Clause 326 - Rates of landfill tax

Finance No. 2 Bill – in a Public Bill Committee at 2:15 pm on 18th May 2023.

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

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

With this it will be convenient to discuss the following:

Clauses 327 to 329 stand part.

New clause 5—Assessment of impact of the Act on compliance with the climate change target—

“The Chancellor of the Exchequer must, within one year of this Act coming into force, publish an assessment of the impact of this Act on the Government’s ability to meet—

(a) the duty under section 1 of the Climate Change Act 2008 (the target for 2050), and

(b) its obligations and commitments under the Paris Agreement of 2015.”

This new clause would require the Chancellor to publish an assessment of the impact of the Act on the UK Government’s ability to meet its duty to achieve Net Zero by 2050 and its obligations under the Paris Agreement.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

Clauses 326 to 328 make changes to the rates of several taxes to support our environmental and climate change objectives. Clause 329 makes technical changes to ensure that the aggregate levy is fairer and simpler for businesses. I will talk through the clauses in turn.

Landfill tax aims to encourage the diversion of waste away from landfill and towards more environmentally friendly waste-management options, such as recycling. Clause 326 maintains the real-terms value of the price incentive to divert waste away from landfill by increasing the lower and standard rates of landfill tax in line with the RPI. The clause increases the lower rate from £3.15 per tonne to £3.25 per tonne and increases the standard rate from £98.60 per tonne to £102.10 per tonne, with effect from 1 April 2023.

Turning to clause 327, the climate change levy is a tax on non-domestic energy. The levy encourages energy efficiency. Clause 327 delivers on our Budget 2016 commitment to equalise main rates on gas and electricity by 2025 by increasing the rate for gas and freezing the rate for electricity for a third year in a row. The main rate on solid fuels will rise in line with the increase to the main rate on gas, and the main rate on liquefied petroleum gas will be unchanged for a fifth year.

The clause also adjusts the reduced rates on solid fuels and gas paid by those energy-intensive businesses covered by the climate change agreement scheme that meet their energy efficiency targets. Reduced rates on electricity and liquefied petroleum gas remain unchanged from 2023 to 2024. The changes made to climate change levy rates will raise £370 million by 2027-28 and remove the tax incentive for businesses to use gas, rather than increasingly clean electricity. That is expected to result in greenhouse gas savings equivalent to 300,000 tonnes of carbon dioxide between April 2024 and March 2028.

Turning to clause 328, the plastic packaging tax aims to provide businesses with a clear economic incentive to use more recycled plastic in packaging. That will increase demand for recycled plastic and stimulate recycling and collection of plastic waste, diverting it away from landfill or incineration. The clause maintains the real-terms value of the price incentive to use more recycled plastic by increasing the plastic packaging tax rate in line with the consumer prices index. The clause increases the rate from £200 per tonne to £210.82 per tonne, with effect from 1 April 2023.

Finally, turning to clause 329, the aggregates levy aims to encourage the efficient use of aggregate, which is rock, sand and gravel used as bulk infill in construction. During a review of the aggregates levy in 2019, stakeholders raised concerns about a lack of consistency in the tax treatment of aggregate extracted on construction sites. The clause addresses those issues by consolidating and extending exemptions from the tax for aggregate unavoidably extracted as a by-product of construction. That will reduce the administrative burden for some businesses operating in the construction, utilities and infrastructure sectors, and will future-proof the tax by removing some anomalies. It also ensures that aggregate deliberately extracted for construction use from temporary extraction sites, known as borrow pits, will be taxable in the same way as commercially produced aggregate. That will restore the intended scope of the tax and ensure a level playing field for the aggregates industry.

In conclusion, these clauses make valuable changes that incentivise greener choices and maintain efficiency, and will help progress the Government’s climate and environmental objectives. I therefore commend clauses 326 to 329 to the Committee.

Photo of Victoria Atkins Victoria Atkins The Financial Secretary to the Treasury 2:30 pm, 18th May 2023

Again, out of an abundance of caution, I refer hon. Members to my entry in the ministerial register of interests. I am recused from any consideration, in a ministerial capacity, of this levy.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

As we have heard, clause 326 increases both rates of the landfill tax in line with inflation, rounded to the nearest 5p. The increased rates apply to any disposal of relevant materials made, or treated as being made, at a landfill site in England or Northern Ireland on or after 1 April.

