Clause 18
Finance Bill
12:00 pm
Greg Hands (Shadow Minister, Treasury; Hammersmith and Fulham, Conservative)
The clause relates to landfill tax. We do not propose to divide on it, but we need to examine a little the substantial increases in landfill tax. On 1 April 2009 the rate increased from £40 to £48 a tonne. I understand that that will be followed by four further £8 increases, which is a doubling of landfill tax in five years. Looking broadly at the change in landfill tax, there are clearly benefits and costs.
The benefit of such a steep doubling of the tax will be that more recycling treatments will be economically viable for many more types of waste, not merely municipal. The landfill tax was introduced on 1 October 1996—that is what threw me off earlier into wrongly saying that air passenger duty was introduced in 1996—and since 1997, the proportion of waste sent to landfill has declined by 32 per cent., according to the Government’s consultation document issued at the same time as this year’s Budget. That decline has not all been due to landfill tax, but at least a significant part of the progress in reducing the amount of waste that we send to landfill has been partly driven by the tax treatment.
Turning to costs, however, first there is potentially a big increase in costs for some of our engineering and manufacturing companies at a time when they are generally struggling, and we might drive away some of those businesses when we need to be boosting British manufacturing. The other drawback is a likely increase in fly-tipping. We need to ask the Minister whether any of the new revenues from the doubling of landfill tax will be given to the local authorities that will have to deal with the consequences of the increase in the tax and the likely increase in fly-tipping. Those same local authorities will themselves have to pay a greatly increased rate of landfill duty. The question must be whether the net effect will simply be larger council tax bills, on top of the already more than doubling of council tax under this Government.
There would be an increased incentive for the development of alternative forms of disposal, but alternatives take time to come on stream and are not cheap. They remain welcome, however, and we recognise that a robust and predictable landfill tax regime is a prerequisite for the viability and coming on stream in the coming years of some of those alternative waste treatment techniques. Some of the developments appear to hold a great deal of promise, particularly those that would produce usable biomass from general waste. However, it would help if the Minister indicated the Government’s view of the pace required to keep such developments in the pipeline while avoiding placing too great a strain on those disposing of waste. In other words, is the 20 per cent. or £8 per annum increase for the next five years a reasonable and sustainable rate for the waste disposal industry?
The consultation document that the Government produced at the same time as the Budget bears the title, “Modernising Landfill Tax Legislation” but is mostly about countering the effects of the Waste Recycling Group court case last year, in which the Court of Appeal ruled against Her Majesty’s Revenue and Customs and placed a significant amount of waste outside the scope of the tax. The Government admit in the impact assessment that the present legislative approach
“will make landfill tax legislation as a whole more complex and less coherent.”
Broadly speaking, it seems sensible to restore the scope of landfill tax to what was originally intended, while simplifying the structure. We need to examine the proposals further before reaching a judgment on the particular remedy suggested. It will provide welcome context if the Minister explains how much revenue she believes has been lost since the ruling in 2008 and whether landfill operators are altering their procedures to take advantage of the loopholes opened.
Some of the Government’s suggestions may dramatically increase the tax on waste that currently qualifies for the lower rate. The document’s lead option for that category would restrict the lower rate to waste that is classified as “inert” under the EU landfill directive. It is not clear whether the Government regard that change as a requirement of the directive or regard harmonisation with the criteria in the directive and other parts of the European framework as desirable in itself. The Government’s references to falling behind recent developments in “thinking” rather suggest the latter—that it is in keeping with the framework rather than a positive requirement of the directive.
It is not clear what the precise implications of the change will be; perhaps the Minister could set out the Treasury’s view. Up to £160 million of additional revenue is identified in the impact assessment, but the fact that the consultation explicitly asks the industry the questions:
“Are you aware of any other wastes which would cease to be lower rated under the proposal?”
and
“Are you aware of any wastes which would be brought into the lower rate of tax under the proposal?”
suggests that the Treasury and HMRC are not completely certain of the effects of their lead option. It would be unfortunate if a consultation that began with the fallout from one court case ended up triggering many others. The consultation even asks for
“information on the extent to which the wastes listed in paragraph 3.8 are still produced in the UK”,
which surely ought to be known already, since the reason given for listing them is that they are currently taxed at the lower rate. It is rather odd if the Government are taxing wastes that they are not even sure still exist. Perhaps I have interpreted their question uncharitably and it means “produced as a product” not, as it says, “produced as a waste”. Some reassurance on that and the other points I have raised would be helpful.