Clause 24

Finance (No. 3) Bill – in a Public Bill Committee at 9:30 am on 19th May 2011.

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

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Clause 24 repeals the rise in the aggregates levy scheduled for this April; the levy will therefore remain unchanged from last year. I understand that this is being done for the benefit of Northern Ireland’s aggregates industry.

The aggregates levy was introduced by the Labour Government in 2002 as a behaviour-changing environmental tax. It was intended to encourage the use and development of alternative materials, as well as the more efficient use of aggregates. That is important for the environment, because aggregate extraction creates various forms of pollution, including noise, dust and visual intrusion, as well as having an impact on biodiversity. The levy is designed to ensure that the price of aggregate reflects those environmental costs. At the same time, we introduced  an aggregates levy credit scheme for Northern Ireland because of specific concerns about Northern Ireland’s border with the Republic of Ireland and the different impact that the tax would have there.

The Government were seeking approval from the European Commission to extend the scheme under state aid rules, but I understand that the current state aid approval has been annulled by a European Court judgment, which has led to the scheme being suspended. Would the Minister update us on any talks being held with the European Commission on the future of the aggregates levy credit scheme? If the scheme cannot be continued under European law, do the Government intend to continue raising the aggregates levy?

As we heard in our debate on clause 23, the coalition agreement sets out the Government’s objective of green taxes rising as a proportion of total taxation. I appreciate that the decision on the aggregates levy may have been unavoidable, but it will have an impact on the Government’s attempts to achieve that objective. What assessment has the Treasury made of the effect of that setback? Should we expect a rebalancing of green taxation towards other environmental taxes, or have the Government suspended that aim while the matter is being considered?

Alongside the aggregates levy, the previous Government introduced the aggregates levy sustainability fund, which aimed to reduce the environmental impact of aggregate extraction. It provided funding for projects that research ecosystems affected by aggregates extraction; repair and conserve sites of historic importance; and improve the land and environment impacted by extraction. As a result of the Government’s spending review last year, which hit the Department for Environment, Food and Rural Affairs particularly hard, the Department has discontinued that fund.

When the previous Conservative Government introduced landfill tax in 1996, they also created the landfill tax credit scheme, which the Labour Government later reformed into the landfill communities fund. That allowed landfill operators to divert the proceeds of landfill tax directly towards environmental projects, and it was considered a key part of achieving the stated objectives of landfill tax, which included encouraging more sustainable waste management practices. Although the aggregates levy sustainability fund was not funded in the same way, it had the same purpose of reinforcing the objectives and benefits of the aggregates levy. It ensured that a proportion of the revenue from the aggregates levy—around 10% since 2003—was spent directly on restoring and improving the environment in areas that were affected by aggregates extraction.

The Department for Environment, Food and Rural Affairs carried out a review of the aggregates levy sustainability fund, and found that it had provided value for money and delivered against its objectives. The review said:

“the ALSF will not have achieved its full potential if, on 31 March 2011, the activity and the collaboration it has galvanised simply stop.”

The previous Government were clear that the aggregates levy was an environmental tax. Now that the fund has been stopped, and all revenue from the levy goes into general spending, many people will believe that the aggregates levy exists only to raise revenue. Can the Minister tell the Committee whether the Government believe that the aggregates levy is an environmental tax,  or merely a revenue-raising measure? Does she not agree that the aggregates levy sustainability fund was an important way of reinforcing the declared objectives of the aggregates levy? Have the Government made any assessment of how the levy’s objectives will be impacted by the loss of the fund? Did the Government consider any alternative ways of providing at least some of the funding for the aggregates levy sustainability fund, such as a tax credit arrangement along the lines of the landfill communities fund?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Clause 24 repeals the increase in the aggregates levy, which we see as an environmental tax, that would have come into effect from April this year. That has the effect of freezing the rate at £2 per tonne. The Government have decided to keep the rate at that level to avoid placing an additional burden on Northern Ireland quarries following the suspension of the aggregates levy credit scheme in Northern Ireland, which has significantly increased their costs.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire

One of the flaws of the levy is that it does not address the impacts on local road infrastructure. In places such as the fens and the area around Mepal, which I represent, there is a massive increase in the movement of lorries as a result of the extraction of aggregates, but the community is not reimbursed for that with road schemes. We see a precedent in Northern Ireland for allowing local areas some sort of compensation. From a revenue perspective, we can also see greater scope for the Treasury in the proposed increase to the levy. I fully appreciate that Treasury Ministers will never be willing to give up revenue in a Committee in this way, but will the Minister at least ask her officials to write to me, setting out how much revenue has been raised in Cambridgeshire from the aggregate levy over the past three years, and what the forecast is, given the proposed expansion? Will she also ask officials to look at some sort of scheme involving reimbursement for road infrastructure, where particular communities, such as those in Sutton, are seeing massive increases in lorry traffic?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend makes an important point, and I have no doubt that officials will write to him in response. The aggregates levy sustainability fund was predominantly used for environmental measures, but we can now ensure that it is used to fund broader public services, including infrastructure. I am sure that officials can set out some of the details that he has asked for; if that is possible, we will get them to him.

On 9 September 2010, the European General Court annulled state aid approval for the aggregates levy credit scheme in Northern Ireland, which the previous Government put in place. The Government accordingly had to suspend the scheme with effect from 1 December 2010. That scheme provided an 80% relief from the levy to quarries in Northern Ireland that committed to making environmental improvements to their operations. Following the scheme’s suspension, those quarries became liable for the full levy rate of £2 per tonne, instead of the relieved rate of 40p per tonne.

The aggregates levy credit scheme has brought about significant environmental improvements in the quarrying sector in Northern Ireland. The Government are committed to reinstating the scheme at the earliest opportunity, and I can assure the hon. Member for Bristol East that  we are working with the Commission and the Northern Ireland Government to do exactly that. In the Finance Act last year, the previous Government announced and legislated for an increase in the rate of aggregates levy to £2.10 per tonne from 1 April 2011. However, given the suspension of the credit scheme, it would be inappropriate to go ahead with an increase in the rate of the levy, because it would place further pressure on quarries in Northern Ireland.

The clause would freeze the rate of the aggregates levy at £2 per tonne. That would affect 786 traders registered for the aggregates levy—mainly quarry owners—and would result in a loss to the Exchequer of £15 million in 2011-12. Freezing the rate in such a manner is an extraordinary step taken in extraordinary circumstances. To ensure that the levy continues to achieve its long-term environmental objectives, the rate needs to increase in line with inflation. It is our intention, therefore, to go ahead with the rate increase to £2.10 on 1 April 2012.

As I have stated, the Government are committed to reinstating the aggregates levy credit scheme at the earliest opportunity. My officials have worked with the Northern Ireland Executive and the quarrying industry in Northern Ireland to provide evidence to the European Commission to support a new decision to give state aid approval to the scheme. I have spoken to Northern Ireland Ministers about their support for such a decision, so that we can understand and agree on the best approach. We are legislating elsewhere in the Bill to enable the introduction of a new scheme as soon as state aid approval is received.

The hon. Lady asked about the abolition of the aggregates levy sustainability fund. Although that fund is coming to an end, other Government funding for environmental projects will continue. We have committed to increasing environmental spending by 21% by 2014-15. That includes spending on flood defences, new low-carbon technologies, and a pioneering commercial carbon capture and storage demonstration plant. The green investment bank is being developed, too. In view of the circumstances, continuing at this time with the aggregates levy increase scheduled for 1 April would be inappropriate.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.