UK finesses on motor fuel tax policy

Hauliers, motorists, win lower duty, other benefits, in "environmentally-motivated" package

UK finance minister Gordon Brown today responded to calls for lower fuel duties, but claimed that his overall package would benefit the environment. Diesel duties are to be cut next year by £UK0.03 (euros 0.05) per litre along with other measures that the government claimed would deliver the equivalent of a £UK0.08/litre cut. But it also pledged to introduce a fiscal incentive designed to shift the country's entire petrol market to sulphur-free grades.

The announcement of reduced diesel duty came in a package headlined as being a freeze in general fuel duties, with cuts only for ultra-low sulphur grades. In fact, the UK's diesel market has already switched virtually 100% to sulphur-free in response to earlier tax differentials.

A range of other initiatives are designed to placate angry hauliers and motorists. For the former, lorry vehicle excise duty is to be more than halved. The government is to start talks to join the Eurovignette scheme, aiming to force foreign drivers to pay to use UK roads. A new UK£100m fund is to encourage replacement of older, more polluting lorries with cleaner ones. Farmers are to win abolition of vehicle excise duty on tractors and similar agricultural vehicles.

Aiming at longer term changes, Mr Brown launched a consultation on changes to lorry vehicle excise duty aimed at simplifying the system and "strengthening environmental signals". Proposed changes include basing rates on emission standards.

For motorists, the current system of UK£55 cheaper vehicle excise duty for cars with engines under 1,200cc is to be extended to 1,500cc engines, bringing cuts for an extra 5m car owners. Authorised mileage rates are to be reformed, bringing benefits for those using more efficient private cars for business purposes.

Meanwhile, mileage rates for cyclists are to be nearly doubled, while a small mileage allowance is to be introduced for car passengers. The government also pledged to introduce "major" reductions in duty on alternative road fuels such as biofuels and challenged industry to develop "practical proposals".

Alongside these announcements, Mr Brown launched a consultation on detailed rules for the UK's greenhouse gas emissions trading scheme due for launch next year. He also stressed that the government might still impose a tax on pesticides unless the industry further improved its offer of voluntary action. Meanwhile, a UK£1bn package to revitalise inner city areas is to include extra tax incentives to clean up contaminated land.

Follow Up:
UK finance ministry, tel: +44 20 72 70 50 00. See also the pre-budget report, transport issues press release, and {emissions trading consultation paper}

Correction: 10/11/00 In this article, our description of the tax differential announced by the UK government as applying to "sulphur free" petrol and diesel was incorrect; the shift in taxation of "ultra-low sulphur" petrol and diesel will affect fuels containing less than 50 parts per million (ppm) sulphur, which is the EU legal limit due to take effect in 2005. "Sulphur-free" fuels are usually taken to contain no more than 10ppm sulphur.

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