Clause 102 - Landfill tax: rate
Finance Bill
4:45 pm

Mr Oliver Letwin (West Dorset, Conservative)

The purpose of the clause is to increase the landfill tax by £1. My intervention is aimed at a single project: to discover by what proportion and by what means the Government are cutting national insurance contributions equivalently. They must be doing so, because no less a person than the Financial Secretary has assured us on various occasions that the aggregates tax, the climate change levy and the landfill tax remain fiscally neutral measures. Therefore, it must be the case that the Government will introduce a proportionate decrease in national insurance contributions, or introduce some other measure to the same effect. Strangely, so far the Committee and the House have not been privileged to hear from the Government by what means they will achieve that.

I know that Hansard has difficulty in revealing the tone that hon. Members adopt, so I must explain that the tone in which I make these utterances is ironic. I do not expect such a statement from Ministers, but I would be delighted should they surprise me and genuinely prove that they intend this to be a fiscally neutral measure. I fear that there will be no such action. however, and this is the clause that gives the lie to the assertion that any of these measures are intrinsically fiscally neutral.

Mr Andrew Bennett (Denton and Reddish, Labour)

Can the hon. Gentleman tell us whether the Conservative party still believes in the landfill tax? Does it believe that it should be going up?

Mr Oliver Letwin (West Dorset, Conservative)

The Conservative party does not believe that the landfill tax should be raised, or that by raising it the Government are using it as an environmental measure. They are raising money. The Conservative party believes that the Government's intention is to do exactly the same thing in due course with the aggregates levy and the climate change levy.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

The hon. Gentleman recently told the House:

``I was not in Parliament to vote for the landfill tax and I would not have voted for it if I had been.''—[Official Report, 23 April 2001; Vol. 366, c. 83.]

Can we infer from that that the Conservative party would reduce or abolish the landfill tax were there to be a Conservative Government after the forthcoming election?

Mr Oliver Letwin (West Dorset, Conservative)

I have no intention of being dragged into making policy announcements by the Financial Secretary. The Conservative party does not believe that raising the landfill tax by £1 is a fiscally neutral measure. I repeat my challenge to the Financial Secretary to abandon the amusements of pre-election party games and tell us whether the assertions that we have repeatedly made over the past two years are true. The Government see such measures, as taxes and intend to raise the charges bit by bit, thereby giving rise to exactly the problems that I have always imagined might reside in such a form of tax.

Incidentally, that is precisely the reasoning that led Liberal Democrat Members and myself to believe that the suggestion put forward by the hon. Member for Kingston and Surbiton had real merit. What is needed is some hypothecation, a Rooker-Wise amendment, some transformation into charges, or something that makes such crypto-environmental measures have a genuinely fiscally neutral effect. We would then know that the Government were not just playing party games, but intended fiscal neutrality. As things stand, we have no such assurance. We have the revelation in clause 102 that the Government now intend to show that they are willing to raise one of the three taxes without an offset.

Mr Andrew Bennett (Denton and Reddish, Labour)

Does the hon. Gentleman accept that the intention of the tax was to reduce the amount going to landfill and to encourage minimisation and recycling? If all those things had been achieved, would he not agree that even putting the tax up by £1 could have been fiscally neutral, as less money would be being paid?

Mr Oliver Letwin (West Dorset, Conservative)

The hon. Gentleman is right. The aim was noble. That is common ground on both sides of the House. We all want to see a reduction in landfill. We are not having an environmental argument, but a fiscal argument. Secondly, I do not know, and I wait to hear whether the Financial Secretary knows— although I hazard a guess that he does not—whether the rather interesting proposition that the hon. Gentleman has just put forward is true. I doubt it. It certainly was not argued in that way by Ministers on the Floor of the House when we made those points on Second Reading. As far as I know, that case has not been argued in public.

If the Financial Secretary has an elasticity analysis that is rather better in quality than the elasticity analysis that he so signally failed to provide on tobacco duty, and it shows that the measure will be fiscally neutral, I shall withdraw my remarks. However, no such evidence has been produced, and I doubt both that the change is intended to be fiscally neutral, and that this will be the last rise. If the present Government are lucky enough—and the British public unlucky enough—and they are re-elected, all these taxes will be revealed in their true colours as items used by the Treasury to engage in taxation by stealth, which is wrong.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

In this year's Red Book—or, rather, the white book—table C7 sets out public sector current receipts. It shows landfill tax receipts of £0.4 billion in 1999-2000, rising to £0.5 billion in 2000-01 and staying there for 2001-02. Some rounding off may apply to those estimates, but they do not mean that the revenues are suddenly falling away as the hon. Gentleman suggested. The Government may need to continue to increase the rate of the tax.

