use subsidies to encourage activities that help people and the environment, and taxes to discourage activities that damage them. The current system of subsidies and taxation around land are far removed from this, and in fact arguably work against the majority of people, and the environment.

To give an example of how we might expect subsidies and taxation to help people, taxing sugar to tackle its implications for public health was in the news recently. Taxing sugar, perhaps in combination with providing subsidies for healthier foods, should create a new equilibrium in the market, where less sugar is produced and consumed. However, sugar production was actually subsidised heavily until relatively recently.

(Top recipients of UK subsidies (1999-2013) from www.farmsubsidy.org)

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Moreover, recent changes to the subsidies offered may well cause consumption to increase further. Emilie Aguirre explains this in an illuminating article in the British Medical Journal, and discusses more generally how agricultural policy has failed to improve health outcomes. In particular, she argues that governments have failed to update policies designed 70 years ago in a different world:

[The system of subsidies’] primary aims were to increase agricultural productivity, ensure a fair standard of living for farmers, stabilise markets, ensure availability of energy dense food supplies, and establish reasonable consumer prices. Its aims have not evolved as understanding of nutrition for health has improved and as new public health concerns have emerged.

Reforms in 2013 aimed to make the Common Agricultural Policy ‘greener’, but the IEEP recently concluded that member states have generally “maximised opportunities for farmers to meet their obligations without making significant changes”. Clearly there is still a way to go.

So how might we design a new set of subsidies were we given the chance to start over tomorrow? Conceptually, it would require three major steps: deciding what land use should be delivering for society, identifying areas where this is not happening, and deciding which taxes and subsidies would correct this.

Regarding the purpose of land use in the UK, I’m going to go with the recent Scottish Government vision: that land use “should be in the public interest and contribute to the collective benefit of the people”. Defining the public interest is no simple task, but I hope it is relatively uncontroversial to suggest this should include improving public health, protecting and improving the environment, and producing social value. From there, we would need to consider what stands in the way of this at the moment, and how targeted policies on subsidies and taxation could help address this.

  • Improving public health: Policy should recognise the role that healthy food and outdoor activities have in promoting mental and physical health. This might mean subsidising the production of healthy and nutritious food, subsidising the delivery of therapeutic outdoor activities, and subsidies for land used to provide recreation and exercise opportunities.
  • Producing environmental value: Policy should protect and improve the environment by subsidising sustainable ecological land use and taxing damage to the environment. This might mean subsidies for things like renewable energy production and agro-ecological farming,  whilst taxing activities that damage the soil, the air, or any other aspect of the natural environment.
  • Producing social value: Policy should support community access to land and land uses that produce social value. This might mean giving subsidies to landowners who invite communities to share their land. It could also mean subsiding land use that is aimed at producing social value, such as outdoor education, regeneration, or community building.

At Shared Assets, we advocate for projects delivering sustainable, common good land use. The social enterprises delivering these kinds of projects often struggle to make ends meet, and this is in large part because the market does not adequately compensate them for the social and environmental value they produce. This is the case, even when billions of pounds are spent on subsidies to landowners every year. The policies introduced above, would make common good land use more sustainable.

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