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Pre-Budget Report
Economic growth needs to take place in a way which ensures the effective protection of the environment and the prudent use of natural resources. The environmental consequences of economic policies have often been ignored. Global threats such as climate change must be limited, hazards such as poor air quality must be reduced and the natural resources that people value, such as wildlife and the landscape, should be protected. Natural resources need to be used efficiently and renewable resources, such as water, should not be used in ways that could endanger those resources.
The Government has set out a clear framework for considering environmental objectives alongside its economic and social objectives. Key elements of the Government's environmental policy include:
6.1 The Government is committed to ensuring that economic growth takes place in a sustainable way through close co-ordination between the economic, social and environmental dimensions of policy. The Government will deliver on its environmental commitments as it meets its economic goals. Its approach to sustainable development, set out in Box 2.4, means protecting the environment now and for future generations and building a society in which every citizen has a stake.
6.2 Too often in the past, economic growth has been at the expense of increased pollution and the wasteful use of natural resources. The consequences can be seen all around - global warming, poor air quality, pressures on scarce water and land all threaten our quality of life. This chapter shows how the Government is working to integrate effective protection of the environment and prudent use of natural resources into the heart of economic decision making.
6.3 Climate change is one of the key environmental challenges facing the world today. There is a growing scientific consensus on the potential impacts on the climate of increasing concentrations of greenhouse gases in the atmosphere. The Inter-Governmental Panel on Climate Change predicts that if no action were taken to limit greenhouse gases, global average temperatures could rise by up to 3.5°C by the end of the next century.
6.4 The effects of climate change on this scale could be potentially catastrophic across large parts of the world. Rising sea levels could cause devastating losses to coastal communities and environments, and result in the dislocation of millions of people. Around 80 per cent of this population displacement would be likely to occur in southern and south east Asia. The impacts would be far from uniform, with rising sea levels and flooding in some regions but water shortages and famine in others. Large areas of the tropical rainforests are predicted to die-back from 2050 unless considerable action is taken to limit climate change.
6.5 The first signs of climate change are already being observed, as shown in Chart 6.1. Over the last decade, England has seen four of the five warmest years since records began 340 years ago. In eastern England, sea levels are already rising by 1.5 cm per decade.
Global surface temperature variations, 1860-1998
6.6 Climate change is not the only environmental issue confronting the UK, although it may be the most serious. At a more localised level, the quality of the air we breathe and the water in our rivers and lakes, as well as increased pressures on the land, represent serious challenges to our quality of life.
6.7 Poor quality air degrades the environment and poses risks for both human health and biodiversity. The air quality levels at which experts consider there could be harm to human health are, on average, breached on more than one day in every ten. Although everyone suffers on days when air quality is poor, the frail and sick are particularly vulnerable. Recent evidence suggests that between 12,000 and 24,000 early deaths and between 14,000 and 24,000 hospital admissions and re-admissions for respiratory and cardiovascular problems are associated with short-term air pollution from particles, sulphur dioxide and ozone each year.2 Poor air quality can bring on asthma attacks among the UK's 3 million sufferers.
6.8 Urban air pollution (a largely traffic-related problem) has a particular impact on drivers and their passengers - they can be exposed to up to three times as much pollution as pedestrians and cyclists since they effectively travel through a "tunnel" of air pollution. Improvements in fuel quality and vehicle emission technology have helped reduce pollution levels in urban areas over recent years. Annual emissions of lead have fallen by over 50 per cent and annual emissions of nitrogen oxide and particles have fallen by over 30 per cent. But this improvement is predicted to reverse early in the next century as growth in road traffic offsets the reduction in emissions from individual vehicles.
6.9 Poor air quality is not just an urban phenomenon. Air pollutants can travel hundreds of miles leading to health problems for people living in rural areas and damaging forests, lakes, crops and wildlife.
6.10 The UK has one of the highest population densities of any country in the world and pressures on the land are growing. Household projections for England indicate that an additional 3.8 million households could form between 1996 and 2021, an increase of approaching 20 per cent. 71 per cent of the newly-formed households are currently projected to consist of a single-person, reflecting the growing numbers of older people, young people living alone and people who are divorced or unmarried in the population.
6.11 The rate of new household formation and the geographical distribution of these households will have major environmental impacts in both rural and urban areas. New urban developments need to offer a high quality of life. Unrestrained greenfield development can accelerate the depletion of natural resources, damage biodiversity and threaten urban vitality and regeneration, leading to increased social deprivation in urban areas. Similarly, unsympathetic rural development can detract from the quality of life in rural areas.
6.12 Industry and commerce in England and Wales produce around 70-100 million tonnes of waste each year. Local authorities collect a further 30 million tonnes, principally from households, and this is growing by around 3 per cent a year. If this trend continues, nearly twice as many waste management facilities will be needed by 2020 than if municipal waste levels could be stabilised.
6.13 Disposing of all of this waste places further pressure on scarce land due to the UK's heavy reliance on landfill as a means of waste disposal - one of the highest rates in the EU. As the biodegradable element of the waste decomposes, it releases methane, a powerful greenhouse gas. Landfilled waste can pollute water by leachate, creating a hazard to human health.
