New clause 5—Review of impact of sections 105, 106 and 108—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 105, 106 and 108 and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on progress towards the Government’s climate emissions targets.
(3) In this section—
“parts of the United Kingdom” means—
(c) Wales, and
(d) Northern Ireland;
and “regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause would require a report on the effects of sections 105, 106 and 108 on progress towards the UK Government’s climate emissions targets.
Clauses 105 and 106 make changes to ensure that the climate change levy’s main and reduced rates are updated for years 2022-23 and 2023-24, to reflect the rates announced at Budget 2020. Clause 107 increases both the standard and the lower rates of landfill tax in line with inflation from
The climate change levy came into effect in April 2001. It is a UK-wide tax on the non-domestic use of energy from gas, electricity, liquefied petroleum gas and solid fuels. It promotes the efficient use of energy to help meet the UK’s international and domestic targets for cutting greenhouse gas emissions. At Budget 2016, it was announced that electricity and gas climate change levy rates would be equalised by 2025, because electricity is becoming a much cleaner source of energy than gas as we reduce our reliance on coal and use more renewable sources instead.
Landfill tax has been immensely successful in reducing the amount of waste sent to landfill. That tax provides a disincentive to landfill and has contributed to a 70% decrease in waste sent to landfill since 2000. Reducing waste sent to landfill provides both economic and environmental benefits.
How much of the reduction in waste going to landfill is due to a reduction in waste being produced, and how much of it is waste ending up in farmers’ fields and play parks and just being fly-tipped illegally, at further increased cost to the environment, and indeed to the public purse, for clearing it up?
I believe that a significant amount of it is due to the landfill tax. We have been looking at the rate in comparison year on year, and our analysis shows that the landfill tax is having a significant impact. There will always be fly-tipping, irrespective of what the tax rate on landfill is.
Clauses 105 and 106 make changes to the climate change levy rates for 2022-23 and 2023-24, to continue the rebalancing of electricity and gas rates announced in Budget 2016. The 2022-23 and 2023-24 rates were announced in Budget 2020 in order to give businesses plenty of notice to prepare for the changes. At Budget 2020, it was also announced that rates for liquified petroleum gas would be frozen to
To limit the economic impact of the tax rate changes on energy-intensive businesses, participants in the climate change agreement scheme will see their climate change levy liability increase by RPI inflation only. That protects the competitiveness of more than 9,000 facilities from energy-intensive industries across some 50 sectors.
When disposed of at a landfill site, each tonne of standard-rated material is currently taxed at £94.15, and lower-rate material draws a tax of £3.00 per tonne. These changes will see rates per tonne increase to £96.70 and £3.10 respectively from
New clause 5, tabled by the hon. Members for Glasgow Central, for Glenrothes, for Gordon and for Midlothian, would require the Government to publish a report, within six months of the passing of the Act, on the effects of what would then be sections 105, 106 and 108 on progress towards the Government’s climate emissions targets. As clauses 105 and 106 make changes to ensure that the climate change levy’s main and reduced rates are updated for years 2022-23 and 2023-24, such a report would not be able meaningfully to assess the impact of these changes within six months of the passing of the Act. The Government currently assess and monitor environmental impacts across existing tax measures, and do that alongside other, complementary measures, such as regulation and spending, to understand the impact of policy making in the round. That alludes to the point made by the hon. Member for Glenrothes about landfill tax.
Clause 108 repeals the provisions in Finance Acts 2019 and 2020 relating to a carbon emissions tax, which was not commenced because the Government decided that a UK emissions trading scheme administered by the Department for Business, Energy and Industrial Strategy would be the best replacement for the EU emissions trading system from
As it was not commenced, the carbon emissions tax’s role in meeting the Government’s climate emissions targets cannot be measured. However, Opposition Members should be reassured that the UK ETS, a market-based measure covering a third of UK emissions, will help to deliver a robust carbon price signal. The energy White Paper committed to exploring expanding the UK emissions trading scheme to other sectors and set out our aspirations to continue to lead the world on carbon pricing in the run-up to COP26. The Treasury will continue to work closely with BEIS on the introduction of the UK emissions trading scheme and will keep all environmental taxes under review to ensure that they continue to support the Government’s climate commitments.
In conclusion, the changes made by clauses 105 and 106 will update the climate change levy main and reduced rates for 2022-23 and 2023-24, as announced at Budget 2020 and to deliver on previous Budget announcements. Clause 107 will increase the two rates of landfill tax in line with inflation from
If I may, I will address the clauses in reverse order. Clause 108 repeals the carbon emissions tax. As the Minister said, the Government introduced this legislation when deciding what to replace the EU emissions trading system with. We welcome the fact that the Government have decided to implement a UK emissions trading system, rather than a carbon emissions tax. The Minister and I recently debated regulations relating to the UK ETS, and I will not repeat the points I made then. However, I stress that our belief is that the UK ETS must be linked with the EU ETS in order to achieve a robust system of carbon pricing to meet our net zero target.
