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Last Updated: Wednesday, 21 March 2007, 14:45 GMT
Cars bear brunt of green taxation
Car exhaust
Drivers of gas-guzzling cars will pay more
Drivers of the biggest and most polluting vehicles are to see car tax almost double to 400 by April 2008, Chancellor Gordon Brown has said.

The rise accompanied a 30% cut in vehicle excise duty (VED) for some of those which emit the least pollution.

Mr Brown also promised to work towards special mortgages for energy efficient upgrades on homes, and to abolish stamp duty on some zero-carbon homes.

But critics said Mr Brown was not doing enough to confront climate change.

"There's some good measures in it, but it doesn't go far enough at all," said Dave Timms of campaign group Friends of the Earth.

"There are policies out there that would be a strong incentive for people to go green, but the Chancellor has chosen to ignore them."

He welcomed renewed increases in fuel duty and the VED rise, although he pointed to Department for Transport research which indicated that much higher levels would be needed to change people's behaviour.

But Andrew Smith, chief economist at KPMG, pointed out that the Chancellor could be testing the water while the government's overall energy strategy was fully worked out.

"You have to be careful about doing too much here or too much there to avoid effects you don't intend," he said, "or to pay people for doing things they would have done anyway."

Still, he cautioned that despite the government's talk of preferring incentives to go green, it would one day have to get tough.

"You need the stick as well as the carrot," Mr Smith said. "It can't be a painless thing."

Big picture

Overall, green taxes have fallen as an overall proportion of government revenues to 7.3% in 2006, although they are to rise to 7.5% in 2007 thanks to fuel duty and VED rises.

Gordon Brown's 11th budget comes just a week after the government published its Climate Change Bill, which calls for a legally-binding cut of 60% of emissions by 2050, with five-year plans for interim targets along the way.

Neither the bill nor the 2006 Stern Review, which warned of the need for radical action to combat climate change, was mentioned during the Chancellor's speech.

But Mr Brown said the government wanted to set "a framework for environmental action combining a call to personal and social responsibility with European and international co-operation".

He had written, he said, to his fellow European Union finance ministers to ask for a cut in VAT on environmentally-friendly goods to 5% from the current 17.5%.

Home front

The Chancellor promised to encourage cuts in emissions from homes, which he said accounted for a quarter of the UK's total carbon output, including:

  • grants worth 300-4,000 for pensioners installing insulation and central heating in their homes;
  • consultations with banks and building societies to develop new mortgage products for investment in energy efficiency;
  • a zero rate of stamp duty to be paid on new homes costing less than 500,000 which have a zero carbon footprint till 2012;
  • 6m extra for the Low Carbon Buildings Fund; and
  • a push to find ways of making it more lucrative for people to sell energy generated by systems such as solar panels back to the National Grid.

The Royal Institution of Chartered Surveyors said the Chancellor had missed an opportunity by focusing on new homes.

"The fundamental move would have been to reduce VAT on repairs to existing buildings to make them more energy efficient," said Brian Berry, RICS' head of public policy.

That - combined with the need from June for all homes put on the market to have an energy performance certificate - would have provided a strong incentive, Mr Berry said.

Car tax

As for transport, Mr Brown announced that fuel duty would go up 2p a litre in 2007 and 2008 and 1.8p in 2009 - although this year's increase is to be delayed till October.

Possible zero-carbon home
Mr Brown wants to encourage low-carbon homes

The rise in VED for Band G cars - which include not only 4x4s but also some large people carriers and estate cars - was accompanied by a 10 rise for Band F vehicles, the next most polluting cars.

But while the least polluting Band A cars will continue to pay no VED, the next cleanest in Band B will see their rate cut to 35 from 50 for diesels and 40 for petrol cars.

And biofuels, which Mr Brown said helped fulfil the government's obligations on renewable fuels, would have their 20p a litre duty reduction extended to 2010, with the 40p a litre reduction for biogas extended to 2012.

Mr Brown said he had asked Sir Nicholas Stern - author of the Stern Review - to work with Professor Julia King of Aston University on developing "the next generation of low and no carbon vehicles".

In other environmental taxes, the Chancellor said he was raising landfill tax from its current rate of 24 a tonne by 8 a year till 2011, and boosting the aggregate tax which penalises quarrying from 1.60 to 1.95 a tonne.

The Climate Change Levy on businesses is to go up in line with inflation from April 2008 and is to be simplified, the Chancellor said.

And following his increase in air passenger duty in last year's Pre-Budget Report, he ridiculed a suggestion from the Conservatives of applying VAT to domestic air travel, saying it would result in only a minimal reduction of carbon emissions.

International action

As for the international dimension, Mr Brown noted that the EU had made a binding commitment to cut carbon emissions by 20% below the 1990 level by 2020.

The UK, he said, had reached a range of deals on environmental issues such as biofuels and clean coal with countries from Brazil to China.

And he promised 50m to a 10-country initiative to protect rainforests in Central Africa, as well as 800m to the government's Environmental Transformation Fund.

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