Industry leaders have hit out at the Government's energy tax, claiming it was damaging competitiveness across the hard-hit manufacturing sector.

The finding is from a report by the CBI and Engineering Employers Federation (EEF) on the Climate Change Levy, introduced a year ago.

The tax is intended to encourage businesses to be more energy efficient with revenues recycled through lower National Insurance contributions.

But the CBI and EEF is calling for the levy to be improved after research found some firms were left with huge bills while others were better off.

Worst affected was the manufacturing sector, which the report claimed paid out an extra £143 million in the first year of the tax.

It said manufacturers saw energy costs rise by £328 million but received back only £185 million, with 57 per cent saying they were less competitive as a result.

The report conceded the levy was encouraging changes in energy use in some sectors but called the results patchy.

CBI director general Digby Jones said: "The Climate Change Levy is damaging key sectors of the UK economy and driving jobs abroad.

"It's crazy to pile on extra costs when manufacturers are struggling and all employers are bracing themselves for next April's increase in NI contributions."

EEF director general Martin Temple said: "All this pain is not actually delivering the intended energy improvements."

The EEF and CBI are calling for no levy increase in the current economic climate, wider access to discounts and more effective targeting of programmes to encourage energy efficiency.

The Government first unveiled the levy in April 1999. The tax is seen as a way of helping deliver the UK's Kyoto commitment to reduce greenhouse gas emissions.

Some firms can receive an 80 per cent discount if they meet a target to improve efficiency.

John Healey, economic secretary to the Treasury, said: "The CBI has missed the point. The levy was based on a report by a former CBI president and was introduced after extensive consultation with the CBI and other employers. It is an important part of the climate change programme.

"It has not raised an extra penny in taxation and to say it is costing business more as a whole is nonsense. It is shifting the tax burden from businesses which use clean forms of energy and are energy efficient to companies which use more, and less clean, energy."

He said the Government had protected the energy intensive sectors of industry.