Small business hit by climate change levy

The UK wants a 20% cut in CO2 emissions

By the BBC's business reporter, Rebecca Pike

The government's new climate change levy, a tax on companies who use fossil fuels aimed a reducing pollution, is having a disproportionate effect on small companies.

One example is the Kew Bridge Steam Museum, where visitors can see the19th century steam engines which were the driving force of the Industrial Revolution.

But now this living piece of history is under threat.

The coal they use to produce the steam is now being taxed. It means the museum will have to reduce the number of times they run the engines and visitor numbers may drop.

Smaller companies have more difficulty in adjusting

"This year it is going to add something like 20% to our energy bills but also gas has gone up, that went up at the end of last year anyway, so we are looking this year at facing energy bills that are double what they were last year", explains Lesley Bossine, the museum's manager.

Small businesses suffering

It is a problem common to many smaller companies.

For them the relative cost of switching to cleaner fuels is high, forcing many to reduce the amount of energy they use which ultimately may risk harming the business.

For larger companies the cost is proportionately lower.

And, in many cases, these companies have managed to negotiate huge reductions to the levy by promising to change production methods.

"If you're a machine shop or you're a printer or you're a plastic moulder, you've got thousands of pounds worth of equipment, you can't really afford to change it," says John Holbrow, environmental spokesman for the Federation of Small Businesses.

"Therefore it is disproportionate on small companies, particularly small manufacturers."

To reduce the impact of the tax, all employers get a reduction in National Insurance contributions.

If you're a machine shop or you're a printer or you're a plastic moulder, you've got thousands of pounds worth of equipment, you can't really afford to change it

John Holbrow, Federation of Small Businesses

This means the treasury does not benefit from any extra money from the levy.

However, this tends to help larger companies and the service industry more than other sectors.

The levy was brought in after the Kyoto Conference in 1997.

The UK set itself a target of a 20% cut in carbon dioxide emissions by 2010.

It is welcomed by environmental groups, but even they say it disproportionately benefits the larger polluters.

Wrong idea?

Charles Secrett, executive director of Friends of the Earth, also thinks it could go further.

"The climate change levy is a good thing because it discriminates against polluters."

"The problem with the levy is that on the one hand it doesn't go far enough, it would be much better to introduce a carbon tax across all energy users and secondly it is complicated and it has not been very fairly applied."

"There are many companies that are discriminated against who shouldn't be."

It is a problem that the new government - which has already faced down industry objections to the levy - may have to address.