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30 November 2005

Small business leaders say climate change levy has 'lived down to expectations'

Reference number: PPO 30/11


Small business leaders in Wales have derided the recent Climate Change Levy on businesses by saying it has ‘lived down’ to expectations.

The Federation of Small Businesses has said the net result of the charge, brought in three years ago, has been that the wrong businesses are being hit, and it is making a mockery of the Government’s claim that this tax is “broadly fiscally neutral”.

FSB Welsh Policy Unit chair Roland Sherwood said: “The levy was introduced as part of the Government’s drive to ensure that, by 2010, carbon dioxide emissions will have been reduced by 20 per cent compared with 1990 levels.

“It is a tax on energy use in industry, commerce, agriculture and the public sector, adding between eight and 15 per cent to the average energy bill.

“The Government claims businesses do not lose out as a result, because it is accompanied by a 0.3 per cent cut in employers’ National Insurance contributions and a £150 million package designed to encourage firms to adopt energy-saving practices.

“Before the levy was introduced, the FSB’s view was that local authorities and bigger businesses would benefit most. This is because they are eligible for special negotiated discounts that do not apply to many smaller businesses.

“They also have more staff, which means the reduction in National Insurance contributions has a more positive impact for them.

“Three years later the FSB’s opposition to the levy has, if anything, only become more entrenched. That’s particularly since the publication of an independent report, commissioned by the FSB, which demonstrates how the majority of small and medium-sized enterprises are losing out as a result of the levy.

“The report shows that 88 per cent of SMEs have CCL payments greater than their savings on National Insurance Contributions.

“It also shows that SMEs in transport and property are likely to be better off due to the levy, while businesses in manufacturing, retail and hospitality (such as pubs, restaurants and guest houses) are the net losers,” he said.

And the business body said that even for those better off, things were not straightforward.

FSB spokesman Russell Lawson said: “One shellfish processing company in Swansea, which overall gained around £140 a year from the system, described the process as a “nightmare” with the collation of all the paperwork needed to apply for the NIC discount as a “time-consuming exercise”.

“It can be seen from case studies that the impact of the CCL is varied, although there is a universal lack of knowledge relating to the supposed offsetting of the CCL through a reduction in National Insurance contributions.

“But, most alarmingly of all, there is a low level of awareness regarding the environmental objective of the levy, and any potential benefits of, or support for, making the business more energy efficient.

“In fact, 45 per cent of businesses do not even know whether they pay the Climate Change Levy at all, and even fewer are aware of its environmental objectives. This reinforces the impression that it is a stealth tax and calls into question whether the levy is achieving its goal of more efficient energy use.

“There is no doubting the importance of our need to address global environmental concerns, or else we won’t have a planet to live on.

“But the Climate Change Levy is an excise duty presented as an environmental initiative. It is just another back-door tax, a revenue-raising exercise as the proceeds merely go into swelling Treasury coffers rather than on other environmental causes,” he said.