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Transport in the 2007 Budget

16 March 2007
An advance press briefing from Transport 2000

Gordon Brown's last budget, on 21 March, could have significant impacts on transport. This briefing sets out the changes we might expect.

The budget comes against the background of political competition to show leadership on climate change. Mr Brown’s recent speech on this subject promised measures in the Budget, while the Conservatives have already come out with plans to tax aviation more heavily.

However, Mr Brown's speech was light on transport (and in questions afterwards he appeared to suggest that transport efforts should rely on promoting greener technology rather than seeking to make any effort to get people to fly or drive less). This suggests that Ministers have been frightened (wrongly) by the recent petition against road pricing signed by 1.8m people and decided that transport must be left alone.

But Ministers also have last year's report from Sir Rod Eddington in front of them, and this suggests that without some kind of road pricing Britain’s roads will jam up, and that all modes of transport need to pay their full environmental costs.

So what might we see in this year's budget relating to transport?

Vehicle Excise Duty

The Government has been moving – slowly – towards a graduated tax, where the gas guzzlers pay more and low emission vehicles pay less. Last year’s Budget saw a new top band introduced, but at only £300 this was widely ridiculed as making no difference at all. Bashing gas guzzlers – or rather giving more incentives for people to buy low emission cars – could be seen as popular, so we might see further increases in the top bands, balanced by reductions or freezes in lower bands. Transport 2000 [1] and others have been suggesting a 'VED escalator', giving people signals that taxes will rise over time. This might for example result in reducing band B by £10, freezing band C and escalating bands D to G by 5%, 10%, 15% and 20% respectively per year. Longer term, we have also suggested a revenue-neutral purchase tax might be more direct.

Company cars

The reforms on company car tax – moving away from giving people more money the more miles they drive towards rewarding them for driving low emission vehicles – has been very successful and emissions from this sector have been reduced. But more reforms could give even more incentives to reduce emissions, including raising the tax on free fuel for private use of company cars. Other options which have been signalled in the pre-Budget Report include changing the tax on car leasing deals (the ‘Employee Car Ownership Scheme’ or ECOS) and looking at the tax free mileage allowances for business use of private cars. Transport 2000 has argued that these need to change to reflect carbon emissions, and in the short term the 40p mileage allowance should be halved from 10,000 miles per year to 5,000.

 

Aviation

Because the Chancellor increased Air Passenger Duty in the Pre Budget Statement in December, he may not do any more on aviation in the Budget (except probably to promote the European Emissions Trading Scheme as a means of tackling pollution and attack the Conservative plans for further taxes). However, environmental groups including Transport 2000 will continue to point out the light tax that aviation pays, and the sharp growth in aviation that will see it become one of the single biggest polluters. APD does not apply to transfer passengers or airfreight, and the industry is zero rated for VAT (allowing it to claim back £1bn); action on these would give further signals that aviation should contribute to reducing carbon emissions. Unlike the Chancellor, however, we want to see funding from aviation taxes ring-fenced for environment and development projects.

Other issues

Planning: As well as taxation, the Budget statement may include other measures relating to transport, following the Eddington report and also the report on planning by Kate Barker. Specifically, the Chancellor may well signal his support for streamlining the planning of major infrastructure projects and herald a new Planning White Paper. Environmental groups are concerned that people will lose their right to object to the principle of new transport schemes, and in particular that a ‘presumption in favour’ of building new transport schemes such as runways and motorways, as proposed by Eddington, will stifle debate about them.

Spending: Spending decisions on transport, as with other areas, are due to be left to the forthcoming Spending Review, but the Chancellor is under pressure to support some key transport schemes like Crossrail and a redevelopment of Birmingham New Street station.

Transport 2000's six tests

Transport 2000 will be looking for signals that Gordon Brown’s green vision includes transport, and in particular we have set six tests for a green transport budget.

 

  1. Introducing a Vehicle Excise Duty escalator for inefficient vehicles, while freezing or reducing VED for the most efficient cars
  2. Halving the tax-free mileage allowance for Employee Car Ownership Schemes which currently stands at 10,000 miles per year
  3. Relating the charges for free fuel for company cars to cars’ carbon dioxide ratings, including increasing charges from the frozen £14,400 level
  4. Introducing further aviation taxes to reflect environmental damage, with the money dedicated to environmental and development projects. Options include an escalator for Air Passenger Duty, either by a certain amount above inflation each year, or for simplicity a flat £5 a year increase in all rates of APD (to be reviewed if and when an effective emissions trading scheme is introduced for aviation), extending Air Passenger Duty to transfer passengers and freight, and changing the VAT status of aviation
  5. Ensure that planning of major projects continues to allow people affected a full say on the principle as need as well as detail
  6. Move transport spending towards schemes that reduce rather increase carbon emissions 

Notes to Editors

 

1. Transport 2000 is an independent campaigning and research body that represents the key transport interests of around 40 environmental groups, transport organisations and transport unions. We bring together people who seek to reduce the environmental and social effects of transport through encouraging less use of cars, lorries and planes and more use of rail, buses, trams, cycling and walking.