The following is a summary of the taxes, grants and policy measures announced in the 2001 Budget which may impact on the environment. Many of the provisions were announced previously in the pre-Budget statement or are a continuation of prior Government commitments.
The Government's 'Ten Year Plan for Transport' is aimed at modernising the transport system and tackling congestion and pollution. It includes provisions and investment for supporting public transport, for expansion of rail freight and for road improvements designed to improve and alleviate congestion and pollution in towns. It also includes plans to more than double the annual spending on cleaner vehicle initiatives by 2003–04.
The 2001 Budget cut the duty on ultra-low sulphur petrol (ULSP) by 2 pence per litre. As ULSP is not expected to be available at all filling stations in the UK until June 2001, there is a temporary 2 pence per litre duty cut on ordinary unleaded until 14 June 2001. The higher duty rate for higher octane unleaded petrol was abolished. Therefore, lead replacement petrol (LRP), introduced to replace leaded petrol, was reduced by 2 pence per litre and duty on this fuel is now based on its sulphur and aromatics content. Duty on ultra-low sulphur diesel (ULSD), which now accounts for all diesel used by road vehicles in the UK, was cut by 3 pence per litre.
The Government is also looking to encourage the development of alternative fuels that have environmental benefits over conventional fuels. Its 'Green Fuels Challenge' (GFC) invited industry to come up with practical proposals for such fuels to be considered for duty reductions in the 2001 Budget. As a result, duty on bio-diesel and road fuel gases - compressed natural gas (CNG) and liquefied petroleum gas (LPG) - will be reduced. A new duty rate for bio-diesel of 20 pence per litre below the ULSD rate will be introduced in the 2002 Budget. After a duty freeze on road fuel gases in the 2000 Budget, duty was cut to 9 pence per Kilogram in the 2001 Budget. In addition, in order to encourage market growth, it was announced that duty on road fuel gases will not be increased in real terms until 2004 at the earliest. Unless otherwise specified, all fuel duty changes took effect from 1800 GMT on 7 March 2001.
There were also proposals made under the GFC to stimulate the medium to long-term research and development of cleaner fuels. The 2001 Budget introduced enabling legislation to allow the introduction of duty reductions or exemptions for pilot projects expected to begin in 2001. Such projects include the development of hydrogen, bio-ethanol, methanol and biogas as vehicle fuels. The Government also proposes to consult on how to encourage the development, delivery and take-up of new alternative green fuels and technology.
Vehicle Excise Duty
A major reform to Vehicle Excise Duty (VED) in the 2000 Budget, introduced a four-banded graduated VED system for all new cars purchased from March 2001. The new system links the rate of VED to carbon emission levels and the type of fuel used. The 2000 Budget also introduced a reduced rate of VED for existing cars with engines up to 1,200cc. Owners of qualifying vehicles are currently being contacted by the Driver and Vehicle Licensing Agency and will receive a rebate in respect of their existing licences, backdated to March 2000. The 2001 Budget cut VED by GBP 55 for cars with engine sizes between 1,200cc and 1549cc, backdated to 1 November 2000. The new rate will come into force on 1 July 2001, and rebates will be paid to owners of qualifying vehicles in that month. All other car and motorbike VED rates were frozen until the 2002 Budget.
Company cars and employee travel
The 2000 Budget announced that from April 2002, the income tax charge on a company car would be based on a percentage of the car's list price, graduated according to the level of the car's CO2 emissions. The charge will build up from 15 per cent of the car's price to a maximum of 35 per cent in 1 per cent steps for every 5g/km CO2 above a specified level. Diesel cars will pay a supplement of 3 per cent of the car's price compared to petrol cars (up to a maximum of 35 per cent) to take account of their higher pollution emissions. However, there is draft legislation proposing to waive this supplement for clean diesel cars achieving Euro IV emission standards. The draft regulations also introduce discounts for cars powered by electricity or gas, and hybrid petrol/electric cars which can reduce the car benefit tax below the normal minimum of 15 per cent of the car's price.
The authorised mileage rates for company cars has been restructured in the 2001 Budget through a two-stage reform. From April 2001, allowances for cars in the current two lower engine size bands increased to 40 pence for the first 4,000 miles and 25 pence for further miles. The rates for the two higher bands are frozen. For the second stage of the reform, the Government will introduce a new statutory system of mileage rates from April 2002 that offer a single tax and NICs free rate of 40 pence per mile for the first 10,000 business miles per year for all sizes of car; and a lower rate of 25 pence per mile for any additional business miles above the first 10,000 miles. The forthcoming tax year will be the fourth of a five year programme of annual increases in fuel scale charges announced in the 1998 Budget to discourage free fuel for private use of a company car.
The 2001 Budget includes additional measures aimed at encouraging companies to promote environmentally-friendly travel. The income tax and NICs free mileage rate for bicycles used for business trips is increased to 20 pence per mile from April 2002. A new passenger rate of 2 pence per mile per passenger has been introduced from April 2002 to encourage car-sharing on business trips. In addition, the threshold for works buses qualifying for tax exemptions has been lowered from 12 to 9 passenger seats from April 2002, to encourage employees to travel to work without using their car.
