March 2008 budget promises to be green by encouraging low emission vehicles

Expectations had been high that the earlier than usual Pre-Budget Report, unveiled on October 9, would deliver a ‘green’ fiscal agenda but, in the event, many anticipated announcements were delayed.

However, the Chancellor flagged them all up for focus next year. They include

Company car tax plans for 2010-11
Possible Vehicle Excise Duty changes with increased taxes for high-emission vehicles
Reform of tax relief for business expenditure on cars concerning changes to the existing lease rental restriction and replacing the existing capital allowance rules that apply to cars costing over £12,000
A possible VAT cut to 5% on low-emission cars
Long-awaited changes to the tax-free Approved Mileage Allowance Payments scheme for employees who use their own car on business.
Additionally, just as the Government incentivised the take-up of Euro4 diesel vehicles through company car taxation, it is looking at encouraging drivers to choose Euro5 models and has said that an announcement is possible in next year's Budget.

With low emissions and cutting fuel bills a recurring theme throughout the Treasury’s Pre-Budget Report commentary, Prime Minister Gordon Brown’s Government looks set to go ‘green’ next spring.

However, while the Pre-Budget Report did not contain the expected announcements on capital allowances and AMAP rates, other measures were announced.

The fixed figure on which car fuel benefit is paid by employees who drive company cars and receive ‘free’ fuel for private use will rise from £14,400 to £16,900 from April 6, 2008 in line with the change in the retail prices index since April 2003. The move is designed to enhance the environmental incentives to drive fewer miles, according to the Government.

It had also been widely speculated that the Government might levy a benefit-in-kind tax charge on employee car ownership schemes in a bid to halt the move out of company cars. HM Revenue & Customs has calculated that the UK company car parc in 2006 was some 350,000 units smaller at 1.2m vehicles than five years ago partly as a result of employees opting into an ECO scheme.

However, the Chancellor quashed the rumours by announcing that the Government had no intention of imposing a benefit-in-kind tax charge on ECO schemes.

In its Pre-Budget Report commentary HM Treasury said: “The Government recognises there are interactions between rates of company car tax, employee car ownership schemes, tax-free mileage allowances, and tax relief on business cars, that work together to determine car purchase and usage choices. The Government wants to ensure that the tax system properly reflects and supports business activity, in addition to promoting fairness and environmentally friendly travel.”

In a bid to boost the take-up of low emission vehicles, the Chancellor has written, with backing from the French Government, to the European Commission and other European countries calling for support for a lower VAT rate - in Britain that would be 5% - on the most energy efficient products and that could extend to include low emission cars.

Commenting on low emission cars, the Chancellor said: “By choosing the most efficient cars on the market today drivers can cut emissions and their fuel bills by up to quarter.

“With new technology and cleaner power we could cut carbon emissions from cars by up to 80%. I will bring forward proposals at the Budget, on ways to encourage the next generation of cleaner cars and incentives for people to buy them.”

The basis for launching the Budget 2008 ‘green’ motoring tax regime is likely to be a far-reaching report on ‘low carbon cars and the potential for CO2 reduction’ by Professor Julia King, vice-chancellor of Aston University and former director of advanced engineering at Rolls-Royce.

An interim report was published alongside the Pre-Budget Report - the final report will be published to coincide with the 2008 Budget - which said that there was no single solution to decarbonising the transport sector, and the use of cleaner fuels, more fuel efficient vehicles and smarter driving choices all had a role to play.

Professor King added: “Within 10 years we could be driving equivalent cars to those we choose today, but emitting 30% less CO2 per kilometre. The technology is available.

“The urgent challenge for the short-term is to develop a strong and rapidly growing market for low emissions cars. These signals will enable manufacturers to make the major investments required to deliver the technology in new ‘green’ models.

“In the medium-term, as we progress towards 2030, per-kilometre emissions reductions of some 50% could be achieved through a combination of battery-electric hybrids - including plug-in versions - and biofuels, while more radical clean technologies continue to develop in niche applications. Long term, clean electric or hydrogen-powered vehicles are a probability.”

However, on the growing use of biofuels, Professor King warned: “We must approach the development of biofuels with caution. They have an important role to play, but we must put appropriate international safeguards in place. The annual CO2 emissions associated with deforestation amount to 18% of global emissions - larger than the total global contribution from transport.”-Renault