Mr Oliver Letwin (West Dorset, Conservative)

The hon. Gentleman has injected a degree of interest into the debate. Let us wait and find out the Financial Secretary's intentions in that regard. It would be interesting if it were established that the net effect is neutral—or, in the absence of such a rise, would have amounted to a reduction. I acknowledge that the Liberal Democrats genuinely believe in their policy. If the intention of Her Majesty's Government—the current Government, that is—is also to make the taxes work in that way, in the end they might disappear altogether. They could succeed to such an extent that people moved on to do things in a different way.

It does not follow from the likelihood that the receipts would fall if the rate is not raised, that the rate should be raised. That is a non sequitur. We would first have to have established that the reason why the receipts were falling was something other than the effect that the tax was originally intended to have. If the reason why the receipts were stabilising or falling was that the tax was having its intended effect, there would be no reason—if it were an environmental as opposed to a tax-raising measure—to raise it at that point.

The Financial Secretary may be in a considerable bind here, but the Committee is fortunate in that he is both clever and honest. At this late hour of the Committee's deliberations, a little piece of history could be made, and we could gain a genuine insight into what Her Majesty's Government mean by fiscal neutrality, why the rate is being raised, and how its rise relates to past and future receipts. We could ascertain whether any studies demonstrate that the measure is fiscally neutral. If we receive answers to those questions, I might feel that part of this afternoon's proceedings have been worth while.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I have been tempted by the hon. Gentleman's speech into debating the theory of how the tax will work to promote recycling, reuse and environmental improvements. He argued that if it is working, revenue will fall, and questioned the Government's motives. It is too early in the game to start reducing the landfill tax rate. The Conservative Government and the present Government were right to set a long-term strategy of gently ratcheting up the pressure with small incremental year-on-year increases in the landfill tax rate. That sent out a signal to industry and the private sector that they needed to change their ways.

The Conservative Government introduced the tax at a relatively low rate. That was correct. With green taxes, there should be no desire to penalise different parts of industry and the private sector suddenly. We want to win support for environmental measures, and say to people that such measures are not about penalties, but about changing the market signals so that our commercial behaviour will take sustainability into account. The tax should start at a low rate and people should be sent a determined and clear signal that it will be ratcheted up. Instead of penalising people, we must make sure that the incentive is there for them to change their behaviour and their commercial and domestic processes.

Mr Oliver Letwin (West Dorset, Conservative)

Does the hon. Gentleman agree that, first, the optimality theory suggests that such a tax, if genuinely intended to have an environmental effect, should be set at the level of the externalities—the level of the damage caused to the rest of society? I recall that the aggregates tax is so intended to be set. That would show a settled rate rather than one that increases. Secondly, notwithstanding my first point, if his logic were right, does he agree that there should be an accompanying change downwards in national insurance contributions or in some other fiscal measure?

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I am happy to agree with the hon. Gentleman's second point. We believe strongly in the level of neutrality in respect of environmental measures. It is a significant issue because, hopefully, it wins more public support for such an important change that is being made to our economy and our society.

I am not sure whether I can agree with the hon. Gentleman's view on an optimal tax theory. If he does not mind my saying, his analysis of the position is static. Optimality theory in respect of tax should take in the dynamic picture. When trying to move an economy and a society from one form of behaviour to another, we cannot suddenly introduce a tax at a theoretical optimal rate. That would go against the grain of society, the grain of business and the grain of the private sector. We should aim towards what may possibly be calculated to be an optimal rate, but we cannot introduce a tax, especially the landfill tax, straight away at such a rate, partly because the information that would be required to calculate that rate does not exist. We need to see how the private sector and the public sector react as the tax is incrementally increased slowly and know whether it is sending out the right incentives.

There is a problem with the operation of a landfill tax in that it has created some perverse incentives. Fly-tipping has increased as people try to evade the tax. We cannot pass tax legislation in the House and assume that the net result will be positive. All the analyses suggest that it might be positive, but account is not taken of the externalities, the side effects and how people try to adjust. When people are adjusting to the tax by way of illegal activities, such as fly-tipping, we must ensure that the Government's policy is taking that into account elsewhere.

I have cited an example of how, if we had gone immediately into a high level of tax, we may have created some damage more widely in society. I believe that the Conservative Government got it right. The tax had a relatively low start, with a clear long-term signal. The Government are to be congratulated for continuing such a process. Their only failure is that they are not more radical in their recycling and reuse strategies. Such issues are crucial. They concern our constituents and members of all political parties. Conservative and Labour Members who want to improve the way in which businesses and organisation can recycle goods and the incentives for so doing have drafted several private Members' Bills. If there is a criticism of the Government on the matter, it is that they have not gone further with regard to wider aspects of environmental policy.

