Budget’s green claims called into question

On environmental issues, the Chancellor gave generously of his time in his first Budget speech. But he offered rather less in terms of fresh action, new fiscal incentives and extra financial support for decarbonising UK plc.

One sixth of Alistair Darling’s debut Budget speech was devoted to climate change.1 But neither commerce, industry nor environmental organisations were impressed by the green content of the Budget on 12 March.

His postponement until October of a 2p rise in petrol and diesel duty initially due this April set the tone of caution. The delay was prompted by soaring oil prices and leaked by the Treasury in advance.

But Mr Darling did reintroduce a gradual road fuel duty ‘escalator’. From 1 April 2010 fuel duty will go up by half a penny per litre above inflation, annually.

A hefty tax rise for new gas-guzzling cars was the most prominent green measure. Buyers of the highest-emitting cars, emitting more than 255 grams of carbon dioxide per kilometre, will have to pay vehicle excise duty (VED) of £950 for the first year from 2010 - more than double the current rate. Cars that produce less than 130g CO2/km will be charged zero VED for their first year on the road.

The changes are intended to give a "showroom" incentive for motorists to buy less polluting new cars. They may well shift sales from medium-emitting vehicles towards lower-emitting ones, but there are doubts about whether the changes will make much difference to sales of high emission cars. Someone wealthy enough to spend over £30,000 may not worry about a few hundred pounds extra VED.

As well as this new system of special first-year VED charges, the government is strengthening the link between CO2 emissions and VED paid through the rest of the car’s life. From April 2009 the spectrum of car CO2 emissions, from zero to more than 255g/km, will be split into 13 bands instead of the current six. Vehicles emitting less than 150g/km will pay the same or less than they do now; those above this level will pay more. These increases are, however, fairly modest.

Mr Darling confirmed that the fuel duty tax break for biofuels will also be withdrawn from 2010. Instead the Renewable Transport Fuel Obligation, which comes into force in April, will do all the work of boosting sales of biodiesel and bioethanol.

He also said he was setting aside new funding to develop the electronic technology that could underpin a national road congestion charging scheme (see p 44 ). The new aviation tax arriving in November 2009, which will be charged per flight rather than per seat sold, will rise by 10% in its second year.

The Chancellor said retailers must come up with ways of curbing consumption of throwaway plastic bags or the government will introduce a levy on them, with the money raised going to environmental charities (see p 8 ).

He also said by 2019 all new commercial buildings would have to be ‘carbon neutral’, while leaving industry free to choose the features and technologies necessary to meet the goal. A similar approach is being applied to new housing by 2016.

But one thing missing from the speech was a deal with the UK’s electricity and gas supply firms on tackling fuel poverty and cutting bills for lower-income households at a time when energy prices are soaring and the firms are highly profitable. Intensive negotiations between them and the Treasury had taken place in the days before the Budget, but failed to reach a conclusion. Mr Darling said he would work with the firms to take further action on a voluntary and statutory basis and introduce new legislation if necessary.

Under the Warm Homes and Energy Conservation Act 2000, the government is obliged to take all reasonably practicable measures to end fuel poverty among vulnerable groups by 2010, and among the whole population by 2016. After years of progress towards the target, soaring energy prices have now blown the government badly off course. Friends of the Earth, one of the Act’s backers, may apply for a judicial review of the government’s record.

A deal with the energy suppliers on fuel poverty would strengthen the government’s defences against this legal action. FoE has been calling for a large windfall tax on the suppliers to fund a much boosted programme of energy efficiency improvements for low-income households.

The situation foreshadows the legal challenges the government could face if it fails to meet the emission-cutting targets and timetables set out in the Climate Change Bill (see pp 57-58 ). "We’ll have the Climate Change Bill in mind when making a decision about any judicial review on fuel poverty targets," said FoE economics campaigner Ed Matthew.

Mr Darling said the first three UK carbon budgets, covering the 15 years up to 2022, will be announced alongside next year’s Budget. "There are huge opportunities here for business, and there could be over one million jobs in our environmental industries within the next two decades," he told the Commons.

Green Alliance’s head of policy, Russell Marsh, said: "Most of the measures announced were re-announcements or tweaks to existing initiatives. The changes to the VED system [for cars] were perhaps the most far reaching but it is not clear that the level of tax being levied will really be enough to influence people’s purchasing." Audit and tax group KPMG estimated the Budget measures would cut emissions at most by 5% by 2015.

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