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PN 04
9 April 2003
Chancellor Gordon Brown today announced further steps in the Government’s strategy to protect the environment, whilst continuing to ensure the competitiveness of UK industry.
Economic Secretary, John Healey said:
“This Budget underlines the Government's commitment to sustainable development. Given the current global economic downturn, we have today announced some important tax freezes to help maintain business competitiveness. However, the Government is committed to tackling environmental problems, by ensuring the polluter pays and introducing new incentives for more environmentally-friendly behaviour”.
Measures announced today to balance environmental responsibility with UK competitiveness include:
Fuel duty
Owing to the recent high and volatile oil prices, as a result of military conflict in Iraq, this Budget announces that the Government is deferring the annual revalorisation of the main road fuel duties until 1 October 2003.
From 6pm today, the Government will increase the rate of duty on rebated gas oil (red diesel) and fuel oil by one penny per litre above revalorisation. The Government will consult producers, distributors and users of red diesel and fuel oil, together with environmental groups, to establish whether preferential duty rates for rebated oils with low sulphur content would offer worthwhile benefits in terms of reducing emissions.
From 1 September 2004, the Government will introduce a new rate of duty for sulphur-free petrol and diesel, set at 0.5 pence per litre relative to the rate for ultra-low sulphur fuels. This will encourage the early introduction and take up of these fuels. Further details will be announced in due course. From 1 January 2005, the Government will introduce a new rate of duty for bioethanol, set at 20 pence per litre below the rate for sulphur-free petrol.
The Government intends to consult stakeholders on ways to ensure that fiscal incentives and other policy measures for road fuel gas continue to reflect the Government’s environmental and other policy objectives, with a view to announcing decisions on future means of Government support in the 2003 Pre-Budget Report. Budget 2003 freezes duty on road fuel gases.
Vehicle Excise Duty (VED)
Following the introduction of graduated VED for cars, Budget 2003 introduces a new rate of VED to provide an incentive for the use of cleaner cars. The most environmentally friendly cars (with carbon dioxide (CO2) emissions below 100g/km) will now pay as little as £55 per annum, while the most polluting vehicles (those that produce CO2 emissions of 186g/km or more) will now pay up to £165. VED rates are increased by £5 for cars and vans. VED for lorries and motorcycles will be frozen.
VED for PLG class (cars and vans) from 1 May 2003
Registered before 1 March 2001
Registered before 1 March 2001
Registered on and after 1 March 2001 (graduated VED)
Company cars and vans
Since April 2002 the system of company car taxation has been based on CO2 emissions. The levels of CO2 emissions qualifying for the minimum charge up to 2004-05 were announced in Budget 2000 and have been reduced by 10g CO2/km each year. Budget 2003 announces that the level of CO2 emissions qualifying for the minimum charge in 2005-06 will be reduced by 5g/km CO2, at 140g/km CO2.
Following the Budget 2002 announcement that the Government would review the tax treatment of the private use of vans provided by employers, taking account of environmental benefits, fairness and modern working practices, the Government will consult formally on the tax treatment of company vans shortly after the Budget.
Enhanced Capital Allowances (ECAs) for water efficient technology and energy-saving technologies
The Government announced today that 100% ECAs would be available to all businesses for investments in designated water efficient technologies. The qualifying technology categories will be meters, flow controllers, leakage detection equipment, efficient taps and efficient toilets. The specific technologies that qualify will be published in the Water Technology List following Royal Assent of the Finance Bill. Capital allowances may be claimed for qualifying investments made on or after 1 April 2003.
On energy efficiency, the Government also announced that it will introduce further ECAs for investments in automatic metering and monitoring equipment. The existing boiler, compressed air and refrigeration technologies will also be expanded. Work to define precise performance standards for these technologies is continuing and the Government expects to add these groups to the lists of qualifying technologies during the summer, subject to state aids approval.
Waste
The Government today confirmed that the standard rate of landfill tax, which applies to household and other active waste disposed of in licensed landfill sites, increased from £13 per tonne to £14 per tonne from 1 April 2003 and will increase by a further £1 to £15 per tonne from 1 April 2004 in line with the escalator announced in Budget 1999. The Government also confirmed that the standard rate will increase by £3 per tonne in 2005-06 and thereafter by at least £3 per tonne each year towards a rate of £35 per tonne in the medium- to long-term. The lower rate of landfill tax, applying to inactive or inert waste, remains unchanged at £2 per tonne.
As stated in the 2002 Pre-Budget Report, increases in the standard rate of landfill tax will be introduced in a way that is revenue neutral to business as a whole. Discussions with business and other stakeholder groups have indicated that there is broad support for a package of measures, including some tailored support to those sectors facing the greatest waste management challenges. The Government will pursue this through further development of options and further consultation with stakeholders. Decisions on a package of measures will be announced in the 2003 Pre-Budget Report.
