Budget 2012: What the chancellor should do for the paper industry

2013 will be a critical year for the UK paper industry, as indeed it will be for all Energy Intensive Industries (EIIs).

Phase 3 of the European Emissions Trading Scheme (EU ETS) comes into effect as does the UK-specific Carbon Price Floor (CPF) mechanism, new Climate Change Agreements (CCAs) and new environmental compliance measures under the Industrial Emissions Directive. Additionally, energy and raw material costs are forecast to rise at a rate well above inflation.

All of these measures are likely to significantly increase the paper industry’s cost base, at a time when it is struggling to cope with the fall-out from the recession. The market for paper is not growing and margins are low or non-existent.

It is therefore essential that the chancellor acts now to help offset some of these cost increases, which, after all, are being imposed by government itself.

In his Autumn Statement the chancellor announced a £250m package of measures aimed at helping the EIIs to offset the indirect costs of achieving carbon reduction targets. Whilst welcome, this figure is totally inadequate and further support is needed.

The most helpful measure that the chancellor could announce would be the scrapping of the CPF mechanism. The CPF will put all EIIs at a competitive disadvantage.

It is essential that support for Combined Heat and Power (CHP) plants is restored. The Levy Exemption Certificate (LEC) should be re-instated and heat from "good quality"CHP should be exempt from the CPF – assuming that it is to continue in its present form.

The chancellor should also reduce the subsidies on offer to electricity-only biomass plants and to Energy from Waste (EfW) power generation as these are acting to distort the market for the Paper Industry’s basic raw materials – wood and recovered paper.

An announcement to increase funding for the Green Investment Bank would be very welcome, especially if it were to be directed at providing capital allowances to the EIIs in order to assist them in achieving very challenging energy and carbon targets.

A further cut in Corporation Tax would be very welcome as this would send a very clear message to the rest of the world that the UK is truly "open for business" However, it needs to be recognised that in order to benefit from this measure companies actually need to be making a profit in the first place!!!

One further measure that the chancellor could announce is an increase in funding for Sector Skills Councils (SSC). The Paper Industry’s SSC, Proskills, has had its funding withdrawn. This decision needs reversing.

The chancellor has an opportunity this week to introduce meaningful measures to back up ministerial rhetoric about the need to support the manufacturing base in the UK. Specific reference has been made to the plight of the EIIs; the measures outlined above are those that we believe would give these industries the assistance needed to offset some of the costs associated with the burden of achieving environmental goals.