Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.Donate to our crowdfunder
This statutory instrument implements the loss on ignition testing regime for landfill tax. Landfill tax was introduced in 1996. It has been successful in reducing the amount of waste sent to landfill by more than half, and has encouraged reuse and recycling of waste. However, we want to eliminate tax evasion and ensure a level playing field for all operators. This testing regime assists landfill operators in determining the correct rate of tax when accepting waste that results from mechanical waste treatment processes.
The regime was introduced on
There are two rates of landfill tax: a lower rate of £2.60 per tonne for the least polluting waste and a standard rate of £82.60 per tonne for other taxable waste. [Interruption.]
Operators pass on the cost of the tax to those using their site to dispose of their waste. For some types of waste it can be difficult to determine visually which rate of tax should apply. This is particularly true of the so-called waste “fines”, which are the residual materials produced by the mechanical treatment of waste at waste transfer stations and similar facilities. In recent years this type of waste has increased significantly in volume.
Some businesses sending waste to landfill have deliberately mis-described this waste to evade the standard rate of landfill tax. When landfill site operators raised concerns, we responded by working closely with the wider waste industry to devise a testing regime. The testing regime provides an objective way to determine the rate of landfill tax that should be paid on fines from mechanical treatment, while at the same time protecting compliant landfill operators.
The loss on ignition test is a laboratory test that involves heating a sample of material in an oven to see how much the mass reduces. This provides a highly reliable indicator of the percentage of waste that is degradable, with the higher the percentage the more polluting the waste. Each year, the operator has to take a minimum number of samples from each of its customers for testing. The frequency increases if certain risk categories are triggered, such as when a sample from a customer has previously failed a test. An operator can also instigate a test if it suspects that a load is not eligible for the lower rate of tax. Only qualifying fines that produce laboratory tests at or below a 10% rate are eligible for the lower rate. However, to allow for the adaptation of processes, there is a 12-month transitional period—we are now in that period—during which we will allow waste with test results of up to 15% to be subject to the lower rate. The testing regime has been welcomed by landfill operators because it gives them more certainty over the correct rate of tax to pay and to pass on to their customers.
The order does not apply in Scotland, as the tax was devolved to Scotland on
As the Minister has helpfully set out, the landfill tax was first introduced in 1996 and, under the last Labour Government, the standard rate was increased on a number of occasions to support the main aim of encouraging more sustainable alternatives for the disposal of waste. Labour therefore supports the principle of the landfill tax and we believe that thorough enforcement rules are an important part of the system. Indeed, according to the House of Commons Library, the proportion of waste sent to landfill had fallen by around a third between the introduction of the tax and 2009, accompanied by a similar increase in recycling, which is surely a good thing if ever there was one. Is the Minister able to provide up-to-date figures on the effectiveness of the landfill tax in reducing waste disposal and in promoting recycling activity?
The tax information and impact note accompanying this measure outlines the impacts to industry but not the corresponding impact on waste disposal, and it appears that the latest publicly available figures are now some years out of date. I am sure that the Minister will want to correct that soon, if he is unable to do so now. The impact also states that these new measures will have
“minimal operational impact on HMRC”.
It was recently reported that HMRC faces losing a further fifth of its workforce, despite criticism from various quarters, including our very own Public Accounts Committee, that it is not meeting acceptable service standards. We know that HMRC is dealing with around 200 registered landfill site operators and about 450 mechanical treatment plants, which dispose of those “qualifying fines” that the order provides for. What resources do the Government intend to put in place to administer the new scientific testing regime that the Minister mentioned and had such a wonderful time observing for himself? The note also states that the scientific tests will be carried out by “testing laboratories”. Could the Minister clarify that process? What involvement will HMRC have in the testing process, and how will it oversee and resource it?
I welcome the Minister to his portfolio. I had several meetings with his predecessor on this subject. I do not object to what is proposed in the motion, but I think it will be practically impossible to enforce. The Minister said that he had been to a landfill site, and I welcome that, but how is the provision to be enforced? In my experience, landfill tax fraud is one of the largest scandals that we have yet to address in this country. We must ensure that the policy works to reduce the amount that goes to landfill. We should all support that; I certainly do. In practice, however, there are no controls whatever. The jurisdiction over what goes into landfill falls between the Environment Agency and Her Majesty’s Revenue and Customs. The Minister said that he had visited a landfill site, but it was obviously one that was well run. He should ask his officials to show him some that are not so well run.
The level of enforcement by both HMRC and the Environment Agency is woefully inadequate. There is also no control, or any onus, on those who are producing the waste either to ensure that the waste meets the targets or to bear any responsibility once it goes to a waste transfer station. What happens in a large number of cases is that the waste gets mixed with other waste. The waste then goes into landfill sites and is deemed to be at a lower rate than it is because no tests take place at some of the more unregulated sites. Worse than that, what is happening in practice is that when the waste arrives at the site—some large companies own a number of sites—it goes past the weighbridge and no landfill tax is paid on it at all. That requires close examination.
