Reading Time | 2 mins

Comprehensive Spending Review: green tax change criticised

Share this article

The government has come under fire for imposing what has been described as a “green stealth tax” in the spending review.

The accusation followed the announcement by the Chancellor that funds raised through the new Carbon Reduction Commitment (CRC) scheme will not now be channeled back to those participating firms that reduce their emissions by the greatest amounts.

Instead, the money is to be used to cut the deficit and to finance environmental projects.

Under the scheme, firms of certain sizes must declare their energy use and face charges for every tonne of greenhouse gas they emit.

Businesses that consume more than 6,000 megawatt hours of energy each year, or the equivalent of a power bill of £500,000, should have filed their consumption by the end of September.

As from April 2011, the affected firms need to purchase a permit – an allowance of £12 -for every tonne of carbon dioxide they produce.

The purpose of the CRC programme is to promote the reduction of energy use though financial incentives. Companies that register the largest reductions were meant to receive rebates if they reduced emissions, while those with the poorest records would be hit with the full charge.

It is estimated that some 4,000 private businesses and public organisations are covered by the new taxes. Smaller firms are also affected. A further 15,000 organisations are obliged to join the CRC scheme in the event that they are required to buy permits at some stage in the future.

However, it now appears, following the spending review, that businesses will simply pay according to their emissions and the refunds scrapped, the money to be kept by the Treasury.

Business groups expressed their dismay at changes to what was intended as a revenue-neutral scheme.

Steve Radley, director of policy at the EEF, said: “If the private sector is going to play a greater role in increasing investment and driving growth it needs clarity and stability.

“By changing the rules six months after the game has started and landing business with an unsignalled £1 billion tax rise the government has sent an unwelcome signal to business.”

Stephen Robertson, director general of the British Retail Consortium, commented: “We are surprised and dismayed that the £1 billion per year participating businesses will put in to the Carbon Reduction Commitment scheme is no longer to be recycled to participants but is instead to be pocketed by the Exchequer.

“This is a stealth tax on business which not only goes back on the commitments given in developing the scheme but removes a major source of incentives to reduce carbon emissions.

“It is appalling that the government is sneaking this in, introducing a new burden on businesses that are trying to create new jobs to offset the public sector cutbacks and growing the economy to generate the tax base to pay down the debt.”

Greg Barker, the Climate Change minister, responded: “This hasn’t been done lightly but against the background of the unprecedented deficit, we’ve had to allocate proceeds of the CRC to support public finances, including the environment. The CRC will continue to drive improvements in energy efficiency in the UK. I now want to hear from business how we can simplify and improve the scheme.”