The Government welcomes the Select Committee's report. It is particularly pleased to note that the majority of evidence received by the Committee during its inquiry strongly supported the introduction of the Landfill Tax as one of the UK's first primarily environmental taxes. The Government also welcomes the Committee's support, in principle, for the introduction of additional environmental taxes.
This response comments in turn on the Committee's recommendations and conclusions.
Paragraph 18
If the tax is to achieve its objective of reducing the amount of waste sent to landfill, it must be set at a level which changes the economics of waste management so that less environmentally damaging options, such as recycling, composting and energy from waste plants, are no more expensive than landfill. To do this the tax on active waste would need to rise from its present level of £10/tonne to a level of £30/tonne. We recommend that the tax rise to £20/tonne over the next five years, and that the Government set out its proposals for additional increases in the following years.The staged increases in the Landfill Tax announced in the last budget will bring the standard rate of tax to £15 per tonne by 2004. This represents a prudent balance between the need for clear and increasingly strong economic signals to reduce reliance on landfill, and the need to provide those who will be affected with time to plan and develop alternative waste management services and facilities. The rise will progressively increase the incentives on producers and disposers of standard-rate wastes to reduce their dependence on landfilling. The overall impact on volumes of waste going to landfill will depend upon trends in waste production, other factors affecting the price of landfill (which is expected to rise), and the price and availability of other options.
Monitoring of impacts of the Landfill Tax over the next few years will facilitate greater understanding of behavioural responses to changing rates of tax, and the relationship between these and other factors affecting the production and management of wastes. The standard rate of tax is to be reviewed again in 2004.
The Landfill Tax must be seen in the context of wider policy, and the increases to the tax announced in the 1999 Budget need to be seen in the context of the national waste strategies, which set out wider plans for reducing reliance on landfill.
Paragraph 19
One of the problems in assessing the consequences of the tax is the lack of reliable statistics about waste. This is a serious problem which we referred to in our report on Sustainable Waste Management. In that report we recommended:
"The continuing lack of information in Government about waste is extraordinary: ..... The production of accurate statistics on waste arising, the composition of waste at the point of arising, and on the demographic structure of households (which affects that composition) must be a Government priority."This recommendation continues to be of great importance.
The Government agrees with the recommendation to give priority to obtaining better data on waste, and is taking a number of steps to improve the situation. The DETR runs an annual Municipal Waste Survey, collecting information from all local authorities in England and Wales on household and municipal waste arisings and recycling and management; data for four years 1995/96 to 1998/99 are now available. This year the Environment Agency has undertaken a major survey of industrial and commercial waste, which will provide comprehensive information on the amounts, composition and management of industrial and commercial waste. Further work is planned by the Agency to improve information on construction waste.
Paragraph 20
Revenues arising from the tax, over and above those sums channelled through the Credit Scheme, should be used both to mitigate some of the undesirable effects of the tax, notably the increase in fly tipping and the added burden on local authorities (which we discuss later in this Report), and to help achieve the aims of the tax by being redirected into measures to encourage recycling and waste minimisation.
In general, the Government decides how to spend tax revenues by comparing the funding needs of different public services, and by prioritising expenditure according to Government policy. Government tends not to link expenditure on a particular public service to the revenues raised by a particular tax because this would interfere with Government's ability to direct funding to areas that need it most. However, if the case was made it would be conisdered on its merits.
Over 32% of contributions made under the Credit Scheme already go to projects which support more sustainable waste management, such as waste minimisation and recycling. The amounts contributed in this area are expected to increase as the potential level of contributions rises following increases in the standard rate of tax. Recycling will be given a higher priority by being reflected explicitly in the list of approved objects which qualify under the Credit Scheme.
Paragraph 25
- We recommend that the Environment Agency and HM Customs and Excise jointly publish an Enforcement Statement to address fly tipping. We recommend that the EA give a higher priority to preventing fly tipping and that the grant to the Agency be increased correspondingly.
Fly tipping is an offence under the Environmental Protection Act 1990, rather than under the Landfill Tax regulations, and as such is the responsibility of the Environment Agency and not HM Customs and Excise. However, the Environment Agency and HM Customs and Excise work very closely together on matters of mutual concern with the Landfill Tax and licensing of landfill sites.
The Environment Agency are co-ordinating action against fly tipping, together with other national organisations, since March 1999. These include: the Tidy Britain Group, National Trust, National Farmers Union and County Landowners' Association. The publication of "Tackling Fly Tipping: Guidance for Landowners, Managers and Members of the Public" was the first product of this partnership. In addition, new anti-fly tipping initiatives include the trial use of miniature cameras to capture fly tippers on video tape.
The Environment Agency's most recent Corporate Planning Review did not identify fly tipping as a high priority requiring additional resources. However, the Committee's view is noted. Priorities for future work are discussed by the Agency and the Department in the annual corporate planning round.
- The Government should review the penalties imposed by the courts for environmental crimes and ensure that magistrates receive training which indicates the seriousness of such crimes and the need for appropriate sanctions.
The Government supports the Committee's opinion that effective deterrents are required to mitigate the problem of fly tipping.
However, the Courts are independent of the Government. It is for them to determine the penalties they impose, within the terms of the relevant legislation, and to ensure that sentences fully reflect the gravity of offences which damage the environment. The maximum penalties fixed by Parliament are there to be used in appropriate cases, and as shown in the attached table, are already severe.
The Government is aware of the penalties imposed in practice by the courts for environmental offences. A Sentencing Advisory Panel has recently been established under the Crime and Disorder Act 1998. The Home Secretary has directed the Panel to advise the Court of Appeal on environmental offences, with a view to the Court issuing sentencing guidelines on them.
