FEARS a new carbon tax could devastate Northumberland’s biggest employer have been brushed aside by the coalition.

Wansbeck MP Ian Lavery issued a dire warning about the impact on Rio Tinto Alcan, which employs hundreds of people in his constituency.

But Danny Alexander, Chief Secretary to the Treasury, told MPs that the so-called “carbon floor price” would in fact act as an “incentive” for industry to modernise.

The senior Liberal Democrat’s comments come amid warnings the move – along with changes to European legislation – will cost the Lynemouth site £40m a year, wiping out its annual profits.

Speaking in the Commons, Mr Lavery said: “It could have a devastating impact on Rio Tinto Alcan, which is the biggest private sector employer in my constituency.

“In fact, it is the largest in Northumberland, employing 600 people and probably serving more than 1,000 indirectly in the community.

“Alcan has put £100m into the local economy. “However, last week’s introduction of the carbon floor price, in addition to the EU’s emissions trading scheme, means nearly a third of Alcan’s running costs are due to legislation.

“It simply cannot sustain that. I am concerned that if we do not look at that, Alcan might consider closing the plant.

“The Budget announcement threatens the progress of what has been a tremendous employer.

“I would ask the Government to rethink their policy on the carbon floor price, and I would like to discuss that with the ministers concerned.”

Mr Alexander said: “We have announced that we will become the first country in the world to introduce a carbon price floor for the power sector.

“The price will start at around £16 per tonne of carbon dioxide in 2013 and move to a target price of £30 per tonne in 2020.

“That will provide the incentive for billions of pounds-worth of new investment in our dated energy infrastructure.”

David Cameron was also challenged in Prime Minister’s Questions yesterday over the impact of carbon tax on steel producers, including Tata which recently sold its Redcar works.

He was urged to ensure a level playing field across Europe. But the Prime Minister insisted: “The steps taken in the Budget are right.

“And I think we should judge companies like Tata by the investments that they are making.

“I have been hugely heartened by the fact that Tata are putting more investment into the UK.

“And if we take the case of Redcar, which closed under the last Government, it is going to be reopening in part because of the investment that Tata are making.”

John McCabe, corporate affairs director at Rio Tinto Alcan, last week said: “If we do nothing it would be very difficult to see how there could be a long-term future for the plant.

“We are already a high-cost operation and as such we have an unsustainable long-term future if we don’t change how we operate.”