Fleet News

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 today.

The report contained several areas of interest to the fleet industry.

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.

    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.

    ECOS and AMAPs

    Following HM Revenue and Customs’ review of the taxation of ECOS, the Government has decided not to impose a benefit-in-kind charge.

    However, the Chancellor is still considering changes to AMAPs: “Budget 2007 also announced that HMRC would undertake discussions with business to review AMAPs. In advance of the Budget, the Government will continue to consider the representations received from industry,” said Darling.

    In March 2007 the Government published an update of its consultation on the tax relief for business expenditure on cars.

    A summary of the responses to the consultation was published alongside the Chancellor’s speech, in which he said: “The Government appreciates the importance of considering the framework of taxation of cars used for business travel as a whole, and will make announcements on future policy in this area in Budget 2008.”

    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.

    Department for Transport gets additional funding

    There will be a 2.25% annual increase in the Department of Transport’s programme budget set out in the Long Term Funding Guideline for transport announced in the 2004 Spending Review.

    The announcement means the Department to continue to plan on a '10-year horizon', meaning in the 20 years from 1997-98 UK transport spending will have more than doubled in real terms.

    These increases allow the Department to contribute over £5 billion to Crossrail, the Government's share of the overall cost of up to £16 billion.

    The Department has committed over £15 billion to the railways to enhance capacity and improve safety and reliability on trains between 2009 and 2014.

    This includes a programme to modernise the Thameslink line, the addition of 1,300 carriages to increase capacity on key routes, an extensive programme of station improvements and £200 million of investment in a strategic rail freight network.

    The Secretary of State for Transport, Ruth Kelly, said: "This settlement confirms that investment in public transport will continue to grow in real terms bringing sustained improvements for the travelling public.

    "The historic commitment to deliver Crossrail will support Britain's economic growth and relieve the pressure on the tube by carrying around 200 million passengers a year. The extension of concessionary fares, the focus on local and regional transport as well as the increased capacity on the rail network will bring tangible improvements to passengers' journeys."

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