UK: How Green Is The New "Green" Budget?

Last Updated: 18 March 2008
Article by Kathy Mylrea and Valentina Keys

The Chancellor of the Exchequer, Alistair Darling, delivered his first Budget speech on Wednesday 12 March. It was promised to be the "greenest" budget yet, imposing new pollution restrictions and boosting energy-efficiency. A number of new green measures were introduced. Critics are concerned, however, that although the Budget contained some sound measures on car tax, carbon budgets and aviation, overall these failed to live up to the promise of "putting sustainability at the heart of the budget". This article seeks to provide a brief summary of key changes which have been put forward and which are likely to impact on the retail, property, aviation, transport and energy sectors.

The Budget sets out the following actions the Government plans to take to ensure that the UK is well-placed to succeed in the low-carbon . We have grouped these on the basis of their direct relevance to a sector although many of the initiatives will also have effect in other sectors.

Retail

Plastic bag tax

Landfill tax

The Government will introduce legislation to impose a charge on single-use carrier bags next year if retailers do not take voluntary action; this is estimated to lead to a 90 percent reduction, with around 12 billion fewer plastic bags in circulation. The money raised would go to environmental charities;

As promised in Budget 2007, from 1 April 2008, the standard rate for landfill tax will increase by £8 per tonne each year. The lower rate applying to inactive waste will also increase from £2 to £2.50 per tonne, on the same date and, as announced in Budget 2008, will be frozen at £2.50 for 2009-10.

Transport

Fuel-duty

Fuel duty rates will rise by 0.5 pence per litre above indexation on 1 April 2010, in order to reduce polluting emissions and fund public services. However, the Government will postpone the 2 pence per litre fuel duty increase expected on 1 April 2008 until 1 October 2008;

Tax on high-pollution cars

Significant reform to car vehicle excise duty (VED) rates to encourage the development and purchase of lower carbon emitting cars, with the introduction of new bands from 2009 to reward drivers of the cleanest cars and higher first year rates in 2010-11 to influence purchasing choices. A VED discount fpr the early take-up of Euro V technology diesel vans will also be introduced in 2009. As a result of these changes the majority of drivers are promised to be better, or no worse off while carbon emissions from vehicles are to be reduced from 130 grammes to 100 grammes by 2020;

Taxation of business cars

Strengthening the environmental incentives for taxation of business cars, along with simplifying measures;

New Road pricing technology

Inviting tenders to develop road pricing technology in order to reduce congestion and help environmental measures;

Biofuels

Supporting the most sustainable biofuels by removing the duty incentive and increasing support through the Renewable Transport Fuels Obligation (RTFO). To encourage development of the cleanest, most sustainable biofuel, the duty differential for biofuels will cease in 2010 and the RTFO buy-out price will be set at 30 pence per litre, providing a better incentive for biofuels. (EC has proposed that at least 10% of all fuel must be sourced from biofuels by 2020).

Energy/Property

Green Home Service

As part of the move to encourage green energy generation, a total of £26 million will be committed to the Green Home Service to help families cut fuel bills and advise consumers on how they can reduce carbon emissions, waste and water consumption. One of the key schemes to boost energy efficiency is the Carbon Emissions Reduction Target (CERT) which obliges energy suppliers to install energy efficiency measures like loft and cavity wall insulation in homes, with estimated spending of £2.8 billion;

£1.5 billion social tariffs

Energy companies are to spend £1.5 billion a year on social tariffs, helping priority group of people on low incomes and over 70s to reduce carbon emissions in their homes;

Zero-carbon homes

As well as setting the target of making new homes zero-carbon by 2016, new public sector buildings will become zero-carbon from 2018 and new non-domestic buildings from 2019;

Fuel benefits for over 60s

Instead of a tax on energy industry’s windfall profits, ministers have negotiated what is being billed as a voluntary agreement with the industry to do more to ease fuel poverty. The fuel giants will help to fund a package aimed at easing the bills of the over-60s by up to £250 a year and £400 for over-80s at a cost to the energy firms of £1bn over four years;

Renewables

Microgeneration technologies, such as solar heating and small wind turbines, which can be used at household and community level, have the potential to increase energy-efficiency. The Government is yet to consult Ofgem on the most appropriate support mechanism for microgeneration, including the option of a feed-in tariff, which has proved to be very successful in Germany;

Stamp duty exemption

Extending the Stamp Duty Land Tax exemption from zero-carbon homes to new flats, retrospectively from 1 October 2007;

Landfill Tax Exemption

The landfill tax exemption for waste from contaminated land will be phased out by 1 April 2012, instead of 2010 as originally proposed. Land remediation relief will also be extended on derelict land and to the removal of Japanese knotweed by treatment from April 2009.

Aviation

Air passenger duty

Building on the announcement in the Pre-Budget Report 2007, that air passenger duty will be replaced by a duty payable per plane, the government is in the process of consulting on the new duty and has promised to increase forecast tax revenues from the new per plane duty by 10 per cent in its second full year of operation. This way airlines would be taxed a fixed amount no matter how many passengers they carried, thus encouraging them to operate fuller flights;

Aviation in EU ETS:

The Government claims to be confident that agreement will be reached on the inclusion of aviation in the EU Emissions Trading Scheme by 2012, thus forcing the aviation sector to play its part in delivering real carbon reductions.

Climate change

£800 million fund

UK is to use its £800 million international Environmental Transformation Fund to work with the United States, Japan and other countries as well as the World Bank to fund clean technologies in developing countries, adaptation to climate change and act on deforestation. In the summer the Government will publish a low-carbon technology strategy, detailing better coordination of existing and new schemes which focus on wind and solar energy as well as carbon capture and storage;

Climate change levy

Increasing the climate change levy as well as the aggregates levy in line with inflation, in order to maintain the environmental incentive effect;

EU ETS Phase III

Auctioning 100 per cent of allowances to large electricity producers in Phase III of the EU Emissions Trading Scheme.

Carbon

Carbon Budget

From now on, the first Carbon Budget is to be set alongside Budget 2009 until 2022;

£75m tonnes of CO2 reduction

The Government plans to consult on achieving targets with the potential to save 75 million tonnes of carbon dioxide over the next thirty years;

80% carbon target

Inquiring with the Climate Change Committee to advise whether as part of an international agreement – UK should raise its carbon target to 80 per cent.

Friends of the Earth commented that the 2008 Budget announcement fell a long way short of the green budget Mr Darling promised. In their opinion Mr Darling backtracked on fuel duty, and no concrete measures were set out to insulate the homes of the fuel poor, or make it cheaper and easier for people to switch to "go green". Nonetheless, there is no denying that a number of potentially significant measures have been adopted with regard to reducing emissions and it remains to be seen how far the much-publicised "green" mentality of this government developes in action.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.



The original publication date for this article was 14/03/2008.

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