6.14 The Government is committed to ensuring a sufficient supply of aggregates. But the extraction and transport of aggregates generates adverse environmental effects including noise, dust, visual intrusion, loss of amenity and adverse effects on nature.
6.15 Water is a renewable resource, vital for both public health and protecting the environment. Although the UK does not face severe problems of water availability, there are marked pressures in certain regions at certain times of the year. Water demand is likely to continue to grow, largely due to increased household use.
6.16 Better water quality is an important environmental goal, not only to protect biodiversity but also for leisure use. Currently 82 per cent of rivers in England and Wales comply with River Quality objectives. The Government's target is to improve water quality further so that at least 91 per cent of rivers meet the objectives by the year 2005. Following a sharp rise in major pollution incidents in 1997, the number dropped to 128 in 1998, the lowest since records began.
6.17 Economic instruments such as taxes, charges and trading can offer the scope for delivering environmental gains in a cost effective way. By making use of the price mechanism, economic instruments allow those involved in environmentally damaging activities to respond according to their own circumstances. Those facing the lowest costs of pollution abatement are given an incentive to make larger pollution reductions. Attaching a price to environmental 'bads' creates a permanent incentive for innovation and investment in less polluting and resource intensive methods of production, and encourages the consumption of 'cleaner' products.
6.18 The Government will consider using the tax system to deliver environmental benefits on a case by case basis, taking account of its wider economic and social objectives. Taxation will often be most effective in tackling environmental problems when introduced as part of a package of policies. Trading, local charging, public spending, regulation and education all have a role to play.
6.19 The Government aims to target public spending where it will bring the greatest benefits and raise revenues in ways which cause least distortion to the economy. The revenues from environmental taxes may allow reductions in other more distortionary taxes or increased spending on public services. Generally, how revenue is raised will not determine how it is spent. But the merits of using the revenues from environmental taxes to fund complementary spending measures, for example to enhance the environmental impact of the tax, will be considered on a case by case basis.
6.20 Environmental taxation is not simply an excuse for raising revenue. How and what a government taxes sends a clear signal about the economic activities which it wants to encourage or discourage, and the values it wishes to entrench in society. Over time, the Government aims to shift the burden of tax from 'goods' such as labour and capital to 'bads' such as pollution. But, in line with the Government's Statement of Intent on Environmental Taxation, published in July 1997, any environmental taxes should meet the tests of good taxation.
6.21 Polluters should face the true costs which their actions impose on society. When individuals and firms do not bear the full costs to society of their activities, despoiling the environment can seem like an easy option. But pollution imposes real costs on the rest of society - and not just on the present generation. Some of the biggest problems faced today - such as contaminated land - have been caused by the short-termism of the past. This must change. Polluters should not be able to treat the environment as a free resource, and our children should not be expected to foot the bill for our decisions.
6.22 The social consequences of environmental action must be acceptable. Environmental improvements should not be at the expense of hurting the most vulnerable in society. The Government reduced the rate of VAT on domestic fuel and power to the lowest rate allowable under EU regulations as part of its determination to combat fuel poverty. The Government recognises the particular needs of rural communities. That is why additional resources have been provided for public transport provision in rural areas.
6.23 Economic instruments must deliver real environmental gains cost effectively. Environmental taxes will be most effective where they target the polluting activity directly and avoid perverse side effects. This is why the Government intends to exempt 'new' renewables from the climate change levy. Taxes must not cause excessive administration or compliance costs. The Government will continue to provide a clear, long-term signal of its intentions so that firms with long investment cycles have the time they need to adapt. In some cases, national taxes may not be the best way of dealing with localised environmental damage. This is why the Government has ruled out a national tax charge on water pollution.
6.24 Environmental policies must be based on sound evidence. The body of scientific evidence on global warming has forced governments worldwide to act, but in other cases, damage is more localised. In most of these cases, there is uncertainty about the nature and scale of the effects involved. Developing practical and effective policies requires detailed research, careful planning and extensive consultation. But uncertainty cannot necessarily be used to justify inaction. Today's greenhouse gases may be tomorrow's climatic disaster. Sustainable development means taking action on the basis of the best available evidence and taking full account of the risks of environmental damage occurring.
6.25 Environmental policies must not threaten the competitiveness of UK business. Well-designed policies need not damage growth and employment in the economy. Taxing environmental 'bads' may allow lower taxes on 'goods' such as labour and capital. The introduction of the climate change levy will entail no increase in the burden of the tax on business since it will be fully offset by a cut in employers' National Insurance Contributions and increased support for energy efficiency schemes. This increases the cost to firms of using energy but reduces the costs to firms of hiring workers, and should generate an increase in overall employment.
6.26 Where environmental taxes meet these tests, the Government will use them. The remainder of this chapter reviews the progress the Government has already made in using economic instruments to deliver its environmental objectives, and the further steps which are now under consideration.
