BUSINESS leaders hailed the Chancellor’s £7 billion energy package aimed at “radically reducing” costs for manufacturers as a significant boost for the sector.
The measures are expected to save a medium-sized factory some £50,000 a year.
The main announcement was the capping of the Carbon Price Floor (CPF), a tax on electricity from fossil fuels aimed at stimulating investment in low-carbon generation, at £18 per tonne of CO2 from 2016-17 until the end of the decade.
An existing compensation scheme for energy intensive industries such as steelmaking and paper manufacture will also be extended with additional help worth almost £1bn to protect them against the rising cost of renewable energy subsidy schemes. The government said a typical energy intensive business in Britain pays almost 50 per cent more for their electricity than a comparable business in France.
Chancellor George Osborne said the latter move would particularly benefit the most energy intensive manufacturers, around 80 per cent of which are based in Scotland, the north of England and Wales.
The government said although it was committed to the CPF’s role in stimulating investment in low-carbon infrastructure, it was capping the support rate to limit any competitive disadvantage faced by British firms. The move is expected to save businesses up to £4bn by 2018-19 and a further £1.5bn in 2018-19, while also shaving £15 off a typical household energy bill.
John Cridland, director-general of the CBI, said the budget had put the “wind in the sails” of businesses, especially manufacturers.
“The CBI has pushed hard for this significant and much-needed energy package that will help keep manufacturing jobs in the UK, while underpinning vital investment in new energy”, he said.
“This was a make or break budget coming at a critical time in the recovery and the Chancellor has focused his firepower on areas that have the potential to lock in growth.”
Bryan Buchan, chief executive of Scottish Engineering said the measures were the “first tangible indicator of support for the manufacturing sector for a long time”.
“The package to cut energy bills for businesses and householders is a much-needed stimulus.
“All in all, the benefits for our sector from this budget are considerable and I believe that the Chancellor has shown that the government is willing to help the one sector which has, throughout the recession, been able to maintain a level of growth.”
Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, said: “The Chancellor said this would be a budget for manufacturers and he has delivered on his word. The government clearly recognises the need to make the competitiveness of the UK a priority. We argued strongly for the need to reduce the rising cost of energy faced by many companies, and he’s acted on that.”
Paul Nelson, managing director of Glasgow-based Allied Vehicles, which employs more than 400 people and specialises in adapting vehicles into taxis and transport for the disabled, said the move to cut energy bills for manufacturers was welcome.
“Energy is a significant cost for us and anything which takes some of that pressure off has to be good for the business.”
But Nelson said that while the energy announcement and some of the other budget measures may be of some help to manufacturers, the biggest impact the Chancellor could have on his firm was to ensure the wider economic recovery continued.
“We’ve seen sales grow by some 20 per cent in the past 12 months and provided the economy continues to recover we see further growth ahead.”
Although Roy Rickhuss, general secretary of steel union Community, welcomed the news he said it had come too late for many working in the sector. “We’ve been saying for years that industry needed help to reduce its energy costs and now the Chancellor, by his announcement today, has admitted the government has been getting it wrong.
“Sadly it’s too late to save thousands of steel jobs that we’ve seen disappear in recent years.”
The renewables industry also warned that the announcement could risk investment in green energy projects.
Renewable UK’s director of policy, Dr Gordon Edge, said the freeze in the CPF will “chill the mood of some investors” in clean energy projects.
“The Chancellor introduced the CPF to stimulate green growth by penalising fossil fuel polluters. Now some of that growth will be lost, despite the Chancellor’s assertion that there will be no reduction in investment in renewable energy.”
Dr Doug Parr, chief scientist at Greenpeace, said the move on energy represented a “multi-million-pound bung to coal plants”.
“Freezing the CPF without further measures to ensure that coal is driven off the grid shows that this government has caved in to pressure from the coal lobby and downgraded climate action.”