Budget 2010 – gearing up for a low-carbon economy
The June 2010 Budget announced a number of measures for the environment but has generally been hailed as disappointing, despite recent statements regarding the coalition government's green intentions. A number of proposed measures are still under consideration, but various other measures affecting industry were confirmed.
Confirmed Measures
Landfill Tax
The standard rate of landfill tax is to increase by £8 per tonne each year, starting from 1 April 2011 and continuing until at least 2014. It was also announced that there will be a floor set to the standard rate, such that it will not fall below £80 per tonne as of April 2014, and continuing until at least 2020.
This move is likely to be welcomed by some in the waste industry, with the CBI stating that the tax is now at a level where alternative waste management options are more attractive than landfilling. This may reduce the need for DEFRA's proposal to ban certain materials being landfilled.
Aggregates Levy
The aggregates levy is set to increase by 10 pence, from £2 per tonne to £2.10 per tonne as of 1 April 2011. This will disappoint many in the construction and civil engineering sectors, who had hoped to see the freeze on the levy maintained, or even last year's rise of 5p dropped.
Climate Change Levy
Climate Change Levy (CCL) rates are to increase in line with inflation from 1 April 2011.
The discount on the CCL available to companies complying with the relevant sectoral Climate Change Agreement (CCA) is set to be reduced from 80% to 65% from 1 April 2011. The reduction in the discount brings the CCL in line with the Energy Products Directive, which sets minimum rates of taxation for fuels.
The Government announced in 2007 that the CCA scheme would continue until 2017, subject to state aid approval, and a consultation took place earlier in 2010 on the form and content of the new agreements. Current CCAs expire in March 2013.
Measures under Consideration
Carbon Floor Price
The Government proposes to primarily use the energy tax framework to engineer the transition to a low carbon economy, and in this context, fixing the current volatility of the carbon price is high on the agenda in order to provide the incentive to invest in low carbon energy.
The CCL is currently based on a rate per kilowatt hour of energy produced using gas, electricity, coal, lignite, coke and non-transport LPG by companies in industry, business and the public sector. At the moment, therefore, it does not operate as a pure carbon tax. The carbon contained in gas and electricity is effectively taxed at almost twice the rate of the carbon contained in coal, while the flat rate for electricity does not take into account how the electricity was generated. Some have argued that this means that the benefits of a true climate price signal – such as encouraging reduced energy and fuel use and investment in low carbon energy generation – are not being properly realised.
The Budget 2010 therefore incorporates the recommendation of The Manufacturers’ Association (EEF) that Government consults in Autumn 2010 on the possible reform of the CCL, with the critical aim of providing greater certainty and support to the carbon price. This would most likely take the form of a variable tax based on the carbon content of the particular fuel being used, in order to better reflect the true carbon cost of its use.
The Government would aim to bring in legislation effecting any reform in 2011. In the meantime, EEF's view is that the medium-term goal should be to extend the carbon tax throughout the economy, beginning by applying it upstream on fuel.
Green Investment Bank
The other major plan to support the creation of a low carbon economy is the creation of a Green Investment Bank (GIB), which it has been suggested would help generate the vast sums needed to fulfil the ambitious low carbon agenda. This was included in the Labour budget of March 2010, but the details have yet to be finalised, and will not be published until after the Government’s spending review in October 2010. The Green Investment Bank Commission had urged that the GIB be set up as soon as possible, and preferably within the next 6 months, though this now does not look likely, with Infrastructure UK due to consult on the GIB in Summer 2010.
Significant investment in the low carbon infrastructure will be required in order to meet the UK’s carbon reduction targets. It is understood that the GIB is expected to involve both private and public sector capital, and would focus initially on offshore wind. The GIB Commission has recommended that the GIB should have both a banking section to support investment and a funding section to allocate grants and subsidies.
Transport
The Government intends to “explore changes” to aviation tax, including the possibility of switching from a per-passenger to a per-plane duty, on the basis that this would encourage fuller planes, and thereby lower carbon dioxide emissions.
Conclusions
Many commentators have been disappointed by what they see as an unambitious budget in environmental terms. However, much of the detail on the areas where major change is proposed is yet to follow, and plans for a Green Investment Bank in particular have so far been well received.
For further details please contact: Bill Fowler
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