6.27 Climate change is a global problem requiring actions on a global scale. At the Earth Summit in Rio in 1992, the developed countries agreed a voluntary target to return their emissions of greenhouse gases to 1990 levels by 2000. The UK is one of the few countries on course to achieve that target.
6.28 At Kyoto in 1997, the developed countries agreed a legally-binding commitment to reduce greenhouse gas emissions by 5.2 per cent below 1990 levels over the period 2008-2012. Collectively, the EU Member States agreed to deliver an 8 per cent reduction. The UK's contribution to this target has been set at a 121/2 per cent reduction on 1990 levels in emissions of a basket of six greenhouse gases. The UK has also set itself a more challenging domestic goal to reduce emissions of carbon dioxide by 20 per cent on 1990 levels by 2010.
6.29 The Government is developing a draft UK climate change programme, which it aims to publish early next year for further consultation. The programme will set out a strategic long-term framework for reducing the UK's greenhouse gas emissions. The programme developed in the light of the consultation will take a balanced approach, recognising that all sectors should play a part in reducing greenhouse gas emissions. The climate change levy and the negotiated agreements will be central to reducing emissions from the business sector. The Home Energy Efficiency Scheme is helping to reduce emissions from the domestic sector. Increases in fuel duties since 1993, and proposed reforms to VED and company car taxation, will help reduce emissions from the transport sector.
6.30 The Government believes that all sectors of the economy must play their part in meeting the UK's emissions targets. In March 1998 the Chancellor asked Lord Marshall to produce a report on economic instruments and the business use of energy. Lord Marshall's report, published in November 1998, recommends that there "probably is a role for a tax if businesses of all sizes and from all sectors are to contribute to improved energy efficiency and help meet the UK's emissions targets".
6.31 In Budget 1999 the Government announced that it would bring forward legislation in Finance Bill 2000 to introduce a climate change levy on energy use by business with effect from April 2001. Simultaneously, HM Customs and Excise launched a major consultation exercise with business and other interested parties on the design issues surrounding the levy.
Outcome of consultation exercise
6.32 The aim has been to design the levy in a way that maximises its environmental effectiveness whilst safeguarding the competitiveness of UK business. Views from a wide range of organisations have fed into this consultation process. In light of the responses to the consultation exercise, and other representations made, the Government intends to
increase the environmental effectiveness of the levy by:
protect competitiveness by:
6.33 The levy package as a whole is therefore expected to be revenue neutral for the private sector. Its introduction will entail no net financial gain for the public finances. Furthermore, the levy package as a whole is expected to be broadly neutral between the manufacturing and service sectors.
6.34 These refinements will also mean that the environmental benefits of the revised package, in terms of the carbon savings generated, will be bigger than those arising from the proposal outlined in Budget 99. The levy package itself is expected to save at least 2 million tonnes of carbon a year by 2010. The levy's negotiated agreements with the energy intensive sectors could deliver as much again.
6.35 Draft legislative clauses reflecting the revised design of the levy announced in this report will be published shortly.
Detailed design of the levy
6.36 The climate change levy is designed to be revenue neutral for the private sector, with the revenues raised being fully recycled to business, primarily through a reduction in employers' National Insurance Contributions (NICs). This is consistent with the Government's policy of switching the burden of taxation from 'goods' like labour, to 'bads' like pollution. In 2001-02, the levy is expected to raise £1.0 billion, all of which will be recycled back to business as a whole via a 0.3 percentage point reduction in employers' NICs and the additional support for energy efficiency measures. The rates of the levy are expected to be:
| Energy Product |
Levy Rate in 2001-02 (pence per kilowatt hour) |
| Electricity | 0.43 |
| Gas | 0.15 |
| Coal | 0.15 |
6.37 The Government will continue to monitor and evaluate the contribution the levy makes to the UK's targets for reducing greenhouse gas emissions. As with excise duties, the Government expects that the rates of the levy will at least keep pace with inflation over time.
6.38 Responses to the HM Customs and Excise consultation document and other representations made on the design of the climate change levy indicated widespread support for increasing the resources directed to energy efficiency measures within the climate change levy package. In light of the representations made, the Government is minded to treble its support for energy efficiency measures under the climate change levy package - meaning the £50 million announced in Budget 99 for 2001-02 would rise to around £150 million. This would allow for a system of 100 per cent first year capital allowances for energy saving investments to be introduced alongside the £50 million energy efficiency fund announced by the Chancellor in Budget 99. Subject to any practical or legal considerations, such enhanced allowances - which businesses would be able to set against their corporation or income tax bills - could be introduced alongside the climate change levy in April 2001.
6.39 The Government will be consulting business on exactly which energy efficient products and technologies might qualify for the enhanced allowances. Views will also be
sought on the Government's detailed proposals for using the energy efficiency fund announced in Budget 99, which is intended to:
Final decisions on the use of the energy efficiency fund will be made in the spending review 2000.
Energy intensive sectors
6.40 The Government recognises the case for giving special consideration to the treatment of energy intensive sectors given their high energy costs and their exposure to international competition.
