HMT 2

27 November 2001

PROTECTING THE ENVIRONMENT, TODAY AND FOR THE FUTURE

The Government today announced further steps to put sustainable development at the heart of strategic policy-making and protect the environment.

Commenting on these developments, Financial Secretary Paul Boateng said:

"Sustainable development means a better quality of life for everyone. We must consider global issues such as climate change, and the issues directly affecting our local environment, the neighbourhoods where we live and our day-to-day quality of life.

"Today's announcements are an important step forward in delivering our objectives. They demonstrate a strategic approach - ensuring that sustainable development informs our approach to taxation and underpins all of our priorities for public spending. As part of this we are taking forward new policies to encourage the early development and take-up of products that offer real environmental benefits - such as the Green Fuel and Green Technology Challenges."

The Government has today announced key developments in taking forward its strategic approach to sustainable development.

Further tax incentives for low-carbon vehicles and fuels: the Government committed itself today to introduce further tax incentives to encourage new low-carbon vehicle technologies, such as hydrogen fuel cells. These are in addition to those already introduced to company car tax, vehicle excise duty and through the Green Fuel Challenge. These further incentives will be considered in Budget 2002 in the light of the Government's new draft strategy towards future road vehicles and fuels - Powering Future Vehicles - to be launched shortly.
Green Technology Challenge: the Government today announced its intention to give further tax incentives for environmentally-friendly investments by business in the form of enhanced capital allowances during 2002-03 for selected technologies. It will investigate three key areas:

- energy-saving, in addition to those allowances already introduced as part of the climate change levy package which are worth an estimated £130 million in 2002-03;

- cleaner fuels and vehicles, including responses to the Powering Future Vehicles consultation;

- improving water use and water quality.

Spending Review 2002: the Government has affirmed its commitment to sustainable development in the next Spending Review. The published guidance to departments on sustainable development in Spending Review 2002 demonstrates the important role that public spending can play in delivering the Government's quality of life objectives. It is vital to ensure that the contribution to sustainable development of the Government's spending of £394 billion a year is assessed and recognised.

In addition to these strategic steps, the Government announced further progress and measures in support of the environment, including:

business energy-efficiency: reporting on progress with the climate change levy package, including the successful implementation of 44 negotiated agreements with energy-intensive business sectors to improve energy-efficiency in return for levy discounts of 80 per cent, and the launch of the world's first economy-wide emissions trading scheme in the UK next year;
Green Fuel Challenge: announcing that three new pilot schemes to test possible future green fuels - hydrogen, landfill gases and methanol - will have exemptions from fuel duty. This builds on announcements in Budget 2001 of fuel duty discounts for road fuel gases and biodiesel to reflect their environmental benefits;
modernising road haulage taxation: consulting on options for introducing a lorry road-user charge to build on recent reforms to lorry taxation so that lorry operators using UK roads pay fairly towards the costs they impose irrespective of nationality. As the UK haulage industry already contributes to these costs, the Government is committed to ensuring that overall costs to the UK haulage industry are not increased;
vehicle excise duty: launching a consultation on options for modernising motorcycle VED and discussing with stakeholders the possible role of tax incentives, such as VED, to encourage cleaner vans. This will build on recent reforms to VED for cars and lorries - including the modernisation of VED for lorries due in December 2001;
fuel for employees: announcing that the Government is considering restructuring the fuel scale charge, to relate it to carbon dioxide emissions in 2003, and will consult on detailed proposals shortly;
aggregates levy: announcing more details of the revenue-neutral aggregates levy package - to be introduced in April 2002 to reflect the environmental costs of quarrying in prices of aggregates and encourage more recycling - including a proposal that the levy in Northern Ireland be phased in for aggregates used in processed products;
improvements in the public space: reviewing steps to improve the safety and attractiveness of streets and public places as part of Spending Review 2002, to create stronger communities and a better quality of life. The cross-cutting review will include recommendations on Government policies, funding and targets - building on recent measures such as those announced to deal with abandoned cars;
pesticides: the pesticides voluntary package, which has been in operation since April 2001, will be reviewed in the run up to Budget 2002, to assess whether it is delivering significant environmental benefits above those that would result from a tax on pesticides.

NOTES FOR EDITORS

Powering Future Vehicles

The draft strategy document Powering Future Vehicles is due to be published shortly. On the basis of this strategy, the Government will consider further tax incentives to encourage low-carbon vehicle technology in Budget 2002. Existing measures taken to encourage cleaner and low-emission vehicles and fuels include:

fuel duty reductions to promote cleaner fuels such as road fuel gases, as part of the Green Fuel Challenge;
fuel duty incentives for cleaner ultra-low sulphur forms of petrol and diesel, reducing emissions of nitrogen oxides, particulates and volatile organic compounds, which damage local air quality and are responsible for health problems;
reforms to vehicle excise duty, including the introduction of a carbon-dioxide based system of VED for new cars from March 2001, which rewards cars with lower emissions of carbon dioxide and cars that use cleaner fuels; and
the introduction of a new system of company car tax reflecting cars' carbon dioxide emissions, estimated to save 0.5-1.0 million tonnes of carbon emissions a year in the long-term.

Green Technology Challenge

The Government, as proposed in Budget 2001, has consulted on the objectives of the Green Technology Challenge (GTC). It is today announcing that it will consider introducing enhanced capital allowances in three areas:

energy-saving;
cleaner fuels and vehicles; and
improving water use and water quality.

