PN 03

17 March 2004

PROTECTING AND ENHANCING THE ENVIRONMENT

The Chancellor today announced a range of measures covering transport, waste and emissions to protect the environment and encourage responsible environmental behaviour throughout the UK.

DETAILS

Fuel duty

Duty rates for sulphur free fuels will be increased in line with inflation from 1 September 2004, with the duty for ultra-low sulphur fuels set at 0.5 pence per litre above this level from the same date.

The duty on rebated gas oil (red diesel) and fuel oil will be increased by 2.42 pence per litre, reducing the differential between rebated oils and the main road fuels by 1 penny per litre to underpin the strategic approach to tackling oils fraud. Rebated oils are generally higher in pollutants than the main road fuels, yet bear a much lower rate of duty.

Fuel	Old duty rate (pence)	New duty rate (pence)	Change (pence)
Ultra-low sulphur petrol/diesel	47.10 per litre	49.02 per litre	1.92 per litre
Sulphur-free petrol/diesel	47.10 per litre	48.52 per litre	1.42 per litre
Biodiesel	27.10 per litre	28.52 per litre	1.42 per litre
Liquefied petroleum gas used as road fuel	9 per kg (equivalent to 5.4p per litre)	13.03 per kg (equivalent to 7.82p per litre)	4.03 per kg (equivalent to 2.42p per litre)
Natural gas used as road fuel	9 per kg (equivalent to 6.10p per litre)	11.10 per kg (equivalent to 7.52p per litre)	2.10 per kg (equivalent to 1.42p per litre)
Rebated gas oil (red diesel)	4.22 per litre	6.64 per litre	2.42 per litre

The Budget gives three-year certainty for the duty treatment on alternative fuels:

providing a 20 pence per litre duty differential in favour of bioethanol and biodiesel, guaranteed until at least 2007;
reducing the duty differential in favour of liquefied petroleum gases by the equivalent of 1p per litre for each of the next three years to 2007; and
freezing the duty differential in favour of natural gas at its current level (equivalent to 41 pence per litre) to 2007.

Biofuels

HM Customs and Excise will be discussing on the use of input-based taxation for biofuels with stakeholders in summer 2004. The Government will also seek the views of stakeholders the application of Enhanced Capital Allowances for the most environmentally-beneficial biofuels processing plants, with a view to announcing the outcome at the 2004 Pre-Budget Report. The Department for Transport will be publishing the Biofuels Directive consultation paper shortly after the Budget, which will include options on complementary regulatory measures, including a Biofuels Obligation for the transport sector.

Vehicle excise duty (VED)

Budget 2004 announces that VED rates for all vehicles are frozen for this year.

Lorry road-user charging scheme

Today the Government publishes the third progress report on the lorry road-user charging scheme, which sets out the procurement timetable and the design decisions.

Air passenger duty (APD)

Budget 2004 announces that APD rates will be frozen for a third successive year.

Company car tax

The Chancellor today announced that the level of CO2 emissions qualifying for the minimum percentage charge for a petrol car (15%) will be frozen at 140 grams per kilometre for 2006-07. The fuel benefit tax charge applies the same percentage as the company car charge against a set figure. The 2003-04 figure of £14,400 will be frozen for 2004-05.

Emergency service vehicles

Emergency service workers, such as fire and ambulance personnel, are often required to take their vehicles home at night so they can respond quickly to emergencies. The current rules on employees’ home to work travel mean that there is a tax and National Insurance charge on this. This Budget announces that this charge will be removed where there is an operational requirement for emergency vehicles to be taken home.

Reform of company vans

A major deregulation of the company van rules is announced in Budget 2004. From 6 April 2005, a nil charge will apply to employees who have to take their van home (for example, who are on call) and are not allowed other private use. As a transitional measure, the benefit in kind charge of £500 (and £350 for older vans) will be continued for all vans where private use is unrestricted. From 6 April 2007, the scale charge for unrestricted private use will increase to £3000 and if an employer provides fuel for unrestricted private use an additional fuel charge of £500 will apply, taking 85% of those who currently pay a charge out of the system. This will not apply to the self-employed.

