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Chancellor Gordon Brown today announced further steps in the ...
Chancellor Gordon Brown today announced further steps in the

Government's strategy to protect the environment, whilst continuing

to ensure the competitiveness of UK industry.

Economic secretary John Healey said:

'This Budget underlines the Government's commitment to sustainable

development. Given the current global economic downturn, we have

today announced some important tax freezes to help maintain business

competitiveness. However, the Government is committed to tackling

environmental problems, by ensuring the polluter pays and introducing

new incentives for more environmentally-friendly behaviour'.

Measures announced today to balance environmental responsibility with

UK competitiveness include:

- deferred annual revalorisation of the main road fuel duties until 1

October 2003, owing to the recent high and volatile oil prices, as

a result of military conflict in Iraq;

- a new duty differential for sulphur-free fuels from 1 September

2004, of 0.5 pence per litre relative to the rates for ultra-low

sulphur fuels, to encourage the early introduction and take up of

these fuels;

- an increase in the duties for rebated gas oil (red diesel) and fuel

oil - which have higher levels of sulphur than road fuels - by one

penny per litre above revalorisation, from today;

- the introduction of a new duty incentive for bioethanol used as a

road fuel, set at 20 pence per litre below the prevailing rate for

sulphur-free petrol, from 1 January 2005;

- a new lower carbon dioxide VED band from 1 May 2003 for the most

environmentally-friendly cars. Alongside the standard

revalorisation and the rounding, an increase in the VED rate for

cars and vans by £5; this increases the VED differential between

the least and the most polluting cars to £110 per annum;

- a lower level of emissions for the minimum company car tax charge

in 2005-06 - 5 grams lower at 140 gra ms per kilometre of carbon


- a freeze in the rates of air passenger duty in the light of

heightened global uncertainty;

- new enhanced capital allowances for water efficient and energy-

saving technologies;

- a package of reforms to improve waste management, including:

- confirming that the standard rate of the landfill tax rises to £14

per tonne in 2003-04 and to £15 per tonne in 2004-05. The rate will

subsequently be increased by £3 to £18 per tonne in 2005-06 and by

at least £3 per tonne each year thereafter, on the way to a medium-

to long-term rate of £35 per tonne;

- further detailed consultation on options for a package of measures

to ensure that landfill tax increases are revenue neutral to

business as a whole;

- a Waste Management Performance Fund to help local authorities in

England improve waste performance for all households; and

- a sustainable waste delivery programme to reduce waste volumes and

promote recycling and new waste management technologies, using

resources from the reformed Landfill Tax Credit Scheme; and

- further detailed consultation on specific measures to encourage

household energy efficiency.


Fuel duty

Owing to the recent high and volatile oil prices, as a result of

military conflict in Iraq, this Budget announces that the Government

is deferring the annual revalorisation of the main road fuel duties

until 1 October 2003.

>From 6pm today, the Government will increase the rate of duty on

rebated gas oil (red diesel) and fuel oil by one penny per litre

above revalorisation. The Government will consult producers,

distributors and users of red diesel and fuel oil, together with

environmental groups, to establish whether preferential duty rates

for rebated oils with low sulphur content would offer worthwhile

benefits in terms of reducing emissions.

>From 1 Septe mber 2004, the Government will introduce a new rate of

duty for sulphur-free petrol and diesel, set at 0.5 pence per litre

relative to the rate for ultra-low sulphur fuels. This will encourage

the early introduction and take up of these fuels. Further details

will be announced in due course. From 1 January 2005, the Government

will introduce a new rate of duty for bioethanol, set at 20 pence per

litre below the rate for sulphur-free petrol.

The Government intends to consult stakeholders on ways to ensure that

fiscal incentives and other policy measures for road fuel gas

continue to reflect the Government's environmental and other policy

objectives, with a view to announcing decisions on future means of

Government support in the 2003 Pre-Budget Report. Budget 2003 freezes

duty on road fuel gases.


