Landfill tax: disposals not made at landfill sites, etc

Finance (No. 2) Bill – in a Public Bill Committee at 2:30 pm on 16 January 2018.

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

With this it will be convenient to discuss the following:

That schedule 12 be the Twelfth schedule to the Bill.

New clause 15—Landfill Tax disposals: review of changes to disposals within charge—

‘(1) The Chancellor of the Exchequer must commission a review of the changes to disposals for which Landfill Tax is chargeable within three months of the passing of this Act.

(2) The review under this section must consider—

(a) the effect on revenue of the changes,

(b) the impact on the volume of disposals at—

(i) sites with an environmental disposal permit, and

(ii) sites without an environmental disposal permit, and

(c) the impact of the changes on the prevalence of illegal disposal sites.

(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section within twelve months of the passing of this Act.”

This new clause would require the Chancellor of the Exchequer to commission and lay before the House of Commons a report into the effects of the changes to disposals for which Landfill Tax is chargeable on tax revenue and on the volume of disposals and the prevalence of illegal landfill sites.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clause 42 and schedule 12 extend the scope of landfill tax to disposals made at sites without an environmental permit, in order to prevent rogue operators from profiting by avoiding landfill tax. The clause also brings clarity to what material is taxable at sites that do have a permit. Landfill tax was introduced on 1 October 1996 to discourage the disposal of waste to landfill, and encourage more sustainable ways of managing waste. Since the introduction of the tax in the UK, landfilling has gone down by more than 60%. Illegal waste sites are a blight on local communities and can cause serious environmental damage. Although the Environment Agency can impose fines and criminal sanctions on operators of illegal sites, they are outside the scope of the tax. With no landfill tax to pay, rogue operators can undercut legitimate operators and make significant profits.

The Environmental Services Association estimates that waste crime costs the English economy over £600 million annually, with up to £200 million of tax being avoided. At the spring Budget in 2017, the Government announced a consultation on whether to extend the scope of landfill tax to illegal waste sites. Following strong support from industry, the Government confirmed their intention to legislate to extend the scope of landfill tax to illegal waste sites from 1 April 2018. Alongside this, in response to broad industry support in the consultation announced at Budget 2016, the Government are amending the definition of a taxable disposal. That follows a 2008 Court of Appeal ruling that some material received at a landfill site and put to certain uses is not waste, and therefore not taxable. That has created uncertainty about what constitutes a taxable disposal and has led to increased complexity for operators.

The changes being made by this clause will make all persons who are responsible for disposals at illegal waste sites, across the supply chain, jointly and severally liable for the tax. They may also be liable for a penalty of up to 100% of the tax, and in the most severe cases, HMRC will be able to prosecute those involved. In order to address the primary concern raised by stakeholders during the consultation, safeguards have been put in place to ensure that any genuinely innocent parties will not be liable for the tax. The clause will give industry certainty about what constitutes a taxable disposal. Currently, material is considered to be waste if certain criteria apply. The changes made by this clause will remove the waste criteria; instead, all material disposed of at a landfill site will be treated as taxable waste unless it is specifically covered by an exception.

To simplify the system further, we are also removing the requirement to notify HMRC of restoration activities undertaken at a landfill site. These changes will support the legitimate waste management industry by simplifying the tax system and providing clarity for landfill operators.

Let me turn briefly to new clause 15, tabled by Opposition Members. This would require the Government to commission a review of these changes within three months of the passing of this Act. A full assessment of the impacts of this measure was published in September 2017. At that time, the Government assessed that the measure would increase the cost of the illegal disposal of waste at unauthorised sites and incentivise the disposal of waste at legal—and more environmentally friendly—waste management operations. Following this, the Office for Budget Responsibility published an assessment of the revenue impact of the changes; £145 million is expected over the five years following implementation. Those impacts were assessed with the full support of the waste industry, and after further contributions from the Environment Agency.

Information about landfill tax revenues and the volume of disposals is publically available. HMRC publishes its landfill tax receipts twice yearly. The Environment Agency publishes additional information annually about disposals at permitted sites and the number of illegal waste sites in England. As such, the Government’s view is that the proposed review is unnecessary. I therefore commend the clause to the Committee.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

The clause amends the Finance Act 1996 to include disposals at sites without an environmental tax disposal permit within the charge to landfill tax.

I would like to declare an interest. My hon. Friend the Member for Liverpool, Walton, will appreciate this; it is not to do with landfill tax, but it is important to give some context. We have a huge dock complex in my constituency. On several occasions in the past couple of years, the scrap metal kept there has gone up in flames, and it has taken days and huge amounts of public resource to get the fire under control. We have had many discussions with the organisations concerned, although that is not landfill. A fire at an illegal waste transfer centre in Hawthorne Road—in a residential area—took a week to put out. There were huge plumes of smoke for weeks on end. [Interruption.] That is probably the fire chief now, telling me there is another fire. I hope not. The issue of waste disposal, landfill, and the whole area relating to waste is very important.

