One of the issues which manufacturing industry will be watching for in this November’s pre-Budget report will be the outcome of the consultation process on the proposed climate change levy. This new tax was announced in Gordon Brown’s Budget statement in March for implementation in next year’s Finance Bill.
Aside from the obvious point that this is yet another tax hike, there has been a huge outcry from industry against the proposal. The plan is to tax industry 0.6 pence per kilowatt hour for electricity usage and 0.21 pence per kilowatt hour for coal and gas usage. This will raise some £1.75bn a year for the exchequer which the chancellor proposes to use to fund a cut of half a percent in the employer’s rate of national insurance, which he had just raised from 10% to 12.2%.
The levy will cost British Steel £220m a year and, according to the company, cause them to close plants in the UK to be replaced by less energy efficient plants elsewhere in the world.
The levy will cost British Sugar about £11m a year, which represents 7% of its operating profit. According to the company this will destroy the financial benefits of investment in combined heat and power plants, and would prejudice further similar investment in such highly energy efficient projects.
The levy takes no account of whether the electricity consumed was produced by non-carbon dioxide producing methods such as hydro or nuclear power.
A quarter of the electricity used by the aluminum industry is produced by hydroelectricity plants but no account is taken of this in the implementation of the levy. The levy will cost the horticulture industry £5,000 per acre of glass house despite the fact modern glasshouses recycle carbon dioxide produced by its combined heat and power plants. The extra tax could well be the final straw for the hard-pressed horticulture industry to the benefit of competitor nations who have not levied such a tax.
It is clear the climate change levy will not deliver the environmental improvements claimed of it, and may make matters worse.
It is simply another of the government’s stealth taxes designed to raise cash by a method hidden from the majority of people.
– Nick Gibb is Conservative MP for Bognor Regis.
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