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Budget
5.54 In the July Budget, a review of the operation and level of the landfill tax was announced. The review findings will be published on 18 March 1998.
5.55 To ensure that the tax continues to help minimise the environmental damage of landfill, the following changes will apply:
5.56 The exemption for inert waste will help ensure that suitable materials continue to be available for the environmentally beneficial reclamation of sites. The exemption will come into force following a period of consultation on the details. The freeze in the lower rate of tax recognises that there has been some diversion of waste materials to unregulated sites.
5.57 The increase in the standard rate strengthens the incentive to reduce the landfilling of active waste. It is likely to provide a cost-effective contribution to meeting new European Union targets for reducing landfill waste. The Government will consider whether further increases are necessary in the light of the European Union targets, and the review of the National Waste Strategy.
5.58 The Environmental Bodies Credit Scheme, a system whereby landfill site operators may claim credits of landfill tax for contributions they make to approved environmental bodies, will continue. Customs and Excise will consult later this year on how the scheme could be improved, to ensure that it offers real environmental benefits, and provides good value for money. The Government will look at how the scheme could be altered to encourage recycling.
5.59 The July Budget announced that research would be commissioned by the Department of the Environment, Transport and the Regions into the environmental costs attached to quarrying, and in particular the supply of aggregates. The research has now been completed. It demonstrates that there are significant environmental costs not already covered by regulation. Further work is needed to build upon the initial research findings, to consider tax and other options as a means of addressing these costs, and to consider the practicalities of administering any tax. Customs and Excise will issue a consultation document on how a tax might work. In the light of reaction to this, and other continuing work, decisions on further measures will be taken.
5.60 A consultation paper on options for dealing with water pollution, including a system of water pollution charges, was issued by the Department of the Environment, Transport and the Regions on 26 November 1997. The Government is now considering the responses. In addition, research commissioned by the Department of the Environment, Transport and the Regions on how a system of water pollution charging might work is underway. Early results are positive, and the work is continuing.
5.61 If the results confirm that a system of water pollution charges would be practicable, and could provide a cost-effective mechanism to minimise environmental damage, then the Government will consult on a detailed proposal.
5.62 The Government is committed, more generally, to ensuring that policy appraisal includes an assessment of environmental impacts. Table 5.3 contains an environmental assessment of the Budget measures which will have a significant effect on the environment, and where it is possible, gives an indication of the scale of any effects. Other measures have been considered - non-inclusion will generally reflect that environmental impacts, in absolute terms, are considered to be small.
| Measure | Environmental function | Environmental impact(1),(2) |
| 1. Consultation on a tax on the industrial and commercial use of energy | Improve energy efficiency and reduce CO2 emissions | Reduce emissions of CO2 and other air pollutants |
| 2. Fuel duty increases(3),(4),(5) | Reduce CO2 emissions | Reductions of 1.7 MtC, 0.5-1.0% of particulates and 0.3-0.7% of NOx. Reduction of around 3 billion car kilometres |
| 3. Increase in duty on standard diesel(3),(4) | Improve local air quality and move towards fair treatment of fuels | Reduction of 1-3% of particulates and NOx. Very small increase in emissions of CO2 |
| 4. Increase duty differential for ULSD(3) | Improve local air quality | Reduction of 20% of particulates and up to 2% of NOx |
| 5. Freeze in VED | Part of move towards shifting burden of vehicle taxation from ownership towards use | Negligible environmental impact |
| 6. Consultation on graduated VED | Provide a tax incentive for the ownership of less polluting cars | Should result in a reduction of emissions of CO2, NOx and particulates |
| 7. £500 VED discount for clean lorries and buses | Improve local air quality | Reduction in particulates and NOx highly dependent on long-run level of take up |
| 8. Increase in scale charges for free fuel provided with company cars(3) | Discourage the provision of free fuel and reduce CO2 emissions | Reduction of 0.3 billion car kilometres. Reduction of CO2 of <0.1 MtC |
| 9. Increase in bus fuel duty rebate | Encourage bus use relative to private motoring | Small reduction in car kilometres |
|
10. Changes to landfill tax -exemption for inert waste used for restoration -increase in standard rate -freeze in lower rate on inert wastes |
Ensure waste materials available for reclamation. Reduce amount of waste going to landfill. To ensure waste materials not diverted to unregulated sites | Reduce volumes of landfill with associated methane savings and control environmental impact of landfill sites |
| 11. Consultation on extraction of aggregates | Ensure environmental costs of quarrying captured in price | |
| 12. Options for dealing with water pollution | Cost-effectively minimise the environmental damage from water pollution | |
| 13. Reduction in VAT on installation of energy saving materials | Improve energy efficiency and reduce CO2 emissions | Small reduction in emissions of CO2 |
| 14. Minor oils duties | Reduce CO2 emissions and other local air pollutants | Small reduction in emissions of CO2 and other local air pollutants |
| 15. Gas levy reduction(6) | Negligible increase in CO2 emissions | |
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1 These estimates are subject to significant margins of uncertainty.
