Clause 203 - Standard rate of landfill tax

Finance Bill – in a Public Bill Committee at 1:00 pm on 21st June 2012.

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

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

The clause is straightforward and is designed to increase the standard rate of landfill tax from £64 per tonne to £72 per tonne for disposals at authorised landfill sites of relevant waste material

“made (or treated as made) on or after 1 April 2013.”

The landfill tax was introduced in October 1996 to increase the cost of disposing of waste, thereby encouraging waste producers and the waste management industry to switch to more sustainable alternatives when it comes to disposing of waste. We all welcome the work done since then to ensure that we reduce waste and recycle it where possible, both for environmental reasons and as that is good, sound economic sense. As the background note to the clause points out,

“There is a lower rate of tax, which applies to less polluting qualifying wastes listed in a Treasury Order, and a standard rate which applies to all other taxable waste disposed of at authorised landfill sites…In the June 2010 Budget, the Government confirmed that the standard rate of landfill tax would rise by £8 per tonne on 1 April each year up to and including 2014. The Government also announced a floor under the standard rate of landfill tax so that the rate will not fall below £80 per tonne from 2014-15 to 2019-20…The Government announced in Budget 2012 that the lower rate of landfill tax, currently £2.50 per tonne, will remain frozen in 2013-14.”

The clause gives me the opportunity to make a couple of points about the recent controversy over the landfill tax rules. The Minister must be aware of the concerns  expressed by people in the skip hire industry, who felt that the rules under which they operated were being changed without any consultation with them, and that some small companies would be particularly disadvantaged, because they might have let or rented out skips at a particular cost, expecting to pay a certain rate on waste going to landfill, and would subsequently have feared that they might be charged a much heavier rate.

Some of the small businesses came along to Parliament; I understand that officials from the Treasury were available, and it must have been helpful for them to meet people from the industry. None the less, the way in which things came about shows either that there was lack of clarity in the existing rules, which could have been the case, or that the way that information on rules was communicated might have meant that it did not reach all the organisations in the industry, as required. We therefore had what I must call the unseemly spectacle of people believing that there was yet another hidden tax in the Budget—some sort of skip tax that would adversely affect many in the industry. The Economic Secretary to the Treasury quickly issued a letter that attempted to explain to and reassure the industry that there had not been such a change in the rules and that people were mistaken. However, unfortunately, that added to the confusion.

People were more likely to believe that there was to be an increase in tax, perhaps because of the omnishambles around other aspects of the Budget, given the U-turns, changes, differences in approach—[Interruption.]I hear Government Members sighing, but the issue affected people in the industry, and I hope that Government Members take that seriously. My view is that they are small businesses and people who got in touch with MPs to make representations on the subject. They simply want to get on with their business and do their job, and contacting MPs and coming to Parliament to raise problems is not on their day-to-day radar. When hon. Members sigh, I hope that they pause for a moment and reflect that we are talking about genuine representations made by business people who are doing their best to keep people in employment and to comply with environmental legislation and the taxation system.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

I am sure that the hon. Lady would have been a little more tolerant had she been in Parliament under the previous Government, when we had the shambles of the 10p tax rate. That went through a whole range of changes, but we got there in the end.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

It was in a Budget and the then Government got it wrong.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

It would probably be best if we focused on the issue under discussion.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I am sure that my hon. Friend would agree that there is a good reason why people are calling the Budget an omnishambles. There has been a U-turn not on one tax, but on as many taxes as it is possible to imagine.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend makes a good point. That might be why people were inclined to believe that they had not seen or immediately understood something in the paperwork, and felt that they faced an additional tax. Will the Minister give an assurance that the fears, concerns and points raised by the industry have all been dealt with, and that any future changes will be subject to the appropriate consultation?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

A business in my constituency was caught up in the problem. Derwent Waste is a relatively small waste transfer station that does not have the resources for hugely expensive bits of machinery for the landfill process. It has to sort out and process the waste from skips manually before it can work out how much landfill tax is owed. It is concerned because it cannot work out to the nth degree what bit came from where and exactly what it used to be, especially when a trommel machine, which produces fine dust, is used. It will be impossible for it to know which site a skip has come from, and for it to track things, to the final gram, all the way back through the process. The company is willing and able to use best endeavours to track materials and make sure that any waste that should not go into the lower rate does not get caught there. Could the Minister confirm that, when we do get to what is hopefully the final version of the guidance on the issue, the regime will be flexible and commercial? Small businesses that try to do the right thing and take reasonable methods to control waste and its source should be confident that they can apply the lower rate where appropriate, and that they will not be forced to apply the higher rate to all the waste that they extract.

Photo of David Gauke David Gauke The Exchequer Secretary

I will respond to the points that have been raised and say a word or two about the clause, which increases the standard rate of landfill tax from £64 per tonne to £72 per tonne, with effect from 1 April 2013.

The landfill tax has been successful in reducing the amount of waste sent to landfill. Since 1996, when landfill tax was introduced, the amount of waste sent to landfill has nearly halved, from 87.43 million tonnes to 44.99 million tonnes. The benefits of that reduction are twofold. First, the economy benefits from our making better use of valuable resources, rather than simply tipping them into a hole in the ground. Secondly, greenhouse gas emissions from decomposing waste are reduced.

The landfill tax also plays a significant role in reducing the volume of waste to landfill, which helps us to meet the target set out in the landfill directive, thus minimising the risk of incurring the substantial penalties that falling short of those targets would trigger.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

It is a singular pleasure to serve under your chairmanship, Mr Amess. Is the European Union the main driving force behind this tax, and is it once again getting its claws into our taxation system?

