UK Autumn Budget 2018 – environmental, energy and transport taxes

Nov 12, 2018

A current hot topic around the globe, the main announcement in this area was the proposal to introduce a tax on the production and import of plastic packaging from April 2022.

Environmental taxes

Plastic packaging

To reduce the problem of excessive and environmentally harmful plastic packaging, and incentivise manufacturers to use recycled plastic, the government will:

  • Introduce a tax on the production and import of plastic packaging from April 2022. Subject to consultation, this tax will apply to plastic packaging which does not contain at least 30 percent recycled plastic.
  • Reform the Packaging Producer Responsibility System, which will aim to increase producer responsibility for the costs of their packaging waste, including plastic. This system will provide an incentive for producers to design packaging that is easier to recycle and penalise the use of difficult to recycle packaging, such as black plastics.

To ensure a coherent approach, the government will consult on both of these together in the coming months. Should wider policies not deliver the government’s waste ambitions in the future, it will consider the introduction of a tax on the incineration of waste, in conjunction with landfill tax.

Disposable cups

The government recognises the problems caused by disposable cups, which are difficult to recycle and often littered. The government has concluded that a levy on all cups would not at this time be effective in encouraging widespread reuse.

Businesses are already taking steps to limit their environmental impact, but the government expects industry to go further and will return to the issue if sufficient progress is not made.

Aggregates levy rates

The government will freeze aggregates levy rates for 2019-20, but intends to return the Levy to index-linking in future.

Energy taxes

Carbon price support (CPS)

The price of EU Emissions Trading System (ETS) allowances has risen significantly over recent months, raising the Total Carbon Price (currently made up of the EU ETS price and the CPS rate). The government will freeze the CPS rate at £18/tCO216 for 2020-21. From 2021-22, the government will seek to reduce the CPS rate if the Total Carbon Price remains high.

Carbon pricing following EU exit

In the event of no mutually satisfactory EU exit agreement, the government would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act.

The tax would apply to all stationary installations currently participating in the EU ETS from 1 April 2019. A rate of £16 would apply to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS. The government is also legislating so it can prepare for a range of long-term carbon pricing options.

Climate change levy (CCL)

The Budget sets the CCL main rates for 2020-21 and 2021-22 and continues with the government’s commitment to rebalance the main rates paid for gas and electricity. The electricity rate will be lowered in 2020-21 and 2021-22. The gas rate will increase in 2020-21 and 2021-22 so it reaches 60% of the electricity main rate by 2021-22. Other fuels, such as coal, will continue to align with the gas rate. The discount for sectors with Climate Change Agreements will change to reflect the change in CCL main rates.

Transport taxes

Fuel duty

Fuel duty is frozen for a ninth successive year. Following a review, the government will maintain the difference between alternative and main road fuel duty rates until 2032 to support the de-carbonisation of the UK transport sector, subject to review in 2024.

Vehicle Excise Duty (VED) 

From 1 April 2019 VED rates for cars, vans and motorcycles will increase in line with RPI. To support the haulage sector, the government will freeze the Heavy Goods Vehicle (HGV) VED for 2019-20.

The government has now published a summary of responses from the consultation on VED reform for vans, published in May 2018. The response will set out proposals to introduce environmental incentives from April 2021. Bands and rates will be set out ahead of Finance Bill 2019-20.

Blood Bikes

An exemption from VED for purpose-built vehicles operated by blood bikes will apply from April 2020.

Air Passenger Duty (APD)

Short-haul APD rates for 2020-21 will not rise, remaining at the same level they have been since 2012. The rates for long-haul economy will increase by £2, and the rates for those travelling in premium economy, business and first class will increase by £4. Those travelling long-haul by private jets will see the rate increase by £13.