The UK Budget 2007 introduced by Chancellor Gordon Brown will almost double the vehicle excise duty (VED) on the least fuel-efficient cars, raising the rate for VED Band G to £300 (US$591) in 2007-08 and £400 (US$788) in 2008-09.
For taxation purposes, the UK groups vehicles in bands defined by a range of CO2 emissions. Band G vehicles emit 226 g CO2/km or more—equivalent to about 9.4 l/100km fuel consumption (25 mpg US) for a gasoline vehicle or 8.5 l/100km (28 mpg US) for a diesel.
In counterpoint, the rate for low-carbon band B cars (101-120 g/km) is reduced to £35. Rates in the graduated bands C-E will increase by £5 in each of the next three years; and the rate for band F will increase by £10 in 2007-08, then £5 in each of the subsequent two years.
The current differential in the rate for gasoline and diesel cars will be aligned, as the differences in nitrogen oxides and particulate matter emissions for new cars is expected to fall to close to zero under Euro V and VI emission standards.
Other efficiency-related and lower-carbon initiatives in the Budget include:
An increase of 2 pence per liter (2 ppl is roughly equivalent to $0.15/gallon US) in main fuel duty rates this year, deferred until 1st October 2007; with increases of 2 ppl in 2008-09 and 1.84 ppl in 2009-10;
Extending the current 20 ppl duty differential for biofuels to 2009-10;
Maintaining the current duty incentive for biogas until 2011-12 (an extension of two years);
Moving forward with the proposed Enhanced Capital Allowance for the cleanest biofuels plant and introducing a payable enhanced capital allowance for companies not in taxable profit to ensure that both profit making and loss making firms have an incentive to invest in the cleanest biofuels plant; and
Instituting a 2% company car tax discount for E85 company cars from April 2008.
The Chancellor also asked Professor Julia King, Vice-Chancellor of Aston University and former Director of Advanced Engineering at Rolls Royce, working with Sir Nicholas Stern (of the Stern report), to lead a review to examine the vehicle and fuel technologies which over the next 25 years could help to decarbonize road transport, particularly cars. The Secretary of State for Transport will set out the Terms of Reference for the review shortly.
Transport accounts for a quarter of emissions: our objective for Britain is the lowest carbon cars using the least polluting fuels. Average new car emissions are today around 167 grams of carbon dioxide per kilometer. A medium term objective is 100 grams. We want Britain to lead in developing the next generation of low and no carbon vehicles and fuels.—Chancellor Gordon Brown
Additionally, the UK will launch a competition to develop the UK’s first full-scale demonstration of carbon capture and storage, the result of which will be announced next year.