The 2001 budget also adjusts the zero rate of VAT on passenger transport to cover smaller vehicles with 9 or more passenger seats from 1 April 2000. Additionally, there is an increase in the passenger rate that employers can pay tax and NICs free, to 5 pence per mile per passenger. Employers can now also provide other benefits-in-kind associated with green commuting. The Government will consult on whether the tax treatment of employer subsidised contract buses should be aligned with that for employer provided works buses, in allowing employees free or reduced cost travel to work.
The 2001 Budget included measures aimed at helping the haulage industry. The government had already announced that hauliers would receive a rebate of up to 50 per cent of their VED payments for licences in force on 30 November 2000. These transitional arrangements remain in place with lorry VED rates reduced by up to 50 per cent from 1 December 2000. The 2001 budget also introduced a new system of lorry VED which will come into effect from 1 December 2001. The Government has promised to offer reduced VED rates for lorries meeting the new Euro IV standard from around 2004. The current payment methods for lorry VED will also be reviewed to try to make payment of lorry VED easier for small haulage firms. The 2001 Budget also introduced plans to set up a new three-year GBP 100 million Haulage Modernisation Fund (HMF) for the UK. As a first step, this will make up to GBP 30 million available for retrofitting older lorries operating in areas of poor air quality. This will also enable hauliers to qualify for up to GBP 500 lower VED rates.
VED on tractors, similar agricultural vehicles and all other vehicles that currently qualify for the GBP 40 special concessionary VED rate, was abolished from 1 April 2001. The DVLA will automatically rebate owners of such vehicles for outstanding months on their VED discs in May 2001, backdating it to 1 March 2001. However, it will still remain necessary to licence these vehicles annually.
The Urban White Paper, published in November 2000, set out a strategy for regenerating towns and cities and reducing the pressure for development in the countryside. The major aim of the White Paper was to help economic, social and physical regeneration of towns. A number of tax measures were introduced in the 2001 Budget to aid physical regeneration by helping to bring derelict and under-utilised land and property back into productive use. These measures, which will come into operation after Royal Assent of the Finance Bill, include:
- Abolition of stamp duty on all property transactions in the most disadvantaged parts of the UK, targeted at the areas most in need of regeneration. A list of areas which will qualify for the relief will be published in due course.
- Tax relief for cleaning up contaminated land to bring it back into productive use. A 150 per cent accelerated payable tax credit for owners and investors for the costs they incur in cleaning-up contaminated sites.
- Residential property measures include a 100 per cent capital allowance tax for owners and occupiers creating flats over commercial premises for letting. There is also a reduction in VAT for converting properties into a different number of dwellings and for bringing empty properties back into use.
The Rural White Paper, published in November 2000, set out the Government's policy framework for the countryside. It included a commitment to maximise the use of recycled aggregate and other alternatives to primary aggregates. An aggregates levy of GBP 1.60 per tonne to start in April 2002 was announced previously in the 2000 Budget. The Government has said that the revenues raised from the levy will be returned to business and the local communities affected by quarrying through a 0.1 per cent cut in employers' NICs and a new Sustainability Fund. It is intended that the levy will help to ensure that the environmental impact of aggregates extraction are reflected in the price. It is also aimed at encouraging more efficient use of aggregates and the development of alternatives including waste glass, tyres and recycled construction and demolition waste. The Government has accepted, in principle, the notion of differential levy rates linked to the environmental impact of a quarry, but suggests that practical difficulties in assessing compliance and defining environmental performance make this unworkable at present. However, it has indicated that it will continue to explore this option further with interested parties.
The Sustainability Fund will be introduced in April 2002 alongside the aggregates levy. A consultation document was issued in August 2000 on the best use of the Fund and a summary of responses has been published. The 2001 Budget announced that GBP 35 million per year would be allocated to the new Fund. The Government is currently exploring the scope for setting up a UK-wide Fund to maximise environmental benefits and complement the objectives of the aggregates levy. It was announced that there would be consultation on the detailed proposals for the fund in due course.
The current standard rate of landfill tax was increased from GBP 11 per tonne to GBP 12 per tonne with effect from 1 April 2001. This is in line with the 1999 Budget commitment to adopt a landfill tax escalator of GBP 1 per tonne a year for five years until 2004. The lower rate of tax that applies to inert waste will remain at GBP 2 per tonne.
The Government's climate change strategy was set out in a package of policies and measures in the UK Climate Change Programme 2000. The 2001 Budget reinforced this strategy. The climate change levy (CCL) came into effect on 1 April 2001 and will apply to most non-domestic use of energy, although there are several exemptions (see Update Section 9 of this issue). All revenues are to be recycled back to business through a 0.3 per cent cut in employers' NICs and additional support for energy-efficiency measures and energy-saving technologies. The Government announced also that it is committed to developing a successful emissions trading scheme and that companies in CCL negotiated agreements will be able to use emissions trading as a way of reducing the costs of meeting their targets. The rules for the scheme will shortly be set out after consideration of the responses to a consultation paper issued by the Emissions Trading Group (ETG). The ETG hopes to launch an operating scheme in spring 2001. The Carbon Trust, which came into operation on 1 April 2001 to provide advice to businesses on more effective energy use, was also formally unveiled in the 2001 Budget.
Also announced in Budget 2001 were Government plans to consult, during the summer, on setting up a Green Technology Challenge (GTC). This will offer 100 per cent first-year capital allowances for investment in new energy saving technologies and products. Details of the scheme and the full list of eligible products and technologies are to be published in due course.
For further information please contact Mark Rutter at [email protected] or on +44 (0) 20 7367 3182.