Mr Oliver Letwin (West Dorset, Conservative)

Does the hon. Gentleman recognise that the Conservative position is not far from his, apart from in one important respect? We also want economic levers to be used to achieve desirable environmental goals, but we would prefer to see tax reductions, rather than tax increases. Where it must be so, we would rather see regulation than tax increases, and certainly any method rather than non-fiscally neutral tax increases.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I am grateful to hon. Gentleman, but I suggest that he stop digging. The former Conservative Government introduced the tax, raised it when in power, and argued at the time that the tax was good. They were not reducing taxes on the level argued, but using marking mechanisms—taxation signals—to try to promote good environmental behaviour. They were right then, but I am concerned that the hon. Gentleman does not share his former colleagues' support for the approach, and that he puts regulation above taxation. In some cases, regulation can be the optimum way of securing environmental benefits, but often it is not, and taxation is the most appropriate method providing—with the very important caveat—the receipts produced are given back to the wider tax-paying community for tax reductions elsewhere. That seems to us to be the economically, socially and environmentally optimum approach.

We will continue to support the policies, with two slight caveats from the Government. They should make the wider environmental policies in the area more ambitious than currently and, as the hon. Gentleman said, if there is an increase in receipts from the landfill tax as a result of the measures, the receipts should be given back to the private sector in reductions, presumably in employers' national insurance contributions.

Mr Peter Luff (Mid Worcestershire, Conservative)

I am grateful to you, Mr. O'Hara, for allowing me to catch your eye. I am breaking the silence that I usually adopt in these proceedings because I have a strong and powerful constituency interest in the matter, and I am grateful for the opportunity to raise it.

I was a passionate devotee of recycling as a child. My Corona bottles always went back to the newsagent shop, and the deposit was duly collected. It grieves me no end that modern plastic bottles are thrown away into landfill sites, and I also grieve at the way our computers litter landfill sites of the United Kingdom, which represents a scandalous failure to recycle.

I am all the more a passionate devotee of recycling because the Hill and Moor landfill site is in my constituency—it is called a landfill site although it is actually a land rise site. A mountain is being constructed between the villages of Throckmorton and Wyre Piddle, and that is Worcestershire's major site for the disposal of household waste, particularly since Labour members of the county council voted against the incinerator, which is a crucial part of their own waste management strategy. Never mind—that is another matter.

My constituents in the villages around the Hill and Moor landfill site should have the bare minimum of transport going to that land-rise site—I must get my terminology right.

Mr. Andrew F. Bennett (Denton and Reddish) rose—

Mr Peter Luff (Mid Worcestershire, Conservative)

I am delighted to give way, although I cannot think of what I said to prompt the hon. Gentleman.

Mr Andrew Bennett (Denton and Reddish, Labour)

Is the Conservative party now for incinerators?

Mr Peter Luff (Mid Worcestershire, Conservative)

The hon. Gentleman leads me into a full and frank confession of what happened at the party meeting in Kidderminster last week, when I am afraid that the Conservative party joined forces with the Labour party to vote against the incinerator. There you are, Mr. O'Hara, the truth will out, although I am not afraid of the truth.

As the hon. Member for Kingston and Surbiton remarked during his contribution—I thought that he contradicted himself but he was thoughtful—there are perverse incentives for the landfill tax. The hon. Gentleman dismissed the perverse incentives by supporting the Government's strategy that, as we read in the Red Book, is part of a strategy to increase the current standard rate of landfill tax by

``£1 per tonne for five years until 2004''.

Therefore, this is the first stage of a long and sharp increase that is well above any projected rate of inflation, and it has had serious perverse incentives in my constituency. While I welcome the fact that there may be fewer lorries on the roads of my constituency going to the Hill and Moor site, I worry profoundly about the fly-tipping that has occurred in my constituency on both a disorganised and highly organised scale.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

How does the hon. Gentleman believe that we should deal with those perverse incentives? Does he believe that we should reduce the tax, abolish it, or as I do, deal with such illegal activity in other ways?

Mr Peter Luff (Mid Worcestershire, Conservative)

One should not be a single-club golfer in such matters. All such taxes can be benign at the right level and become offensive at the wrong level. The Government are moving the tax towards the wrong level. Already, at the current level, Worcestershire farmers complain to me regularly about the fly-tipping in their fields, typically by small building and gardening contractors, but in a more organised way, too.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I cannot resist the temptation to ask the hon. Gentleman the same question. In the House, the hon. Member for West Dorset said:

``I was not in Parliament to vote for the landfill tax and I would not have voted for it if I had been.''—[Official Report, 23 April 2001; Vol. 366, c. 83.]

The hon. Gentleman was in the House. Will he confirm that he voted for it?

