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Budget aims

Let me just first put all this in the context of the Budget's wider aims.

After the election, our first economic objective was stability. The Budget confirmed that in a remarkable way that has now been achieved. We are delivering a platform of stability and steady growth, with inflation low and the public finances under control.

In fact, inflation in Britain has now been lower for longer than at any time since the 1960s. And today British inflation is the lowest of any member of the European Union.

More people are also now in work than ever before, unemployment is at its lowest for 20 years, youth unemployment is at its lowest for 25 years and there are one million vacancies on offer across all regions of the UK.

And we are also directing now a bigger share of our national income into investment than any of our major competitor countries in the European Union, and bigger too than the US.

And in contrast to the deficit of 28 billion pounds at the time of the election, this year we will make a debt repayment of 12 billion pounds.

So, the monetary and fiscal foundations on which we are building are strong. And we are determined to maintain our disciplined approach.

But we have always said that our prudence is for a purpose.

And that purpose was at the heart of the Budget. Because last Tuesday we took the next steps towards that purpose, towards the four ambitions that we set ourselves last November:

€ our prosperity ambition: that we should be bridging the productivity gap with our competitors;

€ the full employment ambition: that we should achieve employment opportunity for all;

€ the education ambition: that at least half of our young people should go on to study for a degree by the end of the decade;

€ our anti-poverty ambition: that we should halve the number of children living in poverty by 2010, on the way to the Prime Minister's ambition of eradicating poverty altogether within 20 years.

Four ambitions which I think are now attainable and which encapsulate our commitment to a modern and decent Britain where enterprise and fairness are not just for a few but for everybody. Environmental modernisation is a key to our task of building a modern and decent economy, where economic growth takes place in a way which ensures the protection of the environment.

Environmental taxation

It was way back in the July 1997 Budget that the Government first set out its principles on environmental taxation. We said that we wanted to shift the burden of tax over time from "goods", like labour, to "bads" like pollution. And we set out our aim to encourage innovation for both higher environmental standards and a more dynamic and sustainable economy.

So we set out our aims very early on. And in the Budget last year we put a number of those principles into practice, with the biggest environmental tax package ever announced: lower taxes on employment, cleaner fuels and smaller cars, plus new incentives for energy efficiency. At the same time shifting the tax burden onto the emission of greenhouse gases, local air pollution, and waste creation.

Vehicle taxation

Now the first thing I want to say regarding vehicle taxation is that it's quite clear that some people will always need to use cars, and want to own cars.

And while taxation has an important role to play in promoting fuel-efficiency and encouraging people to cut down on unnecessary journeys, we fully understand that for many people, car ownership remains a necessity not a luxury.

The measures announced in this Budget recognise this. But they also send a strong and modern environmental message to the motoring public, to manufacturers and to fleet operators: cleaner cars pay less tax.

That was the theme of a number of the measures announced last week.

First VED.

At the moment, the lower rate of VED is available for 1.5 million cars. From next March, we are extending the 55 pound discount from cars at 1100cc to 1200cc. And 2.2 million additional cars will pay the lower rate as a result, including many Ford Fiestas, Vauxhall Corsas and other popular cars.

Also from next March, all new cars will go into one of four VED bands based on their rate of carbon emissions, with 95 per cent of new cars paying less, and some up to 70 pounds less than under the rates for existing cars. Here too, we will see some very large savings for the most popular cars: for example, some petrol models of the Ford Focus and Ford Fiesta - Britain's best-selling cars - will pay up to 40 pounds less.

Second, company car taxation.

The Chancellor confirmed that from April 2002 the tax charge on company cars will also be graduated according to their rate of carbon emissions - a revenue-neutral reform which we estimate will save up to one million tonnes of carbon emissions per year.

Third, our successful policy of setting differential rates of fuel duty to encourage cleaner fuels was extended in this Budget, with:

€ a one penny per litre incentive for ultra low sulphur petrol; and
€ a freeze in duty on road fuel gas.

Overall, the real tax cost of motoring will fall by 250 million pounds in the next financial year. These changes target cuts in vehicle taxation at those people using the cleanest cars and fuels. And at the same time, they will have a wider impact on the motoring public as a whole.

You know yourselves that factors like local air pollution and fuel-efficiency are currently quite low on people's list of priorities when they're thinking of buying a new or second-hand car - way below factors like the colour.

These Budget measures will help get across the messages that almost everybody has the option to move towards a cleaner and more fuel-efficient car. No matter what size or make of car you drive, there is usually a more fuel-efficient model available.

One of the things which struck me when I saw the pamphlet DVLA have put out about the new system was the comparison between the VED and running costs for two similarly-sized cars. Based on their comparative VED and fuel bills, this shows that you could save almost 200 pound per year by choosing the more fuel-efficient car.

We're confident that if we can make the motoring public aware of the savings available to them, we can provide them with a real incentive to choose more fuel-efficient models of car.

And I want to make it clear that in all these measures, we value very highly the partnership of all of you involved in manufacturing, selling, leasing and purchasing cars. We are aware the motor trade is also trying hard to raise the profile of fuel-efficiency - both through the ACEA agreement and the various vehicle-labelling initiatives.

Let me briefly make two specific points about the measures I've talked about. Firstly, let me talk about the timing of the introduction of the graduated VED system.

It's important that we get this new system right, and - for that - we are reliant on the co-operation of all the external parties who need to make corresponding changes in their systems.

I've seen the press release which ACFO put out in the week leading up to the Budget, rejecting calls for a delay in the introduction. I was very grateful to see that - because it confirmed for me how hard you have worked and how constructively you have engaged in the process of implementing these changes.

But unfortunately not everyone has made as much progress. That is why we decided to accept the requests we'd received for more time.

The other benefit of extending the timetable is that we will be able to bring the system in at the same time as the change to Y-registration number plates, making it easier for the motoring public to recognise the cars going onto the new system.

The second issue I want to address is the treatment of diesel cars under the new VED and company car systems.

Because diesel cars tend to have lower rates of carbon emissions than similar petrol cars, any graduated system of taxation based purely on carbon emissions would favour diesel cars. But the current fleet of diesel cars has much higher emissions of particulates and other local air pollutants than similar petrol vehicles.

So to strike a balance between our climate change and local air quality objectives, we have decided to apply small supplements for diesel cars in both the new VED and company car systems. However, we will ensure both systems are flexible, so that - as emissions standards develop and new technology comes onto the market - we have the scope to waive the supplement for those diesel vehicles which do not carry a local air quality penalty.

You'll also know that we've included scope in both systems to give discounts to cars using cleaner fuels and technology. In the first instance, this could include gas-powered cars, bi-fuel and dual-fuel cars, and cars using hybrid technology.

Again, we hope these supplements and discounts will ensure the reforms announced in the Budget send the right environmental signals to motorists and the motor trade: encouraging both more fuel-efficient cars and cars using less-polluting fuels.

Conclusion

I believe our measures are making real strides in getting over the important message that almost everybody has the option to move towards a cleaner and more fuel-efficient car. In a modern and decent Britain it is the right way forward.

Thank you for giving me the opportunity to be here this morning. Let's continue to work together to make a success of these new arrangements.

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