8 April 1998

Dawn Primarolo MP (Lab. Bristol South) Financial Secretary to the Treasury

The Budget confirmed the Government’s pledge to put the environment at the heart of policy-making. Indeed, we published an assessment of those Budget measures which have a significant effect on the environment. We are trying to ensure that our tax system is fair now and in the future.

The package was the largest of any Budget, and designed to help combat climate change, improve air quality and reduce the impact of landfill.

This is not just hollow rhetoric. The UK has taken a lead internationally in pursuing action. We will have established later this year the legally-binding UK target needed to meet our share of the EU’s undertaking at Kyoto to reduce greenhouse gas emissions by 8 per cent on 1990 levels by the years 2008 to 2012.

The Budget changes in road-fuel duty will produce estimated annual savings of 1.7 million tonnes of carbon by 2010. The five-year tax strategy to discourage employers from offering free fuel to company car drivers will reduce unnecessary journeys and carbon dioxide emissions.

Sir Colin Marshall has been appointed to investigate whether we can use new economic instruments to help curb greenhouse gas emissions. I believe that Government and the private sector can achieve more working together and that Sir Colin will produce a valuable contribution.

The Budget also confirmed that VAT will be reduced on installation of energy-saving materials under government grant schemes, helping an extra 430,000 low-income households a year insulate their homes. We are exploring the scope for a wider reduced rate with our European partners. Claims have been made that Belgium has cut VAT on energy saving materials to 6 per cent but, in fact, it does not extend to anything not already covered in the UK by a zero rate at present.

The Government is rightly concerned about pollutants from road transport, and the adverse effect on our health and our environment, particularly in congested urban areas. Our strategy to encourage the use of ultra-low sulphur diesel, and the continuing measures to encourage road fuel gas vehicles, mean that fuels with high levels of particulates will incur more duty in line with the ‘polluter pays’ principle.

The reductions of up to 500 in Vehicle Excise Duty for lorries and buses with clean exhausts, as well as the proposed 50 reduction for the cleanest and smallest cars, will encourage low emission and clean vehicles. These measures should contribute towards a cut in emissions of particulates from urban road transport of over 20 per cent by the year 2005.

In addition, to help provide real alternatives to the car, we have provided an extra 500 million over the next three years for public transport, including 50 million for rural transport initiatives.

There is evidence that, in response to the landfill tax, one third of waste producers are already reviewing their waste strategies. The increase in the standard rate from 7 to 10 next year should further reduce volumes of waste going to landfill. The exemption for waste used for restoration will help landfill operators to restore sites in an environmentally beneficial way. We will be reviewing the case for further increases in the tax rates.

We are also proceeding with work on possible taxes or charges on aggregates, water pollution and pesticides. Designing an environmental tax that reduces distortions in the tax system, rather than increasing them, is not straightforward. Environmental taxes should be based on sound analysis and deliver real benefits. Our research on aggregates suggests there are environmental costs not captured by regulation, but we need further work to assess how to correct for these, and how an aggregates tax could work.

We will also return to the issue of water pollution when current research has been completed. If it suggests that a system of charges would be an effective way to tackle pollution, we will consult on detailed proposals.

I am also pleased that the Department of the Environment, Transport and the Regions has commissioned a study into how a pesticides tax could work, another economic instrument that could improve the quality of water and reduce damage to the terrestrial environment.

Later this spring, the Integrated Transport White Paper will set out the Government’s overall strategy for transport.

The Chancellor has made clear that it is important to proceed with environmental taxes by consultation wherever possible, and that we are trying, and succeeding, to build a national consensus on the measures to be taken.

The Budget has taken some significant steps and shows that the Government is putting the principles behind sustainable development and environmental tax reform into practice.

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