CLIMATE CHANGE LEVY TO ENCOURAGE ENERGY EFFICIENCY

A levy on the business use of energy, with offsetting cuts in
employers' NICs and additional support for energy efficiency schemes
and renewable sources of energy, will be introduced from April 2001.

This reform follows closely the recommendations made in Lord
Marshall's report on the role of economic instruments and the
business use of energy, published in November 1998.

The climate change levy will play a major role in helping meet the
UK's targets for reducing greenhouse gas emissions. It will entail
no increase in the tax burden on business as the revenues will be
recycled in full to business. These reforms will promote energy
efficiency, encourage employment opportunities, and stimulate
investment in new technologies.

Announcing the reforms, Gordon Brown said:

"Climate change is recognised as one of the most significant
environmental threats facing the world. This tax reform will
benefit the environment we live in, put UK industry at the
forefront of developing new technologies, and help encourage
employment opportunities.

"The Government also recognises the need for special
consideration for energy intensive sectors, given both their
energy usage and their exposure to international competition. In
line with the recommendations made by the CBI, there will not be
a blanket "across the board" approach to setting tax rates."

The Government agrees with Lord Marshall's recommendation that the
levy must be designed in a way that protects the competitiveness of
UK firms. The Government therefore intends to recycle the revenues to
business, and intends to cut the main rate of employer NICs by 0.5
percentage points. Businesses will also benefit from schemes aimed
at promoting energy efficiency directly and stimulating the take-up
of renewables sources of energy, like solar and wind power. The
introduction of the climate change levy will therefore entail no
increase in the burden of taxation on business.

The Government also recognises the need for special consideration to
be given to the position of energy intensive industries given their
energy usage, the separate Integrated Pollution Prevention and
Control regulation and their exposure to international competition.
In line with the recommendations made by the CBI, the Government will
not be taking a blanket 'across the board' approach to setting the
appropriate level of the new levy. Subject to any legal and practical
constraints, the Government intends to set significantly lower rates
for those energy intensive sites that agree targets for improving
their energy efficiency which meet the Government's criteria. The
Deputy Prime Minister has written to the trade associations of the
main energy intensive sectors on Budget day, and will begin
negotiations with energy intensive sectors shortly.

The Government is pre-announcing this tax change, as Lord Marshall
recommended, to give businesses time to adjust.

The new levy will be introduced in April 2001. The tax rates
applying to different fuels will be set out in Finance Bill 2000.
The Government expects the levy to raise around #1.75 bn in its first
full year (2001-02) and save around 1.5 million tonnes of carbon a
year by 2010. The levy will apply to gas (natural gas and liquefied
petroleum gas), coal and electricity used by business, agriculture
and the public sector for energy uses. It will not apply to fuels
used by the domestic or transport sector, or fuels used for
generation or non-energy purposes. The levy will not apply to oils,
which are already subject to mineral oils duty. Press notice C&E 11
describes the changes to mineral oils duty in this Budget.

NOTES FOR EDITORS

1. The Government issued a consultation document on 26 October
1998 which set out a range of possible options for meeting the
UK's legally binding target of a 12.5 per cent reduction in
greenhouse gas emissions, and for moving towards the Government's
domestic goal of a 20 per cent reduction in carbon dioxide
emissions. The consultation period closed on 12 February. Over
700 responses were received. The Government has been assessing
these responses, with a view to producing a draft programme later
this year.

2. As made clear in the consultation paper, the Government
believes that all sectors of the economy will need to play a part
in tackling the problem of climate change. A mix of policy
instruments will also be needed.

3. Action is already being taken in other sectors. For example:

- the increases in road fuel duty over the period 1996 to 2002
-a key part of the Government's strategy to reduce the
emissions of greenhouse gases from road transport - will save
between 2 and 5 million tonnes of carbon in 2010 if continued
at their present rate;
- the Comprehensive Spending Review announced extra funding of
#150m (on top of an existing programme of #215m) to improve
energy efficiency in poorer households. The Government has
also announced an extra #24m funding for the Energy Saving
Trust;
- allocations for local authority housing improvement, the New
Deal for Communities and the Single Regeneration Budget will
all bring substantial improvements to energy efficiency.

4. In the 1998 Budget, the Chancellor asked Lord Marshall to
consider whether, and if so, how best, economic instruments -
such as a business energy tax or tradeable emissions permits -
could be used to improve energy efficiency in business and reduce
emissions. Lord Marshall's report to the Chancellor, Economic
Instruments and the Business Use of Energy, was published in
November 1998 with the Pre-Budget Report. The Government is also
taking forward Lord Marshall's recommendation on a dry run
emissions trading pilot and is discussing with industry the
details of setting up such a scheme. This could give UK industry
and Government valuable experience of emissions trading, and help
to give the UK a lead in this area.

5. Lord Marshall's report reviewed the experience of energy taxes
in other EU countries. Six European countries currently have
taxes on carbon or energy, and the German and Italian Governments
have recently announced plans to introduce energy taxes.

6. Details of the schemes to promote energy efficiency will be
announced as part of the Government's forthcoming draft climate
change strategy later this year. Details of the schemes to help
renewable sources of energy, like solar and wind power, will be
announced as part of the Government's review of renewable energy
policy.

7. A consultation document on the detailed design and
administrative implications of the climate change levy is
published by Customs and Excise today. Copies are available from:

Judith Hope,
HM Customs and Excise,
3rd Floor West,
Ralli Quays,
3 Stanley Street,
SALFORD
M60 9LA
Fax: 0161 827 0300

A draft Regulatory Impact Assessment is available from the same
address, or on the internet at
http://www.hmce.gov.uk

8. Copies of Lord Marshall's report are available from:

HM Treasury Public Enquiry Unit, Room 89/2,
HM Treasury
Parliament Street,
London SW1P 3AG
Tel: 0171 270 4558

9. Copies of the Government's consultation document on the UK's
climate change program are available from:

DETR Free Literature,
PO Box No 236,
Wetherby
S3 7NB
Tel: 0870 1226 236 Fax: 0870 1226 237

It is also available on the internet at the DETR web site:
http://www.detr.gov.uk

HM TREASURY PRESS OFFICE
Press Enquiries to: 0171 270 5238
Non-media enquiries to: 0171 270 4558

If you have access to the Internet you can find this news release at
http://www.hm-treasury.gov.uk. Other Treasury material can also be
found at this address.

# = pounds sterling