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Budget 2020: Climate change

Overview

The climate featured heavily in the Chancellor's speech today (11 March 2020) forming part of the government's strategy to create high skill, high wage, low carbon jobs. This all falls under HM Treasury's Net Zero Review which aims to make the UK a net zero emissions economy by 2050.

So what was announced?  There were a couple of headline grabbing measures such as a new tax on plastic packaging and the abolition of red diesel allowance.

The plastic packaging tax follows a 2019 consultation and will apply to plastic packaging that does not contain at least 30% recycled plastic and will be charged at a rate of £200 per tonne.  The Finance Bill 2020 will contain measures preparing the ground for the tax the details of which will be consulted on with the final measures to be contained in the Finance Bill 2020/21 to tax effect from April 2022.  One to watch.

The abolition of the red diesel allowance, however, may have a more dramatic effect.  The red diesel allowance gives those who qualify a rate of duty of just over 11p per litre of diesel compared to the almost 58p per litre generally charged.  It was announced today that the allowance will be abolished from April 2022 save for those who operate in the agriculture and rail sectors and for non-commercial heating.  While that is clearly very good news for farmers and train operating companies it is considerably less good news for hauliers and construction companies.

There were also a raft of measures which had either previously been announced or which are perhaps likely to have a less dramatic impact. These include measures such as increases to the rate of Landfill Tax and Air Passenger Duty, an exemption from Vehicle Excise Duty for certain zero-emission vehicles, changes to the rate of Landfill Tax and the freezing of the rate of Aggregates Levy.

Interestingly the rate at which the Climate Change Levy will be charged will be amended over the next couple of years so as to rebalance the rates of tax charged on electricity and gas respectively.  Electricity is now considered the 'greener' of the two and will benefit from a reduction in the rate of CCL and conversely the rate on gas will increase.

And finally, even climate change cannot escape Brexit.  The UK is currently part of the EU Emissions Trading Scheme and will remain so until 31 December 2020.  The UK has indicated that it is open to remaining part of that Scheme once it has left the EU but if this cannot be agreed the UK would introduce an alternative carbon pricing policy.

Finance Bill 2020 will therefore contain powers enabling HM Treasury to provide for a new carbon pricing policy under secondary legislation.

 

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