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Budget statement 2008
12 March 2008

This briefing note sets out the key announcements in the Chancellor's Budget Statement made 12 March 2008 which affect members.

Fuel duty

The planned fuel duty increase of 2 pence per litre (ppl) in April 2008 has been postponed until 1 October 2008 in order to respond to the short-term pressures on businesses.

Main fuel road fuel duty rates will rise by 1.84ppl on 1 April 2009 (as announced at Budget 2007)and by 0.5ppl above inflation on 1 April 2010.

Rebated oils rates will also be frozen until 1 October 2008, and will then rise in proportion to main road fuel duties for the next two years.

Road fuel gases differentials were previously announced until 2008-09. The Budget announces that the duty differential will also be maintained for Compressed Natural Gas (CNG) and reduced by 1ppl for Liquefied Petroleum Gas (LPG) until 2010-11.

FTA comment:
FTA has welcomed the decision to freeze diesel duty and gas oil duty. However, FTA believes that any duty increase should have been put off for at least a year whilst the oil market remains so turbulent. A six month deferment will save industry some £140 million. To put this into context, since January 2007 the transport industry has seen its road fuel bill alone increase by £2.5 billion as the bulk price of diesel has increased from 74p per litre to the current 92p per litre.

Biofuels

The duty differential for biofuels will be abolished in 2010-11 and from then the Renewable Transport Fuel Obligation will provide the total incentive for biofuels. Budget 2008 also announced that the rate of duty payable for biofuels used off road will be 9.69ppl from 1 April.

FTA comment:
This decision effectively removes any incentive to use biofuels. The loss of the tax differential effectively wrecks the commercial incentive for use of biofuels in blends above five per cent. FTA therefore expects to see a sharp tail-off in higher blend biofuel trials.

Vehicle excise duty

Budget 2008 announced a reform of the Vehicle Excise Duty (VED) structure for cars to incentivise the uptake of cars which produce lower levels of carbon dioxide emissions and penalise cars with higher emissions. Specific proposals include:

• six new VED bands from 2009-10 - including a new top band (band M) for most polluting cars that emit more than 255g CO₂/km
• reducing the standard rate, in 2009-10, for all new and existing cars that emit 150g of CO₂/km or less; and increasing the rate on the most polluting cars to £425
• from 2010-11, extending the zero rate of VED, during first year of ownership, to all new cars that emit 130g CO₂/km or less
• holding the first year rate for all new cars that emit between 131 to 160g CO₂/km equal to the standard rate in 2010-1
• for the most polluting cars a first year rate of £950 in 2010-11

VED bands and rates for cars registered after 1 March 2001 (graduated VED)

1. 2008-09 rates take effect from 13 March 2008
2. Cars registered before 23 March 2006
3. Cars registered after 23 March 2006
4. Alternative fuel car discount: 2009-10 £20 for bands A-I, £15 for bands J-M; in 2010-11 the discount will be £10 for all cars

The Chancellor had already announced that lorry VED would be left unchanged in Budget 2008.

A lower VED rate for diesel vans that comply with EU air quality emissions standards from 1 January 09.

UK vignette

The conclusions of the Freight Data Feasibility Study - an important workstream from the Burns Inquiry - will be published shortly. This will conclude that the options, including a vignette, would deliver limited safety, congestion, environmental and social benefits. Government has therefore taken the decision not to progress a vignette at this time.

Instead, the Government will focus on improving the UK's enforcement system. To support this and understand better the movement of foreign vehicles within the UK, the Government will refresh the 2003 foreign vehicle data survey.

FTA comment:
FTA is dismay at the decision to abandon plans for a UK vignette. The need remains for the Vehicle and Operator Services Agency (VOSA) to identify owners and the compliance history of foreign commercial vehicles visiting the UK. The decision to abandon the vignette is not accompanied by any commitment to more money for enforcement resources. As the pump-priming money for ANPR/WIMS trials runs out in 2008-09, it is essential Graduated Fixed Penalties are introduced and the money raised diverted to VOSA's front-line enforcement activities.

Hgv and psv 'RPC' testing

The Government is changing the rules requiring new hgv's and buses to have a physical test before being issued with a Reduced Pollution Certificate (RPC). VOSA will have the discretionary power to conduct a 'paper' test, by the production of a manufacturer's Certificate of Conformity to the appropriate Euro standard.

Road pricing

The Government is already committed to encouraging local authorities to develop proposals for local road pricing through its Transport Innovation Fund (TIF). Last week Transport Secretary, Ruth Kelly announced an expansion of the use of hard shoulder running and raised the issue of whether reserving lanes for those willing to pay a toll could 'lock-in' the benefits of extra capacity.

The Chancellor is inviting tenders, alongside announcing new funding, to test new pricing technology and driver behaviour with the first results expected next year.

Company car tax

The Government is changing company car tax by:

• replacing the existing capital allowance treatment for business cars with an emissions based approach. Cars will be placed in one of two capital allowance pools according to their CO₂ emissions, with cars whose emissions are above 160g/km receiving a lower allowance. one hundred per cent first year allowances will continue to be available for cars with CO₂ emissions not exceeding 100g/km
• increasing rates of company car tax rates for all but the cleanest cars emitting 135g/km or less for 2010-11
• increasing the fuel benefit charge at least in line with indexation from April 2009

Aviation taxes

The Government announced in its pre-Budget Report 2007 that it intended to replace Air Passenger Duty (APD) with a duty payable per plane rather than per passenger. This reform will take place on 1 November 2009. The public consultation on the design of the new plane duty closes on 24 April. Budget 2008 announced that the forecast total tax revenue from aviation duty would increase by 10 per cent in 2011-12, the second full year of operation for the new per plane duty.

The Government continues to make progress on securing the inclusion of aviation in the EU Emissions Trading Scheme and expects agreement to be reached shortly on a 2012 start date.

King Review

Professor Julia King's final report on the vehicle and fuel technologies which could help decarbonise road transport over the next 25 years was published at the time of the Budget Statement. The review identifies four areas where action needs to take place to move towards decarbonising transport - reducing vehicle emissions, cleaner fuels, consumer behaviours and research and development. FTA eNews will feature a full briefing on the review next week.

A Government response to the review's recommendations will be published in the summer.

Last updated: Thu Mar 13 09:58:19 2008