If we are to ensure the good intentions of this policy—and there are good intentions—we must ensure that the rules are enforced. I do not disagree with what my hon. Friend Alison McGovern said about the cuts at HMRC, but this is more to do with a confusion between the Environment Agency and HMRC. I urge the Minister to ask his Department how many waste operators have been fined for landfill tax fraud. I asked that question last year, and I think that there had been one. There is no enforcement at all, or even an appetite to deal with something that is depriving the taxpayer of huge revenues.
Another issue that is worrying for the long-term environmental sustainability of our country is what is going into these sites. High level waste is being mixed with, in some cases, dangerous and low grade waste. In some cases, we do not what is going into these sites.
The Minister only has to look on the internet or ask his officials to dig out some press cuttings to see some of the horror sites, which are up and down the country, that have been overfilled. No action has been taken to recover the landfill tax, which has been avoided, or to study the environmental impact. Although I do welcome this measure, the Minister needs to look at the matter in greater detail, as massive fraud is taking place. Some of the people involved in that fraud know exactly what they are doing and are making money out of it. There are numerous examples of operators going to customers with prices that are completely impossible to meet if they were paying the landfill tax charges. The industry knows that and somehow turns a blind eye to it. In some cases, the livelihoods of decent operators who are paying the landfill tax and are following the system are being threatened by people who are avoiding paying the landfill tax by not declaring what they are putting into their sites.
I ask the Minister to have a serious look at this whole area. Although the policy is well intentioned, it does not work in practice. Will the Minister also ensure that, because the changes do not apply to Scotland, we do not have a transfer of waste across the border? I know that that is not the intention of the policy, but the lag in the change of legislation in Scotland could mean that that happens. If the Government want to crack down on tax avoidance, this is an area they should be looking at.
We have had a good, if short, debate on this important matter. Let me deal with some of the points that have been raised.
The whole point of landfill tax is to reduce landfill, and it has been successful in that regard. We have seen the amount of waste in landfill drop by 70% since 2000 and average household recycling rates have risen from 18% to 44%. Landfill tax is not the only cause of those beneficial changes, obviously, but it is one cause.
Mr Jones is right to identify aspects of fraud that will not be eradicated by the measure, but that does not mean that the measure is not beneficial; it deals with a large part of fraud. Wider enforcement is also important, and I am assured that HMRC is on top of that. He and I are to meet in a couple of days, and I look forward to discussing in more detail particular issues that arise in his constituency and elsewhere.
Does my hon. Friend the Minister appreciate that it is a given that the higher the tax, the greater the incentive for people in the industry to evade the tax? What will the sampling regime be? Who will take samples of the waste and determine what grade of landfill tax is applicable?
Landfill operators must take a certain number of samples per customer load, depending on the risk profile of that customer. So if the operator has never had a difficulty with a customer before, rightly they should use a light touch, but where there have been problems before, that frequency should increase. There is a loss on ignition test to find out what volume of the sample is degradable and in its steady state there is a limit of 10%, but for a limited period of a year, to allow industry to make the transition, a slightly higher rate of 15% will be allowed.
Alison McGovern asked about conducting the tests. The key factor is laboratory capacity. The samples go off to accredited labs, and I have no reason to believe that there is a problem with capacity. It is a commercial line of business.
HMRC compliance in general is a wider issue. HMRC cannot be in every operator’s yard at every moment, but it treats all forms of tax evasion extremely seriously and has a statutory duty to ensure that the correct taxes are collected, as well as a direct incentive to do so.
Can the Minister see that the next area of potential tax evasion will be the sampling regime and what samples are taken from a large load of waste?
There is probably no fool-proof or fraud-proof system of taking samples. People will seek to get around the regime, but the challenge in compliance is to interrupt that activity and stop it. In the past 15 months HMRC has accelerated its response to tax aspects of waste crime. It has a range of responses, including criminal and civil investigations, and the national waste sector task force takes cross-tax approaches.
I may get inspiration on that point before I sit down. If not, I will not have to write to the hon. Gentleman because I will be able to update him on Thursday.
In the 2015 Budget the coalition Government provided a further £4.2 million of funding to the Environment Agency specifically to tackle waste crime. That will enable it to take action against more illegal waste sites and illegal waste exports. HMRC always acts on information indicating non-compliance. For legal reasons, it generally does not comment on specific allegations of tax evasion and fraud. It fully engages with key partner agencies, most notably the Environment Agency, to ensure that compliance and enforcement activity is properly co-ordinated.
On the question about Scotland, the hon. Member for North Durham will know that this is a devolved tax, but it is set at the same rate on both sides of the border so there is no incentive to cross the border to take advantage of a lower rate. HMRC is, of course, in close, regular contact with Revenue Scotland, and the same is true of the two relevant environmental agencies on each side of the border.
We have had a useful debate. I hope I have covered Members’ concerns adequately and I commend the order to the House.
Question put and agreed to.