6.41 The basis for determining eligibility for special consideration will remain sites in those sectors covered by the EU's Integrated Pollution and Prevention Control (IPPC) Directive. These installations will be subject to a regulatory requirement, in terms of having to operate in an energy efficient manner, that other non-IPPC sites are not subject to. This definition covers the main energy intensive sectors and most manufacturing sites. It provides the legal certainty required for determining who is, and is not, eligible to enter into negotiated agreements. The Government has indicated that small sites in sectors covered by the IPPC Directive, but which fall beneath the Directive's size threshold, will be eligible to be covered by a negotiated agreement.
6.42 The Government remains willing to consider suggestions for alternative definitions which would target the relief on energy intensive sectors exposed to international competition. But any alternative definition would have to have a clear rationale, provide legal certainty, administrative simplicity and be consistent with EU State Aids rules. The Government does not intend to extend eligibility to all firms, since that would involve offering lower rates of the levy to firms who are already net gainers from the levy/NICs package.
6.43 Those energy intensive sectors which enter into legally-binding agreements to implement all energy saving measures which are cost effective, will qualify for an 80 per cent discount from the levy rates.
6.44 Discussions with the main energy intensive sectors have been underway since spring 1999. Considerable progress has been made. But in order to provide more time for the sector associations to consult their members, the deadline for Heads of Agreement to be signed has been extended to 20 December 1999. Smaller trade associations will be expected to sign Heads of Agreement in early 2000.
Increasing the environmental effectiveness of the levy
6.45 From the outset, the Government has made clear that it wishes to maximise the environmental benefits of the climate change levy. Subject to legal and practical considerations, the Government intends to exempt electricity generated from renewable sources of energy (other than large scale hydro plant) from the levy. Electricity suppliers will be able to provide electricity to businesses without incurring the levy up to the total amount of any contracts they have with eligible generators of renewable power.
6.46 The Government recognises the environmental benefits that the additional energy efficiency of combined heat and power (CHP) plant can offer. It therefore proposes to exempt electricity generated in 'good quality' CHP plant from the levy. Guidelines on the definition of what constitutes 'good quality' CHP are being published by HM Customs and Excise.
6.47 In designing the levy the Government has taken into account its wider policy objectives, including the promotion of rail-freight transport. The Government therefore intends to exempt the traction electricity used by rail-freight locomotives from the levy.
6.48 The Government recognises that in some cases energy products are used for non-energy purposes and the amount used is determined by the nature of the process. With this in mind, the Government intends to exempt from the levy those energy products which serve a dual purpose as a fuel and as a feedstock within the same process. The Government also intends to extend the electrolysis exemption announced in July to cover electricity used in electrolytic processes similar to chlor-alkali production and primary aluminium smelting.
Environmental benefits of the climate change levy
6.49 The climate change levy package, including the negotiated agreements and the additional support for energy efficiency measures, forms an important part of the UK's climate change programme. The exemptions for 'new' renewables and 'good quality' CHP will increase the environmental effectiveness of the levy. As a result of this, and the trebling of support for energy efficiency measures, it has been possible to set the levy at a lower level than the illustrative rates contained in the HM Customs and Excise consultation document, whilst increasing the environmental benefits of the package as a whole. This underlines the Government's commitment to design the levy in such a way as to achieve its environmental goals whilst protecting UK business.
6.50 The levy package - including additional support for energy saving measures and environmental exemptions for 'new' renewables and 'good quality' CHP - is projected to save the equivalent of at least 2 million tonnes of carbon a year by 2010, compared to the 1.5 million tonnes associated with the proposal outlined in Budget 99. The levy's negotiated agreements with energy intensive sectors could deliver as much again. Together, these will make a very significant contribution to meeting the UK's legally binding target for reducing greenhouse gas emissions.
Emissions trading
6.51 In his November 1998 report, Economic instruments and the business use of energy, Lord Marshall urged the Government to "step up its consultations with interested parties to resolve the complex issues involved in designing a trading scheme". Following on from this report and subsequent discussions led by the CBI and ACBE, an Emissions Trading Group (ETG) was established to take the work forward.
6.52 The ETG, which now includes around forty major firms and trade associations, presented their proposals for a UK emissions trading system to the Government on 27 October. The Government has been encouraged by the positive way that the ETG has developed principles for an emissions trading scheme and is considering its proposals in detail.
6.53 The Government believes that emissions trading has a key role to play in the long-term solution to reducing greenhouse gas emissions. A domestic trading scheme would complement other climate change measures in the business sector by offering cost-effective and flexible options for achieving emissions reductions. It will also open the way to international trading opportunities and will enhance UK expertise in this field.
6.54 In designing the climate change levy's negotiated agreements for intensive energy users, the Government will seek to facilitate emissions trading between those firms covered by an agreement. The Government shares businesses' aim of having a UK emissions trading scheme operational as soon as possible and will be looking at further ways to encourage participation in a domestic scheme.
6.55 The Government's White Paper on the future of transport, A New Deal for Transport, was published in July 1998. The White Paper aims to extend choice in transport and secure mobility in a way which supports sustainable development.
