Wide-ranging package of environmental tax reforms announced in UK Budget

The Budget package includes measures intended to help:

  tackle climate change through reducing emissions of greenhouse gases;

  improve local air quality and support integrated transport; and

  limit the environmental impact of land use and water pollution.

In a move to provide incentives for energy efficiency, the Budget includes taxes on employment, on smaller cars and on clean fuels. The British Government will also shift the emphasis of taxation onto the emission of greenhouse gases in order to alleviate global climate change, local air pollution and the creation of waste.

The Government will introduce a ‘ climate change levy’ on the business use of energy, with offsetting cuts in employers’ national insurance contributions, and additional support for energy efficiency schemes and renewable sources of energy is to be introduced from April 2001.

The Budget also includes:

  A major reform of the company car taxation regime, on a revenue neutral basis, in April 2002.

  A package of seven tax measures to promote non-car commuting, the use of bicycles for business journeys and car-sharing.

  Support for the Government’s Integrated Transport Strategy through the addition of an extra £20 million to the rural transport fund. This will be topped up with £10 million from the Capital Modernisation Fund plus £10 million for the Department of Environment, Transport and the Regions (DETR).

  The alteration of the structure of road fuel duties in line with the commitments made in the last Budget under the terms of the Kyoto Treaty.

  An increase in the rate of landfill tax. This is intended to send a strong signal to waste producers and to allow waste managers and local authorities to consider alternatives to landfill.

  The announcement that draft legislation will be published shortly for a tax on hard rock, sand and gravel used as aggregates. This could lead to the introduction of an aggregates tax. This move follows the publication of DETR research results showing the environmental costs associated with quarrying, including noise, dust, visual intrusion, loss of amenity and damage to biodiversity

In July 1997, the British Government promised to examine the possibility of using the tax system to deliver environmental objectives. The Government’s avowed aim is to shift the burden of taxation from “goods”, such as work, saving and investment, to”bads”, such as environmental pollution.

Economic Secretary Patricia Hewitt, said: “Today’s Budget contains the largest and most radical package of environmental tax reforms ever announced in this country.”

Commenting, David Green, Director of the Combined Heat and Power Association, said: “The Government’s decision to move ahead with a climate change levy is a positive breakthrough – it will encourage UK industry to look more strategically at ways to achieve sustainable energy prices and emission reductions. The challenge now is to ensure that revenue can be recycled to boost industrial investment in energy efficiency, and that any negotiated agreements are effective.”

Environment pressure group Friends of the Earth (FoE) welcomed the Budget tax reforms, saying the Government has taken its “first halting steps towards green economics.”

However, the group pointed out that the Chancellor has lowered the Government’s greenhouse gas emissions reduction target from 20% over 1990 levels by 2010 to 12.5%. FoE estimates that Budget measures designed to meet the Government’s original target on carbon dioxide emissions could create up to quarter of million net new jobs.

“This Budget represents the Government’s first halting steps towards green economics,” said FoE Executive Director Charles Secrett. “We take a parental pride in this infant’s tentative but exciting progress. For the first time we have a clear pledge on an Industrial Energy Tax, and a date when it will be introduced. We also have some welcome moves on landfill taxes, on ending tax breaks on company cars and on cutting Vehicle Excise Duty on small cars. Of course, the Treasury needs to go much further. There must be a clear pledge that new tax revenues will be spent on cutting National Insurance Contributions and supporting sustainable development. But it is a pleasure to be able to announce that after a troubled birth and disappointing early years, the Government is finally toddling in the right direction”

The Green Party was more damning, saying that the Chancellor’s emphasis on industrial growth does not balance against “the extremely limited measures introduced to ensure that industry meets the modest environmental targets that the Government has set.”

“The Budget was short of vision, and lacking in adequate social and environmental reforms,” a Green Party statement said. “It relies on a growing economy in which everyone appears to earn more, and spends more on consuming goods and services within a world of finite resources and a fragile environment.”

The Green Party said a range of taxes on oil, coal and gas could have been introduced with the money diverted into developing renewable energy sources. The Party also called for a greater tax on Landfill Sites (including incineration) and taxes on aggregates and pesticides, an increase on airport taxes, and more support for public transport.