Clause 18

Finance Bill – in a Public Bill Committee at 12:00 pm on 2nd June 2009.

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Standard rate of landfill tax

Question proposed, That the clause stand part of the Bill.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

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.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I shall make a brief contribution in which I will shamelessly refer to my constituency, but it is of wider interest because Somerset has the highest rate of recycling in the country—a fact of which we are proud, because it represents the strong attachment that people who live in the county have to good environmental  practice. We are keen to do better. On Friday last week, I was fortunate enough to be accompanied by my right hon. Friend the Member for Sheffield, Hallam (Mr. Clegg) when visiting the Priorswood recycling centre on the edge of Taunton. He was able to see what I have seen on many occasions since I opened it in 2005, which is the wide range of facilities it has to process plastic, different forms of glass, paper and metal. [Interruption.] I hear, out of the corner of my ear, an unnecessary political intervention. It must also be said that I noticed a very large number of Conservative election leaflets being pulped. It did not look as though they had even been read, which was a cause of distress to me, because I always think that the greater the number of people who read Conservative leaflets in my constituency, the better the Liberal Democrats will do. However, people seem to have discarded those leaflets without even taking that precaution.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 12:15 pm, 2nd June 2009

Does the hon. Gentleman share my horror at what I understand to be a Liberal Democrat leaflet put out in Cornwall that attacks a Mebyon Kernow councillor for the state of his hair?

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. I think that we are even stevens on that point.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Thank you for your guidance, Mr. Atkinson.

I was not thinking about Cornish nationalism when I was at the Priorswood recycling centre, because I was so full of admiration for the facilities there. I was being shown around the facilities with the leader of my party. Quite a few of the people who work there and who were giving us the tour stressed the benefits, as they saw them, of the landfill tax in terms of incentivising local authorities and other organisations to recycle more.

We are not resting on our laurels. Of course, we in Somerset have the very good fortune of having a county council that is run by the Liberal Democrats, which means that environmental consciousness is right at the forefront of all its deliberations. We also have the good fortune of having the Liberal Democrats as the largest party on Taunton Dean borough council. As a resident of Taunton, I am very pleased to see the benefits of much more recycling being done at doorstep level.

I have read a lot in the national newspapers on the controversy about less frequent waste collection. However, landfill taxes and other incentives that are being put into practice by local authorities are having a dramatic impact on levels of recycling. Certainly I hear very few complaints in my area that the rubbish is only collected fortnightly, just as long as there is plenty of opportunity for collection of recyclable items. For example, newspapers and bottles are collected weekly from households in my constituency, and now plastic items, including those big, unwieldy milk containers that sometimes carry up to six pints and large containers of orange squash, are being collected from doorsteps along with cardboard. When people buy a new implement or appliance, for example, and they do not wish to throw the cardboard box away but regard it as unnecessarily burdensome to take it to the Priorswood recycling centre or to the other recycling centre in my constituency, which is in Poole,  just outside Wellington, they find it frustrating if it is not collected. Even right down to cereal boxes, for example, people are having the opportunity to recycle those types of daily household items.

In conclusion, it is worth saying that it is rare indeed to find people who are keen to speak out in favour of higher taxation, particularly when the burden may fall on them, but what is quite interesting is that both the population and the people who are responsible for waste management and disposal in my constituency see the merit in having a landfill tax incentive to increase recycling. I invite everybody on the Committee who has not seen the future, in terms of recycling in our country and in terms of just how progressive and enlightened that we can be as a population, to visit Taunton Dean and Somerset, where we are rightly proud of our good record in that regard. No doubt we will do better still after we get beyond Thursday and we can come up with further imaginative schemes to improve the environment in my area.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

I think that there is now cross-party agreement that increasing recycling, including putting in the infrastructure that is needed to do that, and thereby landfilling less waste, is a wholly good thing. Clearly, the landfill tax is one of the ways in which we have begun to make real progress; it is an important part of the Government’s efforts to reduce the amount of waste going to landfill. There are obviously, as the hon. Member for Hammersmith and Fulham hinted, overarching EU directives in this area, and we have signed up to targets that we wish to reach. He is also right to say that having a landfill tax helps to drive investment in alternative greener technologies, which further reduce methane emissions from landfill waste. As I am sure the Committee knows, methane is a far more potent greenhouse gas than CO2, and it is really important that we reduce those emissions.

Evidence shows, I am happy to say, that the tax has been successful in reducing the amount of waste going to landfill. Figures show that between 1997 and 2008, the volume of waste disposed to landfill fell by 32 per cent., delivering carbon savings of 700,000 tonnes of CO2 emissions by 2010. In Budget 2007 the Chancellor announced that the standard rate, which applies to active waste sent to landfill, would increase by £8 per year until 2010-11. Clause 18 gives effect to the 2007 announcement by increasing the standard rate of landfill tax to £48 per tonne, with effect from 1 April 2010.

