Spring Budget 2024: Environmental taxes and excise duties

With the aim of creating a smokefree generation by increasing the cost of smoking and vaping, the Chancellor announced the introduction of a new vaping products duty with effect from 1 October 2026.

A consultation document was released, with responses due by 29 May 2024. For further information on the proposed new duty see our insight article here. According to the Budget predictions, the new duty will raise £945m for the Treasury between its launch in 2026 and 31 March 2029.

The new measure will obviously affect consumers through increased pricing, but importers and producers of vaping liquids will also be impacted. It is proposed to have three different rates of tax:

• £1 per 10 ml bottle for nicotine free liquids
• £2 per 10 ml bottle for liquids with a nicotine content per ml that is the same or less than an average cigarette
• £3 per 10 ml bottle for high strength liquids with a nicotine content per ml that is higher than an average cigarette

Tobacco duty will also be increased on 1 October 2026, so that there will continue to be a financial incentive to choose vaping over smoking.

The carbon border adjustment mechanism (CBAM) is a way of imported goods being made subject to the same carbon price as domestically produced goods. It acts to ensure that domestically produced products are not disadvantaged by imports from territories that have lower carbon pricing.

The EU introduced a CBAM with effect from 1 October 2023. In December 2023 the Government published a response to a consultation indicating that a UK CBAM would be introduced by 2027.

In the Spring Budget the Chancellor confirmed that the UK CBAM will be introduced on 1 January 2027 for imports of aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron and steel. There will be technical consultations in 2024 to set out the details of the scheme.

Domestic producers of goods within the scope of the scheme will also be impacted. The reform of the UK emissions trading scheme (UK ETS) will take place alongside the introduction of the CBAM, with free emissions allowances being phased out and the overall UK emissions cap being reduced.

Landfill tax was also subject to a hidden increase buried deep within the Spring Budget document. From 1 April 2025 it is increasing by approximately 22%. The Chancellor says that the rates are being adjusted to reflect actual RPI and to continue to incentivise investment in more sustainable waste management infrastructure.

From 1 April 2025 the standard rate will be £126.15 per tonne and the lower rate will be £4.05 per tonne. The 2024/25 rates are £103.70 per tonne and £3.30 per tonne. This measure is forecast to raise an extra £50m per year in England and Northern Ireland alone.

As landfill tax is a devolved measure it remains to be seen whether or not the Scottish and Welsh Governments will follow suit. The rates have historically been identical in each country to prevent movements of waste across the border being driven by differences in rates.

This significant increase will affect landfill site operators who must administer the tax. It will also impact local authorities, businesses and private households indirectly as the price of waste disposal is strongly linked to the rate of landfill tax.

Air passenger duty is likewise going to experience an upwards adjustment from 1 April 2025 to reflect recent high inflation, but for the standard and higher rates only. The rates for economy domestic and short-haul flights remain frozen.

For oil and gas companies the EPL was extended by 12 months to 31 March 2029, because the price of energy has remained high for a sustained period. The Chancellor committed to inclusion of the ESIM in Spring Finance Bill 2024 such that that the EPL will no longer apply if energy prices fall below the specified level.

It was no great surprise that the Chancellor announced that fuel duty remains frozen and the 5p reduction has been extended by another 12 months to 22 March 2025. In his speech the Chancellor said that freezing the fuel duty along with alcohol duty reduces headline inflation  by 0.2% in 2024/25. This inflation balancing measure will be popular with drivers, saving the average car driver £50 per year at a cost of £3.1 bn to the Exchequer in 2024/25. The difference between road fuel gas and diesel duty rates is also being maintained to 2032.

Plastic packaging tax is not mentioned in the Budget or the tax rate tables, other than to confirm the already announced rate increase to £217.85 per tonne from 1 April 2024. It is unusual that the rate for 2025/26 has not yet been announced.

A significant consultation exercise was also launched in July 2023 connected with the use of chemically recycled content in plastic. To date there has been no summary of responses to the consultation.

As there is an evaluation of plastic packaging tax currently being undertaken by HMRC and HM Treasury, the Chancellor could be awaiting the outcome before making any further changes.

The current freeze on alcohol duty rates will continue until at least 1 February 2025. On the regulatory front, the alcohol duty stamp scheme will be wound down.

The alcohol duty stamp scheme currently applies to 35cl+ bottles or other retail containers containing spirits and other alcoholic drinks with an alcohol by volume (ABV) strength of 30% or more.

The Government launched the alcohol duty stamp scheme in 2009 as part of its strategy to tackle alcohol fraud. The closure of the scheme is good news for UK businesses importing, producing, storing or supplying spirits and other alcoholic beverages with 30%+ ABV strength, as it removes the costs and administration associated with applying duty stamps on bottles and other retail containers in sizes of 35cl or more.