Steel makers oppose EU tax

The Chancellor, Gordon Brown, was last night urged to veto plans by the European Commission to impose a carbon tax on member states, with a warning from heavy industrial energy users that it would hit jobs and competitiveness.

The plea came as the Chancellor prepared to attend his first meeting of EU finance ministers in Brussels today where proposals to harmonise excise duties on energy are due to be discussed.

The Commission has twice failed in attempts to introduce a carbon tax on environmental grounds, arguing that it would curb harmful emissions of the greenhouse gas carbon dioxide. This time it is trying to get the tax through under the heading of harmonisation measures. Since it is a new tax, it requires unanimous support from all member states to become law.

The UK Steel Association, which represents all large producers including British Steel, has written to Mr Brown and other ministers including the new Minister for European Trade and Competitiveness, Sir David Simon, and the Secretary of State for Environment, Transport and the Regions, John Prescott, asking them to block the proposal.

Brian Clayton, the association's president, said: "A carbon-energy tax is misguided and wrong in principle, not least because it will fail in its stated objectives."

Mr Clayton claimed it would push up industry's costs without reducing energy consumption. This would force employers to shed jobs and erode their competitiveness with the result that manufacturers might be forced to relocate to cheaper countries outside the EU which were not committed to reducing CO2 emissions.

British Steel has already announced an acceleration of a cost-cutting programme that will see 10,000 jobs disappear over the next five years at a cost of pounds 165m. Even without the threat of the carbon tax, the company is struggling to respond to the appreciation of the pound and the increasing competitiveness of its European rivals.

Although there is a proposed exemption from the carbon tax for "metallurgical processes" it is unclear how widely this would apply. In any case, Mr Clayton said that even if the steel industry was exempted, the tax would still cause serious damage to its customers in manufacturing industry.

Two months ago the former chancellor, Kenneth Clarke, led opposition to the proposed tax at the last meeting of European finance ministers. Energy intensive industries are hoping Mr Brown will take a similarly robust stance.