Energy tax threatens UK competitiveness

The peace process is still being negotiated. Representatives of both factions are still discussing various peace proposals and so the ongoing saga of Gordon Brown's tax solution to the UK's Kyoto commitment has still some way to go.

But the fact that the Climate Change Levy was spawned by the Treasury rather than the DTI or DETR was always ominous. As Elliot Finer, director general of the Chemical Industries Association (CIA) has discovered, there is a world of difference between a tax and a disincentive: `We look forward to ministers telling us that the levy rates for the chemical sector will be so low that we will bear no net cost. We cannot understand why they have refused to give us that reassurance so far. Is it because the real agenda is to raise money, rather than reduce emissions?'

`We have had an excellent relationship with the Government,' says Finer. `This has changed everything. There has not been a single issue that has raised more bad feeling with the Government in the last 20 years. Treasury ministers have refused to meet the CIA delegation.'

The CIA has always been in favour of continuous improvement in energy efficiency. The current agreement commits CIA members to a 20 per cent improvement in energy efficiency between 1990 and 2005.

Judith Hackett, CIA business and environment director, says: `This is a clear demonstration of our willingness to do our part on climate change without the need for a stick. To date we have already achieved 14 per cent, clearly a track record that voluntary energy commitments do deliver.'

Finer explained further: `There is a growing ethos that somehow there is something wrong with using energy, that people should feel guilty about using energy. I think that is rubbish. Civilisation is built on using energy. Energy use is beneficial. It is energy waste that is bad.'

The levy as proposed will result in a loss of over 5 500 jobs in the chemicals sector, a 2.9 per cent decrease in output and a 0.2 per cent decline in productivity, according to a study published by Business Strategies (and commissioned by the CIA et al).

In the chemical sector, estimated recycling effect of the National Insurance Contributions rebate to CIA members only returns a small proportion of the overall levy - £125 million in tax and £10 million in NIC rebate.

When the climate change levy was proposed, UK electricity prices were more than 15 per cent more expensive than the closest European country. And the industry is not just competing on the European stage. UK energy prices are 50 percent more than those in the USA. A resultant negative impact on competitiveness may tempt production overseas. Over 70 per cent of UK chemicals production is exported and over 60 per cent of CIA member sites in the UK are owned by non-UK companies.

`One of the things you cannot do in the chemical industry is to sell products on brand loyalty,' says Hackett. `Molecules that we make are the same whoever makes them or wherever they are made. Arguments that we can simply pass on increased costs simply do not work in this industry.'

BIP, which specialises in amino resins technology and supplies to the plastics industry, claims it will be hit hard. Its chairman Keith Sansom says that `companies like ours, which use energy to add value and create exports, are going to be penalised in favour of companies such as retailers who just sell goods. Our customers will not hesitate to buy overseas if they have to.'

`There is a real threat to jobs. This is not just idle chat or trade association muscle flexing, it is not an empty threat, it is a real threat that jobs will move overseas. The point is that moving jobs overseas will not benefit the climate,' concludes Finer.