2 The impact on local air quality of the transport measures will be proportionately higher in urban areas than for UK emissions. Concerns over air pollution are greatest in congested urban areas. 3 The reductions in particulate and NOx emissions are calculated as a percentage of 2005 emissions from urban road transport, excluding any impact of Euro IV. The reductions in kilometres are the reduction on a forecast for kilometres in 2010. The reductions in CO2 emissions are the estimated annual reductions by 2010. 4 The total impact of road fuel duty increases from 1993-2002 will reduce CO2 emissions by around 10MtC and road use by 29 billion kilometres by 2010. 5 Of these reductions, 0.7 MtC, 0.2-0.4% of particulates, 0.1-0.3% of NOx and around 1 billion kilometres are due to bringing the increases forward to Budget day. 6 This measure was announced in the July 1997 Budget and will be included in this year's Finance Bill. |
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5.63 Nearly half of the adult population have less than £200 in liquid savings and a quarter have no savings at all. The Inland Revenue published a consultative document in December 1997 on a new savings vehicle - the individual savings account - designed to develop and extend the savings habit, and to ensure that the tax relief on savings is fairly distributed.
5.64 The new account will be a stand along savings product guaranteed to run for at least ten years starting on 6 April 1999. There will be no lifetime limit. It will have a wide coverage, taking in cash (including National Savings), life insurance and stocks and shares. The account will have an annual subscription limit of £5,000 of which no more than £1,000 can go into cash and £1,000 into life insurance. In 1999-2000 only, the annual limit will be £7,000, of which no more than £3,000 can go into cash and £1,000 into life insurance. Interest, dividends and capital gains on assets held within the account will not be liable to income or capital gains tax. A 10 per cent tax credit will be payable on dividends from UK equities during the five year period to April 2004, including equities which back the life insurance component. There will be no statutory lock-in or minimum subscription.
5.65 PEPs held on 5 April 1999 will be able to continue under the current rules, outside the new savings account. They will receive tax relief on the same basis as the new account, including for five years the 10 per cent tax credit on UK equities. No further subscriptions will be allowed after 5 April 1999. The value of PEP holdings will not affect the amount that can be subscribed to the new account.
5.66 TESSAs will remain available until 5 April 1999 and subscriptions can continue for the full five-year life of the account. On maturity, the capital held in a TESSA can be transferred into the new savings account. Neither subscriptions to TESSAs nor any capital transferred on maturity will affect the amount that can be subscribed to the new account.
5.67 To complement the new savings measures, the Government is determined to develop a pension framework in the UK in which everyone has the opportunity to build a secure retirement income. To meet this aim, the Government is bringing forward proposals on Stakeholder Pensions, a new simple, secure, flexible and good value for money savings product. The Government intends that Stakeholder Pensions will give more people (especially low and intermittent earners, the self-employed and those without access to occupational schemes) the opportunity to save towards an adequate retirement income. A consultation paper on Stakeholder Pensions was published in November last year, and over 200 responses have been received. The Government will bring forward more detailed proposals as part of its initial response to the Pensions Review, by the middle of the year.
5.68 For 1998-99 the maximum level of earnings for which pension provision may be made with tax relief (the "earnings cap") will be increased in line with statutory indexation to £87,600.
5.69 Other pensions measures are described in Annex C, paragraph C.56.
5.70 The threshold for inheritance tax will be indexed to £223,000 for the tax year 1998-99.
5.71 Conditional exemption for heritage assets will be reformed: tax relief for chattels will generally be limited to items of pre-eminent quality (for transfers on or after 17 March 1998); tighter conditions will apply to owner's undertakings on various matters, including public access to tax exempt assets.
5.72 The Government is committed to ensuring that different sectors of the economy pay a fair and appropriate share of the tax burden.
5.73 As part of the reform of capital gains tax (CGT) described in Chapter 4, paragraphs 4.28 to 4.31, the following measures are proposed to introduce greater fairness by:
5.74 The CGT annual exempt amount will be indexed to £6,800 for individuals (and £3,400 for most trusts).
5.75 The Government maintains its commitment to protecting health by increasing the duties on tobacco by at least 5 per cent in real terms. Most tobacco duties will be increased by 8.45 per cent from November 1998. To avoid loss of revenue through cross border shopping and smuggling, duty on hand rolling tobacco will remain unchanged. This means that the overall increase in tobacco duties this year is 5 per cent in real terms.