Mr Peter Luff (Mid Worcestershire, Conservative)

I was; I did, with a little reluctance, and in the hope that it would not be increased sharply above the rate of inflation, which is what is happening. My mental arithmetic is not what it used to be, but the increase is not far short of 10 per cent. Increasing £12, £13 or £14 rates by £1 is a smaller percentage increase, but still represents a significant increase over and above inflation each and every year.

One company in my constituency in particular has made a large sum out of the consequences of the landfill tax. A company called Ivory Plant Hire, of which the Financial Secretary has heard me speak before, systematically fly-tipped large quantities of building refuse around Worcestershire and Herefordshire—pretending to reputable building contractors that it was reputable, and callously dumping the muck that it gathered from building sites wherever it could.

The fines levelled by magistrates courts are lower than the landfill tax revenues that must be paid to take refuse to proper landfill sites. That is a huge issue. We managed to persuade local magistrates substantially to increase the fines, which is welcome, and that company now seems to have gone into liquidation, but only after two years of huge environmental damage to my constituency. I fear that it is likely, like a hydra, to re-emerge with other heads after the so-called liquidation, and more damage will be done.

The Financial Secretary must be extremely confident that the increase, and the further increase that the Government plan should we have the further misfortune of Labour winning the coming election, can be guaranteed not to cause further perverse incentives such as the hon. Member for Kingston and Surbiton described and further environmental havoc in my constituency. I am deeply worried about this sharp increase.

The Government plan that moneys raised from the landfill tax will, under the landfill tax credit scheme, be turned to different purposes. I find that highly objectionable. My constituents who live around the landfill site pay the price of the activity that goes on there in, I suspect, loss of value of their homes, and certainly in the environmental impact of lorries and the visual amenity of the extraordinary mountain of rubbish growing in their back gardens.

At present, there is at least the prospect of the landfill tax credit scheme and some of the extra money that the Government are trying to raise going back to that community. In fact, scandalously, that has not happened in Worcestershire. The money has gone all around the county, not to the local communities around the land-rise site. However, the Government now say that they will end all that and spend the money on broader schemes to encourage recycling in the county.

I have no objection to recycling, as I said, but when landfill sites have a substantial environmental impact on a local community, that community should receive some of the benefit of the landfill tax credit scheme. All the benefit should not go to the wider community in order to encourage greater recycling. I find it deeply offensive that my constituents will suffer increased fly-tipping as a result of the increase, while facing the prospect, if the Government press ahead with these ill-guided policies, of not receiving the benefits that should flow from the landfill tax credit scheme.

Mr Michael Jack (Fylde, Conservative)

I rise to support my hon. Friend and others who have discussed fly-tipping. When I ask my local authority to respond to that problem, it says that it does not have the resources to mount in-depth observations and enforcement of the law to stop that nuisance.

I anticipate the Financial Secretary asking the same question for the third time. I was in the Treasury when the landfill tax was introduced; I approved of it and voted for it, but there was an important proviso. The proviso was that it was fiscally neutral when it was first introduced, by virtue of a national insurance rebate. Why do the Government choose not to replicate that fiscal neutrality? We have seen and heard nothing to suggest that, at the end of the period of the application of the escalator, a review would take place of national insurance payments and a corresponding reduction would be made.

Given the problems and constraints on areas, situations or techniques for the disposal of waste, it is right that we should raise awareness of these issues by economic signals. However, I find it difficult to relate the different strands of Government and European Union policy over the question of waste disposal to the role played by the landfill tax. In paragraph 6.95 of the ``Financial Statement and Budget Report'', we learn:

``Industry and commerce in England and Wales produce around 78 million tonnes of waste a year. Local authorities in addition collect a further 28 million tonnes''.

That 78 million tonnes of waste is of the kind that is by and large disposed of privately by contracting organisations levying the landfill tax from their commercial customers in their invoices. One can see an immediate cause and effect in that case. However, in the case of the 28 million tonnes of waste, most people would be unaware of the effect of the landfill tax on the collective charges that they pay their local authority for waste disposal. Household waste is increasing by 3 per cent. a year, so a significant part of waste in the United Kingdom is not immediately influenced by the landfill tax.

The same document states that the European Union landfill directive has set a series of targets supposed to affect the amounts of waste—especially biodegradable material—that can be disposed of. However, paragraph 6.95 does not appear to relate the effectiveness of the landfill tax to the numbers. A theme of the debate has been the attempt to establish whether there is a proper cause and effect. In other words, is it an effective tax? Is it doing its job in deterring people from producing more waste? I cannot disaggregate the effect on waste of the European Union landfill directive, the subsequent measures involving tradable permits, the outcome of waste strategy 2000 and the landfill credit scheme. It is a bit of a muddle—it has not been well joined up.

Governments can justify changes in taxes, in the sense that they are a price put on an activity, only if it possible to see the effect.