Photo of David Gauke David Gauke The Exchequer Secretary

Let me put it this way: there is a directive that places requirements on the UK to reduce the amount of waste put into landfill, and the landfill tax is a response to that requirement. That is probably the best explanation. The terms of the landfill tax are not necessarily dictated at a European level. I hope that that helps my hon. Friend.

If waste is not sent to landfill, it must go somewhere else. The June 2010 Budget confirmed that the standard rate of landfill tax would increase by £8 per tonne each year until 2014. The Government also confirmed that the standard rate of landfill tax would not fall below £80 per tonne between 2014 and 2020. In confirming the £8 per tonne increase in 2013-14 this year, we continue to provide certainty for the waste management industry to invest in infrastructure for alternative means of waste disposal. That means that businesses can have the confidence to invest in new waste treatment facilities, safe in the knowledge that it will not suddenly become cheaper in the near future for waste to be sent to landfill again. This landfill tax escalator will help the Government in our goal to reduce the amount of waste sent to landfill and in working towards a zero waste economy, where all resources are fully valued, both financially and environmentally.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire 1:15 pm, 21st June 2012

I know that my hon. Friend the Minister shares my commitment to cross-Government working and to Departments being aligned in the outcomes that they are trying to achieve. I just want to flag once again, as I did in the discussion of the Finance Bill last year, the fact that the landfill tax comes centrally, but much of the impact is felt locally, particularly in terms of increased haulage through village communities. For example, areas such as Sutton in my constituency are affected by increased haulage from the Mepal pits. So I urge him to look again at how—through working with the Department for Communities and Local Government—local communities might be helped, along with the Department for Transport, to reduce the local impact of the consequences of the increased landfill tax.

Photo of David Gauke David Gauke The Exchequer Secretary

As always, my hon. Friend is a doughty defender of the interests of his constituents, and it is helpful to him and indeed the Committee that he has made those remarks on the record. Of course Government Departments work together on these matters. The consequences of the landfill tax have implications for local authorities in a number of ways, not least the fact that local authorities often bear the burden of the tax. However, the funding of local authorities takes that into account. We also have a landfill communities fund, which addresses the specific concerns that he has raised.

The environmental impact of lower-rated waste is significantly less than that of standard-rated waste, and the current rate adequately reflects that. The lower rate of landfill tax that applies to less polluting waste, such as rocks and sub-soils, will remain frozen at £2.50 per tonne in 2013-14. The increase in the standard rate of landfill tax will affect businesses and local authorities, as I have just said, but by managing waste more sustainably and reducing the amount of waste that they send to landfill, they will be able to reduce their landfill tax liability. In addition, the local government settlement in the spending review includes an allocation reflecting the costs of waste disposal for local authorities.

Let me turn to the issue raised by the hon. Member for Kilmarnock and Loudoun, in respect of the recent controversy involving skips. By and large, she made a fairly measured contribution. She recognised in her remarks that this is essentially an operational matter as  opposed to a policy matter. However, as she has raised this issue, it may be helpful to the Committee if I just say a word or two about it.

Of course, there has been no change to the landfill tax legislation in relation to skip operators. Skip operators do not pay landfill tax directly; paying that tax is, of course, the responsibility of landfill site operators. HMRC issued guidance that clarified the existing law around disposal of specific types of waste. That was at the request of some in the landfill industry who were being undercut by others who were not applying the correct rate of tax. Some operators increased their prices substantially as a result, with knock-on impacts on their customers.

Once that issue was drawn to the attention of HMRC, it acted immediately to clarify the situation and it continues to work closely with the industry to ensure that requirements are understood throughout the waste sector. In the meantime, HMRC has set up a dedicated hotline that affected businesses, including skip operators, can ring. It may help the Committee if I provide more detail about HMRC’s current engagement. HMRC met a cross-section of industry stakeholders on 15 June and met landfill site operators again on 19 June. The industry confirmed that the follow-up guidance issued on 1 June had largely removed uncertainty about the tax liability of certain materials disposed of at landfill sites, although there are some outstanding queries on evidential requirements, which HMRC is working through. Overall, I am advised that there was widespread support at the meetings from interested parties across the sectors, and HMRC was seeking to provide clarification in order to level the playing field across the industry.

My hon. Friend the Member for Amber Valley asked where the clarification came from. The HMRC guidance was issued in direct response to businesses that were being unfairly disadvantaged by those who were charging prices based on the incorrect tax rate. I reassure the Committee that HMRC continues to engage with the industry.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I was talking recently to some people from the industry who are working on a piece of equipment that they saw as capable of generating electricity from waste. They wondered, if the waste came from landfill, whether they would be able to reclaim the landfill tax for waste that had already gone into landfill as part of the operation.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman raises an interesting point. Rather than hazard a guess at the answer, it might be best if I write to him. I suspect that the correct answer to his question is “it depends”; that usually is the correct answer. I would be delighted to be of assistance to his friend in what sounds a fascinating project.

Clause 2003—[Interruption.] If I said 2003, it is only because it feels like it. Clause 203 increases the standard rate of landfill tax as announced at Budget 2010. As I have set out, clause 203 not only helps Government towards their goal of creating a zero waste economy but provides certainty so that businesses and local authorities can plan their future waste disposal.

Question put and agreed to.

Clause 203 accordingly ordered to stand part of the Bill.