Consistent with its commitment to empowering local government, the Government will reform the Waste Minimisation and Recycling Fund into a local authority Waste Management Performance Fund in England. The Fund will provide non-ringfenced incentives for local government to deliver a step-change in sustainable waste performance for all households. Final decisions on the start date of the Performance Fund, and its operational details, will be announced following further consultation with local government stakeholders. Decisions on how the landfill tax increases will be made revenue neutral to local government will be taken at the same time.
Following reform of the Landfill Tax Credit Scheme, a proportion of the funding previously going through the scheme – £100 million in 2003-04 and £110 million in 2004-05 and 2005-06 – will be redirected to public spending on a new sustainable waste delivery programme. The spending programme in England, to be managed by DEFRA, will seek to help households reduce the amount of waste they produce, increase access to doorstep collection of materials for recycling, promote the development of new and viable waste management technologies, and provide local authorities with the support they need to deliver best practice. Details of the programme will be announced by DEFRA.
The Government has commissioned a review of the environmental and health effects of all waste management and disposal options. The case for using economic instruments for waste incineration will be considered in light of this work, and in consultation with other stakeholders.
The Landfill Tax Credit Scheme (LTCS)
The successor tax credit scheme will provide around £47 million per year for spending on local community environmental projects, ensuring that funding for this type of project remains broadly similar to current levels. Following discussion with stakeholders, the Government will introduce regulations by the summer to extend the scope of the scheme to include habitat creation projects on land that need not have public access, in order to support wildlife habitats.
The Government will also continue work with Entrust, the regulator of the scheme, and other stakeholders to improve the scheme’s operation. Administration of the scheme will be simplified through a reduction in the level of information required from projects and through the use of common systems wherever possible. Better information will be recorded on project funding and audit processes will be improved. The Government will also improve monitoring and evaluation of the scheme and develop measures of value for money. The Government will finalise these changes by the summer.
Climate change levy (CCL)
The rates of CCL will be frozen in 2003-04.
DEFRA has reported a fall of 3.5 per cent in UK CO2 emissions in 2002 compared to 2001. It has also reported on the performance of the energy-intensive sectors of industry in meeting their first negotiated agreement targets.
The 44 sectors of industry covered by the agreements have cut carbon dioxide releases into the atmosphere in 2002 by 13.5 million tonnes (3.7 million tonnes carbon) against a 2000 baseline, almost three times above target. Although a large proportion of this has come from just one sector (steel), the other sectors have exceeded their targets by almost one million tonnes of carbon dioxide. Companies covered by the agreements have bought and used almost 600,000 emissions trading allowances to meet their targets, and have either sold or retained the equivalent of 4 million tonnes of carbon dioxide.
As set out in the 1999 Pre-Budget Report, the Government remains willing to consider alternative criteria for defining energy intensive sectors of industry eligible for entry into negotiated agreements. However, any criteria must meet the four tests which were set out when the levy was initially announced: they must have a clear rationale, and be administratively simple, legally robust, and consistent with EU state aids rules. The Government is exploring with business whether any criteria can be identified which meet the four tests and which would enable agreements to be extended to other energy intensive sectors subject to international competition, as part of its strategy of developing and enhancing the levy to improve its environmental effectiveness.
Domestic energy efficiency
The Government conducted an initial consultation on the potential for using additional economic instruments to improve household energy efficiency in 2002. After considering all the responses, the Government will shortly undertake further detailed consultation on specific measures to encourage household energy efficiency.
Sustainable housing
The Government will be undertaking a new review of the factors affecting the supply of housing. The review will include consideration of the interaction between housing supply and sustainable development objectives. The Government will also continue to consider the use of economic instruments to support regeneration and encourage brownfield development.
Sulphur-free fuels
Under EU agreements, sulphur-free fuels must replace conventional road fuels by 2009. The duty incentive that will be introduced from 1 September 2004 is designed to facilitate this process, and will help to offset the extra costs of production of these more environmentally friendly fuels.
A sulphur-free fuel has a sulphur content not exceeding 10 parts per million. Sulphur-free fuels give immediate greenhouse gas emissions improvements in existing cars, because they enable catalytic converters to function more effectively. They also offer greater long-term reductions in carbon dioxide emissions when used with new engine technologies. In the short- to medium-term, however, because of additional refining requirements, sulphur-free fuels need more energy to produce than ultra-low sulphur fuels, resulting in higher carbon dioxide emissions from oil refineries removing the sulphur. The Government has chosen the date of introduction carefully to ensure that environmental benefits overall are maximised.