5.76 The duty on spirits will be frozen, while that on most other alcoholic drinks will increase in line with inflation on 1 January 1999. These changes maintain the contribution to the Exchequer from alcoholic drinks by revalorising most rates. A freeze on spirits duty is designed to help both UK producers and exporters.
5.77 The duty rate on sparkling wine or sparkling made-wine of strengths exceeding 5.5 per cent abv but less than 8.5 per cent abv will fall by 20 per cent to £165.50 per hectolitre, and the duty rate for sparkling cider and perry of similar strength will rise by 20 per cent to £45.05 per hectolitre from Budget day.
5.78 Adjustments to the duties on wine and cider are a further step in eliminating the inconsistent duty treatment of sparkling cider and low-strength sparkling wine. The rates will be fully aligned in the next Budget.
|
Changes in duty (%) |
Effect of tax(1) on typical item (increase in pence) |
Unit | |
| Tobacco | |||
| Cigarettes | 8.4 | 21 | packet of 20 |
| Cigars | 8.4 | 9 | packet of 5 |
| Hand-rolling tobacco | 0 | 0 | 25g |
| Pipe tobacco | 8.4 | 12 |
25g |
| Alcohol | |||
| Spirits | 0 | 0 | 70cl bottle |
| Beer | 3.2 | 1 | pint |
| Table wine | 3.2 | 4 | 75cl bottle |
| Cider | 3.2 / 20(2) | 1 / 9(2) | litre bottle |
| Alcopops | 3.2 | 1 | 33cl bottle |
| Sparkling wine | 3.2 / -20(3) | 6 / -36(3) | 75cl bottle |
| Fortified wine | 3.2 | 5 | 70cl bottle |
2 Low strength sparkling cider.
3 Low strength sparkling wine.
5.79 The higher rate of Insurance Premium Tax (17.5 per cent) will be extended to all travel insurance, thus recognising that the current selective application of the higher rate in the travel sector is likely to be less appropriate in the future marketplace.
5.80 The rate of stamp duty on transfers of property (except shares) will be increased from 1.5 per cent to 2 per cent if the price is more than £250,000, or from 2 per cent to 3 per cent if the price is more than £500,000. The new rates will apply from 24 March, except where the transfer is made in pursuance of a contract made on or before 17 March.
5.81 The Government announced a Review of Charities Taxation in the July 1997 Budget. The aim of the Review is to identify a fair taxation system for charities which is coherent, consistent and simple to administer, less costly for charities to comply with, less open to tax avoidance and fair to the commercial businesses with whom charities may compete. A consultation paper on options for change, taking account of the many responses received, will be issued later in the Spring.
5.82 The Government announced a review of the North Sea fiscal regime in last July's Budget. The aim was to ensure that an appropriate share of profits are being taxed while continuing to maintain a high level of oil industry interest in the future development of the UK's oil and gas reserves.
5.83 As a result of the review, the Government believes that certain aspects of the current fiscal regime are unsatisfactory. In response to requests from the industry for further consultation on any planned changes, the Government will formally consult the oil industry on specific proposals for change to the North Sea fiscal regime.
5.84 The Government also announced in the last Budget that gas levy was to be cut to zero with full effect from April 1998. This will be implemented by abolishing gas levy from 1998-99 and reducing the rate of gas levy for 1997-98 by 1 pence/therm to 3 pence/therm.
5.85 The Government is committed to securing the tax base, to ensure the tax system works as Parliament intended and that no one has to bear an unfair level of taxes to compensate for shortfalls in revenue.
5.86 During April, the Inland Revenue will be publishing illustrative clauses for the purpose of consultation on a general anti-avoidance rule. This will be done with a view to legislation being introduced in a Finance Bill after the next Budget.
5.87 Customs and Excise will be consulting about illustrative clauses for GAARs in specific areas of VAT over the summer.
5.88 In his Budget of 2 July 1997 the Chancellor announced a review of alcohol and tobacco fraud. The aim of the review was to identify the effects of alcohol and tobacco fraud and smuggling, assess the contribution made to the problem by a number of factors and determine the most effective remedies in partnership with industry. The Financial Secretary to the Treasury asked Customs to undertake the review, consulting widely with the trade, and other public bodies and interested parties. The Government is determined to tackle the problems of smuggling and fraud and, in view of the possible public spending implications, will announce its proposals for doing this as part of the outcome of the Comprehensive Spending Review.
5.89 Annex C describes other measures in the Budget and includes Table C1 showing the revenue effect of all the Budget tax measures, the measures announced since the July 1997 Budget and the measures announced in or before the July 1997 Budget yet to take effect.
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