The increase is part of the Government’s effort to reduce the volume of waste sent to landfill, and is complemented by public spending on sustainable waste management. For example, we announced £10 million of new grants for businesses in 2009-10 to provide capacity to divert more than 300,000 tonnes of waste from landfill and reduce waste disposal costs through, for example, anaerobic digestion. At the Budget this year, we announced that the standard rate for landfill tax would continue to increase by £8 per tonne for a further three years, from 2011 to 2013. That is designed to encourage investment in alternatives to landfill. We will legislate for those increases in future Finance Bills, as we have done for all previous landfill tax increases.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

First, I should correct something I said. I think I said that the first £8 increase was coming in in 2009. It is actually in 2010, followed by the three £8 increases.  Nevertheless, what consideration has been given to the fairly steep trajectory of the increases? It is not quite a doubling, but it is an 80 per cent. rise in the next five years. Does she think that is sustainable and that the industry can absorb it?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

We would not have suggested it had we thought it unsustainable. It clearly has a policy lever which, as the hon. Gentleman himself said, is to drive investment in future waste infrastructure and to do even better on recycling than we have done to date. The increases will help to drive a low carbon and resource efficient economy, which will encourage waste producers and the waste management industry to switch away from landfill towards sustainable alternative technologies, such as anaerobic digestion, recycling and mechanical biological treatment.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The hon. Lady is being very generous in giving way. I still want to explore the rate of increase. Presumably some thinking went into choosing £8 rather than, for the sake of argument, £10 or £15. Presumably if the rate of landfill tax is increased too sharply or over too sustained a period, people will avoid it by fly-tipping. How did the Government arrive at the £8 level? Some work must have been done to discover that optimal level.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

Of course we model the behavioural effects of tax increases. We think the levels are sustainable. The Government recognise that fly-tipping is a significant antisocial problem affecting communities, landowners and regulators. We have been working via the Department for Environment, Food and Rural Affairs with the Environment Agency. In 2007-08, fly-tipping on public land fell by 7.5 per cent., which I hope the Committee will welcome. As well as a decrease in fly-tipping overall, enforcement action and successful prosecutions have increased by 26 per cent. on previous years. We are beginning to get to a stage where we are dealing with the problem of fly-tipping, as well as making the case, as the hon. Member for Taunton did so eloquently, about new waste infrastructure that can help to give us the capacity to recycle substantial amounts of waste.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

All of us feel that the landfill option is not sustainable in the longer term, so we understand the importance of the tax. However, I agree with my hon. Friend the Member for Hammersmith and Fulham about the risk of fly-tipping. Presumably the figure of £40 has not always been set in stone, so what is the evidence, from perhaps the past five years, from the increases that have led us to £40? Has there been any Government thinking about the plus and minus sides of particular increases in the past and the impact that they might have had on fly-tipping, and about other externalities that might not have been foreseen at the outset?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

I have just given the Committee some positive figures about fly-tipping. In 2007-08 we saw not only a decrease in fly-tipping, which I hope will be sustained, but a large increase in successful prosecutions. There are also plans in place to introduce secondary legislation in the autumn, which will provide local authorities  and the Environment Agency with stronger powers to seize vehicles suspected of involvement in fly-tipping. There will be a continuous attempt to crack down on that kind of activity, recognising that if the landfill tax continues to rise, we have to ensure that a huge increase in fly-tipping is not an unintended consequence. The evidence that I have just quoted gives us cause for optimism in that respect.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

One hopes that an element of that precipitative reduction in fly-tipping is due to people who are averse to antisocial behaviour, but there is an argument that landfill tax should have gone up slightly more, so that more resources could go into new technology. I am trying to get a feel for whether, over the past five years, there has been evidence that perhaps we have not been investing enough in new technology, because we have taken relatively small steps upwards in the landfill tax, rather than larger steps, which might be the right way forward.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

There is a balance to be struck, but there is also a sequencing argument, which I am sure the hon. Gentleman accepts, in a switch from being a country that not that long ago landfilled large amounts of its waste to one that is driven to reach demanding EU targets in a few years’ time. Local authorities diverting increasing amounts of waste from landfill require a period of adjustment, and part of that is about putting in place the infrastructure needed to handle waste. We have announced plans to commit more than £2 billion to investment in waste infrastructure through the private finance initiative, and the Greater Manchester waste disposal authority’s energy from waste product project, which has just been given the go-ahead with extra help from the Treasury’s finance unit, will alone handle 5 per cent. of the UK's total municipal waste and lead to the diversion of more than 700,000 tonnes of waste from landfill. There is significant investment in big kit, ratcheting up our efforts in this area. The increases in the landfill tax are a balancing part of that entire approach.