The landfill tax was brought in nearly 20 years ago to act as a disincentive to landfilling material, encourage the use of recycled material and incentivise recycling more broadly. The tax is due on material disposed of at landfill sites in England, Wales and Northern Ireland that have an environmental permit or licence for waste disposal.

HMRC collects the tax from the permitted operators of landfill sites based on the weight and type of material landfilled. There are two rates of tax: a standard rate of £86 a tonne, and a lower rate of £2.70 for the least polluting material. The Department for Environment, Food and Rural Affairs and the national environmental protection agencies are responsible for the regulation and enforcement of environmental policy.

I could talk for another hour or two on the issue as it relates to my constituency, but on this occasion, I will spare everybody. Although HMRC is responsible for the administration and collection of the landfill tax, and there are a range of civil and criminal powers to address tax evasion and non-compliance, the question is whether HMRC gets on and does that.

Over the past 20 years of the tax, landfilling has come down by almost 60%, which is a positive achievement for society, but we cannot continue to produce this volume of goods made of materials that vastly outlast the use of the goods. That was the subject of an item on Radio 4 this morning, featuring the chief executive of Iceland. What we are doing is leading to huge accumulations of waste across the land, and the pollution of our ocean, as the recent BBC documentary “Blue Planet” demonstrated so powerfully. It is therefore positive that the Government are extending this disincentive to those operating illegally, to ensure that where enforcement is weak, a further layer of disincentive is put in place.

The Government’s consultation set out the logic of that extension, using the examples of three people who were fined by environmental agencies for illegally dumping 6,000 tonnes of waste. Under the law, they can be fined only through environmental protection levies, which in this case amounted to £170,000. However, if further legislation had been put in place to extend the territories that could be included under the landfill tax, that fine could have been as much as £500,000, plus a penalty of 100% of the tax and interest.

The landfill tax gap—the difference between what is collected and the estimates of what it should be—is £150 million, not including the waste dumped at illegal sites. There is clearly much more to be done to address this problem. Strangely, however, the Government’s impact assessment does not include information on Exchequer impacts of this extended tax. Fortunately, the OBR is here to help, with a prediction that tackling waste crime will raise £30 million in the first year. That will rise to roughly £45 million a year after. Will the Minister explain why the OBR believes that this measure will recoup only a third of the revenue that the Government estimate is missing? I am sure he will have the figures available, even if not today. As far as I can see, it does not seem a particularly good return on investment.

The Government’s own assessment argues that HMRC is not properly resourced to deal with this burden. As the shadow Chief Secretary to the Treasury, I have heard that complaint over and over. As a result, I have raised the issue many times—only last week on Second Reading of the Taxation (Cross-border Trade) Bill, I dedicated a section of my speech to the problem of HMRC under-resourcing—yet we still have not received any commitment from the Government to dealing with the problem.

Will the Minister respond to the request from his own Government assessment that specifies that a further £600,000 is required annually to deal with the practical implications of the clause? If so, how much additional funding is set aside to deal with the issue of waste crime? Will it be the full £600,000 requested? How many additional staff does HMRC plan to recruit for that money, and will those staff members work solely on matters relating to waste crime? What is the timetable for recruitment, and by what date will the Government have met the request? The Minister may wish to give some thought to that series of practical questions. Any light he could shed on that would be helpful.

This is another classic case of the Government asking authorities to do more, despite getting less. That is beginning to wear a little thin. My hon. Friend the Member for North Durham (Mr Jones) spoke on Second Reading of a previous Finance Bill in an extensive, comprehensive exploration of, among other things, fraud in relation to landfill sites. He also asked the Chancellor of the Exchequer, in November 2014,

“what the budget is of HM Revenue and Customs to investigate landfill tax fraud”.

That elicited the following response, though I have redacted it a little bit:

“In addition to these visits and audit checks, HMRC has launched a cross-tax waste sector pilot exercise which is currently under way, where cases are being worked across all taxes, rather than just landfill tax. HMRC is also working collaboratively with other agencies to tackle non-compliance and develop a joined up multi-agency strategy, capitalising on the full range of sanctions available.”

I read that as saying that the Chancellor did not know, and little has changed.

There are also overarching concerns here. One is whether the Government are doing enough to deal with landfill more broadly. That goes to the heart of the need for a review, whether after three, six, 12 or 18 months, or after two years. The Opposition are shackled to some extent in challenging the Bill and in the amendments that we can suggest to it; we can only ask for reviews. It is important to get the message out there that we would like to do far more through the Bill, but we are restricted by the amendment to the law resolution that the Government introduced.

The Prime Minister has acquired an interest in environmental issues, which could have been sparked by the documentary makers at the BBC. It may even be to do with the high turnout among some younger age groups at the previous election. That will remain a mystery—perhaps until the next election. Nevertheless, she has made a series of promises regarding reducing plastic waste, some of which may come to fruition in two or three decades.

The use of landfill is central to the question of sustainability, and it is a glaring reminder of the scale of the challenge ahead and the need for a bold Government who are prepared to act. However, the most recent statistics show that under this Government, the rate of recycling is falling for the first time since data collection began. The UK is obliged to recycle 50% of its waste by 2020, yet we are floundering at around 44%. That means we put 50 million tonnes of waste in landfill every year—an astonishing amount.

