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Steel faces tax crisis

Materials E Cinvestigation set to test the legality of UK government's plan to offer environmental levy rebates

THE UK steel industry could face a bill for hundreds of millions of pounds if the European Commission succeeds in halting government plans to give rebates to firms paying a new environmental tax.

The new Climate Change Levy, due to take effect next April, is being levied on high energy using industries and could cost steel giant Corus as much as £200 million.

Other manufacturers believe the consequences could be even more serious.

'If the full cost of the levy is imposed then we could see the end of the UK steel industry within two years, ' said ASW chief executive Graham Mackenzie.

The tax, which stems from international agreements signed at the environment summit in Kyoto, Japan last year, is levied on industries producing so-called greenhouse gases, which contribute to global warming.

Manufacturers sign up to energy efficiency and carbon emission reduction targets set by government and receive rebates of up to 80 per cent if they hit them.

But a row has erupted over the the UK's planned rebate mechanism, which is being investigated by the EC for possible breaches of competition rules.

The government plans to offer rebates through funding for investment in energy-efficient plant and tax incentives, .

However, if the EC thinks these amount to state subsidies the UK would be breaching EU competition laws.

Head of environmental and technical policy at the UK Steel Association, Graham Funnell, said: 'In Europe, tax on steel is about 47 pence per tonne on average. If we enter these negotiated agreements, provided we meet the targets, it will be about 50 pence per tonne in the UK. If we fail to meet the targets its will between £2.50-£3 per tonne.'

Corus said if the rebate mechanism was not agreed and the full levy imposed then it could face massive bills. 'There is a potential £200 million cost to Corus. We are hoping that this will reduce to tens of millions, but that depends on the ongoing negotiations, ' said a spokesman .

paul.thompson@construct.emap.com

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