Mr Andrew Bennett (Denton and Reddish, Labour)

Presumably the right hon. Gentleman knew what the expected effect would be. How far does it vary now from what he hoped that it would be?

Mr Michael Jack (Fylde, Conservative)

The original imposition of an environmental tax in this area forced people to think, because an economic consequence ensued from an activity that was untaxed or unpriced—apart from the immediate marginal cost of tipping a load of waste into the local tip. The tax focused people's minds and assisted in their strategic thinking about ways of reducing a potentially avoidable cost. It was in action for a relatively short time; we were then removed from office, but we are invited to show our agreement for an increase when other measures have been introduced that may complicate the assessment of the success of the tax.

Mr Andrew Bennett (Denton and Reddish, Labour)

Does the right hon. Gentleman that when he was in the Treasury, he must have made the decision whether £5, £10 or £15 was the right rate? Will he share with us the thinking that went into the introduction of the tax?

Mr Michael Jack (Fylde, Conservative)

I do not want immediately to retreat to the excuse that the tax was not one of mine. Other hon. Members have recognised that a sensible lower rate would have a chance of being accepted. The tax was fiscally neutral, so perhaps the rate was less important than the signal that it sent. To be honest, I cannot remember the exact arguments about why the figure was chosen. In the Treasury, I often asked officials who came to brief me, ``Why this particular number?'' Had I been directly responsible for the tax under discussion, I suspect that I would have asked the same question. Had I been able, I would have been happy to share my experience with the hon. Gentleman, but he makes a fair point.

Mr Mark Hendrick (Preston, Labour)

Will the right hon. Gentleman give way?

Mr Michael Jack (Fylde, Conservative)

I should first reply to the hon. Member for Denton and Reddish (Mr. Bennett). As with any pricing arrangement, the question is which one will have an effect. If we had gone too far the other way, perhaps we would have had an even bigger debate on fly-tipping than we have had today.

Mr Mark Hendrick (Preston, Labour)

How did the Government of whom the right hon. Gentleman was a member measure the effectiveness of the tax at whatever rate it was levied?

Mr Michael Jack (Fylde, Conservative)

If the hon. Gentleman listens to what I am saying, he will know that that is my point. Normally, a tax is left in place for a number of years and then assessed. As Treasury Ministers say, taxes are kept under continual review, but the tax had not been in operation long enough to make the definitive assessment that may be required.

I am, however, delighted that the hon. Gentleman raises that point, because it supports my argument. The Committee is being asked to agree a further rise with the prospect of four additional rises, although it is quite difficult to know what the effect will be, particularly given the contents of paragraph 6.95, with which the hon. Gentleman will be familiar.

Mr Mark Hendrick (Preston, Labour)

To follow up my previous question, if the right hon. Gentleman were still in government, how would he measure the tax's effectiveness?

Mr Michael Jack (Fylde, Conservative)

With respect, the question is so hypothetical that I cannot answer it. As with all things, we started with a fiscally neutral tax. If the previous Conservative Government had continued and it was deemed that the rate should rise in order to have a further contributory effect, we might have maintained that fiscal neutrality. The important point is that the Government whom the hon. Gentleman supports are not doing that.

Given that waste from Preston comes to a rather large tip in my constituency that is becoming very full, the hon. Gentleman might be interested in the effectiveness of the Government's waste policy, because it will eventually have an impact on his constituents. When the Financial Secretary comes to justify the Government's position, he might be able to shed a little more light on the relative effects of the different constituent elements of their policy.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I welcome you back to chairing our proceedings, Mr. O'Hara.

I am optimistic that I can persuade the Committee that the irony expressed by the hon. Member for West Dorset (Mr. Letwin) was misplaced. It is indeed the proposal that the standard rate of landfill tax will be increased from £11 a tonne to £12 from 1 April this year. It is in fact the second of those increases, rather than the first. We are continuing the programme of pre-announced landfill tax increases set out in the 1999 Budget, which will lead to a standard rate of landfill tax of £15 a tonne by 2004. We want to send a strong signal to waste producers and waste management companies to switch away from landfill towards waste minimisation, re-use and recycling.

The Environment Sub-Committee chaired by my hon. Friend the Member for Denton and Reddish has carefully examined such matters. He has made a number of telling interventions in this debate and will have heard, as I have, calls from the waste management companies in the Environmental Services Association in particular for substantially higher tax levels than those proposed. Calls from the industry for £25 a tonne are not unusual; some players call for significantly more. It is an unusual experience as a Treasury Minister to be lobbied by those who pay the tax for it to be set at a higher rate. The Government took the view, which was expressed by the hon. Member for Kingston and Surbiton, that it is right to proceed cautiously and observe the effects of the steady £1 a tonne increases. That is the only way to find out what their consequences will be.