Climate change levy

Budget 2004 freezes CCL rates for the third successive year. The Government is extending the scope of the current exemption from CCL for energy products used to create other taxable energy products so that it covers new biofuels.

Climate change agreements (CCAs)

The Budget announces details of the new extended eligibility criteria for CCAs, under which energy-intensive sectors can obtain 80 per cent relief from the climate change levy (CCL) if they agree to increase energy-efficiency and reduce emissions.

Businesses that exceed a 12 per cent energy threshold will be allowed to apply for a CCA without first having to meet a test of international competition. Businesses currently eligible for CCAs will remain eligible but, in addition, the Government will extend CCAs to businesses that pass an energy intensity threshold of 3 per cent and can in some cases demonstrate the existence of international competition issues.

Household energy efficiency

The Chancellor announced today the introduction of a reduced rate of VAT for the installation of Ground Source Heat Pumps from 1 June 2004. On micro-CHP, the Government is ready to extend its support by introducing a reduced rate of VAT on micro-CHP units, taking account of the outcomes from the field trials and will look to introduce this in 2005.

Budget 2004 also announces:

a landlord's energy saving allowance, which provides individual private landlords with up-front relief on capital expenditure up to a value of £1,500 for energy saving installations of loft and cavity wall insulation in rented accommodation; and
that the Government will consider introducing a green landlord scheme, this would look at incentives for landlords - possibly through recognition of properties that achieve a sufficient level of energy efficiency.

Landfill tax

In line with the five-year escalator announced in 1999, the standard rate of landfill tax will increase by £1 per tonne to £15 per tonne on 1 April 2004. This will be followed by increases of £3 per tonne in 2005-2006, and of at least £3 per tonne in the years thereafter to a medium- to long-term rate of £35 per tonne. The lower rate of landfill tax - which applies to inactive wastes such as soil that do not give off emissions - will remain at £2 per tonne.

The value of the Landfill tax credit scheme will be revalorised so that for 2004-05 it will be worth £48.3 million.

Recycling landfill tax revenue

Since the 2003 Pre-Budget Report, the Government has published research on the different options for recycling revenue and consulted stakeholders on these. A number of options are now being examined in detail, and consultation with stakeholders is continuing.

Aggregates levy

For the second consecutive year, the Government has decided to freeze the rate of aggregates levy at £1.60 per tonne.

Northern Ireland relief scheme

Following discussions with stakeholders, the Government is today publishing details of how the extended relief scheme will operate later this year, if state aid approval is obtained. These details include how quarry operators can obtain the relief and what they need to do to qualify.

Water and biodiversity

The Government has been considering the scope for using economic instruments to tackle the most pressing environmental issues associated with agriculture. The Government will shortly launch a consultation on measures to reduce levels of diffuse water pollution, including consideration of the possible use of economic instruments.

Building on the current scheme of enhanced capital allowances for business investments in qualifying water-efficiency technologies, the Government will introduce further ECAs for rainwater harvesting equipment in 2004.

NOTES FOR EDITORS

Road fuel gases

LPG provides environmental benefits, particularly in relation to air quality and is useful in terms of CO2. The Government has committed support to the LPG industry through the duty differential, grants for vehicle conversion and reduced rates of vehicle excise duty - the highest level of subsidy for LPG in Europe. This subsidy was specifically provided to enable the necessary infrastructure to be developed. Thanks to this support the UK now has over 1400 refuelling sites, servicing over 100,000 LPG cars nationwide, with sales of road fuel gases growing from 4 million litres to 200 million litres per year since the Government froze duty in Budget 2001.