Bioethanol
Bioethanol is usually produced from crops such as sugar beet and wheat. In some countries it is widely used as a road fuel, when blended with petrol, and it can reduce tailpipe emissions of greenhouse gases and local air pollutants. Bioethanol can also be produced from waste materials such as forestry residues and straw. The Government will continue to examine the best way of promoting bioethanol from less conventional feedstocks.
The reduced rate of duty (from 1 January 2005) is consistent with the Government’s strategy of sustainable development and environmental objectives, and will help to meet the extra costs of production of this more environmentally friendly form of fuel.
Rebated gas oil and fuel oil
Duty differentials in favour of ULSD and ULSP have been effective in encouraging a switch to these more environmentally friendly road fuels. Use of oil other than as road fuel, however, continues to contribute to problems with local air quality. Rebated gas oil (red diesel) will still be taxed at over 40 pence per litre less than the ULSD rate, but has a permitted sulphur content of up to 2,000 parts per million (compared with a maximum of 50 parts per million for ULSD). Fuel oil is taxed below the red diesel rate but has a permitted sulphur content of up to 10,000 parts per million.
Enhanced capital allowances
Business expenditure on plant and machinery normally qualifies for tax relief as capital allowances, given at a rate of 25% a year on the reducing balance basis. Special schemes enable a business to claim a greater amount of tax relief against its profits over period in which it makes the investment. The main schemes are 100 per cent enhanced capital allowances for energy-saving investments and 40 per cent first-year allowances for investments by SMEs.
Climate change levy
The CCL was introduced on 1 April 2001 as an environmental tax on the use of energy by business and the public sector. The purpose of the CCL is to encourage the efficient use of energy, in order to help meet the UK’s targets for cutting emissions of greenhouse gases.
The revenue raised by the levy is recycled back to business, primarily through the 0.3 percentage point reduction – worth around £1.7 billion in 2003-04 – in employers’ national insurance contributions introduced with the levy. Revenue from the levy also provides support for investment in energy efficiency measures through 100 per cent enhanced capital allowances and support for the Carbon Trust, which provides advice for business and supports the development of low carbon technologies. The levy and package of associated measures form part of the Government’s strategy for moving the burden of tax from ‘beneficial’ activity such as employment to ‘detrimental’ activity such as pollution.
Negotiated climate change agreements
Since the start of CCL, 44 eligible energy intensive sectors of industry have been able to enter into negotiated agreements to improve their energy efficiency and reduce emissions in return for an 80 per cent discount from the levy. Facilities that have been certified by DEFRA as having met their 2002 targets can continue to benefit from the levy discount from April 2003 to March 2005.
Exemption from CCL for energy used in certain recycling processes
In July 2002 an extra-statutory concession was introduced that exempts from the CCL energy used for certain environmentally-friendly industrial recycling processes. This exemption applies to such recycling processes that compete with processes that use fuels for non-energy purposes or for dual energy/non energy use (e.g. coke used in steel blast furnaces). Legislation for the extra statutory concession is being introduced in Finance Bill 2003.
Fuels used for non-energy purposes or for dual energy/non-energy uses are not subject to the climate change levy. The extra-statutory concession allows competing recycling processes that use less energy to benefit from a similar exemption. Businesses and trade organisations that believe the energy product used in their processes should be eligible for the exemption, and who have not already done so, should submit details and evidence to Customs and Excise. Customs and Excise will determine whether each individual process justifies an exemption. Exemptions have been backdated to 1 April 2001.
Aggregates levy
The aggregates levy was introduced on 1 April 2002 at £1.60 per tonne of virgin aggregate, and is an environmental tax on the commercial exploitation of aggregates in the UK. The objective of the levy is to reduce the demand for virgin aggregate and encourage the use of re-cycled materials, thereby reducing the environmental costs associated with quarrying operations, including noise, dust, visual intrusion, loss of amenity and damage to biodiversity. The rate of the aggregates levy is frozen in Budget 2003.
To support businesses and communities affected by aggregates extraction the introduction of the aggregates levy was accompanied by a new Aggregates Levy Sustainability Fund (ALSF) and a 0.1 percentage point reduction in employer NICs. The ALSF in England was launched in April 2002 and its work to date has concentrated on reducing the demand for primary aggregates, promoting environmentally-friendly extraction and transport, and reducing the local impact of aggregates extraction.
The Government is phasing in the aggregates levy over 5 years for aggregates used in the manufacture of processed products in Northern Ireland. This relief recognises the unique position of processed product manufacturers in the province, which face increased international competition because of the land boundary with the Republic of Ireland. The Government is continuing to review the impact of the phasing-in of the levy in Northern Ireland.
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