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Climate Change Levy - who pays?

Gordon Brown introduced the Climate Change Levy in April 2001. It was a brilliant idea - make industry pay for the damage it is doing to the earth's climate, through a tax on the use of fuels which produce greenhouse gas emissions and contribute to global warming. The money raised - an estimated 1 billion per year - was to be returned to employers through a reduction in their National Insurance contributions, cutting labour costs and thus boosting employment opportunities.

It all sounds fine, until you look at the effect on the National Insurance Fund. The cuts in contributions mean that about 1 billion less money is going into the Fund each year. It would be logical and fair to compensate the Fund by paying into it the money raised through the Climate Change Levy.

Instead, the Treasury pockets the Levy; so the net effect is that the Treasury gains and the NI Fund loses - which means that there is less money available for state pensions and other benefits. To make matters worse, a Treasury minister, John Healey, admitted in reply to a House of Commons question on 26th May that employers are actually gaining more through the reduction in NI contributions than they are paying in Climate Change Levy.

Gordon Brown would, no doubt, argue that none of this matters because the NI Fund is rolling in money and can well afford to lose the odd billion. But the only reason why the Fund is in surplus is that pension and other benefit rates fall further behind average earnings year after year.

So the answer to the question "Who pays the Climate Change Levy?" is simple: pensioners do!