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.
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