Select Committee on Trade and Industry Minutes of Evidence


ANNEX B

Correspondence with Minister for Science and Innovation

On behalf of the British Plastics Federation can I thank you very much for the two hours you spent with our seven associations on Friday 28 September, discussing difficult business conditions for the plastics and rubber industries.

I think the CEOs we brought with us put their problems over well together with some solutions we might jointly consider.

All were highly critical of Climate Change Levy, the new tax on the use of industrial energy. You asked for robust facts on the harmful effects of CCL on our industry's competitiveness. I give below some overall facts:

    —The Levy is not revenue neutral for any firm in our plastics industry.
    —Most firms are capital intensive but not employment intensive, therefore on average on one fifth of the levy is offset by the reduction in employer National Insurance contributions.

    —Climate Change Levy (CCL) will cost Plastic Processors on their use of electrical energy alone at least an extra £60 million per annum.
    —Energy bills for the plastics industry have risen by at least 12 per cent many times the current rate of inflation.

    —Only energy intensive companies such as chemical manufacturers are to benefit from being in negotiated agreements with Government to secure an 80 per cent rebate in exchange for energy reduction targets.
    —The Plastics industry has reduced its energy usage by 25 per cent over 10 years despite increased sales turnover (BPF/ETSU surveys).
    —Since the announcement of the levy in 1999 the BPF has campaigned for its withdrawal and substitution by voluntary agreements for energy reduction.
    —The French Government has recently withdrawn its proposals for an industrial energy tax, and will instead seek voluntary agreements for energy reduction.
    —Producers of glass and metal packaging receive an 80 per cent rebate because they are energy intensive, whereas producers of plastic packaging get nothing.
When we met with you, you felt CCL was a marginal extra cost. Energy costs for our hard-pressed members are not marginal and the large increase which came in due to the tax, adversely affected their competitiveness. It is difficult if not impossible to pass on an increase of this magnitude to customers.

To illustrate the individual hardship the Levy has caused I attach the impact on a cross-section of different sized companies in our membership. We can advise your officials who the companies are.

The British Plastics Federation, representing 200,000 employees, £18 billion sales turnover a year industry asks you to represent our case to HM Treasury and DEFRA to seek a full review.

We request that:

    —The CCL be withdrawn and replaced with voluntary agreements with industry to reduce energy usage.
Failing that:

    —The criteria for inclusion in negotiated agreements should be re-drawn to allow our non-IPPC members to participate and receive a rebate in exchange for energy usage reductions.

    —The CCL tax rates on the fuels must be reduced and on no account increased.
We have not for many years seen such wide condemnation of a government measure, affecting industry.

We would be most grateful if you and your colleagues, who we know have industry's interests at heart, could consider the changes we suggest.

Peter Davis
Director General,
The British Plastics Federation

15 October 2001


TYPICAL EXAMPLES OF THE EFFECT OF CLIMATE CHANGE LEVY ON PLASTICS COMPANIES
Case Study 1

Through this levy, a small plastics moulding company that moulds technical components and has an annual turnover of £4.5 million, is expected to pay £27,000 in levy. Its NICS rebate is £4,000, leaving a net cost to the company of £23,000.

Case Study 2

A plastic packaging manufacturer is paying £675,000 in levy but only receives a rebate of £130,000, leaving £545,000 net cost.

Case Study 3

A manufacturer of plastic foams is paying £100,000 per annum, net of NICS rebate.

Case Study 4

The five largest manufacturers of Expanded Polystyrene Packaging face a total annual Levy of £522,000. Their joint annual turnover is £60 million.

Case Study 5

A manufacturer of plastics materials is paying over £400,000 in CCL levy. After a NICS rebate of only £33,500, the company will face a total cost of £366,500.

Case Study 6

A plastics recycler will have to pay a levy of £37,000 a year, with £2,000 returned through NICS rebate.

