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Pre-Budget Statement: Key points

The Chancellor of the Exchequer, Alistair Darling, has made his inaugural pre-Budget Report presentation to the House of Commons.

The Chancellor made references to the Government’s commitment to ensuring the UK plays a leading role in responding to the global challenges of climate change.

In relation to this, the Chancellor said road transport is a key area and that the publishing of the interim report of the King Review on vehicle and fuel technologies will help in developing policies that will ‘decarbonise’ road transport over the next 25 years.

The interim report - Moving to a global low-carbon economy: implementing the Stern Review - was published to coincide with the Chancellor’s speech.

The Review’s final report, including policy recommendations, will be published in time to allow the recommendations to be included in Budget 2008.

King Review of low-carbon cars issues analytical report

At Budget 2007 the Chancellor of the Exchequer launched the King Review, to examine the vehicle and fuel technologies which could help to decarbonise road transport, particularly cars, over the next 25 years.

The Review is led by Professor Julia King, Vice Chancellor of Aston University, working with Sir Nicholas Stern.

Professor Julia King’s interim analytical report was published today alongside the Pre-Budget Report.

The first part of the report, The potential for CO2 reduction, sets out the environmental challenge for road transport and looks at the scope for emissions savings from more efficient vehicle technologies, cleaner fuels and smart consumer choices.

The final part of the King Review will report in 2008 and will offer policy recommendations to help meet the challenge set out in part one.

Key findings

The initial findings of the review are that:

  • Urgent progress is needed from road transport to help meet emission cuts for the developed world of 60-80% by 2050 outlined in the Stern Review

  • At low cost and by 2030, per-kilometre emissions could be reduced by 50% - equivalent to a 30% reduction in the absolute level of emissions.

    These significant reductions in CO2 from road transport are achievable in the short term through progress on fuels, bringing new technologies to market and smart consumer choices such as buying a low-carbon vehicle

  • Almost complete decarbonisation of road transport is a realistic long-term objective, through electric or hydrogen-powered vehicles.

    This will require major technological breakthroughs as well as substantial progress towards decarbonising the power sector

  • Fuels must be considered on the basis of their life-cycle CO2 emissions. Biofuels can occupy a segment of the UK fuel market but care must be taken not to expand demand too quickly, before crop breakthroughs and robust environmental safeguards are in place.

    Professor Julia King said: “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.”

    The next stage of the review will develop recommendations on how Government can play a role in decarbonising transport. This report is due in early 2008.

    Part one of the review took into account submissions from organisations including Ford, the BVRLA, Energy Saving Trust, Provecta Car Plan, RAC Foundation and Trafficmaster.

  • To read part one of the King Review click here.

    Biofuels

    Biofuels are high on the Chancellor’s agenda for reducing transport-based emissions.

    As part of the government’s Renewable Transport Fuel Obligation (RTFO), it will encourage the development of biofuels, leading to a significant reduction in emissions of greenhouse gases from the transport sector, by increasing the use of biofuels.

    The total net carbon savings associated were initially estimated to be in the region of 2.6 tonnes of CO2 per year by 2010.

    “Building on the package of measures announced in Budget 2007, the Government will extend the current duty incentive for biofuels to biobutanol on a pilot basis, with the aim of assessing its environmental benefits and performance as a transport fuel,” said the Chancellor.

    Vehicle Excise Duty

    Despite some predictions to the contrary, there is to be no change to the Vehicle Excise Duty (VED) for cars, which was reformed in 2001 and is now based on graduated carbon dioxide bands.

    #AM_ART_SPLIT# The 2007 Budget set out car VED rates for the next three years to further sharpen the environmental signals to motorists and to continue to support the development of the low carbon market.

    However, the Chancellor did announce inflation-only increases on motorcycle VED rates in 2008-09, while VED rates for special types vehicles, combined transport vehicles and all vehicle categories that are linked to the basic goods rate will be frozen.

    Fuel benefit charge

    Employees who drive company cars and receive free fuel for private use from their employer will be affected by changes announced by the Chancellor today.

    The fuel benefit charge (FBC) multiplier will be increased from £14,400 to £16,900 on April 6, 2008 to “enhance the environmental incentives to drive fewer miles”.

    If an employee receives free fuel for their company car for private use then a benefit that is subject to tax and NICs arises. Since April 2003 the fuel benefit charge has been calculated by applying the appropriate company car tax percentage to a set figure known as the multiplier.

    Since April 2003, the multiplier has been set at £14,400. The percentage is calculated by reference to the CO2 of the company car. From April 6, 2008 the fixed multiplier will increase from £14,400 to £16,900.

    The Government recognises there are interactions between rates of company car tax (CCT), employee car ownership schemes (ECOS), tax-free mileage allowances (AMAPs), and tax relief on business cars, that work together to determine car purchase and usage choices, said the Chancellor.

    CCT was reformed in 2002 and is now based on carbon emissions, encouraging the take up of more fuel-efficient cars in company fleets.

    These changes are forecast to deliver significant savings of between 1.5-3.3m tonnes CO2 per year by 2020.

    Budget 2008 will set out the company car tax thresholds for 2010-11.

    Low emission vehicles

    The Chancellor also confirmed that the Government is considering the case for incentivising the early uptake of Euro V and subsequently Euro VI technology, and an announcement on this is expected in the 2008 Budget.

    However, any incentive for Euro VI take-up cannot be provided until Euro V is mandatory.

    Alec Murray, chairman of the Retail Motor Industry Federation (RMIF), said: "The Chancellor has missed an opportunity by failing to twin his Vehicle Excise Duty (VED) evasion clampdown, with a matching attack on car insurance dodging.

    "There are 27 million drivers on Britain’s roads, and it is estimated that one in 10 are currently uninsured.

    "The insurance premiums paid by law-abiding motorists are kept high in order to pay for the 2.7 million who shirk their responsibilities as road users. VED and car insurance evasion go hand in hand, so the Chancellor had an opportunity to allow motorists to have more money in their pocket at the end of the year, and reduce the misery that results from crashes involving uninsured vehicles."

    Christopher Macgowan, SMMT chief executive, said: “The chancellor has made this address while having one eye on the stack of reviews the government has seen, and is waiting on.

    “Although the economy appears to be stable and in good health, there is still a lack of clarity and long term direction on which to base firm business planning. As usual, the devil may be in the detail and the greater benefit to the motor industry may become more apparent after detailed evaluation.”

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