Fuel duty to be phased in
The chancellor Alistair Darling has unveiled what he says are "powerful incentives" for drivers to turn to more environmentally-friendly vehicles.
In his pre-Budget report 2008, Darling introduced a rise of 2p per litre on petrol, which was a move taken to offset the 2.5% reduction in VAT. With petrol prices having fallen, this was of little surprise, with Darling also increasing the duty on alcohol and tobacco.
The chancellor also confirmed the implementation of new differential bands of vehicle taxation, which he hopes will benefit those drivers with more environmentally-friendly cars.
He said that his plans would "provide powerful incentives to purchase less polluting cars", as he phases in the new bands to reflect fuel efficiency.
In 2009, all motorists will see duty rates increase by no more than £5, in line with current practice.
However, 2010 will see the first year of differential increases in vehicle duty. Paring back his original proposal, Darling announced that the more polluting cars will see increases in duty of up to £30, while less polluting cars will see no rise at all or, in some cases, a reduction of up to £30.
Lisa Harker, co-director at the Institute for Public Policy Research, says the chancellor hasn't gone far enough: “The cap on Vehicle Excise Duty on the most polluting cars is a retrograde step.”
Motorists could also soon benefit from having more, and better, roads to drive on, after the chancellor announced that he would bring forward £3 billion worth of capital spending, of which increasing the capacity of the motorway network would be a major aspect.
As well as affording drivers the opportunity to enjoy improved highways, the move is also intended to boost employment.
Air passenger duty to rise
As well as focusing on matters on the ground, the chancellor also extended his eco-friendly outlook to the skies.
Turning his back on a bipartisan approach to aviation emissions, Darling announced a four-band reform system, to ensure "those that travel further and have a larger environmental impact" bear the brunt of the payments.
He believes "this will be effective in reducing emissions from aviation".
The move was met with some consternation.
John Manning, UK tax and environmental leader at PriceWaterhouseCoopers, says: "Air passenger duty was always regarded as a very blunt instrument in reducing carbon emissions," he said. "The former proposed aviation duty would have been a tax move targeted to reducing emissions. It remains to be seen how the new Air Passenger Duty is linked to carbon emissions."
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.