CHANCELLOR of the Exchequer Gordon Brown will spell out the future of diesel in the company car market next Wednesday as he offers key tax concessions on diesel and alternative fuel vehicles in his pred-Budget speech. The controversial 3% levy on diesel to be introduced when the CO2-based benefit-in-kind tax comes into force in April 2002 will be lifted for vehicles that meet key emission requirements.

To qualify, manufacturers will have to produce diesel vehicles that meet Euro IV emission requirements. Although diesels are tax-efficient because of their low CO2 emissions, the levy was introduced to reflect higher emissions of particulates and oxides of nitrogen.

The Euro IV emission requirements only come into force in 2005/6, but the Government will use them as a target for lifting the levy from the introduction of CO2-based company car tax. They will slash emissions to 1g/km of CO and 0.08g/km of NOx for petrol cars and 0.5g/km and 0.25g/km for diesels respectively, cutting emissions by up to 50%. Diesels will also be limited to 0.025g/km of particulate matter.

The super-clean Peugeot 607 is the only diesel to have reached the Euro IV target of the Vehicle Certification Agency's New Car Fuel Consumption and Emission Figures for particulates, with 0.004g/km, but the 2.2-litre diesel unit still produces more than the Euro IV limit of NOx.

Peugeot claimed the 607 was the only diesel car in Britain to meet Euro IV standards.

Steve McManus, assistant director of the Inland Revenue, said: 'Government policy so far is what was announced in the Budget press release, when it was said we would look at offering concessions to diesels. As Euro III emissions regulations would have already been introduced by 2002, it would be pointless to require manufacturers to meet a standard they should already have reached by law, so the target is likely to be Euro IV. We have said we want to give fleets as much notice as possible of the new regulations so they can prepare for them.'

Diesel manufacturers such as Peugeot have campaigned hard for the Government to show some support for diesel and this announcement will help calm the waters between ministers and the industry.

Brown is also expected to announce incentives covering electric vehicles, hybrids and gaseous fuels. At present, it is planned to give drivers cuts based on the equivalent petrol vehicle.