UK launches "biggest ever" green tax reform

Business energy tax to help cut carbon dioxide emissions; transport, waste, also affected

The UK government today announced what it described as the "biggest ever" package of environmental tax reforms in its 1999 budget. Junior finance minister Patricia Hewitt claimed the initiative would make a "substantial contribution" to protecting the environment now and for future generations.

A new tax on the business use of energy is the centre-piece of today's environmental tax initiatives. The "climate change levy" is to be introduced in April 2001. It is expected to raise about UK£1.75bn (euros 2.6bn) in its first year of operation and is projected to save 1.5m tonnes of carbon emissions per year by 2010, equivalent to 5% of the UK's 1990 emissions. Natural gas, coal and electricity used by business, agriculture and the public sector will all be subject to the tax, but electricity generators will be exempt.

The entire proceeds of the tax are to be recycled to companies, mainly through a 0.5 percentage point cut in employers' payroll taxes, but also through energy efficiency and renewable energy support schemes. Energy-intensive industries will benefit from "significantly lower rates" if they agree voluntary targets for improving energy efficiency. Negotiations with energy intensive sectors are to begin soon.

A second series of initiatives includes a "major reform" of company car taxation coupled with a range of other transport taxes. From April 2002, taxes on company car users will vary according to vehicles' carbon dioxide emissions. Discounts for larger distances driven will be abolished. Meanwhile, a reduced rate of excise duty on smaller new cars will be introduced this June, to be followed next year by a tax system based on carbon dioxide emissions.

Seven tax measures are to be introduced to promote non-car commuting. These will remove tax penalties for employees who benefit from company subsidies to public bus services, bicycle safety equipment or workplace parking for bicycles. They will also introduce a tax free cycling allowance for employees using bicycles on business travel. Meanwhile, the tax rate on petrol and diesel is to increase by 6%, in line with the government's "road fuel price escalator," and an existing differential in favour of low-sulphur diesel is to be widened.

A similar price escalator is to be introduced for the UK's tax on waste landfilling, which was already due to increase from £7 per tonne to £10 per tonne on 1 April. The tax will now rise another £1 per tonne in 2000, and then by the same amount each year until 2004, when a further review is planned.

Two significant non-appearances in the environmental tax hit-list were aggregates and pesticides. The government said it believed there was a case in principle to tax virgin aggregates, but said it would explore with the quarrying industry the scope for a voluntary agreement before reaching a final decision. It promised new research on a possible tax on pesticides would be published shortly.

Follow Up:
UK finance ministry, tel: +44 71 270 4558.

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