Fuel type

Previous duty

Duty from Budget day

Duty from 1 October 2003


ULSP/D 45.82p per litre 45.82p 47.10p +1.28p

Red diesel 3.13p per litre 4.22p 4.22p +1.09p

Road fuel gases 9p per kilogram 9p 9p Nil

Biodiesel 25.82p per litre 25.82p 27.10p +1.28p

Vehicle Excise Duty (VED)

Following the introduction of graduated VED for cars, Budget 2003

introduces a new rate of VED to provide an incentive for the use of

cleaner cars. The most environmentally friendly cars (with carbon

dioxide (CO2) emissions below 100g/km) will now pay as little as £55

per annum, while the most polluting vehicles (those that produce CO2

emissions of 186g/km or more) will now pay up to £165. VED rates are

increased by £5 for cars and vans. VED for lorries and motorcycles

will be frozen.

VED for PLG class (cars and vans) from 1 May 2003

Registered before 1 March 2001

1549cc and below £110 pa

Above 1549cc £165 pa

Registered on and after 1 March 2001 (graduated VED)


VED band

CO2 emissions (g/km)

Cars using alternative fuels (£ pa)

Petrol car (£pa)

Diesel car (£pa)

AAA Up to and including 100 55 65 75

AA 101 to 120 65 75 85

A 121 to 150 95 105 115

B 151 to 165 115 125 135

C 166 to 185 135 145 155

D 186 and above 155 160 165

Company cars and vans

Since April 2002 the system of company car taxation has been based on

CO2 emissions. The levels of CO2 emissions qualifying for the minimum

charge up to 2004-05 were announced in Budget 2000 and have been

reduced by 10g CO2/km each year. Budget 2003 announces that the level

of CO2 emissions qualifying for the minimum charge in 2005-06 will be

reduced by 5g/km CO2, at 140g/km CO2.

Following the Budget 2002 announcement that the Government would

review the tax treatment of the private use of vans provided by

employers, taking account of environmental benefits, fairness and

modern working practices, the Government will consult formally on the

tax treatment of company vans shortly after the Budget.

Enhanced Capital Allowances (ECAs) for water efficient technology and

energy-saving technologies

The Government announced today that 100% ECAs would be available to

all businesses for investments in designated water efficient

technologies. The qualifying technology categories will be meters,

flow controllers, leakage detection equipment, efficient taps and

efficient toilets. The specific technologies that qualify will be

published in the Water Technology List following Royal Assent of the

Finance Bill. Capital allowances may be claimed for qualifying

investments made on or after 1 April 2003.

On energy efficiency, the Government also announced that it will

introduce further ECAs for investments in automatic metering and

monitoring equipment. The existing boiler, compressed air and

refrigeration technologies will also be expanded. Work to define

precise performance standards for these technologies is continuing

and the Government expects to add these groups to th e lists of

qualifying technologies during the summer, subject to state aids



The Government today confirmed that the standard rate of landfill

tax, which applies to household and other active waste disposed of in

licensed landfill sites, increased from £13 per tonne to £14 per

tonne from 1 April 2003 and will increase by a further £1 to £15 per

tonne from 1 April 2004 in line with the escalator announced in

Budget 1999. The Government also confirmed that the standard rate

will increase by £3 per tonne in 2005-06 and thereafter by at least

£3 per tonne each year towards a rate of £35 per tonne in the medium-

to long-term. The lower rate of landfill tax, applying to inactive or

inert waste, remains unchanged at £2 per tonne.

As stated in the 2002 Pre-Budget Report, increases in the standard

rate of landfill tax will be introduced in a way that is revenue

neutral to business as a whole. Discussions with business and other

stakeholder groups have indicated that there is broad support for a

package of measures, including some tailored support to those sectors

facing the greatest waste management challenges. The Government will

pursue this through further development of options and further

consultation with stakeholders. Decisions on a package of measures

will be announced in the 2003 Pre-Budget Report.

Consistent with its commitment to empowering local government, the

Government will reform the WasteMinimisation and Recycling Fund into

a local authority Waste Management Performance Fund in England. The

Fund will provide non-ringfenced incentives for local government to

deliver a step- change in sustainable waste performance for all

households. Final decisions on the start date of the Performance

Fund, and its operational details, will be announced following

further consultation with local government stakeholders. Decisions on

how the landfill tax increases will be made revenue neutral to local

government will be taken at the same time.

