In his first Budget, Alistair Darling unveiled a raft of environmental incentives for business and individuals – such as his car tax reforms that will rake in around £1.2bn over the next three years.

Changes to Vehicle Excise Duty include six new tax bands to make drivers pay as they pollute, with the highest polluting vehicles charged £425 annually. The tax banding does not include new cars, which will have a separate scheme in their first year – excluding low-emission vehicles from any tax and leaving the worst emitters with the highest rate.

Environmental tax partner at KPMG Frank Sangster believes the new tax bands are little more than a “revenue-raising exercise”, adding that the Budget does not quantify the emission reductions by implementing the new scheme.

Other environmental announcements included:
• Increasing climate change levy rates in line with inflation;
• Increasing the aggregates levy by five pence per tonne starting on 1 April 2009; and
• An increased drive to develop the energy services market and support businesses, consisting of working with businesses to promote knowledge of energy services, and energy suppliers providing smart meters for medium and large businesses within the next five years.

The Chancellor also announced a five-year carbon budget to start next year, as well as asking the Climate Change Committee to review whether the government’s target in the climate change bill to reduce emissions by 60% by 2050 should be raised to 80%.