November 4, 2011 2:02 am

Deadlock over help for big users of energy

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Chris Huhne, the energy secretary, is locked in battle with the Treasury and business departments over his refusal to help pay for measures to assist energy-intensive manufacturers cope with the government’s climate change policies.

George Osborne, the chancellor, and Vince Cable, the business secretary, are working on a deal to help heavy users of energy cope with the added financial burden of the carbon floor price when it is introduced in 2013.

Under the scheme the minimum price for carbon will be set at £16 ($25.60) a tonne from April 2013, rising to £30 by 2020 as the government moves to encourage low-carbon forms of electricity generation, including nuclear power.

The issue has become a litmus test for the coalition’s commitment to stimulating growth, and Mr Huhne’s reluctance to provide energy department funding for the relief package has alarmed manufacturers. One industry insider said it could result in a diluted financial settlement for Britain’s steelmakers and aluminium and chemicals producers.

The EEF manufacturers’ group is lobbying for a £100m package to ameliorate the worst effects of the carbon floor price. John Cridland, director-general of the CBI employers’ body, has also called on the chancellor to come up with a quick solution, which he thinks could cost the government up to £300m a year.

“The key blockage is that the energy department is refusing to put its hand in its pocket. Treasury is making a contribution, as is business, but the energy department seems to feel that if this is a competitive issue then it is a business issue and it is not up to energy to resolve it,” said one industry insider familiar with the talks. “Huhne also thinks he should be putting his money into renewables instead of propping up heavy industry.”

Officials from all three departments refused to comment on the talks on Thursday – although one official stressed the energy department had a far smaller annual budget than the business department or Treasury.

In an effort to break the deadlock, Mr Cable has urged industry representatives to press Nick Clegg, deputy prime minister, to try to win over the Liberal Democrat energy secretary, according to one industry executive.

The government’s package will almost certainly include a tax rebate that in effect lowers the price of energy for the heaviest users, a system that exists in Germany. Greg Barker, the climate change minister, led an industry delegation to Germany last month to see how that country’s system works.

Terry Scuoler, chief executive of EEF, said on Thursday it was “vital” a comprehensive package was agreed that would put Britain on a level playing field with competitor countries. “This is essential as part of the growth package to protect jobs and future investments by key companies in key regions of the UK,” he said.

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