The Chancellor of the Exchequer, George Osborne, today delivered his 2014 Budget Speech in the  House of Commons. Reacting to business concerns about rising energy costs, the Chancellor announced a  package of measures aimed at cutting carbon taxes on energy by £7 billion by 2018 - 2019.

The package has four main elements:-

  1. freezing the carbon price floor (CPF) (at £18 per tonne of carbon) to 2020. (Previously it was expected to be £30 per tonne by 2020). The CPF is  a tax on electricity generators which is passed on to its business consumers through their energy bills. Its aim was to act on a price  signal to encourage investment in low-carbon technologies, but it is widely perceived to put  British industry at a competitive disadvantage to other European countries which have no equivalent. Despite this  announcement, the CPF will still mean that the price of carbon in the UK is considerably higher than on the Continent;
  2. extending the existing compensation scheme to energy-intensive industries to offset the indirect costs of the EU Emissions Trading Scheme and CPF  to 2020. Under the EU Emissions Trading Scheme, electricity generators have to buy allowances  equivalent to their emissions. These costs are passed on to businesses through their energy bills.  The Chancellor last year put in place a compensation scheme for energy intensive industries. This  has been extended to 2020;
  3. introducing a wholly new compensation scheme to offset the costs to energy-intensive industries associated with support given to the renewables  sector (which otherwise would be passed on to industry through their energy bills); and
  4. excluding altogether from the CPF, electricity generated from combined heat and power (CHP)  plants. In other words, for a significant proportion of chemicals, steel and other heavy industries  which rely heavily on CHP, there will be no carbon tax through the CPF.

The message from the Government today is that the UK can no longer ignore the competitive  disadvantage that UK carbon taxes have imposed on businesses, if the recovery in manufacturing, in  particular, is to be secured.