Environment Related Measures in Budget 2003

In recent years the publication of an autumn Pre-Budget Statement has meant that many new policies and fiscal measures are announced several months ahead of the Budget. This was largely the case for those provisions aimed at protecting the environment. There was confirmation of a steep rise in landfill tax on waste and a cut in bioethanol duty. Neither the Climate Change Levy, Aggregates Levy, air passenger duty nor road fuel duty were increased to take account of inflation. However, there were some additional details outlined in the 2003 Budget on funding for waste policies and on new capital allowances.

Waste management

The 2003 Budget confirmed that the standard rate of landfill tax increased from £13 per tonne to £14 per tonne from 1 April 2003. As indicated in the 2002 Pre Budget Report, the Government confirmed that this rate will increase by £3 per tonne in 2005-06 and thereafter by at least £3 per tonne per year until it reaches £35 a tonne by 2011 at the latest. There will be further consultation on options to ensure that the increase in the tax will be revenue-neutral to business, with the possibility of support to those sectors facing the greatest waste management challenges. The final announcement on a package of measures will be made in the 2003 Pre-Budget Report. The £2 per tonne rate of landfill tax applying to inactive or inert waste remains unchanged.

The Waste Minimisation and Recycling Fund is to be reformed into a local authority Waste Management Performance Fund in England. A proportion of the Landfill Tax Credit Scheme funding, £100 million in 2003-04 and £110 million in 2004-05 and in 2005-06, will be redirected to public spending to finance this new scheme. The Fund will provide non-ringfenced incentives for local government to increase access to doorstep collection and promote recycling for households, as well as for reducing the volume of waste generated. A final decision on the start date of the Performance Fund and its operational details will be announced following further consultation by DEFRA with local government. Decisions on how the landfill tax increases will be made revenue neutral to local government will be taken at the same time.

Local community environmental projects will benefit by £47 million per year from the Landfill Tax Credit Scheme, broadly similar to current levels. Regulations will be introduced by summer 2003 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 to work with Entrust, the regulator of the scheme, and other stakeholders in attempting to improve it. By the summer 2003, the administration will be simplified by reducing the information required, and the auditing process will be tightened up to improve the information recorded on project funding, monitoring and evaluation.

As announced in its 2002 Pre Budget Report, the Government is to commission a review of the environmental and health effects of all waste management and disposal options. In conjunction with consultation with stakeholders, the findings of this review will be used to examine case for using economic instruments for waste incineration.

Energy use

The Government is exploring the possibility of extending the scope of negotiated Climate Change Agreements, which allow an 80% reduction on the Climate Change Levy. Since the start of the Levy, 44 eligible energy intensive sectors of industry have been able to enter into negotiated agreements. As set out in the 1999 Pre-Budget Report, the Government has said that it remains willing to consider alternative criteria for defining energy intensive sectors of industry eligible for entry into negotiated agreements. However, any criteria must meet four tests set out when the Levy was initially announced, i.e. it must have a clear rationale, simple administration, be 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.

An initial consultation on the potential for using additional economic instruments to improve household energy efficiency was conducted in 2002. After considering all the responses, the Government announced in Budget 2003 that it will shortly undertake further detailed consultation on specific measures to encourage household energy efficiency.

Environment technologies

The Green Technology Challenge, a scheme launched in 2001 to promote technology contributing to environment protection, has been extended to cover investments in automatic metering and monitoring equipment when used in energy efficiency practices. The list of technologies eligible for Enhanced Capital Allowances (ECAs) will be expanded to include existing boiler, compressed air and refrigeration technologies, once work to define precise performance standards for these technologies is complete. This is expected to be some time during the summer of 2003.

Further ECAs are also to be introduced for water-efficient technologies. These 100% first year allowances are available for qualifying expenditure incurred from 1 April 2003 on technologies that can reduce water use and improve water quality. The scheme, which is available to all businesses, will apply initially to equipment that meets the strict water efficiency criteria and will include meters and monitoring equipment, flow controllers, leakage detection and efficient toilets and taps. Specific technologies that qualify will be published in the Water Technology List following Royal Assent of the Finance Bill.

Vehicle fuel

A reduction in the duty on bioethanol so that it is 20p a litre lower than conventional low-sulphur fuel is to take effect from 1 January 2005. The move is intended to stimulate the production of bioethanol from sugar beet, wheat, straw or forestry residues in the UK. However, there is some doubt that this measure will have the desired effect. The National Farmers Union have said that it would fail to provide any meaningful encouragement to Britain's emerging bioethanol industry and is to press for an additional cut of 6-10p per litre.

Duty on biodiesel and conventional diesel and petrol is frozen for the time being, although an increase in line with inflation will be considered on 1 October 2003. A duty differential for sulphur-free fuels of half a penny per litre relative to the rates for ultra-low sulphur fuels will be introduced from September 2004. Under an EU Directive, sulphur-free fuels must replace conventional road fuels by 2009. Duty on LPG was left unchanged.

The high sulphur content of rebated gas oil (red diesel) and fuel oil was used as justification for an immediate one penny per litre increase. Red diesel, which has a permitted sulphur content of up to 2,000 parts per million, will still be taxed at over 40 pence per litre less than ultra-low sulphur diesel. Fuel oil is taxed below the red diesel rate but has a permitted sulphur content of up to 10,000 parts per million. The Government is to consult producers, distributors and users of red diesel and fuel oil, together with environment groups, to establish whether preferential duty rates for rebated oils with low sulphur content would offer worthwhile benefits in terms of reducing emissions.

Vehicle excise duty

Vehicle excise duty for most cars and vans is to increase by £5 from 1 May 2003, except for the most polluting vehicles on which it will rise by £10. A new lower band is being added for cars emitting less than 100 grams per kilometre (g/km) of carbon dioxide. Petrol cars in this category will pay duty of £65, diesel models £75 and alternative fuel vehicles and petrol-electric hybrids will pay £55. This increases the differential between the least and the most polluting cars to £110 per annum. Vehicle excise duty for motorcycles was frozen, as was that for lorries, a move welcomed by road haulage companies as it could represent savings of several thousand pounds for the largest trucks.

Company cars and vans

Since April 2002, company car taxation has been based on carbon dioxide emissions. There is to be a further tightening of the benefit-in-kind taxation on company cars, in the 2005-6 tax year, but it will be only half as stringent as measures already introduced for the current financial year and scheduled for 2004-5. The maximum carbon dioxide which a car can emit to gain the most favourable tax break was cut by 10 g/km to 155 g/km and will be cut by a further 10 g/km in the 2004-05 tax year. The 2005-06 reduction will be only 5g/km. It was also announced that there will be consultation on the tax treatment of company vans in the near future.

For further information please contact Mark Rutter on +44(0)20 7367 3182 or at [email protected].