The Government’s failure—given those figures, it is a failure—to get to grips with this record is pretty grim. If the Government are serious about doing so, they have to step up to the plate. For example, the waste and recycling company SUEZ has warned that the UK faces a disaster scenario in which waste is trucked around the country in search of landfill sites if the Government do not wake up. It also points at the Government’s failure to commit to a clear policy on new waste facilities as a central driver of their mounting concerns over waste management, along with a Chinese crackdown on the importation of recycling material and the potential impact of Brexit.

Order. Will the hon. Gentleman return to the new clause?

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

Fine. The point I am trying to make is that landfill capacity across the UK has decreased from thousands of sites, with only about 50 sites predicted to be in operation by 2020. Although we have talked about the period of time that our proposed reviews should cover, it is crucial that this one takes place not once, but regularly. The issue is serious, as I have set out.

Crucially, regional capacity also varies greatly, and the Government are not tackling that. This review will help us to identify the differences in a systematic way. For example, Kent is likely to have no landfill sites at all by 2021, according to SUEZ, which suggests that the Department for Environment, Food and Rural Affairs does not have the resources to look at its concerns. Perhaps if the tax was sent in the right direction, the Department would have the capacity. Although it is not his Department, I ask the Financial Secretary what contingency planning DEFRA has put in place in case the record on recycling worsens. It is important that the suggestion of a review is taken into account.

This proposal extends charges to illegal landfill. Illegal landfill will only increase if we begin to produce more waste than our capacity can handle. How does the Minister plan to deal with excess waste that surpasses our current capacity? He may want to pass that question on to one of his hon. Friends. Under the Prime Minister’s plan, by of which year will the UK end the use of landfill completely? How are we going to keep tabs on that, and what systematic process will we use? If we use the same methodology that the Chancellor used to get the deficit down, we will all be pushing up daisies by the time it is sorted. We hope that the clause will ensure that landfill waste falls, across both permitted and illegal sites, but the Government seem to be unable to tell us exactly how much landfill will be diverted into ecologically sound management as a result. Perhaps the Minister can enlighten us about those projections.

That is why we have tabled a new clause that is designed to establish how much revenue this measure will generate, as well as to measure the behavioural impact that it sets out to achieve. Our suggested review would look at the impact of extending landfill tax on the volume of disposals at both permitted and illegal sites. Alongside that, we believe it is important to measure the impact on the prevalence of illegal sites, as well as the amount of waste disposed at them. Everybody on the Committee recognises the importance of consigning landfill to the dustbin of history. To do so would deliver unquantifiable ecological effects and would, we hope, form part of a new respect shown by our society for the environment on which we rely.

Extending taxation to illegal sites will deliver a reduction in landfill, and it can therefore only be a good thing. I commend the Financial Secretary for introducing this measure. It is all the more important that the Government monitor and assess the impact of the measure, as well as investing revenue to ensure that it is enforced. We hope that all Members present today will support our review, in the name of good governance, to ensure that the UK continues to take steps towards no longer producing damaging and unnecessary landfill.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I thank the hon. Member for Bootle for commending us for introducing this measure. Many of his remarks were fairly wide-ranging, and I think he recognised that some of them—for example, those concerning the amount of landfill that we have available and what our plans for it might be—related to other Departments. I hope that he will indulge me when I say that on those issues, it might be better for him to go direct to the Departments concerned.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

I take your exhortation to keep things as tight as possible, Mr Owen, but there are occasions—I have asked the Minister about this—on which Departments really ought to work closely together to ensure that we have the balance right. That is difficult sometimes when we are doing something specific and technical. Nevertheless, I am sure he will agree that it is important to be able to bring other factors into the equation and get a proper bigger picture.

I am grateful. Before the Minister proceeds, as both hon. Members have agreed that this is outside the remit of the Bill, I ask them both to confine their remarks to the Bill.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Thank you for your guidance, Mr Owen. This is predominantly a tax Bill, and I will endeavour to stick to matters relating to that aspect of our considerations. However, there is much that the hon. Gentleman and I can agree on. We agree that we certainly need to cut down on the amount of disposable items out there; he gave some shocking examples of where the situation had got completely out of hand and of the damage to the environment.

The hon. Gentleman spent some time speaking about the landfill tax gap and how much tax we might be forgoing because we do not currently tax illegal sites. By definition, given that illegal sites do not fall to the charge of landfill tax, they are not included in the figures for tax forgone, because there is no mechanism by which they can be taxed. The whole purpose of the clause is to bring them into the scope of taxation. He asked how much the measure is expected to raise once we have brought those illegal sites into the scope of the tax, and the answer is £145 billion over the scorecard period.

The hon. Gentleman asked a number of questions about resourcing and HMRC. At Budget, we announced that we would provide funding for additional HMRC staff to enforce the measure. We have also announced that we are investing an additional £30 million in the Environment Agency in England, to enable the agency to tackle the illegal waste sites as well as the misdescription of waste and illegal exports. With that, I commend the clause to the Committee.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Schedule 12 agreed to.

Clause 43