The Environment

Environmental and transport taxation policy
Business
Households
Transport
Improving waste management
Regenerating Britain’s towns and cities
Protecting Britain’s countryside and natural resources
Environmental appraisal policy measures

The Government has a clear aim of improving the environment, both now and in the future, as part of its strategy of achieving sustainable development. In delivering a better quality of life for everyone, economic, social and environmental development must go hand in hand.

The Government has long-term strategies to tackle the key environmental issues including climate change, improving air quality, regenerating towns and cities and protecting the countryside and natural resources.

The quality of the environment affects everyone’s quality of life. Society needs to make more productive use of existing natural resources. Engaging in more environmentally friendly practices will help to achieve the quality of life we expect today and for generations to come.

Environmental and Transport Taxation Policy

In 1997 the Treasury published a Statement of Intent on environmental taxation which set out the role that the tax system can play in delivering environmental objectives.

Statement of Intent on environmental taxation

The Government reaffirmed its commitment to the Statement of Intent in its recent publication Tax and the environment: using economic instruments. The document sets out a framework for the development and implementation of environmental economic instruments. Key features include:

the importance of early and extensive consultation;
early signals of the choice of instrument and details of the tax rate or other measure, to provide sufficient lead times for households and businesses to plan changes and make the necessary investment; and
exploring revenue neutral packages to reduce excessive impacts on business competitiveness and specific groups, as well as supporting new technologies to reinforce the behavioural change.

The Government is using economic instruments to meet four broad environmental objectives:

tackling climate change and improving air quality;
improving waste management;
regenerating Britain’s towns and cities; and
protecting Britain’s countryside and natural resources.

To help tackle climate change and improve air quality:

All sectors in the economy need to play a part in tackling climate change and air quality. The Kyoto Protocol commits the UK to reducing greenhouse gas emissions to 12.5 per cent below 1990 levels between 2008 and 2012. The Government’s own climate change programme is designed to take the UK well beyond its Kyoto target and towards the more demanding goal of a 20 per cent reduction in carbon dioxide emissions in 2010.

The Government has put in place a range of policies to generate improvements across the UK. These include policies relating to business, household and transport.

Business

The climate change levy (CCL) and its associated measures encourage businesses to improve energy efficiency and reduce emissions of carbon dioxide. Budget 2003 freezes the rates of CCL.
The Green Technology Challenge further promotes cleaner technologies. Enhanced capital allowances for investments in approved energy saving technologies were introduced in 2001. The Government is committed to the continued development of the scheme and will introduce further ECAs to promote cleaner technologies.
The UK Emissions Trading Scheme was launched in April 2002. The scheme has given the UK an early lead in emissions trading and will allow the City of London to become a centre for trading.

Households

Budget 2002 introduced measures to promote energy efficiency in the home. There is a reduced rate of VAT on the installation of a range of energy saving materials. The Government consulted last year on the potential for using economic instruments to improve household energy efficiency. The Government will shortly undertake a further detailed consultation on specific measures.

Transport

Rising economic activity and increased incomes have generated a higher demand for personal travel and the transport of goods and services. Important steps have been taken to ensure an efficient transport system.

Due to the recent volatility of oil prices, Budget 2003 defers the annual revalorisation of the main road fuel duties until 1 October 2003, at which time the duty on ultra low sulphur petrol and diesel will rise by 1.28 pence per litre.

Sulphur free fuels deliver environmental benefits over ultra low sulphur fuels. The Government will introduce a duty differential for sulphur-free fuels of half a penny per litre relative to the rates for ultra-low sulphur fuels from 1 September 2004.
Budget 2003 raises the duty rate for biodiesel by 1.28 pence per litre from 1 October 2003.
A new duty incentive for bioethanol, set at 20 pence per litre below the prevailing rate for sulphur free petrol will become effective from 1 January 2005.
Budget 2002 introduced 100 per cent first year capital allowances for investments in natural gas refuelling infrastructure.
Hydrogen has the potential to lead to zero-emissions transport and will be an important fuel for the future. The Government intends to exempt hydrogen from fuel duty for a limited time period in the future.
Vehicle excise duty (VED) has been reformed to provide incentives to motorists to choose the least polluting vehicles. Budget 2003 introduces from a new low carbon VED band for cars with carbon dioxide emissions of 100g/km or less. This will take effect on licences that start from or after 1 May.
To promote the use of cleaner vehicles, a new system of company car taxation was introduced in April 2002, based on carbon dioxide emissions.
The fuel scale charge that applies to employees who receive free fuel for private use in a company car was on 6 April.
A freeze in the rates of air passenger duty.

Improving waste management:

Effective management of waste is an essential component of an environmentally sustainable economy. The Government has used the tax system to stimulate changes in waste practice management across all sectors of the economy.

The landfill tax was introduced in October 1996. The increased rate to £14 per tonne (from £13 per tonne) came into effect on 1 April 2003 and will be increased to £15 per tonne from April 2004.
The Landfill Tax Credit Scheme has been reformed and a proportion of the funded scheme (£100m in 2003/4 and £110m in 2004/5 and 2005/6) is redirected on a new sustainable waste delivery programme, to reduce waste volumes and promote recycling and new waste management technologies.
A Waste Management performance Fund will help local authorities in England to improve waste performance for all households.

Regenerating Britain’s towns and cities:

If employment and enterprise is to be encouraged then towns and cities need to provide an attractive physical environment. The Government is therefore taking active steps to promote regeneration.

Government intends to introduce incentive to encourage donations toward the running costs of Urban Regeneration Companies, helping them to play an effective role in stimulating regeneration and enterprise in many of Britain’s urban areas.

The Urban White Paper sets out a package of fiscal measures worth £1 billion over 5 years to encourage the physical regeneration of Britain’s towns and cities. These include:

VAT reductions to encourage the renovation and conversion of existing residential properties;
150 per cent accelerated tax credit for the costs of cleaning up contaminated land; and
100 per cent first year capital allowances for creating flats for letting over shops.

Protecting Britain’s countryside and natural resources:

The Government is applying principles that will deliver a countryside that is sustainable, addressing market failures through a range of economic instruments.

The Aggregates levy promotes greater efficiency in the use of virgin aggregate and the development of alternative materials. Budget 2003 freezes the rate of aggregates levy.
The Government is considering the case for using economic instruments to address the impacts of agriculture and will consult with stakeholders in 2003.
In 2001, a voluntary agreement on measures to reduce the environmental damage caused by pesticides was entered into by the industry.
Budget 2003 introduces enhanced capital allowances for investment in five groups of technologies to encourage more sustainable water use and improvements in water quality.

Environmental appraisal policy measures

The Government is committed to appraising the environmental impact of Budget measures. The Government aims to ensure that policy design, appraisal and evaluation take account of costs and benefits, the precautionary principal, and the need to internalise costs by making the producers pay.

The Government's policy objectives and budget measures are available below in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website. For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page. Please note that links to PDFs will open in a new browser window.

PDF file of the Government’s policy objectives and Budget measures (45kb)

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