The Treasury published a consultation document, Green Technology Challenge, in July 2001, seeking views on which environmental objectives could be supported by tax relief on investments. Some 100 responses were received which showed strong support for the principle of Enhanced Capital Allowances, while recognising that they are not the most appropriate fiscal instrument for all environmental objectives. A summary of the responses to the consultation will be published shortly.

The GTC builds upon the already successful tax incentive scheme for energy-saving equipment introduced in Finance Act 2001 as part of the climate change levy package. Since 1 April 2001, businesses have been able to set the whole of their expenditure on qualifying equipment against their taxable profits in the period during which the investment is made. Technologies that qualify for these enhanced capital allowances are contained in lists issued by the Secretary of State for the Department of Environment Food and Rural Affairs. Details of the qualifying technologies and products are available on the internet. Further enhanced capital allowances considered as part of the GTC will be introduced during 2002-03.

Business energy-efficiency

The revenue-neutral climate change levy package, estimated to save emissions of 5 million tonnes of carbon a year by British business by 2010, was introduced in April 2001, including:

44 innovative negotiated agreements with business sectors to improve energy-efficiency;
the Carbon Trust, partly funded by the climate change levy package, launched in April, providing energy-efficiency advice and support for low-carbon technologies;
a reduction of 0.3 percentage points in employers' national insurance contributions, as the Government shifts taxes from "goods" such as employment to "bads" such as pollution; and
publication of the lists of technologies and products eligible, from 1 April 2001, for enhanced capital allowances for energy-saving investments by business. The Government is today announcing that, as one of the outcomes of the Green Technology Challenge, the Carbon Trust will review further energy-saving technologies to qualify for these enhanced capital allowance tax incentives.

The world's first economy-wide greenhouse gas emissions trading scheme will be launched in the UK next year.

Green Fuel Challenge

The Government announced today that, subject to EU agreement, it will support the development of cleaner fuels through a fuel duty exemption for three pilot projects - a hydrogen-fuelled bus and the use of both landfill gas and methanol as road fuels.

In July 2001 the Green Fuel Challenge (GFC) invited bids for duty reductions or exemptions for research into innovative alternative transport fuels. This has resulted in exemptions for the three projects announced today that successfully met the Government's criteria. The Government is also exploring a further research project into ethanol produced from biomass, such as forestry and garden waste.

The GFC was first launched in November 2000 to promote the development of alternative fuels with environmental benefits. After receiving the initial round of proposals, the Government decided in Budget 2001 to:

cut the duty on road fuel gases from 15 pence per kilogramme to 9 pence per kilogramme. It also announced that the rate would be frozen in real terms until at least 2004; and
introduce a new rate for bio-diesel at 20 pence per litre below the duty rate for ultra-low sulphur diesel in Budget 2002.

The Government will invite a second stage of bids for pilot projects under the Green Fuel Challenge next year.

Modernising Road Haulage Taxation

The Government is also today announcing a consultation, Modernising the Taxation of the Haulage Industry: A consultation document, into road user-charging for lorries - including time-based and distance-based charging options - for delivering its commitment to ensure hauliers contribute fairly towards the costs they impose in the UK, regardless of nationality. As UK hauliers already contribute towards these costs, the Government remains committed to ensuring that the UK haulage industry does not pay more as a result of a new lorry road-user charge, through implementing offsetting reductions in other taxes on lorry operators.

Vehicle Excise Duty

Pursuing its environmentally-based reforms of vehicle taxation, the Government today announced that it will consider measures, such as changes to vehicle excise duty, to encourage van users to adopt new cleaner technologies. It is also today launching a consultation on modernising motorcycle Vehicle Excise Duty.

As announced in Budget 2001, wide-ranging simplified and environmentally-based reforms to lorry Vehicle Excise Duty will be introduced in December 2001.

Fuel for employees

The Government will launch a consultation on new fuel scale charges shortly, including the option for the tax regime on free fuel provided to company car users to reflect carbon dioxide emissions.

Aggregates levy

As previously announced, the revenue-neutral aggregates levy package will be introduced in April 2002 to ensure that the environmental costs of quarrying are reflected in prices and encourage use of alternative materials.

The £35 million a year Sustainability Fund, for reducing the need for virgin aggregates and for delivering environmental benefits to areas affected by quarrying, and a 0.1 percentage point cut in employers' national insurance contributions will be funded by revenues recycled from the levy.

The Government is today proposing a phased introduction of the levy in Northern Ireland for aggregates used in processed products. The Government is seeking European Commission state aid approval for this step, in recognition of special local circumstances.

Improvements in the public space

A cross-cutting review, as part of Spending Review 2002, will look at how Government policies, funding and targets can produce improvements in the safety and attractiveness of the public space - the local environment where people lead their lives. This will consider how best to tackle problems like anti-social behaviour, traffic impact, abandoned cars, litter and improving parks and play areas. The review, which is open and considering the views of the full range of stakeholders, will produce recommendations by December 2001, in time to feed into the Spending Review process.

The Government has launched a consultation exercise on abandoned cars, Abandoned Cars - A Consultation Document, (Department of Transport Local Government and Rural Affairs and DEFRA, October 2001). This outlines proposals for the short-term, to remove them more swiftly, and longer-term ideas to prevent vehicles from being abandoned. As part of these proposals, the Government is determined to challenge motorists who fail to pay their VED and is reviewing options for ensuring that there is a sufficient penalty to deter such evasion.

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External links

Pre-Budget Report 2001 Press Notices: index

Pre-Budget Report 2001: index