Jobs warning over green tax

 

Industry chiefs are warning the government that an energy tax unveiled in last month's Budget will hit exports and threaten jobs.

Trade bodies for high energy-use industries are preparing for a crucial meeting with the Department of Environment, Transport and the Regions on Friday, when they will spell out their fears over the Climate Change Levy. The meeting follows a summit on the issue with Deputy Prime Minister John Prescott last month.

Company bosses, including Sir Brian Moffat of British Steel, ICI's Sir Ronald Hampel and Keith Orrell-Jones of Blue Circle Industries, believe the tax could be a fatal blow in their attempts to stay in fiercely competitive world markets.

They say that profit margins, particularly in the glass, cement and paper industries, are wafer-thin and the tax will add to the effects of the strong pound, sucking in imports and threatening profits and jobs.

The government expects the levy to raise £1.75 billion in its first full year, starting in April 2001, and reduce the use of carbon-based fuels by 1.5 million tonnes a year by 2010.

Trade associations have little faith in government measures to ease the effects of the tax. They say the first, a cut in National Insurance, will not offset the cost of the tax because costs are largely in machinery and plant, not labour.

The second, a 50% cut in the levy for high energy-use industries, will still handicap companies in global markets, where competitors do not have the same burden.

Lisa Walters of the Energy Intensive Users' Group said: 'The reduction is dependent on cutting energy use, which will require considerable capital expenditure in clean plant. So in the short term, it is debatable whether it will be a reduction at all.'

The tax will be charged per unit of energy. Customs and Excise says companies will pay 0.21p per unit of gas, 0.6p per unit on mains electricity, and 0.21p on electricity generated from coal directly in manufacturing processes.

Companies claim this will add 40% to their gas bills and 20% to electricity bills.

Ian Rodgers of the UK Steel Association said: 'British companies cannot increase their prices, so they will have to squeeze costs.

'British Steel is already one of the most efficient producers in the world, so it is likely that plants and jobs will be lost.

'It will also hit the UK balance of trade and it is likely that imports will come from lower-cost countries where producers do not have to pay fuel levies.'

Keith Wey of the Chemicals Industry Association said: 'The chemical industry's £4.5 billion trade surplus is significantly at risk with the kind of tax rates we are hearing about. 'Pressure on prices is so high that many companies are wavering on the uneconomic. It will push many over the edge.'

Cement companies such as Blue Circle, Castle Cement and Rugby Cement also expect to be hit hard. They have weathered industry contraction in the last recession and years of stagnant growth, which have left annual production at 12 million tonnes compared with 18 million a decade ago.

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