6.56 A centrepiece of the White Paper is the introduction of Local Transport Plans. Local authorities will set out five year strategies for transport, together with long-term targets for improving air quality, road safety and public transport and reducing road traffic. In implementing these Plans, local authorities will be empowered to introduce local charging schemes and taxes on workplace parking to combat congestion and its attendant pollution. The revenue from these local schemes will be used to fund further improvements in local public transport as part of the Government's wider long term strategy of investing in local public transport.
6.57 A Commission for Integrated Transport has been set up to advise on implementing the Government's integrated transport strategy. Amongst other things, it is considering proposals for the reform of bus subsidies and for linking the level of the Bus Fuel Duty Rebate to emissions in order to encourage the use of cleaner buses. The Commission is also expected to report on targets for road traffic and freight before the end of this year, and is conducting research on road user charging.
6.58 The White Paper recognises that fiscal measures and economic instruments have a major role to play in influencing travel choice and encouraging sustainable development. Draft revised planning guidance aimed at reducing reliance on the car and promoting alternatives such as walking, cycling and public transport where these are valid alternatives has been issued for consultation.
6.59 Road transport accounts for over 20 per cent of carbon dioxide and almost 50 per cent of nitrogen oxide emissions. In October 1998, the EU concluded an agreement with ACEA, the European car manufacturing industry group, to reduce average carbon dioxide emission levels from the new car fleet. Under the terms of the agreement, all European car manufacturers are required to reduce average emissions from their new cars to 140 grams per kilometre (down from 186g per kilometre) by 2008. The Government's package of tax incentives for cleaner cars will support this historic agreement by giving an incentive for individual motorists to demand more fuel efficient models. The agreement has recently been extended to Korean and Japanese car makers.
6.60 Since 1997, the Government has maintained and increased the fuel duty escalator introduced by the previous Government in 1993. This has given a clear signal to motorists and manufacturers to design more fuel efficient vehicles, avoid unnecessary journeys and consider alternatives to the car. Increases in fuel duties since 1996 are estimated to produce carbon savings of between 1 and 2.5 million tonnes of carbon by 2010.
6.61 The Government is committed to meeting its environmental targets. The time has now come to review the way that any increases in the fuel duties are determined. The Chancellor has, therefore, decided that the appropriate level of fuel duties will be set on a Budget by Budget basis, taking account of the Government's economic and social objectives as well as the UK's environmental commitments.
6.62 The Chancellor has decided that the revenues from any real terms increases in fuel duties will, in future, go straight in to a ring-fenced fund for improving public transport and modernising the road network.
6.63 The environmental signals from the significant increases in fuel duty over recent years will be reinforced by the reforms announced in Budget 99 to Vehicle Excise Duty and company car taxation. These are intended to provide incentives to purchase and use cleaner, more fuel-efficient cars.
Air Quality
Tackling air pollution is one of the Government's top environmental priorities. The UK Government and the devolved administrations published a Draft Air Quality Strategy in August 1999, setting out proposals for delivering cleaner air. The Government expects to publish its Air Quality Strategy for the UK in January 2000. The Strategy sets health-based objectives to be achieved during the next eight years for the eight most significant air pollutants which will be met through a combination of national policies, regulation of industrial processes and action by local authorities.
This Strategy is being prepared following a review of the 1997 National Air Quality Strategy published by the previous administration. This will set tougher objectives for five of the pollutants addressed.
Road fuel duty differentials
6.64 In Budget 99, the Chancellor increased duty on diesel by 2 pence a litre more than the duty on unleaded petrol. This moves the Government closer to its objective of fairer treatment of petrol and diesel when calculated on an energy or carbon basis.
6.65 Sulphur in fuel leads to emissions of fine particles which present a health risk when inhaled. Sulphur is also associated with emissions of nitrogen oxide, a precursor to ground-level ozone. So Budget 99 increased the differential between Ultra-Low Sulphur Diesel (ULSD) and conventional diesel to 3 pence a litre to encourage take up of the cleaner fuel. This policy has already succeeded in turning almost the entire diesel market over to ULSD.
6.66 The Chancellor also announced a 29 per cent cut in the duty on environmentally-friendly road fuel gases. The UK now has the widest duty differential between road fuel gases and other types of fuel of any country in the EU. This provides a real incentive for individuals and companies to convert to road fuel gases, and for manufacturers and fuel companies to respond to rising consumer demand by increasing the availability of gas-powered vehicles and gas-fuelling stations.
Vehicle Excise Duty
6.67 Reforms to VED to encourage the use of more environmentally friendly vehicles will provide a powerful signal to motorists when they are making car purchases. Budget 99 delivered on the Government's promise to cut the rate of VED for smaller cars, introducing a reduced annual VED rate of £100 for cars with engines up to 1,100cc. This has delivered a £55 reduction in the VED bill for drivers of 1.8 million smaller cars.
