'Stealth tax' row over £1bn carbon cuts drive

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Chancellor George Osborne was accused last night of introducing a "stealth tax" on industry after he failed to mention in his Parliamentary statement that the Government had decided to change the terms of a multi-billion- pound scheme to cut carbon emissions, potentially raising some 3.5bn for the Treasury by 2015.

A one-line statement issued by the Department for Energy and Climate Change shortly after the Chancellor's speech revealed that the Government intends to keep all the revenues raised from its forthcoming carbon reduction commitment (CRC) scheme, rather than redistributing the money back to participating organisations who successfully cut energy use.

Under the CRC scheme, around 4,000 public and private sector organisations which use large amounts of energy each year will be forced to buy credits for their emissions from April 2012. The money raised was due to be returned to participants, with those which had done most to cut their emissions being rewarded with extra cash.

Instead, however, the 1bn-a-year revenue will be used to support the public finances. The tax will not only hit businesses that use large amounts of electricity, such as supermarket and banking chains, but also public sector bodies including large hospitals, councils and universities.

Climate Change Minister Greg Barker said: "This hasn't been done lightly – but against the background of the unprecedented deficit, we've had to allocate proceeds of the CRC to support public finances, including the environment. The CRC will continue to drive improvements in energy efficiency in the UK. I now want to hear from business on how we can simplify and improve the scheme."

Industry figures reacted with fury to the news that they will effectively be forced to pay a carbon tax.

British Retail Consortium director general Stephen Robertson said: "We are surprised and dismayed that the 1bn per year that businesses will put in to the CRC scheme is to be pocketed by the Exchequer.

"This is a stealth tax on business... a tax of this size surely merits a mention in the Chancellor's speech. It is appalling the Government is sneaking this in."

The chief executive of the British Property Federation, Liz Peace, added: " This will not 'remove the burden on businesses' as they claim, but ensure the CRC will cost the wider business community almost 3.5bn more."