HM Treasury/DETR 1

7 March 2001

PROTECTING THE ENVIRONMENT AND BRITAIN'S ROAD TRANSPORT

Chancellor Gordon Brown announced today a package of measures aimed at encouraging cleaner road transport, improving access to cheaper motoring for people who need to use their cars and enhancing the efficiency and environmental sustainability of the UK haulage industry.

Taken together, the package of measures announced today is equivalent to a 4 pence per litre cut in fuel duty for motorists and a 7 pence per litre cut in fuel duty for hauliers.

The Deputy Prime Minister, John Prescott said:

“Today’s Budget is good news for the environment and transport – good for motorists, good for road haulage and good for public transport. It takes further steps towards achieving the Government’s environmental, social and economic objectives. We are “greening” Britain’s road transport and mapping out a route for a more sustainable future, through the Green Fuels Challenge and other changes announced today.”

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The main measures implemented in this Budget, in addition to the cash freeze in all road fuel and non-road fuel oil duties announced in the Pre-Budget Report, are:

• a 2 pence per litre reduction in the duty on ultra-low sulphur petrol (ULSP) from 6pm today. From 6pm today until 14 June 2001, the duty on unleaded petrol will also be reduced by 2 pence per litre to guard against any disruption to the wholesale and retail markets in the final stages of transition to ULSP. In this way, the Government ensures that all consumers benefit from the ULSP duty cut as soon as possible. By the end of this temporary period, ULSP will be available to all petrol retailers – independent as well as major oil companies – across the UK; 
• a 3 pence per litre reduction in duty on ultra-low sulphur diesel (ULSD) from 6pm today, to maintain the existing balance between the duty rates on the main forms of petrol and diesel; 
• abolition of the separate duty rate on lead replacement petrol and ‘super-unleaded’ petrol so that it will in future have duty levied according to its sulphur and aromatics content; 
• a package of measures in response to the Government’s Green Fuel Challenge to encourage environmentally-friendly alternative fuels and to assist the move towards a hydrogen-based economy; 
• a freeze in all car, motorcycle and bus vehicle excise duty (VED) rates until Budget 2002; 
• an extension of the small car threshold for VED for cars registered before 1 March 2001 from 1,200cc to 1,549cc from 1 July 2001, backdated to November 2000, providing benefit to a further 5 million car owners, including some Ford Escorts, Vauxhall Astras, Nissan Micras and Rover Metros; 
• a two-stage reform of authorised mileage rates from April 2001 to encourage the use of cleaner cars for business purposes and a range of measures to encourage the use of public transport and green travel plans; 
• major reform of lorry VED to be introduced from 1 December 2001, bringing UK rates down to among the lowest in Europe for the cleanest lorries. In the meantime, the transitional arrangements announced in the Pre-Budget Report remain in place, with rebates of up to 50 per cent for licences in force on 30 November 2000 and lorry VED rates reduced by up to 50 per cent from 1 December 2000; 
• initial allocations from the £100 million Haulage Modernisation Fund announced in the Pre-Budget Report; and 
• abolition of VED on tractors, similar agricultural vehicles and other vehicles which currently qualify for the special concessionary rate from 1 April 2001, saving farmers in total over £10 million a year.

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Details

Promoting cleaner fuels

Duty differentials have an important role to play in encouraging the use of more environmentally friendly fuels.

• The 2 pence per litre reduction in duty on ULSP builds on the introduction of a 1 pence per litre duty differential between ULSP and ordinary unleaded petrol on 1 October last year. This will help reduce emissions of damaging air pollutants such as carbon monoxide and nitrogen oxides and so improve local air quality. This cleaner petrol can be used instead of ordinary unleaded petrol without any changes to car engines. In mid-November 2000, ULSP accounted for only 42 per cent of the unleaded petrol market. By the end of March it will account for 93 per cent of total sales of unleaded petrol. By June, as a result of the Pre-Budget Report announcement of a possible duty cut, ULSP will be available to all petrol retailers – independent as well as major oil companies – across the UK. This duty cut will enable the UK market to convert to this cleaner fuel four years before it becomes the European Union standard petrol. 
• The 2 pence per litre reduction in duty on unleaded petrol for a temporary period until 14 June 2001, matching the cut on ULSP, will guard against any disruption to wholesale and retail markets in the final stages of transition to ULSP. In this way, the Government ensures that all consumers should benefit from the ULSP duty cut announced today as soon as possible. By the end of the temporary period, ULSP will be available to all petrol retailers - independent as well as major oil companies - across the UK. 
• The 3 pence per litre reduction in the duty on ULSD will maintain the balance between the duty rates on the most commonly used forms of petrol and diesel. 
• The abolition of the separate duty rate on higher-octane unleaded fuels will reduce the duty rate on Lead Replacement Petrol (LRP) and super-unleaded by up to 5 pence per litre. This follows from an environmental assessment that showed that higher-octane fuel such as LRP is generally no more polluting than ordinary unleaded. From 6pm today, duty on this petrol will be levied according to its sulphur and aromatics content. This will provide targeted assistance to those who need it: predominantly people driving older cars that are locked into buying LRP. It will also encourage oil companies to produce this fuel to the ultra-low sulphur specification.

