Opinion - The climate change levy - Climate levy snared by red tape.

The objective is to encourage businesses to substantially reduce their carbon emissions.

It remains to be seen if this strategy will be successful, but one thing is certain – it is going to significantly increase red tape and business costs.

When the government published its statement of intent on environmental tax in 1997, one of the key criteria was that it must minimise ‘dead-weight compliance costs’. However, to date there has been little focus on the compliance costs involved and the sheer amount of red tape that will be generated.

To get an idea of that you need to look at the proposed legislation.

The Finance Bill draft clauses, published last year, covers 93 pages and this did not include numerous regulations that have yet to be published.

If past history is anything to go by, the legislation and regulations will have doubled in length by the time it finally becomes law.

So much for keeping the red tape to a minimum!

There is also a double whammy in trying to alleviate the levy. To qualify for an 80% discount there have been numerous negotiated agreements between the environment department and various trade bodies. By committing to reducing carbon emissions, companies in certain industry sectors will get the discount.

The department has already reached agreement with 10 energy intensive sectors and is now in discussions with a further 60 ‘second-wave’ industry associations.

The double whammy is that with each agreement negotiated at an industry association level, the association will have to pay to administer the agreement.

Who will pay those costs which, according to the National Farmers Union, could reach £2,000 to £3,000 per year per business? It will be the members of the association. All in all, a lot of bureaucracy.

The jury is still out as to whether the Climate Change Levy meets the government’s own tests of good taxation in the red tape department.