The landfill tax was introduced in 1996. It increased the cost of waste disposal at landfill to encourage waste producers and the waste management industry to switch to a more sustainable way of disposing of waste material. The tax was originally UK-wide, but it was devolved in Scotland from April 2015 and in Wales from April 2018. We will not oppose the clause, but I ask the Minister to fill us in on the wider context of the landfill tax, and specifically landfill tax fraud. In a Backbench Business Committee debate on landfill tax fraud in January, my hon. Friend Daniel Zeichner said:

“Landfill tax fraud is a blight on communities across the country. It causes lasting damage to the environment and, of course, deprives the Exchequer of revenue.”—[Official Report, 12 January 2023; Vol. 725, c. 793.]

As Members discussed during that debate, according to His Majesty’s Revenue and Customs’ most recent annual estimate of the tax gap, the gap between landfill tax due and revenue collected in 2021 is £125 million. That is a gap of 17.1%—much higher than the overall tax gap for that year. According to HMRC’s report, the uncertainty rating for the landfill tax gap estimate is high. The then Exchequer Secretary, James Cartlidge, conceded in the debate that “non-compliance is high.” In responding to the debate, he set out some details of the operational resource dedicated to landfill tax non-compliance; however, I do not think that he directly answered a question that the shadow Minister, my hon. Friend the Member for Cambridge, put to him: how much of the £125 million tax gap identified in 2021 has been recovered by HMRC? I would be grateful if the current Exchequer Secretary could address that point.

Clause 327 amends the main rates of the climate change levy on gas and other taxable commodities, and the reduced rate percentages on those commodities paid by participants in the climate change agreement scheme from 1 April next year. The climate change levy is a tax on the non-domestic use of gas, electricity, liquefied petroleum gas and solid fuels. Energy-intensive businesses that participate in the climate change agreement scheme run by the Department for Energy Security and Net Zero pay reduced rates expressed as a percentage of the four main rates of the climate change levy on the taxable commodities supplied to them.

We understand that the changes introduced by the clause were announced in the 2022 autumn statement, which froze the electricity rate, and in which it was confirmed that the climate change levy rate for LPG will continue to be frozen until 31 March 2025. It was further announced that the reduced rates of the levy for 2024-25 on gas and other taxable commodities paid by qualifying businesses in the climate change agreement scheme would be amended, so that participants will not pay more under the levy than they would have if the rates had increased in line with the retail price index.

Clause 328 increases the plastic packaging tax in line with the CPI. The plastic packaging tax was introduced in April 2022 to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging. That was expected to create greater demand for the material, which would in turn stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration. I understand that the new rate maintains the real-terms value of the incentive to include 30% or more recycled plastic and plastic packaging components in a product by increasing the rate of tax in line with the CPI. As that tax has now been in place for a year, what evaluation have the Government made of it? In particular, can the Minister tell us what impact the tax had in 2022-23, in terms of fulfilling its stated aim of stimulating increased recycling and collection of plastic waste?

Clause 329 makes changes to the aggregates levy exemptions for some types of aggregate from construction sites. We understand that it replaces four exemptions for by-product aggregate arising from certain types of construction with a broader and more general one. The explanatory notes state:

“Following a review of the levy in 2019, some concerns about the operation of the levy were raised by different stakeholder groups.”

I understand that the changes were consulted on in 2021. Draft legislation was published in July 2022 for technical consultation, which has now concluded. On that basis, we will not oppose the clause.

Photo of Aaron Bell Aaron Bell Conservative, Newcastle-under-Lyme

It is a pleasure to serve under your chairmanship, Sir Gary. I will confine my remarks to clause 326. I am grateful to the hon. Member for Ealing North for raising landfill tax fraud and the debate on 12 January, which I contributed to at some length. As Members may know, I have the worst landfill in the country in Walleys Quarry in my constituency of Newcastle-under-Lyme. The Opposition Whip, the hon. Member for Blaydon, also has some experience in this area, because her constituents have suffered at Blaydon Quarry. She contributed to that debate, too.

The hon. Member for Ealing North mentioned that the tax was introduced in 1996. The differential between the rates for regular waste and inert waste has grown immensely. Now, they are £3.25 and £102.10 respectively; back in 1996, they were £2 and £7. Just as the hon. Member for Wallasey said earlier in relation to tobacco, that has increased the incentive for people to break the rules, and unfortunately, many people in the waste industry are breaking the rules. What goes on at Walleys Quarry causes misery for my constituents, as fly-tipping and everything else that goes on in the waste industry does for people around the country.

