Chancellor preps green taxes for Budget, as row with EU over environmental rules heats up

Newly-appointed Chancellor Rishi Sunak is expected to announce a series of new environmental taxes as part of next month's Budget, alongside subsidy cuts for diesel fuel used in heavy duty off-road vehicles and machinery, according to reports that suggest the government is keen to make good on its promises of delivering a "green Budget".

However, the expected wave of green policy moves could yet be overshadowed by an escalating row with Brussels over the UK's reluctance to maintain a 'level playing field' for environmental rules and workers' rights.

Among a number of previously trailed green measures, Sunak is drawing up stronger restrictions on so-called red diesel in order to tackle air pollution and curb emissions, as part of broader efforts to shift the costs of decarbonisation onto business and industry rather than consumers, The Times reported yesterday.

Red diesel accounts for only around 15 per cent of all diesel fuel sales in the UK but faces a much lower tax per litre of just 11.14p, compared to the 57.95p paid on each litre of standard diesel sold. As such subsidies for red diesel currently cost the Treasury £2.4bn a year, The Times said.

But in a bid to claw back an estimated £100m a year for HMT, the Chancellor is expected to announce an end to the subsidy for road hauliers that use the fuel in refrigeration units and construction machinery, both of which have been cited as a major source of urban air pollution. However, farmers are expected to continue to be entitled to the subsidy, given the lack of currently feasible alternatives.

It is not the first time restrictions on red diesel have been mooted, with the government having previously consulted on such proposals back in 2017 before later backing off making the move.

Sunak is reportedly considering several new green taxes as part of his Budget announcement on 11 March, but the Chancellor is also under huge pressure from many Conservative MPs to maintain the freeze on fuel duty over fears of a backlash from voters, despite long-standing calls from green groups for the government to revive the fuel duty escalator. Introduced in 1993, the escalator is supposed to see the tax levied on every litre of petrol and diesel fuel sold in the UK rise each year in a bid to encourage fuel efficiency and curb emissions and air pollution. But successive Chancellors have blocked the annual hike in fuel duty every year since 2011, forgoing huge revenues and effectively lowering the cost of motoring.

Before his shock resignation last month, previous Chancellor Sajid Javid had promised to "prioritise" the environment in the Budget, with the government under growing pressure to deliver a raft of signals to business to start building towards the UK's 2050 net zero target as it gears up to host the COP26 Summit later this year.

With the UK currently off-track to meeting its own climate targets later in the decade, a raft of areas of the economy are in urgent need of a policy framework to help drive deep decarbonisation in the coming decades, with campaigners and the government's official advisors arguing new policies are required to tackle heat, transport, and agricultural emissions in particular.

Meanwhile, the extent to which environmental policy will be a critical component of the government's high-stakes negotiations to deliver a free trade deal with the EU were again underlined this week, as both Brussels and Westminster underscored their conflictying position on the need for a 'level playing field' clause for environmental and other standards in any deal. .

The government has said it wants a trade deal with the EU that affords it domestic flexibility on EU rules, but European negotiators have repeatedly made clear that any divergence from their regulations would undermine the integrity of the European market. 

The EU is set to shortly set out its latest negotiating stance before talks begin on Monday, as part of which it is expected to demand that the UK adhere to current standards on food production and farming, as well as environmental regulations and climate targets, according to Reuters.  

Text of the EU negotiating mandate adopted by the bloc on Tuesday said any free trade deal would require minimum commitments from the UK on climate change and the environment, the newswire said.

EU negotiator Michel Barnier this week underlined the bloc's position, insisting that "promises were made to cooperate with us, to make sure there's no form of unfair competition... I don't believe the UK will become some sort of Singapore-on-Thames. But that means it shouldn't be a problem for the UK to agree on a number of ground rules".

However, The Sun reported this morning that UK Prime Minister Boris Johnson will today effectively ditch the non-binding Political Declaration, which was agreed alongside the Brexit Withdrawal Agreement last year and which asserted that the maintenance of a 'level playing field' for environmental standards, workers' rights, and other issues should be a key plank of any trade deal. Johnson is expected to argue that the UK must be free to make its own rules as long as they provide for "fair and open competition" with the EU. Meanwhile, Cabinet Secretary Michael Gove will this morning set out the government's new 40 page negotiation blueprint in a statement in the Commons.

The new blueprint is expected to reiterate the government's non-binding commitments to maintain and enhance environmental standards. Only yesterday Environment Secretary George Eustice again sought to allay fears of any backsliding on food, environmental, and animal welfare standards, as he announced the second reading of the Environment Bill, the government's flagship post-Brexit green policy framework. Eustice had faced criticism over the weekend for failing to categorically rule out the potential import of chlorinated chicken as part of the UK's pursuit of a free trade deal with the US, but in a speech at the National Farmers' Union's conference yesterday he offered slightly stronger assurances. "In the UK, we have built a very special market for food based on provenance with particular attention to food safety and animal welfare standards and we will not jeopardise that through trade deals in the future," he said. "I have always been very clear about that - and now we are seeing the whole nation tuning in to this conversation."

However, green groups have frequently voiced concern that without stronger legal safeguards the absence of level playing field or non-regression clauses in any new trade deal and post-Brexit legislation could lead to a 'race to the bottom' on standards, while farmers fear the government's strategy could open the door imports of chlorinated chicken and other low cost and lower-standard food products in the UK after Brexit.

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• Topics
• Legislation
• Taxation
• Policy
• Rishi Sunak
• Treasury
• HMT
• budget
• Sajid Javid
• European Union
• George Eustice
• National Farmers' Union
• red diesel
• Brexit
• air pollution