In its 2002 Budget, the Government announced that
its strategy was to "protect the environment by continuing to work
with business and consumers and harnessing the power of markets"
and declared that economic efficiency and environmental protection
were complementary. The series of measures it believes will achieve
this aim are outlined in this report.
Exemption from climate change levy (CCL), currently
available for electricity generated from renewable sources and
certain qualifying combined heat and power (CHP) schemes, is to be
extended to all 'good quality' CHP schemes and coal mine methane.
However this will be subject to EU state aids approval.
Five new groups of energy-saving technologies have
been added to the eight technologies already covered by an enhanced
capital allowances (ECAs) against tax for investments in approved
technologies introduced in 2001 The new qualifying technologies are
heat pumps, radiant and warm air heaters, solar heaters,
energy-efficient refrigeration equipment including display cabinets
and compressor equipment. The availability of ECAs for these
environmental technologies is also to be extended so that lessors
may claim ECAs on qualifying energy-saving assets for leasing. The
Government anticipates that, subject to EU state aid approval, the
new technology groups will be added to the list of qualifying
technologies during the Summer 2002.
The rate of duty on non-road fuel oils, such as red
diesel, is frozen. New measures aimed at combating oils fraud were
outlined in a consultation exercise in November 2001 following the
pre-Budget Report. These comprised the introduction of: a new
approval scheme designed to tighten controls on the distribution
network for rebated fuels, intended for off-road use and kerosene
intended for home heating; tighter controls on the use of duty-free
oils in industrial processes ('tied oils'); a new, EU-wide
'Euromarker' to be added to rebated fuels, designed to make it
easier to detect vehicles using rebated fuel purchased abroad for
illicit use on the UK's roads; and the release of additional
resources to aid the enforcement of these new controls, including
the deployment of increased staff and investment in new technology
to support the detection and investigation of oils fraud.
There was a freeze on vehicle excise duty (VED) for
cars. A new reduced band of VED for the most efficient,
'low-carbon' cars has been introduced. For new licenses commencing
from May 2002, a new 'AA' VED band will be introduced for low
carbon cars first registered from March 2001 and emitting up to
120g/km of carbon dioxide. This will reduce the VED rate for these
cars by £30 and will result in a difference of £100 a year in VED
between the most and least polluting cars. Cars that will qualify
for the new reduced band include the most efficient versions of the
Ford Fiesta, Vauxhall Astra and Peugeot 206, as well as the hybrid
electric-diesel Honda Insight and Toyota Prius.
There is also further support for new low emission
cars in the form of 100 per cent enhanced capital allowances (ECAs)
(first-year allowances) on the amount spent by businesses on
purchasing new cars, registered on or after 17 April 2002, emitting
up to 120g/km of carbon dioxide. Prior to this measure, cars did
not qualify for first-year allowances but expenditure qualified for
allowances at 25 per cent a year on the reducing balance basis,
subject to a maximum yearly amount of £3,000. The new measure also
removes the special rules that apply to cars with a retail price of
more than £12,000.
Motorcycle VED has been reformed with the intention
of reflecting the environmental benefits of motorcycles compared
with cars, to take effect for licences starting from May 2002. For
licences commencing from May 2002, the new rate for motorcycle VED
will be: £15 up to engine size 150 cc; £30 for engine size 151 -
400 cc; £45 for engine size 401 - 600 cc and £60 above 600 cc.
A reduced VED rate of £105 has been introduced for
vans which meet the euro-IV emissions standard from March 2003,
while VED for other vans and buses was also frozen. The Government
also said that as part of Spending Review 2002, it will review
existing support mechanisms for buses, in particular the fuel duty
rebate, to assess whether they provide effective support for buses
and are consistent with the Government's objectives.
In order to address the increasing problems of
abandoned vehicles, the Finance Bill 2002 will include provisions
for a new offence to ensure that, in future, all vehicles will be
traceable to the current keeper.