Case Study 7

A large company moulding plastic components is paying a levy of £170,000 net of the NICS rebate.

Case Study 8

A producer of thermoplastic sheet is paying a levy of £100,000 per annum.

Case Study 9

A plastic bottle manufacturer has a levy of £45,000 with a £9,000 return in NICS.

Case Study 10

A plastic compounder with an £18,000 levy and £3,000 NICS reimbursements.

Case Study 11

A plastic packaging manufacturer with a net cost of £10,000 due to CCL.

CLIMATE CHANGE EVALUATION

Gross Financial Impact of Climate Change

Levy Rate  0.43 0.15 p/kWh

Impact on Renewables Obligation  0.09
SiteElec Usage kWh Gas Usage kWhLevy on Elec Levy on GasTotal Levy Renewable
Kettering10,016,0001,169,011 £43,069£1,754 £44,822£9,014
St N Clifton House426,000 679,216£1,832£1,019 £2,851£383
St N Cryovac28,409,000 1,357,670£122,159£2,037 £124,195£25,568
St N Cryovac
Interruptible Gas 19,774,919£29,662 £29,662
Melbourn3,470,0001,174,380 £14,921£1,762 £16,683£3,123
Telford3,613,000587,775 £15,536£882 £16,418£3,252
Witham533,000631,698 £2,292£948 £3,239£480
Dolphin Supply 1
Fleets Lane29,187,000 £125,504£125,504 £26,268
Dolphin Supply 2
Fleets Lane1,501,000£6,454 £6,454£1,351
Dolphin Supply 3
Fleets Lane305,000£1,312 £1,312£275
Dolphin Randles
Rd Prescot4,988,346£21,450 £21,450£4,490
Total all sites82,448,346 25,374,669£354,528 £38,062£392,590 £74,204
Impact on Current Spend 12%14% 13%2%
of Elec of Gasof Totalof Total

National Insurance Cost @12.2% Redtn by 0.3%Total Levy from above Net LevyRenewablefrom above
Kettering£398,598 £9,801.59£44,822 £35,021£9,014
St Neots£1,306,544 £32,128.13£156,708 £124,580£25,952
Melbourn£284,203 £6,988.60£16,683 £9,694£3,123
Telford£176.890£4,349.75 £16.418£12,068 £3,252
Witham£65,444£1,609.28 £3,239£1,630 £480
Dolphin£719,000£17,680.33 £154,720£137,039 £32,383
Total all sites£2,950,679 £72,558£392,590 £320,032£74,204

  Overall Net Cost to Sealed Air UK  £394,236

    

SAC GLOBAL VIEW OF UNITED KINGDOM@[email protected] considers United Kingdom positively as a European Manufacturing location:

    —Strong financial centre (London).

    —Relatively flexible work force—fair skills and education.

    —Reasonable social costs.

    —Attractive local markets.

Negative aspects have damaged this position in recent years:

    —The Sterling/Euro exchange rate is encouraging export of jobs and capacity. Global companies survive, United Kingdom SME's may not.

    —Environmental obligations have been applied in a manner that distorts United Kingdom manufacturing's ability to compete in European markets.

    —United Kingdom manufacturers shoulder the burden of compliance costs, while the consumer shares the cost in most other European regions.

    —Example: Climate Change Levy—United Kingdom is unique.

    —Net impact on SAC United Kingdom is a 10.5 per cent increase in power costs.