Mr Oliver Letwin (West Dorset, Conservative)

I am interested in the Financial Secretary's remarks so far. Will he tell us why the Government argue—I have had time to check this—that the aggregates tax should be introduced immediately at the tax optimality point where its cost equals the externalities?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

We have not done that; the hon. Gentleman is mistaken. The value arising from the research was £1.80 a tonne and we have set the rate at a conservative and cautious £1.60 a tonne, as I am arguing we should in this case. We are applying the same principle, which was rightly summed up by the hon. Member for Kingston and Surbiton.

Mr Oliver Letwin (West Dorset, Conservative)

That will not do. I take it that the Financial Secretary is responsible for the relevant paper. His argument on the aggregates tax is that a cautious view was taken because there was some doubt about whether £1.80 was the figure for the externalities. That is not the same as arguing that a low rate should be chosen before being rammed upwards. He never argued that he intended to raise the aggregates tax hereafter.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

No, I did not. My argument, in line with the comments of the hon. Member for Kingston and Surbiton, is that a cautious approach is right and that, by 2004, when we will have reached the £15 a tonne rate, we will be able to judge the correct tax rate for the future by using evidence and experience of the different tax rates.

Mr Michael Jack (Fylde, Conservative)

The hon. Member for Denton and Reddish challenged me to say why £10 a tonne was the right figure under the Conservatives. Is the Financial Secretary saying that he cannot judge whether £15 will ultimately be the correct figure until he has sucked it and seen what the effect will be in the real world?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

We must know the effects of tax at different levels so that we can make an informed decision—particularly in response to representations from industry for significantly higher rates.

The measure is already having a significant impact on waste management. The recycling of inert waste is at an all-time high, there is increased composting of biodegradable waste, and more than one third of businesses are introducing or considering minimisation and re-use of waste. Overall, as the right hon. Member for Fylde (Mr. Jack) said, increases in household waste are running at about 3 per cent. a year. Despite that, active waste disposals are quite static at about 50 million tonnes a year. We can deduce from those figures that the tax is stopping what would otherwise have been a rising trend in the use of landfill. On the inactive side, waste disposals on which the lower rate of landfill tax is paid have had a dramatic effect, with the landfill amount falling from 36 million tonnes in 1997-98 to 30 million in 1998-99, while the recycling of construction waste has grown.

The right hon. Gentleman rightly said that several different factors are at work, but the landfill tax has undoubtedly played an important role in moving people away from landfill. I was disappointed that the hon. Member for West Dorset was unable to explain the Conservative party's policy on the landfill tax. He outlined a policy, but I am unsure whether it was the official one. He has made it clear that he would not have voted for the measure. The hon. Member for Mid-Worcestershire (Mr. Luff) has made it clear that he voted for it with reluctance. Presumably, the right hon. Member for Fylde voted for it with enthusiasm, as the previous Government introduced the tax, and he was a Treasury Minister at the time.

The day after the hon. Member for West Dorset made it clear that he would not have voted for the measure, the right hon. and learned Member for Rushcliffe (Mr. Clarke), in the same debate, mentioned the landfill tax as one of his major achievements as Chancellor of the Exchequer. Most people who have studied the landfill issue would subscribe to the right hon. and learned Gentleman's view rather than to that of the hon. Member for West Dorset.

Mr Oliver Letwin (West Dorset, Conservative)

The hon. Gentleman is selectively quoting. We could all have gladly signed up to the measure if it had contained a rule that enforced fiscal neutrality. The problem with the present construction is that it allows for precisely the move of which we are now accusing him. All hon. Members accept the benign environmental effects of the landfill tax; the problem is that it can be misused. The hon. Gentleman has been talking for several minutes—albeit with interruptions—but has not yet addressed whether the measure is fiscally neutral.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I am looking forward to reaching that part of my speech, but I must first give way again.

Mr Andrew Bennett (Denton and Reddish, Labour)

I was hoping that my hon. Friend might have probed Opposition Members about how they would have dealt with the major defect of the tax when it was introduced: no money was given to the Environment Agency or local authorities to enforce the measure and to deal with fly-tipping. Another important defect is that 20 per cent. of the money raised is directed to environmental schemes managed by Entrust, which is one of the worst regulated bodies in the country.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I am grateful to my hon. Friend for his comments, and I now turn to the point about fly-tipping, because it was also raised by the hon. Members for Kingston and Surbiton and for Mid-Worcestershire and the right hon. Member for Fylde.

I agree with my hon. Friend that more resources were needed to deal with fly-tipping, and the Government have introduced several improvements in that regard. However, the Committee should be aware that the majority of fly-tipped waste is household waste, and, as the right hon. Member for Fylde said, householders do not pay the landfill tax. The Tidy Britain Group has conducted research on that matter. Householders are not provoked to fly-tip their waste because of the landfill tax.