Duty on road fuels was unchanged, although there
was some new support for cleaner fuels as it was revealed the
Government intends to introduce a fuel duty differential for
sulphur-free petrol and diesel in 2003. In addition, a second
competition under the Green Fuel Challenge for pilot projects
researching future cleaner fuels is to be launched. A second round
of bids seeking support for research into a wider range of
alternative transport fuels with duty reductions or exemptions is
to be invited. Subject to the outcome of the first round of that
competition, the Government intends to exempt hydrogen from fuel
duty for a limited period to encourage its further development and
The Government will also provide 100 per cent ECAs
for installing equipment for refuelling vehicles with natural gas
or hydrogen fuel. As announced in Budget 2001, in recognition of
its environmental benefits, biodiesel will shortly benefit from a
new, lower rate of duty, 20 pence per litre less than ultra-low
While VED for lorries was frozen, it was announced
that the Government aims to introduce a distance-based road-user
charge for lorries by 2005 or 2006. This follows a consultation
launched in the Pre-Budget Report. However, it promised to
introduce tax cuts for the haulage industry to offset this charge
for UK operators when the new charge is introduced. Further details
are to be outlined in the near future.
Employees receiving free or discounted travel on
buses subsidised by their employers will not pay tax on it as a
benefit in kind.
A reform of the fuel scale charge, under which
employees pay tax on fuel received free from their employers for
personal use was confirmed. It will reflect from 2003-04 the carbon
dioxide emissions of their car rather than its engine size, in line
with the company car tax system. There will also be a proportionate
reduction if an employee receiving free fuel decides to opt out
part way through the year.
There was a freeze of the current rates of air
passenger duty (APD) and, from 1 November 2002, extending the scope
of the reduced rates that currently apply to European Economic Area
destinations, to include Switzerland and countries applying to join
the European Union. This will reduce the duty to holiday
destinations such as Cyprus, Malta and Turkey by at least £15 a
flight. The Government is to consider the role of economic
instruments to deal with the environmental impacts of aviation as
part of the Aviation White Paper in the near future.
In line with the 1999 Budget commitment to adopt a
landfill tax escalator of £1 per tonne a year for five years until
2004, the current standard rate of landfill tax will increase from
£12 per tonne to £13 per tonne with effect from 1 April 2002. The
lower rate of tax for inert waste remains at £2 per tonne. It was
also stated that the Government anticipates that the standard rate
of landfill tax will need to be increased significantly in the
medium term as part of future policy measures. Future decisions on
landfill tax and the case for a tax on incineration will be
influenced by the Performance and Innovation Unit (PIU) waste
project findings. The Government is currently consulting on the
future of the landfill tax credit scheme. The consultation seeks
views both on options for funding mechanisms and on priorities for
support. Responses to this consultation will be considered in the
context of Spending Review 2002.
Use of Economic Instruments
It was also announced that the Government would
review the potential to extend the use of economic instruments for
environmental purposes. It declared that it would develop with
stakeholders its strategy to tackle environmental issues using
economic instruments over the coming months. Specific areas
referred to included nutrient pollution associated with agriculture
in an attempt to ensure that forms of farming less harmful to the
environment would not be penalised. Another area alluded to was
household energy efficiency, although existing Government policy
not to introduce new taxes on the use of energy by households was
Also announced was a Government plan to introduce
ECAs for investment in designated technologies to minimise water
use and improve water quality during 2003. Work is being undertaken
currently to identify the most appropriate qualifying
There were no new provisions relating to quarrying
or aggregates in Budget 2002. The aggregates levy was introduced as
planned on 1 April 2002. All revenues from the introduction of the
levy are to be recycled back to business via a cut in employers'
National Insurance Contributions and the £35m Sustainability Fund.
DEFRA are responsible for the Fund in England, while the Devolved
Administrations are responsible for the Fund in Scotland, Wales and
For further information please contact Mark Rutter
on +44 (0)20 7367 3182 or at firstname.lastname@example.org.