Following reform of the Landfill Tax Credit Scheme, a proportion of

the funding previously going through the scheme - £100 million in

2003-04 and £110 million in 2004-05 and 2005-06 - will be redirected

to public spending on a new sustainable waste delivery programme. The

spending programme in England, to be managed by DEFRA, will seek to

help households reduce the amount of waste they produce, increase

access to doorstep collection of materials for recycling, promote the

development of new and viable waste management technologies, and

provide local authorities with the support they need to deliver best

practice. Details of the programme will be announced by DEFRA.

The Government has commissioned a review of the environmental and

health effects of all waste management and disposal options. The case

for using economic instruments for waste incineration will be

considered in light of this work, and in consultation with other


The Landfill Tax Credit Scheme (LTCS)

The successor tax credit scheme will provide around £47 million per

year for spending on local community environmental projects, ensuring

that funding for this type of project remains broadly similar to

current levels. Following discussion with stakeholders, the

Government will introduce regulations by the summer 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 work with Entrust, the regulator of

the scheme, and other stakeholders to improve the scheme's operation.

Administration of the scheme will be simplified through a reduction

in the level of information required from projects and through the

use of common systems wherever possible. Better information will be

recorded on project funding and audit proce sses will be improved. The

Government will also improve monitoring and evaluation of the scheme

and develop measures of value for money. The Government will finalise

these changes by the summer.

Climate change levy (CCL)

The rates of CCL will be frozen in 2003-04.

DEFRA has reported a fall of 3.5 per cent in UK CO2 emissions in 2002

compared to 2001. It has also reported on the performance of the

energy- intensive sectors of industry in meeting their first

negotiated agreement targets.

The 44 sectors of industry covered by the agreements have cut carbon

dioxide releases into the atmosphere in 2002 by 13.5 million tonnes

(3.7 million tonnes carbon) against a 2000 baseline, almost three

times above target. Although a large proportion of this has come from

just one sector (steel), the other sectors have exceeded their

targets by almost one million tonnes of carbon dioxide. Companies

covered by the agreements have bought and used almost 600,000

emissions trading allowances to meet their targets, and have either

sold or retained the equivalent of 4 million tonnes of carbon


As set out in the 1999 Pre-Budget Report, the Government remains

willing to consider alternative criteria for defining energy

intensive sectors of industry eligible for entry into negotiated

agreements. However, any criteria must meet the four tests which were

set out when the levy was initially announced: they must have a clear

rationale, and be administratively simple, 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 subject to international competition, as

part of its strategy of developing and enhancing the levy to improve

its environmental effectiveness.

Domestic energy efficiency

The Government conducted an initial consultation on the potential for

using additional economic instruments to improve household energy

efficiency in 2002. After considering all the responses, the

Government will shortly undertake further detailed consultation on

specific measures to encourage household energy efficiency.

Sustainable housing

The Government will be undertaking a new review of the factors

affecting the supply of housing. The review will include

consideration of the interaction between housing supply and

sustainable development objectives. The Government will also continue

to consider the use of economic instruments to support regeneration

and encourage brownfield development.


Sulphur-free fuels

Under EU agreements, sulphur-free fuels must replace conventional

road fuels by 2009. The duty incentive that will be introduced from 1

September 2004 is designed to facilitate this process, and will help

to offset the extra costs of production of these more environmentally

friendly fuels.

A sulphur-free fuel has a sulphur content not exceeding 10 parts per

million. Sulphur-free fuels give immediate greenhouse gas emissions

improvements in existing cars, because they enable catalytic

converters to function more effectively. They also offer greater

long-term reductions in carbon dioxide emissions when used with new

engine technologies. In the short- to medium- term, however, because

of additional refining requirements, sulphur-free fuels need more

energy to produce than ultra-low sulphur fuels, resulting in higher

carbon dioxide emissions from oil refineries removing the sulphur.

The Government has chosen the date of introduction carefully to

ensure that environmental benefits overall are maximised.


Bioethanol is usually produced from crops such as sugar beet and

wheat. In some countries it is widely used as a road fuel, when

blended with petrol, and it can reduce tailpipe emissions of

greenhouse gases and local air pollutants. Bioethanol can also be

produced from waste materials such as forestry residues and straw.

The Government will continue to examine the best way of promoting

bioethanol from less conventional feedstocks.

The reduced rate of duty (from 1 January 2005) is consistent with the

Government's strategy of sustainable development and environmental

objectives, and will help to meet the extra costs of production of

this more environmentally friendly form of fuel.

