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Budget: Climate action offset by fuel duty freeze

Several proposed points of action towards battling climate change action were somewhat offset by an announcement that fuel duty would remain frozen for another year.

11th Mar 2020
Staff Writer AccountingWEB
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Key points

  • Fuel duty will remain frozen for another year
  • The levy on electricity will be frozen and raised on gas from April 2022
  • The climate change agreement scheme will be extended for 2 years
  • A plastic packaging tax will charge manufacturers and imposters £200 / tonne on packaging made of less than 30% recycled plastic, increasing the use of recycled plastic by 40% (= to 200,000 tonnes carbon saving)
  • Red Diesel tax relief will be abolished for most sectors, not including agriculture, from 2022
  • Doubling R&D investment in energy innovation programme to £1bn
  • Investing £640m in a new Nature for Climate Fund
  • 30,000 hectares of trees will be planted, and 35,000 hectares of peatland will be restored over the next five years
  • £800m will be invested in more new Carbon Capture and Storage clusters by 2030
  • Long-haul rates of Air Passenger Duty for the tax year 2021 to 2022 to increase in line with the retail price index (RPI) as forecast at Budget 2020

Frozen fuel duty

Despite a cost of £110bn to the taxpayer, for the tenth year in a row, the duty of fuel will remain frozen for another year. According to the Chancellor of the Exchequer, “Compared to pre-2010 plans, that’s a saving of £1,200” for the average car driver.

In total, this will save a projected total of £2,710m over the next five years.

Electricity and gas levy

“Electricity is now a cleaner energy form than gas – but our Climate Change Levy, paid by companies, taxes electricity at a higher rate,” said the Chancellor in his speech.

As a move towards equalising the divergence between the two, the levy on electricity will be frozen, and that of gas will be raised, as of April 2022. The increase will save a total of £660m between 2022 and 2025.

To support the most energy-intensive industries to transition to net-zero, the climate change agreement scheme will also be extended for a further two years. This will cost a projected £390m over the next five years.

Plastic waste

From April 2022, manufacturers and importers will be charged £200 per tonne on packing made of less than 30% recycled plastic which will increase the use of recycled plastic in packaging by a projected 40% – “equal to carbon savings of nearly 200,000 tonnes”. Between 2022 and 2025, this would save a projected £695m.

Red Diesel

The current Red Diesel scheme allows selected users to pay duty tax of just over 11p per litre for diesel, compared to almost 58p per litre for everyone else. This is despite emitting nearly 10% of the noxious gases polluting the air of our cities, amounting to a £2.4bn tax break.

As a result, the tax break for Red Diesel will be abolished for most sectors. However, this will not include agriculture, domestic heating, rail and fishing. Other sectors will be consulted over the summer.

R&D investment

R&D investment in the energy innovation programme will be more than doubled to take it up to £1bn. It was also announced that clean transport would be invested in and taxes cut. 

“We’re introducing a comprehensive package of tax and spend reforms to make it cheaper to buy zero or low emissions cars, vans, motorbikes and taxis;

We’re investing £300m in tackling nitrogen dioxide emissions in towns and cities across England; 

And we’re investing £500m to support the rollout of new rapid charging hubs, so that drivers are never more than 30 miles away from being able to charge up their car,” said the Chancellor.

EY Director Maria Bengtsson commented, "more policies are required to drive change of consumer behaviours in the UK, given the net-zero target. The comparative costs of purchasing and running an electric vehicle and a traditional combustion engine needs to be reduced to make the choice of vehicle an environmental rather than financial question. Some industry bodies had been hoping for an announcement in relation to tax reliefs, for example reduced or removed VAT on the sale of new EVs, but this was not to be."

Natural habitat investments

£640m is the proposed investment for a new Nature for Climate Fund.

Over the next five years, around 30,000 hectares of trees will be planted, and 35,000 hectares of peatland will be restored.

Carbon capture and storage technology

£800m was announced to be invested in establishing two or more new Carbon Capture and Storage clusters by 2030. These would store millions of tonnes of carbon dioxide, and creating up to 6,000 high skill, high wage, low carbon jobs in areas like Teesside, Humberside, Merseyside or St Fergus in Scotland.

Air Passenger Duty

Long-haul rates of Air Passenger Duty for the tax year 2021 to 2022 will increase in line with the retail price index (RPI) as forecast at Budget 2020. Short-haul rates will not rise. A consultation on the reform is to be published in the spring but would suggest that these rates are in line with inflation. 

Overall, it would appear that spending on climate change actions has been somewhat undermined by fuel duties being frozen for another year. For Douglas Marshall, partner at Stevenson & Kyles, “The environmental pledge falls a bit flat after freezing fuel duty.”

Josephine Bush, Power & Utilities tax leader at EY, commented on green measures announced in today’s Budget and the need for the UK tax system to support these initiatives:

“It’s great to see Government support for Carbon Capture and Storage (CCS) as well as other green measures that support carbon reductions. The significant capital spending needed to give life to such projects could be further supported by the tax system, particularly the capital allowances regime which gives tax relief for capital expenditure. Whilst not announced today, this could be something the Chancellor looks at in the Autumn Budget as such relief can be crucial to the economic viability of carbon reduction projects."

 

Budget

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