Cable says green tax must be cut to save companies

Cabinet rebel pushes Osborne to remove £740m burden of commitments to reduce carbon emissions

Vince Cable is pushing Chancellor George Osborne to scrap a £740m environmental burden on British business in this month's budget. It is understood that business department officials have asked the Treasury to remove the carbon reduction commitment (CRC).

This forces an estimated 20,000 non-energy intensive businesses that still use lots of electricity and have bills of around £500,000, such as supermarket and hotel chains, to pay a price for every ton of carbon they emit.

This was introduced in 2010 as part of the Government's ambition to reduce carbon emissions by 4m tonnes a year by 2020 and has also been estimated to raise £740m for Treasury coffers from 2013-14, when a carbon floor price is also introduced to bolster the CRC.

However, critics argue that the CRC has so far failed to show any signs of reducing emissions, as those big businesses still need electricity to keep their lights and computers on, and so is essentially just a tax in a time of financial struggle.

A source who has lobbied against the CRC said that though it was unclear whether the Treasury will surrender to the business department's demands, the issue was on the agenda for possible inclusion in the Budget.

He added: "Businesses are struggling with the cost of CRC, which is mandatory, and its administrative burden. CRC has quickly become a blunt tax instrument that is hated by industry."

A major Treasury concern is how it would recover what would become a near-£750m black hole in its finances. There are suggestions that this could be offset by an increase of the Climate Change Levy, which is placed on fossil fuel-based energy used by non-domestic private or public organisations to encourage them to find greener sources of fuel. However, business does not want the amount to be entirely recouped through this levy, as it would result in a hike of as much as eight per cent to their energy bills.

CRC is a cap and trade system. Businesses measure energy-use, work out the CO2 emissions and then buy allowances of what is currently fixed at £12 per tonne, but will soon fluctuate in the open market.

If they buy too many they can sell them on and if they have too few, businesses must reduce their emissions or purchase additional credits.

The CBI has been particularly vocal in its criticism. Last year director general John Cridland said that the CRC and similar measures were "counter-productive" and "hold back investment and growth". If the Treasury rebuffs the business department's proposal, it will be another blow to Mr Cable's authority having been so publicly slapped down on his idea to split-up Royal Bank of Scotland and create a "British Business Bank" that would focus on lending to SMEs.

A letter to David Cameron and Nick Clegg dated 8 February outlining his idea was leaked earlier this week and dismissed by government insiders. A leading opposition MP said that Mr Cable's letter read like "a plea".

"This wasn't the letter of someone with power, is more like someone in my position had written it," the MP added.

Speaking last night at Mansion House, Mr Cable renewed his assault on the Conservatives.

"It is especially acute for innovative firms who find themselves trapped in a "valley of death" unable to raise funds to develop a proof of concept and cover the risks of early-stage growth."