6.68 The Budget also outlined plans for the introduction of a graduated VED system for new cars. Under this system, cars first registered after autumn 2000 will be placed in one of four VED rate bands according to their carbon dioxide emissions, the most accurate indicator of fuel efficiency. The system, which is being introduced on a revenue-neutral basis, will be introduced in a flexible way with the potential, for example, to create further incentives for cars which run on less-polluting fuels.
6.69 The Driver and Vehicle Licensing Agency (DVLA) has opened technical discussions with a range of bodies so that the environmental information upon which the new system is to be based can be collected when a new car is registered. Cars first registered before the new system is introduced will continue to be taxed under the existing engine size-based system. Further details of the scheme will be announced in the next Budget, in advance of the system's introduction.
6.70 Budget 99 doubled the maximum VED concession for lorries and buses meeting the most stringent emissions standards to £1,000. The Government also took steps to discourage the use of road damaging 40-tonne lorries on 5 axles which had only been allowed in the UK since January 1999. Whilst VED rates were frozen for the vast majority of lorries, higher VED rates were set for these road damaging lorries. And procedures for down-plating (i.e. reducing maximum running weight to qualify for lower VED) were simplified in response to the industry's requests.
Company cars
6.71 Budget 99 announced that the Government is planning a major revenue-neutral reform of company car taxation. This will give fleet managers a greater incentive to take fuel efficiency in to account when making purchasing decisions. It will also remove the perverse incentive in the current system to reduce the tax due by driving unnecessary, extra business miles. Since the Budget, the Inland Revenue has been consulting on the precise details of the proposed link between emissions and the tax charge and has held a series of meetings with interested bodies.
Roads
6.72 There is a long-term trend towards increased car use. Rising incomes have led to rising car ownership and car use, with attendant increases in personal mobility, choice and independence. The geography of rural areas, and the mobility demands of some travellers mean that in some cases, the car will continue to be the main mode of transport. Congestion is the motorist's greatest enemy and a major cause of pollution. So the Government is taking steps to improve road conditions through a targeted programme of road improvements, traffic management, and the provision of new or improved public transport.
6.73 The Government is taking forward a range of measures to reduce delays and disruption on the road network, and to ensure that those who have to use the roads are able to do so as efficiently and safely as possible. £700 million has been allocated centrally to tackle the backlog in road maintenance and halt the decline in the condition of the road network. The funds available from local transport plans for maintenance of local authority roads have also been significantly increased. The Government has begun consultation on charging utility companies for causing unnecessary delays in carrying out roadworks.
6.74 The Comprehensive Spending Review allocated £530 million over three years to making better use of the network, for example by greater use of modern technology to improve traffic flow. A £100 million PFI project will develop Traffic Control Centres, using global positioning satellites to provide information on traffic conditions such as accidents and congestion. This intelligence will be disseminated to drivers through dedicated electronic roadside signing fixtures, motorway gantries, radio and commercial driver information systems. The Chancellor has announced that any above inflation increases in fuel duties announced in the Budget will go straight in to a ring-fenced fund for the modernisation of roads and public transport.
6.75 The Government recognises that it is not enough to encourage greater fuel economy or provide incentives to use cleaner vehicles and fuels. It also needs to ensure that people have real alternatives to road transport - alternatives which are safe, reliable and accessible to all. So the Government is taking forward a number of complementary measures which will improve the provision of alternatives to using a car, and encourage people to take them up.
Increased investment in rail transport
6.76 The Strategic Rail Authority (SRA) has been set up to enable new investment in the rail network where it is most needed. It will be re-negotiating long-term franchises in return for higher levels of investment and improved services. The SRA aims to revitalise and modernise the rail network through partnerships between the public and private sectors. Other services such as the Docklands Light Railway extension to Lewisham have already benefited from the injection of capital through public-private partnerships.
Rural transport
6.77 In Budget 99, the Government announced a 20 per cent increase in funding for rural transport initiatives, taking the total to be spent over the next two years to £120 million. This will be used to provide additional services and to continue developing innovative and community-based rural transport initiatives. The scheme has already led to the introduction of over 1800 new or improved rural bus services in England alone, providing longer running times, extended routes, greater frequency and better integration with other bus and rail services.
Green transport plans
6.78 Budget 99 included a package of seven tax measures designed to encourage people to use more environmentally-friendly modes of transport when travelling to work. The removal of the employee benefits charge on employer-provided work buses and public bus subsidies and the provision of new reliefs for commuter and business cycling were widely welcomed as practical measures by employees and employers alike. There are welcome signs that people are responding to these incentives, and the Government will continue to seek ways of encouraging the take up of 'green transport' schemes in the future.
6.79 Budget 99 revalorised the level of the Bus Fuel Duty Rebate for the second successive year to promote public transport use. This followed a long period when the level of the rebate had been declining in real terms.
The haulage industry
6.80 The Government fully recognises the importance of the haulage industry to the UK economy. But - like all other road users - it believes that hauliers must play their part in reducing the environmental damage caused by road transport. The Government remains convinced that the best way of maintaining the competitiveness of the UK haulage industry is to create a climate of sustainable economic growth and long-term investment in business. Like all British firms, hauliers will benefit from the measures announced in previous Budgets to achieve this.