The situation is different for commercial operators, such as the company in the constituency of the hon. Member for Mid-Worcestershire. However, I was heartened by his remarks about the effectiveness of measures such as extra fines and the work of the Environment Agency in dealing with the problem in that particular case.

The Government take the problem of illegal waste disposal seriously. The penalties are severe: they include unlimited fines and up to two years in prison. I hope that those measures enable us to deal with the problem. However, the majority of fly-tipped waste is household waste, which cannot be caused by the landfill tax.

Mr Peter Luff (Mid Worcestershire, Conservative)

You would rule me out of order, Mr. O'Hara, if I entered into a debate on fly-tipping. My part of the world does not suffer from that problem, although large quantities of waste are produced by garden contractors, for example.

Money is not the problem with enforcement; money does not solve every problem. Lack of co-ordination of Government policy is the problem. In the case of Ivory Plant Hire, the Environment Agency, the district council, the county council, the police, the vehicle inspectorate, the traffic commissioners, the courts and, probably, others, were involved. If we are to tackle the problem successfully, that is how we should deal with it—rather than throwing money at it.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

The Environment Agency has a free 24-hour hotline for the public to report any such incidents. That is the kind of measure that is required to tackle the problem.

The hon. Member for Mid-Worcestershire also asked about the landfill tax credit scheme, as did my hon. Friend the Member for Denton and Reddish. In the longer term, the Government are attracted to replacing all or part of the landfill tax credit scheme with a public spending programme to direct resources towards Government priorities on sustainable waste management. We will consult with interested parties on how the transition to that can be managed to ensure that worthwhile projects, of which there are many examples around the country, continue to attract funding under both the current scheme and any replacement regime. It is important that the resources available here are used to minimise landfill by encouraging recycling, a cause that is dear to my hon. Friend's heart. I am sure that it is dear to the heart of every member of the Committee.

The point that was made frequently by every Conservative Member who spoke, albeit in some cases with irony, was whether the increase of £1 a tonne would be fiscally neutral. I can confess that the landfill tax in the coming year will not be fiscally neutral. The Committee has me bang to rights on that. In fact we will give away a lot than we get. The reason is that the 0.2 percentage point reduction in national insurance contributions comes to £690 million. The forecast revenue from the landfill tax is £452 million. In other words, the revenue will be only two thirds of the amount that is being given away. I will gladly give way to the hon. Gentleman. I hope that he will apologise to the Committee.

Mr Oliver Letwin (West Dorset, Conservative)

I may or may not be able to do that. Which 0.2 percentage point reduction in national insurance was it? I hope that it was not the item that we heard about in the context of the aggregates tax.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

No, certainly not. When the previous Government introduced the landfill tax, they also introduced a reduction in employers' national insurance contributions of 0.2 percentage points. In the coming year—the year that we have just started—the loss of revenue that arises from that reduction is £690 million. The take from the landfill tax would be £462 million. That is the 0.2 percentage points reduction that was introduced at the same time as the landfill tax. [Interruption.] In other words, we are—

Mr Edward O'Hara (Knowsley South, Labour)

Order. I am finding it difficult to follow the Minister because of the distractions on my left.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I am attempting to make the position as clear as I possibly can to assist Opposition Members. The revenue from the landfill tax is significantly less than the revenue foregone by the reduction in employers' national insurance contributions introduced by the previous Government at the same time as the landfill tax.

Mr Michael Jack (Fylde, Conservative)

I will put my hands and apologise if I am wrong, but is not that mathematical argument that he has just announced just a direct consequence of the fact that the Government have put up employers' national insurance contributions?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

No. The right hon. Gentleman is a former Treasury Minister. He knows how employers' national insurance works. The product of 0.2 percentage points on employers' national insurance is certainly not affected by the rest of the national insurance contributions. It increases because salaries and wages increase. I do not want to add to Conservative Members' embarrassment, but having been pressed I feel that I should make the position clear. When the tax was introduced the cost of the 0.2 percentage point cut in employers' national insurance contributions was costed at £505 million per annum. Even that is more than the revenue projected for the coming year in landfill tax.

Mr Mark Hendrick (Preston, Labour)

Is my hon. Friend saying that the Government are giving tax cuts by stealth?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

Some might say so. I fear that we will not hear many such allegations from Conservative Members. Having completely shot their fox, I urge the Committee unanimously to accept the clause.

Mr Oliver Letwin (West Dorset, Conservative)

I am grateful to the Financial Secretary. Our proceedings have occasionally descended into torpor. It has sometimes been boring. This charming piece of casuistry has enlivened the proceedings and given us a memory to treasure. Never has a Minister illustrated the vacuity of his logic in so compelling a manner.

