Politics-Taxation: MPs' concerns clouds future of climate tax

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A CLIMATE change tax at the centre of the Government's green policies looked doomed in its present form last night after a Labour-dominated Commons select committee of MPs called for changes to allay fears that it could cost Britain thousands of jobs and millions of pounds in lost orders.

The committee said yesterday it was "disturbed" by the "unprecedented scale" of the reaction from big business to the climate change levy on industrial emissions.

The Chancellor announced in the Budget in March that he planned to introduce the levy in 2001. The business and commercial sectors will be liable for the levy on their final energy consumption; energy used for domestic and transport use will be exempt.

Heavy users of energy will be eligible for reductions if they reach agreement with the Department of Environment on reductions in greenhouse gas emissions.

Revenue raised will be recycled to business, with a cut of 0.5 percentage points in the rate of employers' national insurance contributions. A pounds 50m fund will be set aside for improving energy efficiency.

MPs on the committee, chaired by Martin O'Neill, a senior Labour backbencher, have faced a barrage of protest and warnings from companies that gave evidence about the impact the levy will have on their businesses: Teesside Chemical Initiative estimated it would cost its firms pounds 37.3m a year, causing up to 1,000 job losses; British Sugar said it would cost pounds 6m and put the sugar beet industry into "a downward spiral"; the Food and Drink Federation said it would cost pounds 150m; the British Cement Federation estimated it would cost pounds 40m, putting the viability of coastal plants at risk; and the Energy Intensive Users Group warned it would lose pounds 571m a year, with a loss of 28,000 jobs.

"We share the view ... that, without appropriate modifications and exemptions, the levy could prove a blunt instrument which does considerable damage to sectors of the British economy already struggling to maintain their profitability. It is imperative the levy makes special provisions for energy- intensive industries to minimise any damage to their international competitiveness," the committee said.

Francis Maude, the shadow Chancellor, called the report a "damning indictment of Labour's energy tax - it is another stealthy tax on business that will cost thousands of jobs while doing nothing to help the environment".

The Liberal Democrats called for the tax to be scrapped and replaced with a full carbon tax. The select committee also criticised the failure of the Government to link the levy properly with the carbon content of fuels, and said there was "confusion" at Whitehall about it.

"A full carbon tax would clearly conflict with the DTI policy on the use of coal and gas for electricity generation. On the other hand, there is a logic deficit inherent in the proposal that electricity generated by fuels which do cause such emissions," the MPs said.