'Green stimulus' package announced
A number of tax and spending changes have been introduced to maintain the Government's green credentials. These include additional or accelerated capital expenditure, and increases in the tax on cars and air travel. A warning to suppliers who fail to pass on reductions in wholesale energy prices to the consumer sits a little oddly alongside these changes.
Baker Tilly analysis
The Chancellor's 'green stimulus' is based around:
- £535 million of accelerated capital spending on trains and flood defences
- £100 million for home insulation
- Phased increases to vehicle excise duty (road tax) in 2009 and 2010
- Increases in fuel duty
- A distance-based scheme for Air Passenger Duty (APD)
The APD changes are less environmentally significant than we were led to expect at the 2008 Budget. A warning that action may be taken against suppliers who fail to pass on reductions in energy prices also seems more likely to promote energy use than reduce it.
In detail
Vehicle excise duty (road tax) will change in structure from 6 to 13 rate bands in April 2009, although no car will be charged more than £5 extra in 2009/10. From April 2010 the bands will start to diverge: the tax on cars with emissions less than 150 gm/km will decrease by up to £30, but on cars above 175gm/km it will increase by up to £30. The tax on cars registered before 2001 will increase by no more than £5 in 2009/10.
Fuel duty will go up by 2 pence per litre from 1 December 2008, although the cut in VAT will mean little change to the price at the pump. However, the duty will increase by another 1.84 pence in April 2009, and by a further 0.5 pence above inflation in April 2010.
From November 2009, Air Passenger Duty will still be charged per passenger, but rates will vary according to the distance flown, in bands of 2,000 miles centred on London and measured to the capital city of the destination country. This replaces the previously proposed move to a per-plane basis, despite the fact that this was considered to be more environmentally significant because it would penalise airlines which fly with aeroplanes that are not fully loaded.
HMRC has provided a table of destination capitals, which shows that the duty on a flight beyond Europe will increase by £40 in economy class and £80 in business or first class.
The Chancellor has called for quarterly reports on energy pricing to be provided by Ofgem. There will be 'consultation on legislation' if energy companies are found not to be passing on to the consumer the benefit of falling wholesale gas and oil prices.