The responsibility falls primarily on the Environment Agency, which I continue to press to do more about Walleys Quarry, as well as about Staffordshire Waste Recycling Centre, which is just over the border in the constituency of my hon. Friend Jonathan Gullis, who mentioned it just yesterday at Prime Minister’s questions. Will the Minister focus on the role of HMRC in helping the EA to do its work, because prosecutions for fraud may ultimately have more effect than prosecutions under environmental regulations?

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

It is a pleasure to speak with you in the Chair, Mr Stringer. As the Opposition Treasury Whip, talking about landfill tax is becoming an annual ritual for me.

Landfills are a blight on our society. It is not pleasant to live near one—even a well-regulated one—and it is good that we are considering how to pursue landfill taxes. My particular concern is, as it was previously, about the effectiveness and enforcement of the rates and the recovery of the taxes. As we heard from my hon. Friend the Member for Ealing North, there is still a considerable gap in collection rates, and that must be addressed if we are to treat people properly and minimise the impact of landfill sites.

The Minister may know about Operation Nosedive, which HMRC pursued with great fanfare in my constituency only to drop it quietly six years later. Earlier this year, on 12 January, we had a debate to consider that operation and the wider implications of landfill tax fraud. The joint unit for waste crime was established following the failure of Operation Nosedive, which, incidentally, cost HMRC £3.5 million in public money. There are huge tax implications here. Will the Minister comment on what is being done to close that tax gap?

As I said, landfill sites are not good, and it is good that we do all we can to reduce their environmental impact, but there is also the matter of reducing the gap between what is collected and the expectation, by ensuring that those moneys are recovered. Will the Minister comment on that and on how many enforcement actions and prosecutions have resulted from the work of the joint unit for waste crime on landfill tax?

Photo of Douglas Chapman Douglas Chapman Scottish National Party, Dunfermline and West Fife

New clause 5 would require the Chancellor of the Exchequer to publish an assessment of the impact of the Bill on the Government’s ability to meet their duties under the Climate Change Act 2008 and commitments under the 2015 Paris agreement. The UK Government need to walk the walk as well as talk the talk on climate change. We had an extremely successful conference of the parties in Glasgow in 2021. The UK Government COP President secured the historic inclusion of coal in the climate pact, even if that commitment was not quite as explicit as he originally wished.

Scotland is taking that very seriously. We have ambitious climate change targets to become a net zero greenhouse gas-emitting nation by 2045, with interim targets of 75% by 2030 and 90% by 2040. We are taking positive action to realise those goals. The UK Government’s action has stalled, however, and has not been helped by the series of changes of Prime Minister, each of whom has had a wholly different attitude to the urgency of climate change.

In reality, the UK Government talk about climate change when they are forced to do so, but they do not take the action required to meet their obligations. Is the Minister confident that the measures in the Bill will get targets back on track? In every single policy that comes from the UK Government and every piece of legislation enacted by this Parliament, the climate change impact should be evaluated, and this Bill is no exception. We should be leading from the front and considering the impact of each policy on the targets that have been set.

The UK’s own climate tsar identified the enormous, historic environmental and economic opportunity offered by net zero in his recent “Mission Zero” review. He stressed the necessity of helping business to invest in decarbonisation through a tax system and incentives, and creating an environment conducive to such investment. Last year, the Climate Change Committee estimated that an additional £13.5 billion of investment was needed, rising to £50 billion to £60 billion per year by the early 2030s, to meet the UK’s net zero goals.

The Government’s climate tsar notes:

“Investing now is cheaper than delaying. Office for Budget Responsibility (OBR) analysis suggests in their delayed action scenario that public sector debt could be 23% higher than in their early action scenario by 2050, thus doubling the fiscal impact of achieving net zero.”

Has the public sector debt been factored into the Bill’s assumptions, and is taking the option of early action reflected in the Government’s thinking?

“Mission Zero” makes 129 recommendations to Government, including on regulation and on tax and spend, to reduce delivery risks and costs and to help to drive growth. With that in mind, it makes enormous sense economically and environmentally to get our tax measures right in the here and now, for our journey to the 2050 climate targets in the rest of the UK and the 2045 targets in Scotland.

