New tax on energy could raise pounds 5bn

A "GREEN" windfall tax looks set is to be levied on the gas and electricity generators, with the aim of raising prices to force industry to cut excessive energy use and cut harmful emissions.

Some Whitehall insiders estimate the Chancellor could raise pounds 5bn in an energy tax which could be unveiled in the Chancellor's pre-budget statement in the autumn.

Ministers said the aim of the tax was to reduce the waste of energy, not to raise revenue for the Treasury, but it could give the Chancellor a bonus for the general election campaign.

"It is big money and it is implementing our Kyoto targets on [carbon dioxide], making industry more efficient and giving them incentives to cut waste in energy," said a ministerial source.

Whitehall sources said the Chancellor was planning to offset the extra burden on industry by offering tax breaks, but it will still mean that some companies will face higher charges, which they may have to pass on to their customers, unless stopped from doing so by the regulators.

The tax breaks could include cuts in National Insurance contributions for industries hit by the tax to make it cheaper to hire workers, and to prevent the move contributing to a rise in unemployment.

Big users of energy, such as the steel industry, who are already efficient, could be given special exemptions. Officials believe the main targets will be middle-range firms, heavy users of gas and electricity who have room for more efficiency.

The appointment of Sir Colin Marshall, the President of the Confederation of British Industry, to head the review of an energy tax, announced in last year's budget, was seen by the "green" lobby as a signal that big business would be able to head off the threat of a tax, when it was announced in the Budget by the Chancellor.

But although Sir Colin's task-force of Whitehall officials has yet to finish its report, Whitehall insiders have told The Independent that Sir Colin's review is expected to come down firmly in favour of an energy tax on industry.

"If we had appointed somebody like Jonathon Porritt from Friends of the Earth, business would never have bought it, but Sir Colin will be able to sell it to big business," said a senior ministerial source. "His appointment makes it more likely, not less likely, that there will be a big industry energy tax."

Ministers believe Mr Brown will go ahead with the tax in his next Budget in the spring, next year. It would be imposed on the generators, making it easy for the Government to collect, and automatically passed to big industrial users of energy. "The idea is to get industry to be much more efficient in the way it uses energy," said the source.

The Government could be accused of breaking its election pledge to make the windfall tax on the privatised a "one-off" to fund its welfare- to-work programme. But Mr Brown said in the Budget that the task-force, bringing together people from industry and Whitehall, "shows that the Government and the private sector can achieve more working together".

In June, Sir Colin launched a consultation paper on the idea of an energy tax, saying there was a "need for industry and commerce to make a contribution towards tackling climate change".

The closing date for submissions was the end of July. The task force is also looking at a trading scheme in energy or carbon emissions, which would enable firms to "buy" permits from competitors.

At the Kyoto conference last year, the European Union committed itself to a reduction in emissions of greenhouse gases of 8 per cent below 1990 levels by 2008 to 2012. The UK has its own target of a 20 per cent cut in carbon dioxide emissions on 1990 levels by 2010.