PIFA CLIMATE CHANGE LEVY CALCULATOR

Cost of Levy at 100 per cent

Levy Rate Gas 1.5 £/MWh Electricity 4.3 £/MWh
Total<<100% ElectricProportional Split ofEnergy ConsumptionGas 40% >>
EnergyG 0%5%10% 15%20% 25%30%35% 40%
MWhE100% 95%90% 85%80%75% 70%65% 60%
1£ 4 £ 4 £ 4 £ 4 £ 4 £ 4 £ 3 £ 3 £ 3
10£ 43 £ 42 £ 40 £ 39 £37 £36 £35 £33 £32
100£430 £416 £402 £388 £374 £380 £346 £332 £318
1000£4,300 £4,160 £4,020 £3,880 £3,740 £3,800 £3,460 £3,320 £3,180
5000£21,500 £20,800 £20,100 £19,400 £18,700 £18,000 £17,300 £16,600 £15,900
10000£43,000 £41,600 £40,200 £38,800 £37,400 £36,000 £34,600 £33,200 £31,800
15000£64,500 £62,400 £60,300 £58,200 £56,100 £54,000 £51,900 £49,800 £47,700
20000£86,000 £83,200 £80,400 £77,600 £74,800 £72,000 £69,200 £66,400 £63,600
25000£107,500 £104,000 £100,500 £97,000 £93,500 £90,000 £88,500 £83,000 £79,500
30000£129,000 £124,800 £120,600 £116,400 £112,200 £108,000 £103,800 £99,600 £95,400

egIf site has 5000 MWh annual energy consumption and it is 85 % electric the Levy is £19,400 cf energy supply cost (at eg 4.3p/kWh electric and 1.3p/kWh gas) is £192,500

NATIONAL INSURANCE REBATE
NIC Rebate0.30% NICSLower Payment Threshold£4,335
Employees AverageEarnings per Employee
£12,000£14,000 £16,000£18,000 £20,000£22,000 £24,000£26,000
10£230 £290 £350 £410 £470 £530 £590 £650
15£345 £435 £525 £615 £705 £795 £885 £975
20£460 £580 £700 £820 £940 £1,060£1,180 £1,300
25£575 £725 £875 £1,025 £1,175 £1,325 £1,475 £1,625
30£690 £870 £1,050 £1,230 £1,410 £1,590 £1,770 £1,950
40£920 £1,160 £1,400 £1,640 £1,880 £2,120 £2,360 £2,600
50£1,150 £1,450 £1,750 £2,050 £2,350 £2,650 £2,950 £3,250
60£1,380 £1,740 £2,100 £2,460 £2,820 £3,180 £3,540 £3,900
70£1,610 £2,030 £2,450 £2,870 £3,290 £3,710 £4,130 £4,550
80£1,840 £2,320 £2,800 £3,280 £3,760 £4,240 £4,720 £5,200
100£2,300 £2,900 £3,500 £4,100 £4,700 £5,300 £5,900 £6,500
200£4,599 £5,799 £6.999 £8,199 £9,399 £10,599£11,799 £12,999
300£6,899 £8,699 £10,499£12,299 £14,099 £15,899 £17,699 £19,499
400£9,198 £11,598 £13,998 £16,398 £18,798 £21,198 £23,598£25,998
500£11,498£14,498 £17,498£20,498 £23,498£26,498£29,498 £32,498
600£13,797£17,397 £20,997£24,597 £28,197£31,797£35,397 £38,997


eg  For a site with 100 employees earning an average salary of £18,000 the NICS Rebate is£4,100

OVERALL COSTS
Using the above examples: By entering into an Energy Efficiency Agreement an eligible site can reduce the Levy to 20%.
Without Energy Efficiency Agreement With Energy Efficiency agreement
Climate Change Levy at 100%(£19,400) Climate Change Levy at 20%(£3,880)
NICS Rebate £4,100 NICS Rebate £4,100
Net Gain/(Cost) (£15,300) Net Gain/(Cost) (£220)


  Your site:
MWh Levy RateLevy Cost w/o Agreement Levy Cost with Agreement
Energy Consumption Gas£1.50
Electricity£4.30
Total 20%>>
Personnel Employed
Salary bill
Average Earnings per employee
Read off NICS Rebate from above
(or use actual NICS payment 0.30%) Copy>>>>
Subtract rebate from levy:Estimated Cost of CCL





 
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