Industry rages at pounds 2bn tax on energy

BIG INDUSTRIAL energy users reacted with fury last night to plans by the Government to impose a pounds 2bn-a-year carbon tax on business.

The Chancellor, Gordon Brown, was warned that the new tax could force companies to relocate overseas and cause tens of thousands of job losses.

A spokeswoman for the Energy Intensive Users Group (EIUG), which represents industries such as paper, glass, steel and chemicals, said: "We are totally opposed to the idea of an energy tax. For some of our members, energy represents 80 per cent of costs. The only thing a tax would do is shift production offshore or put more firms out of business, and this is supposed to be a Government which believes in industry."

The Chancellor may soften the blow by cutting National Insurance contributions for business and allowing investment in equipment that cuts harmful emissions to be set against tax. Companies could also be allowed to trade these tax credits among themselves.

But the EIUG added that it was highly unlikely that a reduction in National Insurance contributions would be enough to cancel out the new tax.

The group also argued that if there was technology available to cut emissions, energy-intensive users would exploit it without the need for tax breaks.

Last March the Chancellor appointed the British Airways chairman, Lord Marshall, to head a taskforce to look at ways of cutting the amount of energy used by business.

The proposal for a carbon tax is understood to be the central recommendation of the taskforce. Its report is expected to be published at the same time as the pre-Budget report on 3 November. The task force has drawn heavily on the advice of the left-leaning think tank, the Institute for Public Policy Research (IPPR).

In a report published today, the IPPR calls for an energy tax, warning that without one the Government will fail to meet the targets signed up to at the Kyoto summit last year.

The tax would apply to all electricity, gas and oil consumed by business, but not petrol.

It could be set at 5 per cent initially, raising pounds 1bn a year, rising in stages to 10 per cent over the lifetime of a parliament, by which time the tax take would be pounds 2bn a year.

Another option examined by the Marshall taskforce was a system of tradeable emission permits.

This would enable companies that were unable to meet their emission targets to buy permits from companies that undershoot their targets.

But this could take up to five years to introduce and the bureaucracy would make it unattractive to small companies.

Chris Hewett, the author of the IPPR report, said: "If the Government is serious about cutting carbon dioxide levels by 20 per cent, policies will have to be put in place rapidly. The advantage of energy taxation over other proposals is that we know how it works - European experience tells us it is effective in cutting emissions."

The IPPR report argues that heavy industry would not see any overall cost increase in the short term.

It also points to Denmark, Sweden, Austria, Finland and the Netherlands as examples of countries where energy taxes have worked.

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