Industry demands energy tax let-out

BRITAIN'S BIGGEST energy users are seeking an exemption from the new climate change levy proposed in this month's Budget in return for signing binding agreements to improve their energy efficiency.

Industry representatives rejected the offer of a 50 per cent reduction in the energy tax proposed by the Deputy Prime Minister John Prescott at a meeting yesterday.

"We are disappointed the Government has linked energy efficiency agreements to the tax, and we are looking for a zero rate of tax," said Graham Funnell, head of environmental policy at the UK Steel Association, one of nine sectors represented at the meeting.

But Mr Prescott said industry had already benefited from substantial reductions in energy prices. "Companies will be able to exchange part of their liability for the climate change levy in return for commitments to environmental gain," he said.

The objections to the environmental tax, which comes into force in April 2001, follow the row between the Government and road hauliers over vehicle excise duty for heavy lorries announced in the Budget.

Lisa Waters, economic adviser to the Energy Intensive Users Group (EIUG), said: "It is important people understand it was not a win, win Budget. It was lose, lose if you work in manufacturing. The Government has failed to grasp the effects of this tax on the competitiveness of UK manufacturers."

The Department of Environment, Transport and the Regions and Treasury are to hold further meetings after Easter with industry representatives, including steel, chemicals, paper, glass and food manufacturing.

One of the objections is that the climate change levy is not fiscally neutral. Although the revenues raised will be returned to industry through a reduction in employers' national insurance contributions, most energy- intensive businesses employ relatively few people.

British Steel estimated that in the worst case the levy would cost the company pounds 200-300m, compared with a pounds 5m saving on its national insurance bill.

The industries are also alarmed that the Government plans to impose the tax on companies that meet their energy use targets. This would raise costs at a time when many manufacturers are struggling with the effects of the strong pound and recession in important markets overseas.

Some of their biggest foreign competitors are also unburdened by efforts to meet the international climate change targets. These include China, Brazil, Korea and India.