Business presses Government to scrap climate change tax

The government is facing renewed pressure to amend or scrap Climate Change Levy as the controversial new tax takes force today. Employers organisations called for a review of the levy and warned that ministers faced a backlash as manufacturing firms began to be notified of how they would have to pay. The Engineering Employers' Federation warned that 2,300 firms employing 1.3 million workers would face a net increase in costs of £100m even after receiving offsetting reductions in the amount of national insurance they pay.

The government is facing renewed pressure to amend or scrap Climate Change Levy as the controversial new tax takes force today. Employers organisations called for a review of the levy and warned that ministers faced a backlash as manufacturing firms began to be notified of how they would have to pay. The Engineering Employers' Federation warned that 2,300 firms employing 1.3 million workers would face a net increase in costs of £100m even after receiving offsetting reductions in the amount of national insurance they pay.

The Institute of Directors joined in the calls for the the levy to be reconsidered as part of a business manifesto on competitiveness issued ahead of a general election campaign. The IoD said the levy had contributed to the "onerous" burden of business taxation and regulation.

Martin Temple, director general of the EEF, said: "For those companies now facing a downturn in their business because of the slowdown in US and European economies the timing of this could hardly be worse. The Government should now signal that it intends to review the levy immediately after the election and deal with the anomalies which will threaten the competitiveness of many manufacturing companies."

Critics of the tax argue that it distorts competition and creates bizarre anomalies by encouraging companies to emit more pollution in order to qualify for rebates on the levy.

The EEF said that together with the sharp increase in gas prices recently, a typical medium sized company could be facing a 25 per cent increase in its annual energy bill. The federation has put forward alternative proposals under which companies that agree to meet challenging energy efficiency targets would enjoy big reductions in the levy. It claims such a scheme would reduce emissions of the greenhouse gas carbon dioxide by more than 1.5 million tonnes if only half the 2,300 companies, which will be hit by the levy, signed up.

The IoD's business manifesto adds calls for the dramatic simplification of the tax system, including the complicated Capital Gains Tax tapers, and for other burdens on business to be lifted. It highlights the burden to businesses of administering the Working Families Tax Credit and planned Employment Tax Credit. It also calls for the abolition of inheritance tax and stamp duty on shares.

The document notes that Britain has slipped down international competitiveness 'league tables' despite the stable macroeconomic environment, and blames taxes and regulation.