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The Government is also keen to stimulate the development of viable alternative fuels that offer environmental benefits over current conventional fuels. After considering responses to the Green Fuel Challenge, the Government has formulated a package of measures to provide short-term benefits from Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG) and biodiesel; looks to the medium term with bioethanol and biogas; and paves the way for the future with pilot projects on the fuel-cell favourites methanol and, most significantly, hydrogen. The Government will:

• maintain the duty differential between gaseous fuels (CNG and LPG) and the most commonly used forms of petrol and diesel by reducing the duty on road fuel gases by the equivalent of 3 pence per litre, to 9 pence per kilogramme. Furthermore, to provide the stability needed for the emerging road fuel gas market, duty on road fuel gases will not be increased in real terms until 2004 at the earliest; 
• introduce a new duty rate for biodiesel in Budget 2002, at 20 pence per litre below the ULSD duty rate; 
• support pilot projects for hydrogen, methanol, bioethanol and biogas with duty reductions or exemptions. In particular, the Government is keen to take further steps along the road towards a hydrogen-based economy; and 
• consult this summer on how the Government can further encourage the development, delivery and up-take of new alternative greener fuels and technologies.

The Chancellor today confirmed that the forthcoming tax year will be the fourth of a five year programme of annual increases announced in Budget 98 to discourage giving or receiving free fuel for private use in a company car. The annual VAT fuel scale charges will be adjusted in line with pump prices.

Modernising motor taxation

Further reforms to motor taxation were announced today to provide a wider choice of cheaper motoring for those that need to use a car most.

• For cars registered before 1 March 2001, the Chancellor announced that he would extend the small car engine £55 Vehicle Excise Duty (VED) discount to cars with engines up to the 1.5 litre threshold including some Ford Escorts, Vauxhall Astras, Nissan Micras and Rover Metros. This new lower VED rate for cars between 1200cc and 1549cc will come into force on 1 July 2001 and the Chancellor will backdate this extension to November 2000 and send out rebates to eligible motorists in July 2001. 
• To help reduce costs specifically for disabled motorists, the Chancellor announced today that 
• the VAT zero rate on vehicles adapted for use by disabled people will be modernised to give disabled people a greater choice of VAT free vehicles. 
• VAT on children’s car seats will be reduced to 5 per cent to cut the cost of buying an essential piece of safety equipment for families with cars.

From 1 March this year, all new cars registered in the UK will pay their vehicle excise duty (VED) according to the amount of carbon emissions that their car produces. These new car VED rates range from £90 to £160 and up to 70 per cent of cars registering under this new system will pay less VED than if they had registered under the old system.

The Chancellor announced today that all car and motorbike VED rates would be frozen until Budget 2002.

To encourage the use of cleaner cars for business purposes, the Chancellor today:

• increased the two lower tax-free authorised mileage rates bands to 40 pence for the first 4,000 miles and 25 pence for further miles from April 2001. All other rates were frozen; and 
• as proposed in the Pre-Budget Report confirmed that in April 2002 the current system will be replaced with a single tax-free rate of 40 pence per mile for the first 10,000 miles and 25 pence per mile for any miles above the first 10,000.

A competitive and environmentally sustainable haulage industry

Further steps were announced today to reform the system of lorry vehicle excise duty (VED).