Rebated gas oil and fuel oil

Duty differentials in favour of ULSD and ULSP have been effective in

encouraging a switch to these more environmentally friendly road

fuels. Use of oil other than as road fuel, however, continues to

contribute to problems with local air quality. Rebated gas oil (red

diesel) will still be taxed at over 40 pence per litre less than the

ULSD rate, but has a permitted sulphur content of up to 2,000 parts

per million (compared with a maximum of 50 parts per million for

ULSD). Fuel oil is taxed below the red diesel rate but has a

permitted sulphur content of up to 10,000 parts per million.

Enhanced capital allowances

Business expenditure on plant and machinery normally qualifies for

tax relief as capital allowances, given at a rate of 25% a year on

the reducing balance basis. Special schemes enable a business to

claim a greater amount of tax relief against its profits over the

period in which it makes the investment. The main schemes are 100 per

cent enhanced capital allowances for energy-saving investments and 40

per cent first-year allowances for investments by SMEs.

Climate change levy

The CCL was introduced on 1 April 2001 as an environmental tax on the

use of energy by business and the public sector. The purpose of the

CCL is to encourage the efficient use of energy, in order to help

meet the UK's targets for cutting emissions of greenhouse gases.

The revenue raised by the levy is recycled back to business,

primarily through the 0.3 percentage point reduction - worth around

£1.7 billion in 2003-04 - in employers' national insurance

contributions introduced with the levy. Revenue from the levy also

provides support for investment in energy efficiency measures through

100 per cent enhanced capital allowances and support for the Carbon

Trust, which provides advice for business and supports the

development of low carbon technologies. The levy and package of

associated measures form part of the Government's strategy for moving

the burden of tax from 'beneficial' activity such as employment to

'detrimental' activity such as pollution.

Negotiated climate change agreements

Since the start of CCL, 44 eligible energy intensive sectors of

industry have been able to enter into negotiated agreements to

improve their energy efficiency and reduce emissions in return for an

80 per cent discount from the levy. Facilities that have been

certified by DEFRA as having met their 2002 targets can continue to

benefit from the levy discount from April 2003 to March 2005.

Exemption from CCL for energy used in certain recycling processes

In July 2002 an extra-statutory concession was introduced that

exempts from the CCL energy used for certain environmentally-friendly

industrial recycling processes. This exemption applies to such

recycling processes that compete with processes that use fuels for

non-energy purposes or for dual energy/non energy use (e.g. coke used

in steel blast furnaces). Legislation for the extra statutory

concession is being introduced in Finance Bill 2003.

Fuels used for non-energy purposes or for dual energy/non-energy uses

are not subject to the climate change levy. The extra-statutory

concession allows competing recycling processes that use less energy

to benefit from a similar exemption. Businesses and trade

organisations that believe the energy product used in their pr ocesses

should be eligible for the exemption, and who have not already done

so, should submit details and evidence to Customs and Excise. Customs

and Excise will determine whether each individual process justifies

an exemption. Exemptions have been backdated to 1 April 2001.

Aggregates levy

The aggregates levy was introduced on 1 April 2002 at £1.60 per tonne

of virgin aggregate, and is an environmental tax on the commercial

exploitation of aggregates in the UK. The objective of the levy is to

reduce the demand for virgin aggregate and encourage the use of

re-cycled materials, thereby reducing the environmental costs

associated with quarrying operations, including noise, dust, visual

intrusion, loss of amenity and damage to biodiversity. The rate of

the aggregates levy is frozen in Budget 2003.

To support businesses and communities affected by aggregates

extraction the introduction of the aggregates levy was accompanied by

a new Aggregates Levy Sustainability Fund (ALSF) and a 0.1 percentage

point reduction in employer NICs. The ALSF in England was launched in

April 2002 and its work to date has concentrated on reducing the

demand for primary aggregates, promoting environmentally-friendly

extraction and transport, and reducing the local impact of aggregates


The Government is phasing in the aggregates levy over 5 years for

aggregates used in the manufacture of processed products in Northern

Ireland. This relief recognises the unique position of processed

product manufacturers in the province, which face increased

international competition because of the land boundary with the

Republic of Ireland. The Government is continuing to review the

impact of the phasing-in of the levy in Northern Ireland.

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