Heavy industry will be granted more relief from rising energy costs in an attempt to tackle the “clear and present danger” of job losses, Michael Fallon will pledge on Monday.
The energy and business minister will admit that costs are undermining the UK’s competitiveness and that current compensation for manufacturers is failing to offset the growing burden of green levies on energy bills.
“Existing compensation and exemptions are not enough. We should look at relief from other policy costs,” Mr Fallon will say, indicating that further measures are likely to be unveiled in the Budget next week.
“Without further action on energy costs the competitiveness gap between Europe and the US is becoming unbridgeable,” he will warn.
The Chancellor, George Osborne, is expected to announce in the Budget a freeze of the UK’s unilateral carbon price floor, a rising tax on burning fossil fuels that is pushing up power prices for industry and consumers alike. However, a rumoured freeze at 2015-16 levels would still be almost quadruple present levels.
Manufacturers’ group the EEF has called for further measures to help industry, including extending both the duration and scope of exemptions from green policy costs.
It says that manufacturers should be exempt from paying the renewables obligation (RO) and small-scale feed-in tariff levies, which subsidise green energy projects such as new wind farms and solar panels.
Ministers have already promised industry exemptions from a new system of green energy subsidies that will replace the RO, so are thought to be sympathetic to applying this principle to the existing schemes.
The EEF also wants a current two-year compensation package for the costs of European and UK carbon prices to be extended until the end of the decade.
While £28m has already been paid in compensation to 53 different companies for the costs of the EU Emissions Trading Scheme, promised compensation for the UK carbon tax has been delayed pending EU state aid approval.
Speaking at the Edison Electric Institute’s International Utility Conference, Mr Fallon is due to say he expects the state aid approval to be granted “shortly”.
He will say: “Energy is one of the biggest costs for business, and a key factor in investment decisions. We have to recognise that energy costs are undermining our competitiveness; some energy-intensive sectors are struggling to compete internationally.
“The risk to jobs in the steel and chemical industries is now very real. There is a clear and present danger that we could lose jobs in these foundation industries just when we are beginning to see other jobs reshoring to the UK.
“Next week’s Budget gives us the chance to underpin our commitment to manufacturing.”
Last month, the EEF revealed that energy costs were the top worry for industry about operating in the UK.
The organisation’s chief executive, Terry Scuoler, warned that the costs were “a major threat to growth”.
“The UK cannot afford to pile even more unilateral costs on the manufacturing sector, which is key to developing the UK’s longer-term growth and stability,” he said.
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