• The Government has paid out over £210m to over 120,000 hauliers in the form of lorry VED rebates since last December, reducing effective VED rates by up to 50 per cent for most hauliers. 
• As a transitional measure, hauliers renewing their VED disc have benefited from lorry VED rates reduced by up to 50 per cent since last December. 
• After consulting with the haulage industry, the Chancellor announced today that he was sweeping away the existing 100 or so different lorry VED rates and replacing them with a system of seven broad rate bands. This will improve the environmental signals and simplify the system for hauliers. Lorry VED will be cut by over £300m per year compared to Budget 2000 rates, bringing UK rates down to amongst the lowest in Europe for the cleanest lorries. These new rates will come into force on 1 December 2001. In the interim, the transitional lorry VED rates introduced on 1 December 2000 will continue. 
• The Chancellor also announced that he wanted to go further to improve the environmental signals from lorry VED. As a result, the Government plans to introduce lower VED rates for lorries meeting the latest euro-IV standards from around 2004, and will review the future of the current reduced pollution scheme in the run-up to that period to see if it still offers environmental benefits and to deal with transitional issues. 
• The Government will also review the current arrangements for paying for lorry VED, to see how it can be modernised to reduce the administrative cost of paying for lorry VED for hauliers.

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The Government announced the creation of a £100 million Haulage Modernisation Fund in the Pre-Budget Report last November. The Government has discussed how to spend this fund most effectively with the Road Haulage Forum. As a result, the Government will, as a first step, make available in England up to:

• £30 million for targeted support for retrofitting older lorries operating in areas of poor local air quality, such as Air Quality Management Areas, where nitrogen oxide and particulate emissions are most damaging. This will also enable hauliers to qualify for up to £500 lower VED rates; 
• £15 million for advice on fuel efficiency, which should deliver savings of around 5 to 10 per cent in carbon emissions and similar reductions in the typical haulier’s fuel bill; 
• £5m for training initiatives for new drivers to help the industry meet new skills and manpower requirements; 
• £3 million for increasing Government enforcement of haulage industry regulations across the UK, at the industry’s request; and 
• £2 million for various supporting measures, including funding a pilot scheme for the industry’s own proposal to take responsibility for raising standards and improving business performance.

The remaining third of the Haulage Modernisation Fund in England will be allocated at a later date, when both the Government and the industry will have a clearer view of future requirements.

In the Pre-Budget Report last November, the Government announced its intention to establish a form of road user charging for lorries, such as a vignette, to ensure that foreign hauliers start to contribute towards the costs that they impose in the UK. The Government has consulted the haulage industry on these proposals and received broadly positive responses. The Government will continue to develop its plans to set up a vignette over the coming months.

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Encouraging the use of public transport and green travel plans

The Chancellor announced today a package of measures intended to encourage the use of public transport and to green Britain’s travel to work.

The Government will:

• remove VAT on the purchase of adult cycle helmets from 1 April to encourage people to cycle more and improve road safety, as announced in the Pre-Budget Report; 
• adjust the VAT zero rate on passenger transport to include smaller vehicles with 9 or more passenger seats from 1 April. This will help provide a greater choice of public transport, especially in rural and remote areas; 
• extend the threshold for works buses qualifying for tax exemptions from 12 to 9 passenger seats from April 2002, to assist and encourage employers in smaller companies to set up Travel Plans to help their employees to travel to work without using their cars; 
• increase the tax-free mileage rate employers can pay for cycle use for business trips to 20 pence per mile from April 2002; 
• introduce a new tax-free passenger rate of 5 pence per mile per passenger to encourage car-sharing on business trips in private cars from April 2002; and 
• freeze vehicle excise duty on buses until Budget 2002.

The Government will also be working with taxi companies, local authorities and other bodies to explore ways of encouraging the use of less-polluting taxis in our major cities.

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Reducing costs for farmers

Following consultations with the National Farmer’s Union (NFU) and other agricultural representatives, the Chancellor announced today that:

• VED on tractors and all vehicles in the special concessionary VED class will become free from 1 April 2001; 
• the Government will rebate the owners of these vehicles for the outstanding months on their applicable VED disc in May 2001, backdating the rebate to 1 March 2001; and 
• the Government recognises the need to confirm which vehicles will qualify for this concession, and will resolve some minor outstanding classification issues by the next Pre-Budget Report, with any necessary legislative changes in Budget 2002.

