Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Annex A

Climate Change Levy—BRC Survey

  BRC undertook a survey of large retail companies to gauge the impact of the Climate Change Levy and the reduction in employer NICs. Retailers were asked to provide data on energy used (gas and electricity), employer National Insurance Contributions, and spending on energy efficiency measures.

  Retailers representing 36 per cent of all retail turnover (£70 bn) and 5,800 stores responded to the survey.

  Using the illustrative rates for the gas and electricity levy of 0.21p per KWh and 0.6p per KWh respectively, the results were as follows:

    —  the vast majority of retailers would face a net cost after the imposition of the Climate Change Levy and reduction in NICs;

    —  the average net cost (fuel levy minus reduction in employer NICs) would be £5 per £10,000 of turnover. For retail as a whole, this would mean a net cost of £92 million for a supposedly revenue neutral levy;

    —  only a small number of retailers would see a net gain from the Climate Change Levy minus the employer NICs. For these companies, the gain would be minimal less than 40 pence per £10,000 of turnover);

    —  retailers have spent considerable sums on energy efficiency over the past three years—an average of £19,000 per store according to the BRC survey of large retailers. There is, therefore, a limit to how much more energy can be saved. On average, the retailers in the BRC survey expected to be able to save only 7.5 per cent of the net cost of the levy through further energy efficiency measures. This would still leave a net cost to retail as a whole of £85 million. Of course, to achieve the energy efficiency savings, extra costs up front will be incurred in areas ssuch as converting to new greener technologies (eg buying more efficient refrigeration systems) and training staff in energy conservation measures. It will be difficult to meet these extra costs at the same time as paying the non-neutral Climate Change Levy;

    —  due to the flexibility of retailers as employers, 57 per cent of the workforce is part-time. A large number of employees earn less than the £83 per week threshold for employer NIC payments. If retailers are currenty paying non NICs, the half per cent reduction in the employer NIC rate would be of no benefit;

    —  using 1996 data (the most recent available from ONS) average weekly pay was £155.73 for retail employees. The saving from the NIC reduction would therefore be 36p per employee per week on average. If multiplied by the workforce as a whole, the saving would be £43.6m per year, whereas the cost of the fuel levy would be in the region of £140 million; and

    —  the BRC survey data suggests that retailers would face a net cost of £92 million after the imposition of the levies on gas and electricity and the 0.5 per cent reduction in the standard rate of employer NICs. However, the survey had limitations (described below) the result of which is that £92 million may be an underestimate of the net cost to retailers.

Limitations of the survey

  The gain from the NIC reduction may well have been over-estimated (ie the net cost to retail is probably more than the £92 million quoted). The reasons are as follows.

  Firstly, full year information for NIC bills was only available for 1998-99. The new system whereby NICs are only payable by employers on the margin over £83 per week earnings was not in place during this period. The system operating during 1998-99 was that once employee earnings passed a threshold of £64 per week, 3 per cent employer NIC was payable on all earnings (not just the margin above £63). Further thresholds at £110, £155 and £210 led to employer NIC rates of 5 per cent, 7 per cent and 10 per cent respectively being applied to all earnings. This means that the total NIC bill for last year will include contributions on part-time workers whose weekly earnings puts them below the £83 threshold under the new system, or if above £83 the NIC liability for the employer will now only be on the margin, not the whole pay.

  As the new system of employer NICs has not been in place for a full year, the only guide BRC had was last year's NIC bill. The system now operating should have resulted in retailers facing a lower total NIC bill, and, therefore, a lower reduction in NICs and a higher net cost from the levy than our survey suggests.

  Secondly, retailers are responsible employers who in many cases provide pension schemes for their employees. The proposal on NICs describes a 0.5 per cent reduction in the standard rate of employer NIC from 12.2 per cent to 11.7 per cent. However employers providing final salary pension schemes (which are contracted out of SERPS) pay a rate of 9.2 per cent employer NIC for pension scheme members (for earnings under £500 per week), and 11.6 per cent if it is a money purchase salary scheme. If the 0.5 per cent reduction is not applied to these rates as well as the standard 12.2 per cent rate, then the net cost of the levy to retailers will be considerably higher. In an extreme case a retailer might only have two types of employee: part-time employees whose earnings are below £83 per week and full-time employees who earn less than £500 per week and are members of the contracted out company pension scheme. For the first set of employees, no employer NIC will be payable as their earnings are below the threshold, and for the second set the employer will pay NICs at 9.2 per cent or 11.6 per cent depending on the type of contracted out pension scheme. If the 0.5 per cent reduction in NICs is only applied to the standard 12.2 per cent NIC rate, this retailer will receive no reduction at all in NIC payments despite providing employment for possibly thousands of staff, and being liable for the levy on energy use.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2000
Prepared 3 March 2000