6.81 Following Budget 99, the Government set up the Road Haulage Forum to bring together Treasury, DETR and DTI Ministers with representatives of the haulage industry and unions. The Forum has held a series of constructive meetings to consider the competitive position of UK haulage firms and discuss ways to enhance their efficiency.
6.82 The Government is committed to reducing the environmental consequences of the growing demands placed on land from waste disposal, quarrying and housing.
Waste strategy
6.83 The UK currently landfills more of its waste than most other European countries. The recently adopted Landfill Directive aims to reduce the environmental impacts of landfilling waste by placing limitations upon what, how much and how waste can be landfilled. The Directive sets challenging targets which aim to reduce the amount of biodegradable municipal waste sent to landfill to 35 per cent of 1995 levels by 2020. The Government has also set itself targets of reducing the amount of industrial and commercial waste landfilled to 85 per cent of 1998 levels by 2005 and recovering 40 per cent of municipal waste by 2005. Reducing methane emissions from landfill will contribute towards efforts to reduce global climate change.
6.84 Following the Government's consultation document, Less Waste: More Value, a draft waste strategy for England and Wales, A Way with Waste, was published in June 1999. The draft strategy sets out the Government's vision of sustainable waste management over the next 20 years. A final waste strategy will be published in early 2000.
6.85 In October 1999, the Government published a consultation paper, Limiting Landfill, which considered possible instruments for meeting the targets set out in the Directive. The results of this consultation exercise, which ends on 29th November, will be reflected in the final waste strategy. Parallel strategies for Scotland and Northern Ireland are also being prepared.
Landfill tax
6.86 The Government's landfill tax can be expected to make an important contribution to meeting these targets by diverting waste from landfill. Budget 98 increased the standard rate of landfill tax, which applies to active waste, from £7 to £10 per tonne from April 99. The lower rate of tax on inert wastes remained at £2 per tonne. In Budget 99, the Chancellor announced a five year landfill tax "escalator" which will increase the standard rate of tax to £15 per tonne by 2004. This sends a clear economic signal to waste managers to develop alternative waste management services and facilities.
6.87 Budget 98 announced an exemption from landfill tax for any inert waste used to restore landfill sites and to fill quarries, where planning obligations require them to be filled. This was introduced in October 1999 and will help to secure an adequate supply of inert material to reclaim sites in an environmentally beneficial way.
6.88 The Environmental Bodies Tax Credit scheme has already raised £183 million for sustainable waste management education and research projects. Waste disposal firms are allowed to claim a tax credit of 90 per cent of any contributions made to environmental trusts (up to a total credit of 20 per cent of tax liability). Budget 99 announced a number of changes to this scheme such as adding recycling to the list of projects which can benefit under the scheme. These will be implemented towards the end of this year by statutory instrument.
Producer responsibility and packaging regulations
6.89 Producers need to take account of the environmental impacts of the disposal of their products. Provisional figures suggest over 10 million tonnes of packaging entered the waste stream in 1998.
6.90 The UK is committed to meeting the objectives and targets in the EC Directive on packaging and packaging waste. The Directive requires Member States to :
6.91 Achieving these targets presents a challenge to the UK, which starts from a low base (around 30 per cent recovery in 1996-97). Annual interim targets have been set for 1998-2000 to ensure that the UK is on course to meet the Directive targets by 2001.
6.92 Packaging regulations, introduced in 1997, impose tonnage recovery and recycling obligations on certain businesses in the packaging chain calculated on the basis of the packaging handled. This provides a cost incentive for firms to reuse packaging and to reduce their use of packaging as this will reduce the tonnage obligation and thus the cost of compliance. Businesses may join compliance schemes which take on and discharge the legal obligations for them.
Aggregates
6.93 Pre Budget Report 98 announced that research commissioned by DETR into the environmental costs attached to quarrying, and in particular the supply of aggregates, had demonstrated significant environmental costs not already covered by regulation. Budget 99 clearly stated that should the quarrying industry not be able to commit to an acceptably improved voluntary environmental package, then it would implement an aggregates tax.
6.94 The draft clauses for a potential aggregates tax were published for consultation by HM Customs & Excise in April 1999, and a number of responses on a range of technical issues have been received.
6.95 The Quarry Products Association submitted a revised package of voluntary environmental measures to the Government in July. The Government welcomed this package which shows some improvement on their original package, notably in the areas of aggregates transport and air quality. In particular there is an extra £20 million a year from seven major companies to promote and develop recycling. But this continues to fall short of what is necessary to match the overall environmental and economic effects of a tax on primary aggregates. So the Government is minded to introduce a tax in the next Budget unless the industry can further improve on this package.
6.96 The Government is determined to reverse the legacy of neglect and decline that has scarred our towns and cities. A lasting urban renaissance will not only enhance the quality of life and competitiveness of Britain's towns and cities, but relieve pressure on the countryside. Revitalising urban areas helps narrow inequalities within regions and ensures more even patterns of growth.