That begs the following questions. Will the measures in the Bill take us closer to or further away from those targets? Without an evaluation, how can we decide whether these tax measures are the right ones? In my view, taxation has two purposes: first, to raise funding to spend on public services, and secondly, to encourage or discourage behaviour. Do the tax measures in the Bill encourage behaviour that will cut carbon emissions, and are the climate measures in the Bill fit for purpose?

On the SNP Benches, we believe that new clause 5 is essential if the focus on climate change is to be reflected not only in energy and environmental policy, but in Treasury matters. Economic policies can be the real driver for necessary change.

Photo of Angela Eagle Angela Eagle Labour, Wallasey 2:45 pm, 18th May 2023

This is a group of clauses on environmental taxes, and the Minister has taken us through some of the technical changes and some of the upratings that are required by law. There is a gap on the landfill tax, as my hon. Friend the Member for Ealing North pointed out from the Front Bench, which implies that people are avoiding it rather than paying it. What comfort can the Minister give us that HMRC and the tax authorities are on to that issue? We have heard from both sides of the House, particularly on landfill tax, about the fraud that is perpetrated. I suspect that all of us in this room regularly spend our time as constituency MPs phoning various authorities to try to get the evil effects of fly-tipping in our constituencies dealt with.

The Minister has not said anything about enforcement of the tax and anti-fraud measures. He has said a little about how some of the taxes will be redesigned to try to design out some fraud, and I suspect he has done that particularly with the aggregates levy and his attention on so-called borrow pits. Perhaps he will correct me if I have got that wrong, but, having listened to what he had to say on that, I suspect it is about avoidance issues, focusing the aggregates levy on taking away the incentives to use virgin aggregate rather than recycling existing aggregates, and filling in other loopholes.

We all know from our constituencies that the landfill tax is not working as well as it should. Many of us have closed and managed landfill sites in or close to our constituencies. Not all of us have quarries, with the difficulties that occur there, but we all see the baleful effects of fly-tipping and people who save money by dumping rubbish, and sometimes far worse things, into the environment.

Clearly, HMRC and those who collect taxes have a role to play in dealing with fraud, but so has the Environment Agency. Perhaps the Minister will give us some comfort on this, but the weakening of enforcement authorities over the past few years is a real problem. We could have the perfect law, with the perfect text, designed perfectly so that incentives are fantastic, but if it is not enforced properly, it fails. We are certainly seeing that happen with the landfill tax.

Can the Minister give us some comfort that he is on to the issue and that the Treasury knows that it has to spend to save? The Treasury has to enforce the taxes that it levies, but it also has to empower other regulators and agencies that have a policing role, such as the Environment Agency and local authorities, to ensure that enforcement on these very important issues, which have a huge bearing on quality of life in all our constituencies, is properly resourced. Will the Minister give us some guarantees on that? At the moment, particularly with respect to the landfill tax, it is failing.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

First, let me acknowledge that the landfill tax has been an overarching success, with local authority waste into landfill down by some 90% since 1990. I think we can all agree that that is a very good thing for England. I want to emphasise that, because it is a great success story.

A number of questions have been asked about waste crime. I completely agree that any type of waste crime is a blight on all our communities. As constituency MPs, we see the damage that it does, whether it is fly-tipping or other waste crime. That is why we have the joint unit for waste crime.

There have been questions about the effectiveness of the unit and the actions it has taken. I can tell the Committee that the unit is actively engaged in seeking to tackle waste crime. In particular, a special operation was undertaken from April 2020 to November 2022, in which some 100 partner agencies were engaged with the JUWC, and some 2,500 illegal waste sites were closed and a number of criminals engaged. But this is an ongoing problem and something we take very seriously. Of course, the Environment Agency has a role to play. The Government are engaged with all the agencies, not least the joint unit for waste crime, and we will continue to be so for some time to come.

There was a series of questions about the tax gap. For clarity, that is the difference between the amount that should be paid in theory and the amount that is collected by the Exchequer. The overall tax gap was 7.5% in 2005. It reduced to 5.1% in 2020-21. Any percentage of tax gap is too much, so it is important that we keep pressing HMRC to do everything that it can. I am confident that HMRC is tackling businesses that it suspects of waste crime that are not registered with it but could be liable for tax. The Government have given powers to HMRC to compulsorily register those businesses and, if necessary, issue penalties.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

I am fascinated by the work of the joint unit for waste crime. I am slightly horrified that 2,500 illegal waste sites were closed. It is good that they are closed, but it is horrifying that there were so many of them to begin with. I wonder what estimates there are for how many remain. Could the Minister give us some information about what fines were levied and what prosecutions have been successfully undertaken by the joint unit for waste crime?