Natural Gas vehicles provide environmental benefits, particularly with regard to improved air quality emissions, low noise and reductions in C02 emissions compared to diesel equivalents. Growth of the natural gas sector has been slow, but with the freeze of the differential of the fuel, the Government expects the number of vehicles in the UK to increase substantially from their current level.

Biofuels

Biodiesel sales have increased from almost nil to around 2 million litres per month since the Government introduced a duty incentive in July 2002.

From 1 January 2005 duty on bioethanol will be set at 20 pence per litre below the sulphur free duty rate.

Company car tax

Company car tax was reformed in April 2002. These reforms changed the way that company cars were taxed to better protect the environment, the new system provides an incentive for company car drivers and their employers to choose more fuel efficient cars, removes any incentive to drive unnecessary extra business miles and encourages manufacturers to produce cars with lower carbon dioxide emissions.

The Government’s ongoing evaluation of the new emissions-based system has found that in 2003 around 0.15 to 0.2 million tonnes of carbon were saved through reduced CO2 emissions; company cars travelled an estimated 300 – 400 million business miles less in 2003, helping to reduce congestion; and employers are better off. After one-off costs to implement the changes to the tax calculations, employers are saving around £35 million each year in compliance costs as they do not have to keep records of business mileage. A report of the initial evaluation findings will be published by the Inland Revenue shortly.

The benefit charge where an employee receives free fuel for private motoring in a company car was reformed in April 2003 to follow the environmental principles of the company car tax reform. This is now calculated by applying the same percentage that applies to the company car benefit to a set figure.

Company vans

Budget 2003 announced that the Government would consult on the possible reform of the tax treatment of company vans. The consultation invited responses on the simplification of shared van calculations and the use of environmentally-friendly vehicles, while taking into account fairness and modern working practices.

Climate Change Agreements

The CCA scheme enables energy-intensive sectors to obtain 80 per cent relief from the climate change levy (CCL) if they agree to increase energy-efficiency and reduce emissions. CCAs have already delivered substantial carbon savings, almost three times more than the original target, and the Government believes that extending the eligibility criteria will deliver more.

Climate change levy

The CCL encourages business to use energy more efficiently and to reduce emissions of CO2. The levy package is expected to reduce emissions by the equivalent of at least 5 million tonnes of carbon by 2010.

It is broadly revenue neutral for business, with CCL revenues recycled back to business by means of a 0.3 percentage point reduction in employer national insurance contributions (NICs) introduced at the same time as the levy (April 2001), and support for energy efficiency and low-carbon technologies.

Energy-saving technology

Enhanced capital allowances (ECAs) for investments in energy-saving technologies were introduced in 2001 and currently cover more than 6,000 approved products. The Government is committed to the continued development of the scheme and in 2004 will introduce further ECAs for a range of new products. This is subject to EU state aid approval and work to define the precise performance standards. Additions to the approved list will be made during the summer.

Landfill Tax

The landfill tax encourages efforts to minimize the amount of waste generated and to develop more sustainable waste management techniques. It contributes to the achievement of the Government’s waste strategy targets through the diversion of waste from landfill. Total waste received at landfill sites registered for landfill tax fell by 16 per cent in the period from 1997-98 to 2002-03.

Aggregates Levy

Introduced in April 2002, the aggregates levy seeks to incorporate the environmental costs imposed by aggregates extraction into the price of virgin aggregate, and to encourage the use of alternative materials such as wastes from construction and demolition. There are early indications that production of virgin aggregate has decreased since the levy’s introduction and that construction companies are using more construction and demolition waste rather than sending it to waste disposal sites. The Government is monitoring the impact of the levy to ensure that it is achieving its objectives, and will continue to discuss with the aggregate and construction industries their views on the impact of the levy.

The Northern Ireland Affairs Committee published its report on “The Introduction of the Aggregates Levy in Northern Ireland: One Year On” on 12 March 2004. It indicates that it fully supports the Government’s plans to extend the relief scheme that operates in Northern Ireland.