The Chancellor made “An environmentally sustainable world” a key part of
his 2008 Budget. This is not surprising given the high political profile of
climate change and that environmental taxes have actually fallen as a
proportion of total tax yield in the period 1997 to 2006.
The measures announced today include:
A reform of car taxation encouraging consumers and
business to use cleaner and more efficient vehicles:
For consumers, reform of vehicle excise duty from 2009 based on carbon
dioxide emissions. A notable highlight is a first year ‘show-room’ tax,
with vehicle excise duty of £950 from 2010-11 for the most polluting
vehicles. By contrast, there will be a first year zero rate for new cars
that emit 130g CO2 per km or less. These changes can be expected to have
real impact on behaviour.
For business, car capital allowances are to be based on emissions with
low emission cars continuing to receive a 100% first-year allowance
until 31 March 2013 (this was due to expire in 2008). In addition,
company car benefit tax rates, which are already based on CO2 emissions,
will generally increase from 6 April 2010.
The removal of the existing biofuel duty rate
differentials for specific biofuels in view of the commencement of the
Road Transport Fuel Obligation from April 2008, which is expected to
offer better support for different types of biofuels.
Capital allowances for expenditure on thermal
insulation on all qualifying business buildings, extension of Enhanced
Capital Allowances to ‘good CHP’ and an extension of 100% First Year
Allowance for expenditure incurred on natural gas, hydrogen fuel and
biogas to 31 March 2013.
Retrospective exemption from Stamp Duty Land Tax on
new zero carbon flats from 1 October 2007.
Climate Change Levy rates to rise in line with
inflation, and Aggregates Levy will increase from £1.95 per tonne to £2
per tonne from 1 April 2009.
Landfill tax rate increases had already been
announced in the 2007 Budget, however, it was announced today that the
lower rate applying to inactive waste, will be frozen at £2.50 per tonne
from 2009-10. Contaminated land relief for landfill tax is being phased
out by April 2012 with the revenues being earmarked for land remediation
relief. These changes could bring significant costs to developers of
brown field sites.
A number of policy measures including:
consultation in summer 2008 on what the UK should do to increase
renewable energy use and meet its share of the EU target and how to
overcome planning and grid access issues,
proposed auctioning of 100% of allowances for large electricity
producers in Phase III EU Emissions Trading Scheme,
a ‘plastic bag tax’ on retailers if they do not take action on
single-use carrier bags. Other countries such as Ireland and Denmark
already have such measures in place.
The proposed environmental fiscal measures will actually
cause the tax yield to fall in the short term by £575m (primarily due to a
deferral of a 2p fuel duty rise from April to October 2008), although in
total the measures are expected to yield £1.085bn net over 2008-11,
primarily due to vehicle excise duty which accounts for £1.2bn. This is in
addition to other environmental fiscal measures announced since the 2007
Budget which are expected to yield £0.83bn over the same period. The biggest
of these is the aviation duty which it is intended will replace air
passenger duty by a ‘per plane’ duty from November 2009.
Overall, it is encouraging to see such a wide range of measures being
taken. There is no single silver bullet that will solve the problem
climate change and a broad multi level approach is required. However,
the changes fall short of what many have been calling for; there is for
example no real sign of hypothecation of the environmental tax revenues
for environmental projects.