Industries attempt to cope with energy tax

Only two things in life are certain, so the saying goes - death and taxes. And as chancellor Gordon Brown announced the new taxes which affect the process industries in last month's budget, many company bosses probably felt rather surprised to be still alive.

When it came to the crunch, Gordon Brown said that he was following the recommendations of British Airways chief executive Lord Marshall, who headed a committee into energy taxes on behalf of the European Commission (see PE February, p12). The energy tax is likely to be levied at a rate of about 0.6p per kilowatt-hour of electricity, and will come into force in 2001. The tax will actually be paid by electricity suppliers, who will pass it on through their charges to industrial and commercial customers.

In accordance with Lord Marshall's recommendations, the tax will be `revenue neutral'. The outlay on meeting the levy will be offset by cuts in employers' national insurance contributions.

The goal of the levy is to meet the UK's obligations under the Kyoto accords, to cut 12.5 per cent from greenhouse gas emissions and carbon pollution by 1.5million tonnes per year.

Brown allayed the fears of energy-intensive sectors by promising that their rates of tax will be `significantly lower'. This will be dependent on them improving their energy efficiency, however. Sectors are to be asked to propose schemes to achieve this, which will may well involve tradeable emissions permits.

However, the response of industry was far from favourable. The Energy-Intensive Users' Group, an industry body representing steel, cement and glassmakers, pointed out that power is already 40 per cent cheaper in some parts of Europe than in the UK. `The UK has some of the most energy efficient industries in the world,' it stated. `In some cases, further emissions reductions will only be achieved by reduced output and lost jobs.'

The energy users' argument is that the rebates in National Insurance contributions will benefit the large employers - banks, supermarkets and so on. Manufacturers will be major losers, and will only be able to recoup their losses by reducing output.

The CBI's comments were more measured. It welcomed the fact that the tax was designed as revenue neutral and that heavy users would benefit from lower rates, but said that it would prefer companies that participated in negotiated agreements or emissions trading to be exempt altogether. CBI energy advisor Fiona Davies comments that even halving the tax rate, as has been proposed for heavy users, would still put a considerable - and, she claims, anticompetitive - burden on companies.

The Chemical Industries Association has long campaigned against any form of energy tax on competitiveness grounds, and expressed its `deep disappointment' at the budget announcement.

Said business and environment director Judith Hackett, `the unilateral implementation of an energy tax not only places us at a competitive disadvantage to the rest of Europe but also with lower cost competitors in the US and the East; furthermore, as a capital intensive industry we do not recieve proportional benefits from the recycling of this tax by National Insurance reductions. We have explained this point to ministers many times,' she added.