Last week the Government announced a £250m support package for high energy-using manufacturers. But does it go far enough, asks Jez Davison.
AMID the gloomy economic news that descended from the Chancellor’s Autumn Statement last week, there was a small ray of light for Teesside’s army of manufacturers.
In a rare show of pro-business defiance, George Osborne declared: “We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers - all we would be doing is exporting jobs.”
He quickly backed up his rhetoric with hard cash, announcing a £250m funding package to help firms hit by the cost of complying with climate change legislation.
The move drew criticism from green lobbyists, who said it would do nothing to help Britain meet challenging emissions targets.
But it appeared to be an early Christmas present for energy intensive firms that have lobbied long and hard against expensive environmental taxes.
A key plank of the funding package will be a rebate for firms hit by the carbon price floor tax, which from 2013 will effectively increase the amount of money electricity generators have to pay for their carbon emissions.
For firms that use a lot of energy to produce their goods, the CPF could amount to a hefty additional cost burden - in some cases a 20% premium on their energy bills.
Recent research by EEF, which represents around 100 manufacturers on Teesside, shows that UK climate change policy could see firms paying up to 52% more for their energy bills by 2020, and 15% more than their German equivalents by 2013.
But the organisation said Osborne’s funding boost could help firms offset some of these extra costs.
Tony Sarginson EEF North-east regional manager, said: “This package is welcome recognition of the significant competitive pressures facing energy intensive companies and should go a long way to address them. Government must build on this by sending a signal to companies looking to invest here that it will maintain this package beyond the current spending review period.”
That sentiment has also been expressed by steel giant Tata, one of the region’s biggest employers with around 1,400 staff on Teesside.
Karl-Ulrich Köhler, MD & CEO of Tata Steel in Europe, said: “Though some of the most crucial detail remains unclear and this relief could be short-lived, it was good to hear the Chancellor stress that forcing steel mills out of business will do nothing more than export jobs. However, many of the additional costs we faced before the Statement will not disappear. It is important for the UK to have a steel industry.
“We cannot build a sustainable, green economy on ever-increasing volumes of imported manufactured goods, taking jobs away from British manufacturers and further hollowing-out the UK’s industrial supply chains. Hopefully the Autumn Statement marks the start of a reversal of this pernicious trend.”
Thai steelmaker SSI has urged the Government to provide more details on the funding package, with several key questions yet to be answered.
The Chancellor has not confirmed the level of the rebate firms would get on the carbon floor price tax. Nor has he revealed how firms affected by two other key measures - the climate change levy and the EU emissions trading scheme - will be compensated. There is also the question of whether more money will be pumped into the funding pot once the initial £250m has run out.
These are important issues for Teesside and the North-east, which is home to around 200 chemical, pharmaceutical, speciality and biotechnology firms providing one fifth of UK production capacity for the process industries.
The region also houses a staggering 58% of the UK petrochemical industry and 35% of its pharmaceutical industry.
Business leaders have expressed concern that companies could leave the UK if the trading environment is not made more competitive.
The trend has already been set by mining giant Rio Tinto, which last month announced the closure of its Alcan aluminium smelter in Northumberland, triggering 515 job losses.
The decision was blamed on spiraling energy costs brought about by green legislation and James Ramsbotham, NECC chief executive, said: “The announcement that Rio Tinto Alcan is to close was a tragedy, but action is required to ensure it is not the first of many energy-intensive businesses to suffer this fate.
“It’s shutting the gate after the horse has bolted.”
He added: “It is not yet clear how the £250m being provided is big enough or being delivered quickly enough to tackle this.”
What do you think? Are Teesside manufacturers being penalised unfairly by green taxes? Have your say by emailing business@eveninggazette.co.uk