Budget good for CHP and least polluting vehicles

In his Budget speech on 17 April, Chancellor of the Exchequer Gordon Brown announced that electricity produced by good quality combined heat and power (CHP) plants will be exempt from the Climate Change Levy (see related feature), as will electricity generated from coalmine methane (see related story). The Chancellor also extended capital allowance for investment in ‘green’ technologies at an enhanced rate of 100% (see the Pre-Budget speech last November).

Five new groups of energy-saving technologies will also benefit from enhanced capital allowances (ECAs) against tax. These technologies are: heat pumps; radiant and warm air heaters; solar heaters; energy-efficient refrigeration equipment, including display cabinets; and compressor equipment. The availability for ECAs will also be extended to equipment for leasing.

“There is not only no necessary conflict between growing the economy and protecting the environment, indeed there is a huge potential for British firms to capture new world markets by investing in environmentally-friendly technologies and creating new businesses and jobs as a result,” said the Chancellor, during his Budget speech.

Brown also announced further freezes on all road fuel duties on vehicle excise duty rates, but also announced measures to aid less polluting fuels. “To encourage more environmentally friendly fuels, I will, from next year, introduce a fuel duty incentive for sulphur-free fuel,” he said. “Having already cut fuel duty for projects on hydrogen, bio-gas and methanol fuels, I am now inviting British business to come forward with further proposals for pilots that would encourage new fuels and which we would support with fuel duty cuts and exemptions.”

There is also to be, starting from 17 April, 100% enhanced capital allowances on companies’ investments in new cars emitting up to 120g/km of carbon dioxide; and on vehicle refuelling infrastructure for compressed natural gas or hydrogen fuel. New petrol cars below this limit include the Honda Insight and the MCC Smart; diesel vehicles include the new Renault Clio, Ford Fiesta, and Peugeot 307.

Last year’s budget also saw a freeze on vehicle and fuel duties, with a two pence per litre reduction in the duty on ultra-low sulphur petrol, and a three pence per litre reduction in the duty on ultra-low sulphur diesel (see related story). However, this year, the Chancellor also announced a cut of £55 in the licence fee for the least polluting vans, cuts of £30 for the least polluting cars, and cuts of £35 for motorcycles. This will mean that there is a difference of £100 between the most and least polluting cars, says the Treasury.

Following calls from the UK road haulage industry that the UK’s high fuel tax should also be reflected in charges on overseas lorries visiting the country, Brown also announced a new road user charge. However, final details of the scheme will be decided following consultation with the road haulage industry.

Other environment-related issues in the budget include the announcement that employer-subsidised bus services will not be subject to tax for benefit in kind, a prediction that the landfill tax will increase, and confirmation that the aggregates levy was introduced from 1 April.

The Liberal Democrat shadow Secretary for the Environment, Food and Rural Affairs, Malcolm Bruce, however, was scathing about Gordon Brown’s environmental credentials. “Exempting combined heat and power from the Climate Change Levy is a short-term reaction to problems in the industry and does not provide long term solutions for the environment,” said Bruce. “Heat produced from waste through incineration should not be exempt from the CCL. Devastatingly, this policy will encourage local authorities to resort to incinerators, as there is no increase in the landfill tax and no new incentives for waste reduction and recycling.”

Bruce also criticised the Chancellor for making no mention of the Curry report on improving the sustainability of agriculture, published in January. “No resources have been committed to implement the Curry report which recommends helping farmers move away from food production and towards environmental protection.”

The Budget also included a new 25% tax credit to boost research and development by large companies, intended to complement that already available for small and medium-sized enterprises. Other assistance for firms include the reduction of the corporation tax starting rate from 10% to zero, so that companies with taxable profits of less than £10,000 will no longer pay the tax; and the rate for small companies has been reduced by one percentage point to 19%.