Businesses seek delay in £1bn energy levy

The Government was urged yesterday to delay the introduction of its climate change levy by 12 months, amid warnings that two-thirds of manufacturing companies would be hit by the controversial new tax.

Gordon Brown, the Chancellor, was also warned that the levy, which will raise £1bn a year from next April, could be in breach of EU state aid rules.

Twenty-nine trade associations representing 7 million staff in industries ranging from cars and aerospace to industrial gases are calling on Mr Brown to amend the levy so more firms can qualify for rebates.

Companies will be liable to pay levies of 10 per cent on electricity bills and 50 per cent on gas bills. The Government has promised to use the proceeds to reduce employers' National Insurance contributions to ensure the levy is tax neutral.

Rebates of up to 80 per cent are available to certain companies who enter into "negotiated agreements" requiring them to cut energy usage. But only companies covered under the EU's Integrated Pollution Prevention and Control directive can qualify for the rebates.

Opponents of the levy say this will leave thousands of companies ineligible for refunds even though they may be big energy users. Industrial gases group BOC, for instance, will pay £8.5m, but receive only a £500,000 reduction in NICs.

Peter Agar, deputy director general of the CBI, said: "By excluding large swathes of business from entering negotiated agreements the Government is undermining Britain's competitiveness... If it takes another 12 months to add other sectors to the list, then that is the way we should go."

Ten sectors, from steel, chemicals and paper to foundries and ceramics, are negotiating agreements in return for cuts in energy use of from 15 to 21 per cent. A further 25 hope to reach agreements.

But Neil Marshall, chief executive of the Confederation of British Metalforming, said such was the complexity of the rules that some companies within sectors would qualify for rebates while others would not, depending on pollution.

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