The hon. Gentleman should look at how integrated the approach is. One cannot run before one can walk in these areas, and we need a time sequence so that we have the infrastructure in place before we can perhaps further increase the costs of diverting waste to landfill. The alternatives have to be in place and up and working, so that we can think about how we can discourage future landfilling. There is a hierarchy of waste, and there is important work to be done in ensuring that waste and packaging are not created in the first place, and that when they are created, they can be disposed of in the appropriate way, according to that hierarchy.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The hon. Lady mentioned modelling on landfill tax. Could she tell us which variables are involved in the model, other than the rate of landfill tax?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee 12:30 pm, 2nd June 2009

I do not have them in front of me, and there are many Treasury models on all those taxes. I want to reassure the hon. Gentleman that we do not just pluck a figure out of the air and apply it without trying to analyse what the consequences and behavioural effects will be. I will be happy to write to him if he wants  more detail on models, but I do not have the details on the Treasury’s landfill tax modelling in front of me at this moment, so I cannot give the detail that he has obviously decided he wishes to see. If he will be patient, I will be happy to write to him about it.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I am sorry, but it really is not on that the hon. Lady is unable to tell us even what the variables are. I appreciate that she is not in a position to give us the entire model, but surely she could give us just the basic variables involved. For example, is the level of fly-tipping and the cost of cleaning it up one of the variables in the model? It seems to me that it should be.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

These matters are all balanced, and it is clear that other areas need to be thought about as well; in fact the hon. Gentleman mentioned one of them in his original remarks when he talked about the cost to local authorities, a point that I was going to deal with. Obviously, the Government will take account of costs faced by local government when determining the appropriate settlement for local government in the next comprehensive spending review. I mentioned earlier that we have announced an extra £10 million in capital grants to deliver anaerobic digestion and in-vessel composting infrastructure, which will remove over 300,000 tonnes of biodegradable waste each year from landfill, reducing business and local government costs and methane emissions.

The hon. Gentleman asked about consultation and referred to the Waste Recycling Group case. The effect of that, as he knows, was essentially to take waste that is used on landfill sites out of tax. The change we propose in the consultation document will bring users of waste back into tax where those uses look like disposal and have the environmental impact associated with disposal, and that change will also protect revenue, which is an entirely legitimate reason for acting and changing our approach in that area. We will have the chance to debate those changes when we discuss clause 118.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

What impact does the hon. Lady assess there might be on the export of waste? There have been terrible and tragic stories in the newspapers this year about how an awful lot of waste generated in the UK is showing up in developing countries such as Nigeria, Ghana and Ivory Coast. Is one of the variables in her model the impact of the export of such waste, presumably by people trying to avoid paying UK landfill tax?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

Other aspects of that issue are covered by other parts of international law, not least the Basel convention on the export of hazardous waste, to which the UK is a signatory. I doubt that the landfill tax really is the driver for the export of particular sorts of waste in some of those circumstances. If the hon. Gentleman is worried about particular instances, perhaps he will let me have a look at them.

The hon. Gentleman asked how much revenue was lost as a result of the Waste Recycling Group case. We think that the repayments are likely to be around £150 million. We are obviously consulting to ensure that the tax is robust and will continue to contribute to our environmental objectives. He asked why we are having the consultation. The answer is that landfill tax  has been in place for more than a decade now, and in line with the principles of continuous improvement, it is good practice to review the arrangements underpinning the tax, which is why this consultation has been issued. A review is particularly important at the current time because of changes in environmental protection regulation and waste management industry practices over the past few years. The consultation is aimed at ensuring the continued soundness of the administrative and legislative arrangements on which the tax is based.

I will deal quickly with the questions raised by the hon. Member for Hammersmith and Fulham regarding inert waste. He is right to point out that we are proposing to change the way that inert materials are currently classified, which will result in the Treasury gaining £160 million of additional revenue.

The understanding of the impact of particular waste, and in what circumstances waste can be considered inert, has—believe it or not—moved on considerably in recent years. In particular, the issue has been considered at length, resulting in European legislation and the putting in place of a sophisticated waste testing regime. Subject to the outcome of that consultation, the Government are proposing to follow the European legislation and testing regime in order to determine, for tax purposes, which wastes are inert. That will mean that we have greater certainty that lower rated wastes are properly inert, in line with up-to-date thinking. That may mean that certain waste, which was previously lower rated, may become standard rated. But this is the right outcome in environmental terms if the wastes in question are not, in fact, really inert. So we are bringing the entire structure up to date.

I hope that Opposition Members who recognised, in general, the desirability of having this kind of tax, will also agree that it needs to be up to date with current scientific and environmental thinking and will support clause 18.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.