The Financial Secretary's argument is this: a particular cut in national insurance rates was made when the tax was introduced, which was, and was intended to be, fiscally neutral when allied to the tax itself. Fiscal drag has since increased the effect of that rate change. Therefore, according to his logic, it is fiscally neutral now to increase the tax. If that were a logic in which he believed, rather than one with which he chose to amuse the Committee, it would also follow that if the receipts from national insurance contributions at a given rate decreased, it would be correct to decrease the tax. Will the Financial Secretary observe that principle? No, he will not, because the two are wholly disjoined. He has made no change in the rate on national insurance contributions.

Sitting suspended for a Division in the House.

On resuming—

Mr Oliver Letwin (West Dorset, Conservative)

National insurance contributions are set at a given level, and earn given receipts for the Treasury, in the prevailing economic circumstances. Should they produce more money because of fiscal drag due to prevailing economic circumstances, that in no sense validates the raising of any tax, landfill or otherwise.

The Financial Secretary was merely amusing himself at the expense of the Committee—or perhaps I should not say that, because he also provided some amusement for the Committee—in order to entertain himself in the dire straits of having to negotiate the Finance Bill. We are left with the same old problem that we started with. The tax increase is not accompanied by an equal and offsetting decrease in the rate of some other tax; therefore it is not a fiscally neutral measure. That is a harbinger that bodes ill, when we attend to the fact that the Government have introduced the climate change and aggregates levies.

Mr Andrew Bennett (Denton and Reddish, Labour)

Where in Dorset does the hon. Gentleman plan to put the incinerator?

Mr Oliver Letwin (West Dorset, Conservative)

It is clear that Labour Members have reached that stage of the Finance Bill at which they wish to amuse themselves. I assure the hon. Gentleman that I have no more desire than he does to see more incinerators. Nor, as I hope might become evident to the hon. Gentleman—who is expert in such matters—and to the Financial Secretary, have I the least desire to see more landfill sites. However, taxes should not be increased without fiscal neutrality obtaining.

Mr Nick St Aubyn (Guildford, Conservative)

I am as opposed to incinerators as anyone in the Room; I spoke on the matter in the Westminster Hall this morning. The additional landfill tax would still leave landfill more attractive than incineration on economic grounds, ignoring the environmental grounds. Even the new level of landfill tax is not a disincentive to landfill as opposed to incineration.

Mr Oliver Letwin (West Dorset, Conservative)

My hon. Friend makes telling points. The fact is that the Government are in a complete intellectual mess about such issues. They have no serious cross-elasticity studies or optimality analyses. The Financial Secretary has directly contradicted his own concessions on the aggregates tax this evening. We are facing a Government who make gestures towards environmental taxation, but who actually wish to establish a base for increasing fiscal revenues from whatever source they may, apart from income taxes. That is what we object to and will continue to object to, and I shall ask my hon. Friends to vote against the clause.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

The hon. Member for Guildford (Mr. St. Aubyn) has obviously been listening to the organisations that have been calling for a higher rate of landfill tax. If he had been here earlier in the debate, he would have heard references to those representations. We should take a cautious step-by-step approach, so that we can see the consequences.

The position of the hon. Member for West Dorset is now completely incomprehensible. He is working with a definition of fiscal neutrality, but I have no idea what it is. The entire premise of his argument, and that of other Conservative Members, was that the increases in the rate of landfill tax meant that the Government's revenue from the tax was greater than the revenue forgone from the cut in employers' national insurance contributions. The hon. Gentleman has now, admittedly with speed, come up with a new but incomprehensible definition of fiscal neutrality. He should acknowledge that he was wrong and support the clause.

Mr Oliver Letwin (West Dorset, Conservative)

If it were true that the Financial Secretary cannot understand me—which it is not—it would be necessary for me to do what I shall do in any case, which is to spell out the simple analysis of fiscal neutrality. When a tax is raised by the sum of x and accordingly collects revenues of the sum of y, another tax should be decreased so that it reduces the revenues by the sum of y. The two should offset each other. If the Financial Secretary were genuinely in doubt about the need for that marginal fiscal neutrality to maintain a serious intellectual case for environmental taxes, it would be necessary to explain it.

However, the Financial Secretary is well aware of such matters. The problem is that he does not want to admit it. It is inconvenient to his case, because he has increased the tax and then relied on the fact that some other item happens, through fiscal drag, to be increasing its effect on receipts. That is an intellectually disreputable position—just as disreputable as the position on optimality that he jettisoned so notably earlier. There is no basis left for such a measure, and I shall ask my right hon. and hon. Friends to vote against it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 17, Noes 6.