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NOTES FOR EDITORS

Fuel duty changes

1. The rates of duty on petrol and diesel from 6pm today are set out below, together with the effect of the tax decrease (duty plus VAT) on the price of a litre of fuel:

2. The duty rate on unleaded petrol has been reduced by 2 pence per litre until 14 June 2001 only. After this date, the duty rate will return to 48.82ppl.

3. The duty rate on higher-octane unleaded petrol has been abolished. Duty on this fuel will now be levied according to its sulphur and aromatics content, as with standard unleaded petrol. In the short term, this will lead to a minimum decrease of 4.78ppl (duty plus VAT); in the long term, when all this fuel qualifies for the ULSP duty rate, this will lead to a decrease of 5.96ppl (duty plus VAT).

4. The Government will enter into discussions with biodiesel producers and car manufacturers to draw up a suitable specification for biodiesel by Budget 2002. The Government will finalise details for pilot projects for bioethanol, biogas, methanol and hydrogen during the year.

VED for cars

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5. The small car engine VED reduced rate will be extended to include cars up to and including 1549cc from 1 July 2001. This will enable an additional 5 million car owners to benefit from the £55 discount.

6. The extension of the small car engine VED rate will be backdated to 1 November 2000. Owners of cars between 1200cc and 1549cc who have purchased or will purchase a VED disc between 1 November 2000 and 30 June 2001 will be eligible for a rebate of up to £55 for each annual licence purchased, or £27.50 for each six-month licence. The DVLA will contact eligible motorists in July 2001.

7. All other car, motorbike and bus VED rates are frozen in this Budget.

VED for lorries

8. Since the Pre-Budget Report, the Government has rebated hauliers for up to 50 per cent of their lorry VED disc in force on 30 November 2000. Since 1 December 2000, hauliers purchasing new lorry VED discs have paid up to 50 per cent less than the Budget 2000 lorry VED rates. Further details and these transitional lorry VED rates are set out in DETR news release 698 on 14 November 2000 (‘VED for HGVs – cut’).

9. Since the Pre-Budget Report, the Government has consulted on radical proposals to reform lorry VED set out in a consultation document published alongside the Pre-Budget Report – ‘Consultation on reform of VED for lorries: a consultation paper’ (HM Treasury, November 2000). The results of the consultation exercise and a Regulatory Impact Assessment are published today on the Treasury internet site.

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10. The new lorry VED system announced today is based largely on the proposals set out in the Pre Budget Report. The new system will take effect from 1 December 2001. Until then, the transitional lorry VED rates will continue to apply. From 1 December 2001, the new lorry VED system will be:

Lorry VED rates

VED bands for rigid lorries

VED bands for 2 axle tractive lorries

VED bands for 3 axle tractive unit articulated lorries

VED for tractors and other vehicles in the special concessionary VED class

11. VED for tractors and all other vehicles in the special concessionary VED class and electric motorbikes will be abolished from 1 April 2001. The DVLA will reimburse people for all outstanding months on VED discs beyond this date in May 2001, and backdate this reimbursement to 1 March 2001.

VED on recovery vehicles and special types vehicles

12. VED on recovery vehicles will be reduced from 1 December 2001 to £165 up to 25 tonnes instead of just 12 tonnes; and to £415 for recovery vehicles over 25 tonnes. VED on special types vehicles will be reduced from 1 December 2001 to £2585 without a reduced pollution certificate and £2085 with a reduced pollution certificate (the same as the transitional VED rates in force since 1 December 2000).

Minor VED changes

13. From Royal Assent, mobile pumps will be reclassified as mobile cranes and become eligible for the special vehicles VED rate; the link between the payment of VED refunds and the Statutory Off-Road Notification (SORN) system will be abolished; and the Secretary of State for the Environment, Transport and the Regions will have the right to waive the requirement for the VED disc to be surrendered at the time of refund in certain circumstances.

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Further Information

Further details of the Budget 2001 transport announcements can be found on this website. More details are also included in the separate Budget Notes listed below. Copies of Inland Revenue and Customs and Excise Budget Notes can be found on their websites:

External Links
 Link to the Inland Revenue Website
Link to the Customs & Excise Website

Customs and Excise Budget notices

Inland Revenue Budget notes

HM TREASURY PRESS OFFICE

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Non-media enquiries: 020 7944 3000

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