Manufacturers have praised reforms to reduce energy costs in today’s Budget, but green energy advocates accused the Chancellor of ‘moving the goalposts’.
Delivering his penultimate Budget before the next general election, Osborne hailed the success of the coalition's austerity programme saying UK plc would grow by a better than forecast 2.7 per cent in 2014 according to the independent Office for Budget Responsibility and the government would be back in surplus by 2018/19.
And he had good news for industry as he announced a package of reforms to "radically reduce" energy costs for businesses, especially manufacturing, pledging savings of up to £7bn by 2018/19 for industry as well as households.
Measures will include capping the carbon price floor (CPF) – Britain's carbon tax – at 2015 levels of £18.08 pounds per tonne from 2016/17 to 2019/20 to limit any competitive disadvantage faced by British firms
The cost of the tax is generally passed on by energy firms to consumers so the move will be welcomed by energy intensive industries, such as steel and cement manufacture, for which energy can make up 40 per cent of costs.
Gareth Stace, head of Climate & Environment Policy at EEF, the manufacturers’ organisation, said:
“The Chancellor has backed his words on the importance of manufacturing in rebalancing the economy and tackling climate change in a cost effective manner with concrete action. This sends a clear signal that government recognises the serious competitiveness issues at stake from rising energy prices.
“The freezing of the CPF will translate into greater clarity for manufacturers’ energy bills through to 2020 and provide much needed investment certainty.”
The move could save businesses up to £4bn by 2018/19 and a further £1.5bn in 2018/19 and compensation for energy intensive users for the cost of the CPF and EU emissions trading system will be extended to 2019/20, while a new compensation scheme will be launched.
The CPF came into effect in April 2013 and was designed to rise every year, with the aim of ensuring power producers pay at least £30 pounds per tonne of CO2 by 2020, to help spur investment in low carbon technology and encourage utilities to switch from burning coal to gas and Osborne said he was still committed to the CPF.
But Renewable Energy Association chief executive Dr Nina Skorupska said: "By freezing the CPF, the Chancellor is rowing back on his own policy and once again moving the goalposts for investors in green energy.
"Government must explain how investment in renewables is protected from the freeze, or risk undermining the investment required to replace ageing coal power stations with technologies that can keep the lights on without damaging the climate."
RenewableUK’s director of policy Dr Gordon Edge said: ““By freezing the CPF there will inevitably be a squeeze on the pot of money set aside to support renewables – the Levy Control Framework. This will limit the Government’s room for manoeuvre as it strives to meet its 2020 renewable energy target.
“The UK’s wind, wave and tidal energy industries need stability, certainty and confidence. That’s why the announcement on the CPF sends an unwelcome message to our sector, and represents a missed opportunity for some of the UK’s most forward-looking new industries – turnover in the UK’s wind, wave and tidal energy sector reached £8.1bn in 2013, employing more than 18,000 people”.