Clause 107 increases the landfill tax in line with inflation. We welcome this small, uncontroversial measure. We talked at considerable length about waste and recycling during our discussion of the plastic packaging tax. I repeat only the point that the Government should invest the revenue from these taxes into recycling facilities and technology. Finally, clauses 105 and 106 make a number of changes to the climate change levy over the coming years, including raising the gas levy and adjusting the climate change agreement rates. Could the Minister set out whether the Government intend to keep the climate change agreement scheme beyond its current period, and if not, what they will replace it with?
As we come to the end of the group of environmental clauses, I will make a few points about tax and our net zero commitment. In February, the National Audit Office published a report into environmental tax measures. The NAO criticised the Treasury and Her Majesty’s Revenue and Customs for failing to properly consider and evaluate the impact of these taxes on the Government’s environmental targets.
Does the Minister agree that we need information on the environmental impact of all taxes and reliefs? Will she commit to working with HMRC and other bodies to publish this information regularly? Currently, UK taxes with a positive environmental impact account for only 7% of tax revenue, and those with an explicit environmental purpose, such as the climate change levy or landfill tax, account for only 0.5%. So far, and particularly in the last Budget, we have seen a lack of vision from the Chancellor on the environment. We await the Treasury net zero review, but will the Minister set out what steps the Government will take in the short, medium and long term to ensure that our tax system plays a role in meeting our net zero commitment?
The reason why a regular report to Parliament is needed on these taxes is that despite the optimistic assessment that the Exchequer Secretary set out, there are far too many taxes, including the landfill tax. With far too many of the officially designated environmental taxes, and an awful lot of taxes that are not officially environmental but that have an impact on the environment, the Government do not have a very clear handle on what is going on.
In February, the National Audit Office report “Environmental tax measures” stated:
“The exchequer departments do not specify how they will measure the impact of environmental tax measures.”
Before the tax has even been introduced, nobody is clear about what environmental impact they want it to have. The report also states:
“HMRC’s approach to evaluation provides it with limited insight into the environmental impact of taxes.”
Whether those taxes’ main intention is to influence behaviour rather than raise money, or whether they are introduced as a revenue-raising measure that we hope will also have beneficial environmental impacts, the Government’s track record has been that they do not really know what they intend the environmental impact to be before they start, and they usually do not collect information to give a reliable assessment of what the environmental impact has been once the tax is in place. In fact, the revenue consequences of the very small number of taxes that are officially environmental taxes are dwarfed by those of tax reliefs against other forms of taxation for reasons of environmental sustainability.
I will not press new clause 5 to a vote just now, and we will not oppose clauses 105 to 108, but I want to give a message to the Government about their forward setting of objectives and their monitoring of the environmental impact of taxes of all kinds: they really have to do better, and they have to start doing better very quickly.
On environmental impact, it is important for the hon. Gentleman to realise that where there are multivariable reasons why things occur, measurement will never be 100% accurate. We give the impact that we can measure; others may dispute it, but the Government have taken a view.
The hon. Gentleman mentioned the landfill tax in an intervention that I responded to in my speech, but it is a tax that is devolved in Scotland. He did not tell us what the Scottish Government are doing differently from the UK Government—while he was criticising the UK Government’s landfill tax policy, I think he probably forgot that it was a devolved matter.
No, I will not give way.
The overall impact on the environment has been positive, with the landfill tax contributing to a reduction. The hon. Gentleman and the hon. Member for Erith and Thamesmead asked about recycling. The fact is that all these things are having an impact. We bring these taxes into play and they change behaviour; we cannot then say that it has nothing to do with the tax that the behaviour has changed. All these things are directly linked.
The hon. Member for Erith and Thamesmead asked a specific question about climate change agreements. For my part within the Treasury, that is being dealt with by the net zero review, but those agreements are a BEIS lead. She also asked about linking the UK emissions trading scheme to the EU emissions trading scheme. We are open to linking the UK ETS internationally in principle and we are considering a range of options, but no decisions on preferred linking partners have been made. We are looking to innovate and create a scheme suited to the UK and to our climate commitments.
We started—as the hon. Lady will know, given our debates on the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021—by reducing the cap on emissions by 5%, compared with what it would have been within the EU. We will set up further plans ahead of COP26, but we are going further and faster than EU representatives on this matter.