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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.
CHANGES
TO THE CLIMATE CHANGE LEVY
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.
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