Energy tax tempers CIA optimism

Chemical output in the UK is set to increase only slightly behind GDP, despite the lacklustre predictions of investment intentions, says the Chemical Industries Association. In its latest economics bulletin, the CIA predicts strengthening polymers demand, tempered by increasing anxiety over the prospect of European energy taxes and over-inflated electricity prices.

Output from UK chemicals firms grew by 2 per cent in 1996, set against `a dismal European performance', says the CIA. Basic chemicals output was flat, but paints, toiletries and fibres all recorded growth. For the current year, the OECD is predicting GDP growth of 3.2 per cent for the UK; the CIA believes that chemicals output will grow by 3 per cent, with exports and imports both growing by 5 per cent.

In general, the bulletin notes, output and sales volumes are now rising across the industry. The trends are not steady, although smaller companies, particularly in the contract manufacturing field, are busy. `Encouraging signs' of increasing polymers demand are accompanied by a feeling that this is now feeding straight through to production, the CIA notes. There is no distortion due to stockpiling, unlike the situation in 1995, where demand growth was followed by a slump as stocks were run down.

The CIA remains concerned that the European Union is proposing to extend taxes on mineral oil to cover other forms of energy, and to `harmonise rates of duty upwards.' Users of large amounts of energy will be able to obtain exemptions from these proposed taxes, but the association still feels they will lead to slippage in the competitiveness of European industry. `The European chemicals industry is united in its opposition and will fight "tooth and nail" to prevent it form being adopted.'

Closer to home, the CIA has urged the government to refer the Electricity Pool to the Monopolies and Mergers Commission, as it believes that the recent reductions in electricity prices have not been passed on to industrial consumers. It will keep the pressure up on whoever wins the general election, it pledges.