Clause 184 — Rate of Landfill Tax

Part of Finance Bill – in the House of Commons at 5:30 pm on 14th May 2003.

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Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury 5:30 pm, 14th May 2003

The Chancellor announced in his 1999 Budget that

"To reduce the amount of waste going to landfill, the landfill tax, £10 per tonne in 1999, will in future rise by £1 per tonne per year."—[Hansard, 9 March 1999; Vol. 327, c. 182.]

The increases made this year are the last under the £1 a tonne annual duty escalator. From 2005, the annual duty escalator will increase to £3 a tonne, with a view to reaching a rate of £35 a tonne in the medium to long term.

The United Kingdom has one of the lowest levels of recycling in Europe, with only 11 per cent. of waste recycled—well below that of many European countries, some of which recycle as much as 40 per cent. of household waste. The Government have failed to provide a coherent strategy for sustainable waste management, and we have seen an ad hoc approach, with a tax increase here, a complicated and failing tax credit scheme there and, meanwhile, landfill usage is increasing.

The Government have little hope of complying with the 1999 European landfill directive, under which the amount of biodegradable municipal waste going into landfill sites would be reduced to 75 per cent. of 1995 levels by 2006. The amount of municipal waste sent to landfill sites has increased from 21.9 million tonnes in 1999, to 22.1 million tonnes in 2000–01.

The Environmental Audit Committee recently criticised the Government's strategy, saying:

"The Waste Strategy 2000 is not so much a waste strategy but a strategy for complying with some of the requirement developed in the EU. Even with that interpretation, it has still not proved effective in delivery".

I am afraid that the phrase, "not proven effective in delivery" is rather familiar in virtually all areas of this Government's activity.

The last Conservative Government introduced the landfill tax in 1996—the first tax with an environmental purpose. We understand the need to encourage a comprehensive sustainable waste management system by promoting more recycling and less landfill. The long-term use of landfill is clearly unsustainable, and we believe that the Government should be more effective in promoting the alternatives.

The response to this measure has been mixed. The Engineering Employers Federation commented:

"The current rises in landfill tax are only acceptable if the funds raised are hypothecated directly into improving the waste management infrastructure".

The CBI said that businesses "remain to be convinced" of the need to raise the tax by £3 per tonne per year. Can the Economic Secretary confirm that the £140 million increase in landfill tax revenue scheduled for 2005–06 will go towards promoting sustainable waste management and recycling programmes? Given that the rationale behind increasing landfill tax is to ensure that the UK complies with EU legislation, surely it is vital that that money goes towards increasing recycling and improving markets for recycled materials.

The arguments against the landfill tax increase are that the increasing rate of tax could act as an incentive to move over to other forms of waste disposal, which end up being more damaging to the environment and in some cases illegal. The Environment, Transport and Regional Affairs Committee cited

"two very good arguments for the landfill tax not being increased to a much higher level without other changes taking place".

First, there is a danger that the use of incinerators may increase as landfill becomes a more expensive option, together with the problem of illegal fly tipping. How do the Government plan to avoid simply shifting the problem elsewhere and making things worse? Secondly, the increase in the tax will hit local authorities hardest. The Government's 2002 strategy unit publication, "Waste Not, Want Not" says:

"Of the total revenue sourced from active waste, approximately 46 per cent. is paid by business and the remaining 54 per cent. by local authorities . . . Like business, a rise in landfill tax will provide local authorities with an incentive to fund alternative ways of managing waste disposal".

My concern is that local authorities that cannot claim under the landfill tax credit scheme are struggling hard enough as it is. If the landfill tax trebles over the next eight years, matters will be made worse and the council tax driven still higher.

Finally, the landfill tax credit scheme, which was introduced along with the tax in 1996 and enabled landfill sites to direct part of their landfill tax liability towards funding local environment projects in return for a tax credit, has encountered high administrative costs. Overall, the scheme was deemed to be a success, but the Public Accounts Committee report identified the following problems:

"a lack of overall accountability . . . and a lack of transparency", as well as high overhead costs. Following that, the Government announced reforms in the November pre-Budget report, with the new scheme starting on 1 April, but many waste management groups have expressed concern about the new scheme. Two thirds of the money from the scheme—some £100 million—will go towards public spending to encourage sustainable waste management, but the remaining third will continue to go to local projects. I understand that local waste reduction and recycling campaigns have expressed concerns that they may lose out on funding under the new scheme.

Do the Government remember the pledges that they made in "Waste Strategy 2000", proposing to use the landfill tax credit scheme to help deliver an increase in recycling, particularly of household waste? Are WasteAware and other such schemes not recycling projects? We would contend that "Waste Strategy 2000" is in a shambles. It has failed in its piecemeal approach to sustainable waste management. According to the European Environment Agency, to meet the requirements of the landfill directive alone, the UK must divert 27 million tonnes of biodegradable municipal waste away from landfill sites. The UK will therefore need to deliver the equivalent of one new management facility, capable of processing 40,000 tonnes of waste, per week, for the next 14 years.

We have a huge problem, and the EU targets are unrealistic. Instead of working together towards the short-term goal of meeting those EU targets, the Government should embrace a long-term programme to promote recycling, the use of biodegradable materials and sustainable management systems. We would not rule out the use of economic instruments, but we remain unconvinced that increases in the landfill tax will create a sustainable waste policy and promote recycling programmes.

Like most of the Government's environment policies, the tax stems from a panic to meet the targets laid down by Europe and from the primary motivation of raising revenue. I remind the Economic Secretary of the fridge mountains, the problem of abandoned cars and the disastrous climate change levy, all of which are a result of rushed and ill-thought-out legislation. They fail to take account of the bigger picture or to address the long-term environment issues and deliver the objectives that were claimed.

We urge the Government to reconsider their policy. They should not base the tax increases on fiscal and short-term considerations, but consider them in the light of an effective long-term waste policy.