Conservative carbon tax plan fails to win backing of business

The Conservatives' efforts to win the business vote suffered a setback at the CBI's annual conference yesterday as their carbon tax proposals met with a lukewarm response and the Tory leader cancelled his speech.

George Osborne, the shadow Chancellor, stood in for David Cameron and apologised for the last-minute cancellation, explaining that Mr Cameron was visiting British forces in Basra to find out about the security situation there.

"He felt, and I am sure you agree, that it was important to do that before the Baker-Hamilton Commission publishes its report in the US," Mr Osborne said.

He went on to unveil outline plans for a "carbon levy" to replace the climate change levy, with any extra revenues given back to companies through reductions in business taxes.

"We want to shift the tax burden away from income and investment and onto pollution," Mr Osborne said. "Pay as you burn, not pay as you earn."

But the CBI said it would prefer an international trading system recommended by the Government-sponsored Stern Review. Richard Lambert, the CBI director general, said a tax might be "part of the toolbox" to tackle climate change, but added: "We would rather see a price for carbon set through an international trading system than a finance minister try to prescribe the price."

In an intervention from the floor, Charles Swindon, chairman of the Minor Metals Trading Association, asked why Tory MEPs had broken ranks from the conservative bloc in the European Parliament to approve the controversial EU chemicals directive.

Mr Osborne said that climate change was a key challenge and that there was no trade-off between having a successful economy and fighting global warming.

Healso defended his party's record on business after remarks by Mr Lambert, who said in an interview with The Independent that the Tories had a "vested interest" in big business.

He said: "When we put on to the centre of the political agenda issues like the environment or social responsibility or flexible working that is not because we are somehow 'anti-business'. It is precisely because we do understand the way modern businesses operate. It is because we recognise the new challenges that you face."

He seized on a CBI survey published over the weekend showing that nine out of 10 business leaders blamed high corporate tax rates for making the UK a less attractive place to invest, but fell short of issuing a pledge to cut taxes.

"I could promise up-front tax cuts ... to win some cheap applause," he said. "I would like to reduce taxes [and] the example of Ireland shows what a low corporation tax rate can do. But even the Chancellor predicts we will be borrowing £24bn by then, and so those tax cuts would not be sustainable."

Melfont Campbell, the head of the CBI in Scotland and a member of the Conservatives' tax commission said a cut in corporate tax was too important to delay.