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Brown considers tax break for company cars powered by biofuels

The environment has taken centre stage for in today's pre-Budget speech by Chancellor Gordon Brown. But ECO schemes remain untouched.

Key points:

Main road fuel duties

In Budget 2006, owing to sustained oil market volatility, the inflation-based increase in main fuel duty rates was deferred until September 1, 2006. However, with the risk of volatility remaining high, the Government announced in July that the increase would not go ahead in September and the position would be reviewed at the time of the Pre-Budget Report. Since July pump prices have fallen back on average by between 8 and 12 pence per litre.

The pre-Budget report announces that:

  • main fuel duty rates will increase in line with inflation by 1.25 pence per litre from midnight tonight; and
  • the changes to other fuel duties announced at Budget 2006 will also take effect from midnight.

    Measures to encourage biofuels

  • an extension of the 20 pence per litre (ppl) biofuel duty differential to enable a pilot involving the use of biomass in conventional fuel production to go ahead. The incentive will be maintained until 2008-09.

  • an extension of the 20ppl biofuel duty differential to a new second generation biodiesel which offers potential environmental benefits

  • a duty rate reduction for pilots which will use biofuel mixed with rebated gas oil, to develop the off-road use of biofuels

  • that the Government will consider the case for extending the duty incentive for renewable natural gas (biogas), equivalent to almost 40ppl, and for an incentive in company car tax to support the take up of flex fuel vehicles capable of using high-blend bioethanol E85. It will update its position in the 2007 Budget.

    Brown said in his speech to the House of Commons: 'A priority for vehicles, responsible for 25% of emissions, is to promote cleaner fuels through fiscal incentives.

    'I am consulting prior to a Budget decision on extending the 40 pence per litre duty discount for biogas and on the level of tax discounts for company cars using high blend biofuels: and I am relieving small biofuel producers of requirements to register or submit returns.'

    Last month, a host of automotive business leaders wrote to Chancellor Gordon Brown urging him to cut company car tax for drivers who switch to biofuel-powered vehicles.

    The signatories of the letter, which also called for revisions to vehicle excise duty and an increased fuel duty rebate for bioethanol E85 – a fuel made from plant products such as wheat and grain – were Saab, Ford, the National Farmers’ Union and Morrisons supermarket.

    Jonathan Nash, managing director of Saab Great Britain, said: ‘We need some meaningful government intervention. So far, the government has done little to encourage the public into driving cars that can run on eco-friendly fuel sources such as bioethanol E85, whose CO2 emissions have been independently shown to be between 50% and 70% lower than emissions from petrol.

    ‘A £10 reduction in vehicle excise duty and a 20 pence per litre tax rebate is not enough to stimulate this new market.’

    Nash said other countries, such as Sweden, France, Ireland and Japan, offered incentives to drivers and wants the UK government to follow their lead.

    Government figures show the biofuels' market has increased sixfold from 2003 to 2005 and is expected to double again in 2006, increasing to around 250 million litres, or 0.5% of road fuels.

    The Government has also announced it will change the definition of biodiesel to include a new second generation biodiesel that offers potential environmental benefits and is capable of being blended in excess of 5% blends.

    ECO schemes

    In the 2006 Budget Brown announced a review of the taxation of employee car ownership schemes, 'with a view to possible changes'.

    This had revealed the carbon emissions from the average ECOs car are around 20g per kilometre (the typical measure of CO2 emissions) higher than the average company car.

    The Treasury's pre-Budget reports says: 'Furthermore there is a noticeable interaction between the tax treatment of ECOS, tax-free mileage allowances and rates of company car tax, which may have contributed to the popularity of ECOS. HMRC will hold further discussions with industry in 2007.

    'Following these discussions, the Government will consider whether changes are necessary in order to strengthen environmental incentives and protect Exchequer revenues.'

    Capital allowances for cars

    The Government has been consulting on options for modernising relief for business expenditure on cars, including the provision of incentives to business to purchase cleaner cars. 'This could build on the existing 100% first-year allowance for very low emission cars and recent reforms to VED and company car tax,' the Treasury says. 'The Government will continue discussions with business and present more detailed proposals in the 2007 Budget.'

    Commenting on the Chancellor's speech, RAC Foundation executive director Edmund King, said: 'The immediate fuel duty increase will go down like a flat balloon in this season of goodwill. However, the longer term icing on the cake could be the recognition of the need to speed up planning and investment in the road and rail network.'

    Ray Holloway, director of the RMI Petrol Retailers Association, part of the Retail Motor Industry Federation (RMIF), said: 'The Chancellor's announcement of a 1.25 pence per litre fuel duty rise - the first in three years - is yet another revenue-raising exercise by the Government, which will hit industry and all road transport users.

    'It is also hugely disappointing that - once again - no financial incentives are to be made available to petrol retailers to invest in bio-fuels. This is vital if these new fuels are to be made readily available to consumers at UK forecourts.

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