6.97 The Government - working in partnership with local authorities and business - has already put in place many initiatives which tackle the causes of urban decline, including action on social exclusion and housing, planning reforms to promote 'in town' development, and improvements in local transport services. The Regional Development Agencies (RDAs) are also playing a key role in developing an integrated and strategic approach to economic development and promoting business clusters.
6.98 The Government's strategy for successful cities must include physical, social and economic development. Earlier initiatives had not succeeded in delivering these three mutually supporting and reinforcing aspects of regeneration, which are now being actively pursued :
6.99 The Government will set out its strategy in more detail in the Urban White Paper, due in summer 2000. This will take forward the Government's programme for achieving an urban renaissance and build on the recommendations of Lord Roger's Urban Task Force. In particular, the Government will give consideration to the merits of using fiscal measures to support sustainable development of our town and cities.
6.100 The Government is determined to improve the quality of river water in the UK and reduce the environmental damage caused by over-abstraction.
Water pollution
6.101 The quality of rivers has improved significantly in recent years. Almost 25 per cent of the total monitored length of rivers and canals in England and Wales showed a net improvement in chemical quality between 1990 and 1998. In the UK, about 95 per cent of river length is now classified as "very good", "good" or "fair".
6.102 Results of research by DETR suggested that a national tax or charge would not be the most effective way to secure further improvements in local river quality. Budget 99 announced that the Government was not inclined to introduce a national tax or charge on pollution discharges, but it would seek further improvements in water quality through focussed use of the regulatory system.
6.103 The Government intends to ensure that the quality of drinking water continues to improve over time. Much of the investment necessary to deliver these quality and environmental improvements will be agreed as part of the current Periodic Review of water company price limits. The Regulator's draft determinations, published in July 1999, envisaged that alongside this substantial investment, average price cuts of 13.7 per cent in 2000-01, followed by broadly stable real prices thereafter, were achievable due to the growing efficiency of water companies. As part of the Periodic Review, a comprehensive analysis has been carried out at river basin level on what steps need to be taken to improve water quality. These include investment in sewage disposal, Environment Agency enforcement actions and better farming and industrial practices.
Water abstraction
6.104 The Government carried out a review of the Water Abstraction Licensing System in England and Wales in 1998. Part of that review outlined the possible use of economic instruments alongside regulation to bring gains in water efficiency and encourage abstractors to take account of the value of water to the environment.
6.105 The Government has commissioned a research project to consider the possible design of such economic instruments and this will be completed shortly. Following this, DETR will publish a consultation paper early in 2000.
6.106 The Government accepts that there is increasing evidence that there are significant environmental impacts associated with pesticide use, and will continue to pursue its policy of minimising pesticide use consistent with adequate crop protection. The Government recognises that the agrochemical and farming industries have made good progress in adopting measures which seek to minimise pesticide usage. But there is scope for further action to be taken to address the adverse impacts of the use of pesticides on the environment.
6.107 In March 1999, DETR published an ECOTEC report, Design of a tax or charge scheme for pesticides. This showed that a carefully designed tax or charge scheme could be used to address the environmental impacts of pesticides use. The Government received 99 responses to the consultation on the issues raised in this research. A summary of these responses has been published today. Responses were received from a range of organisations with around 30 per cent being received from farms and agricultural organisations, 13 per cent from the agrochemical industry, 10 per cent from crop consultants and 9 per cent from environmental groups. In broad terms, 17 per cent of respondents were in favour of a tax, and 72 per cent were opposed.
6.108 The Government believes that a tax or charge could be a useful tool, in conjunction with other measures, in addressing the environmental impacts of pesticides. However, over the next few months the Government intends to explore with the agrochemical industry whether its objectives can be better achieved through a partnership approach between the Government and the industry. The Government remains keen to build on the valuable work which the Pesticides Forum has completed to date.
6.109 The Government is committed to conducting a full evaluation of all impacts on the environment when considering alternative policy options1. This applies to all Government measures regardless of whether their aim is primarily environmental.
6.110 The Government's environmental assessment of those measures whose primary aim is environmental, or which have a significant impact on the environment, is shown in Table 6.1. For example, estimates are shown for the savings of carbon dioxide emissions expected to accrue from the climate change levy. The table also refers the reader to any related policy documents, as well as citing 'headline' indicators of sustainable development2, which the policy reform influences.
6.111 It is not always easy to quantify the costs or benefits that different policies impose on the environment, and there are large uncertainties involved in trying to estimate the behavioural response to alternative policy measures. Wherever possible, the table gives quantitative estimates of the impact on the environment, but these are subject to significant margins of error and should not be given undue weight. Precise figures have been omitted where there is extreme difficulty in quantifying environmental effects or where the precise details of the reform are yet to be finalised.
6.112 The Government welcomes the role of the Environmental Audit Committee (EAC) in scrutinising the contribution that government departments make to environmental protection. The EAC's work plays an important part in reinforcing the Government's commitment to environmental appraisal.
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