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Tax moves

The Chancellor of the Exchequer announced in his Budget statement on 9 March that the Government proposes to introduce a new tax on business use of energy, the climate change levy, from April 2001. The tax is intended to assist the UK in meeting its Kyoto obligations by providing an impetus for business to improve its energy efficiency and consequentially reduce its carbon dioxide emissions.

It is the the Chancellor's stated intention to recycle the revenues from the levy to business through cuts of 0.5% in employers' National Insurance contributions. However, the tax must meet the tests of good taxation by not affecting industry's competitiveness.

At the full rate of the tax, energy intensive industries, such as cement and steel, will be severely affected. For instance, the cement industry would pay £40.9M but receive a reduction in NICs of only £365,000, a ratio of 110:1.

Therefore the Government is entering into negotiations with energy intensive users to reduce their rate of tax in return for substantial commitments to improve energy efficiency. These negotiations must be complete by 20 December in order that the Chancellor can finalise the tax rate and include it in the Government's spring Budget.

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