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

I am grateful for the question. I can tell the hon. Lady that in the period I referenced with the 2,500 waste units, 51 arrests were made as a result of that action. I apologise that I do not have further details to hand, but I am happy to provide them later.

As I was saying—this goes back to what my hon. Friend the Member for Newcastle-under-Lyme talked about—HMRC does have powers to intervene and issue penalties if necessary.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

I have two points for the Minister. First, my specific question was whether any prosecutions had taken place as a result of the work of the joint unit for waste crime. Like my hon. Friend the Member for Wallasey, I am pleased to hear that a number of sites have been shut down, although it is worrying that there were so many.

Secondly, will the Minister comment on the landfill tax gap? The issue was discussed in the Public Bill Committee on what became the Finance Act 2022. The then Exchequer Secretary to the Treasury, Helen Whately, wrote to me following the Committee with an estimate of £200 million—22.7%—for the landfill tax gap for England and Northern Ireland in 2019-20. That was a decrease from the previous year.

If I heard him correctly, the Minister—

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

Order. Interventions should be brief and to the point. The hon. Lady and other members of the Committee will not have any difficulty catching my eye if they want to make another contribution.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

I completely understand the hon. Lady’s passion. I know that she is a long-standing campaigner in this area, so it is no surprise that she wants to discuss the issue; I completely understand why that is. I can tell her that the tax gap has fallen, I believe, in the period that I talked about by £125 million, from £200 million in 2019-20. To reiterate, in 2005 the tax gap stood at 7.5% and in 2020-21 it stood at 5.1%. As I say, we are not complacent. We must tackle the issue, and we continue to make great efforts to do so. I put on the record my thanks to HMRC for all the work that it does to get the number down, but it is a live issue.

Let me mop up the question asked by the hon. Member for Ealing North about a review of the plastic packaging tax. He is right to raise that. We will be conducting a review very soon, but we are clear that we would like a decent period in which to conduct it so that we can see a clearer picture of the impact the tax is having. I can assure him that a review will be conducted very soon.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

I apologise for my previous lengthy intervention, Mr Stringer. May I return to the issue of the tax gap? As the Minister himself said, it was £200 million in 2019-20, a 22.7% gap. I am interested to hear the Minister say that it has reduced so much. If it has, I am hugely pleased, as it means that enforcement action is being taken. [Interruption.] Would he care to comment on the huge gap in the figures and how it might have reduced?

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

I apologise, but will the hon. Lady make that last point again? I did not hear her because of the noise in the background.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

I was just asking the Minister to explain how the Treasury has managed to reduce the tax gap from 22.7% in 2019-20 to 5% in the latest figures, which is what I believe he said. That seems to be a great difference.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary 3:00 pm, 18th May 2023

I am grateful for that clarification. As I mentioned, HMRC is actively targeting businesses and is able to tackle businesses that are not registered but that it believes are liable. In addition, HMRC has powers of compulsory registration.

I should clarify that those figures give the overall tax picture. The most recent figures for the landfill tax gap for England and Northern Ireland are estimated at 17.1% for 2020-21. I was giving figures for the overall tax picture, but the hon. Lady makes a very good point of inquiry. I hope that that clarifies the situation.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

I thank the Minister for his commitment to a review of the effectiveness of the plastic packaging tax and for his clarification of some of the statistics around the tax gap. Comparing the figures that he cited with the figure of 17.1% for landfill tax fraud shows just how big the tax gap is for landfill tax fraud, and how important it is that specific action be taken. Will he explain what specific action, rather than just talk about generalities, is being taken on landfill tax fraud, which we all agree is a problem that must be tackled?

May I also remind the Minister about a question I asked earlier? I am sorry if I missed it, but I do not think he responded to my question about the £125 million tax gap identified in 2020-21 and what has been done to recover that money.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

As I have laid out, the Joint Unit for Waste Crime is a very effective organisation. It works with more than 100 agency partners to tackle all types of waste crime, including the type that we are talking about. HMRC is targeting businesses and has the powers to compulsorily register and to issue penalties. That action is being taken by not just HMRC, but by the JUWC.

I will get back to the hon. Member on his last point; I do not have the information in front of me right now.

Question put and agreed to.

Clause 326 accordingly ordered to stand part of the Bill.

Clauses 327 to 329 ordered to stand part of the Bill.