Details of the tax are likely to be announced by the Chancellor in his pre-Budget statement in 12 days. The measure could be introduced as early as next March.
But in order not to hamper the competitiveness of British industry, the Chancellor is likely to compensate firms by reducing National Insurance contributions and allowing tax breaks on investments which help curb harmful emissions. Companies could also be allowed to trade these tax credits among themselves. This could render the measure tax-neutral, avoiding extra cost burdens on industry, according to some estimates.
Last March the Chancellor appointed the British Airways chairman, Lord Marshall, to head up a task force 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 task force. Its report is expected to be published at the same time as the pre-Budget report.
The task force has drawn heavily on the advice of the left-leaning think- tank, the Institute for Public Policy Research.
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, and rising in stages to 10 per cent over the lifetime of a parliament, by which time the tax take would be pounds 2bn.
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