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The Climate Change Levy


The climate change levy is an explicit pollution tax designed to encourage greater energy efficiency and cut industrial emissions


The levy is expected to raise "at least" 1.75 billion in its first full year, 2001-2002, but the impact on UK based companies will be offset by a half-point reduction in employer's national insurance contributions. In this respect the introduction of the levy is "revenue neutral" - although organised business believes that the macroeconomic effect will be damaging.


The levy applies to electricity, gas and coal supplies ( including natural gas and liquid petroleum gas) used by business, agriculture and the public sector. Oil is not included in the tax - oil is already covered by mineral oils taxes.


Government estimates suggest the levy will save around 1.5m tones of carbon a year and make an important contribution towards meeting the target to reduce greenhouse gases.


The climate change levy has been the subject of intensive lobbying of the government by many high profile industries. Businesses are concerned about the impact of the tax on their international competitiveness. They believe that reductions in carbon emissions can be achieved in more efficient ways than an explicit levy. The alternatives include negotiated settlements and emission trading.


A survey by Business Strategies in the summer of 1999 forecast that the levy will cost 156,000 manufacturing and service jobs over the next decade. Manufacturing will bear the brunt with 95,000 jobs at risk, including almost 50,000 in the engineering sector alone with the service industry accounting for the balance. The report claimed the levy could widen the North-South divide, reduce gross domestic product by 11 billion over the next 10 years and produce a near-1pc fall in manufacturing and service sector productivity.


In response to this lobbying the government has already made some concessions to chemical, steel and aluminum producers - key industries for the Uk manufacturing sector, but also heavy users of energy in their production processes.



In November 1999, Gordon Brown announced changes to the climate change levy. The levy will be reduced to 1bn in total, and energy-intensive industries will receive a rebate of up to 80% if they agree a programme of energy savings. In addition, combined heat and power, and renewable energy sources will be exempted from the levy. All the revenue raised will be recycled to business through a reduction of 0.3% in the rate of employer National Insurance contributions.



E-mail Steve Margetts