A number of training initiatives have occurred to ensure that magistrates are fully aware of Governmental concern about this issue. The Magistrates' Association and the Environment Agency have jointly produced a training pack for magistrates, and co-operate in providing training sessions for them. The DETR has held discussions with the Association to promote better understanding of the controls and penalties, and have provided a draft training note on the sentencing of environmental offences, which the Association is considering issuing to members. The Lord Chancellor's Department has issued a circular on the illegal disposal of waste to Magistrates' Courts, explaining the range of waste management controls, and the maximum penalties for contravention of those controls.
Maximum Penalties for Offences Relating to Waste
Offence Magistrates' Court Crown Court Sections 33(1)(a), (b) or (c) of the Environmental Protection Act 1990
Unlawful deposit, recovery, disposal etc. of non-special wasteImprisonment for 6 months and/or a fine of £20,000 Imprisonment for 2 years and/or an unlimited fine Sections 33(1)(a), (b) or (c) of the Environmental Protection Act 1990
Unlawful deposit, recovery, disposal etc. of special wasteImprisonment for 6 months and/or a fine of £20,000 Imprisonment for 5 years and/or an unlimited fine Section 34(6) of the Environmental Protection Act 1990
Breach of the duty of care or Regulations on retention etc. of documentsA fine not exceeding the statutory maximum An unlimited fine Section 1(1) Control of Pollution (Amendment) Act 1989
Unlawful transportation of wasteA fine not exceeding level 5 on the standard scale N/A Special Waste Regulations 1996
Unlawful movement or handling of special wasteA fine not exceeding level 5 on the standard scale Imprisonment for two years and/or an unlimited fine Waste Management Licensing Regulations 1994: Regulation 20(5)
Failure to register as a waste brokerA fine not exceeding level 5 on the standard scale N/A Waste Management Licensing Regulations 1994: Paragraph 12 Schedule 4
Failure to register as a collector, transporter, dealer or broker of wasteA fine not exceeding level 2 on the standard scale N/A Paragraph 27
We recommend that the Waste Management Licensing exemptions and planning controls on developments involving landfilling and landscaping, eg. golf courses, amenity bunds and agricultural improvements, be reviewed.
The Government is currently reviewing the Waste Management Licensing exemptions on such developments.
Article 11 of the European Framework Directive on Waste provides for waste recovery operations to be exempted from the requirement to obtain a permit, in order to encourage the recovery of waste. The terms of these exemptions are contained within the Waste Management Licensing Regulations 1994. While not requiring a waste management licence, the exemptions are still within the regulatory regime, and are subject to conditions designed to ensure compliance with the objectives of the Directive to protect human health and the environment. The disposal of waste under these exemptions is unlawful.
As stated in the Government's response to the Select Committee's report on sustainable waste management (September 1998), the DETR has commissioned research into the effects of the Landfill Tax on the disposal of inert waste to landfill. Objectives of the research are: to establish how much waste is being consigned to exempt sites, and whether there is evidence to substantiate claims that the terms of the exemptions do not ensure protection of the environment and human health, and that 'sham recovery' of waste (i.e. disposal) is being carried out on these exempt sites.
A final report is expected in September. The Environment Agency will then be invited to make recommendations on the findings, and the Government will publish a consultation paper proposing changes to the current exemptions.
The Government sees no need for a review of planning controls on developments involving landfilling and landscaping. Statutory planning control by local authorities is concerned solely with the use of land in the public interest, and not with the detailed composition of the materials used or their means of deposition. If waste materials are used it is the concern of the environmental protection authorities who have the technical competence to deal with such matters. Local authorities already have adequate powers to maintain planning control over these operations.
Paragraph 28
We recommend that inert materials used for engineering purposes, including daily cover, at licensed sites be exempted from the tax.
The Landfill Tax legislation provides that waste becomes taxable if disposed of at a licensed landfill site. It is irrelevant that the site operator may make use of the waste at his site for engineering purposes, such as constructing access roads, or lining cells, or daily cover, or for capping off the site. Using this definition ensures that there can be no misunderstanding as to what is taxable, and is consistent with the aim of the tax to encourage waste producers to reduce the amount of waste they send to landfill. That said, the HM Customs and Excise review of the tax in 1997/1998 considered the case put forward by landfill site operators to exempt wastes used in site engineering. The review, a report of which was published at the time of the 1998 Budget, concluded that there was a case for exempting inert wastes used in the restoration of landfill sites, in order to secure the speedy return of landscape value. The same consideration applies to the filling of quarries with inert waste, where planning obligations require them to be filled. An exemption for both these activities will be introduced from 01 October 1999. However, HM Customs and Excise were not persuaded that the present policy has created significant difficulties for the construction or day to day running of mixed sites, where disposal charges can reflect the cost of construction.
Paragraph 35
We are opposed to charging individual households for the disposal of household waste by quantity. Local authorities must ensure that recycling schemes are more effective.
The Government's draft waste strategy for England and Wales, A Way With Waste, includes proposals for a series of initiatives aimed squarely at persuading householders to manage their waste more effectively and sustainably. A cross-sectoral group of interested parties - including the Government - has come together to set up a National Waste Awareness Initiative, the aim of which will be: to promote more responsible attitudes and behaviour towards waste generated by individuals and business, and to effect meaningful and measurable changes in societal attitudes and behaviour towards waste management, based on public recognition that profligate use of resources is harmful to the environment, uneconomic, and undesirable.
The Government will continue to be active in the steering committee responsible for the development and promotion of a long-term campaign in partnership with public and private sector groups. The Government will also continue with its successful Are you doing your bit? campaign, and has extended the campaign's remit to include waste awareness. Promoting alternative waste collection mechanisms and facilities A Way With Waste discusses a raft of issues and actions, which local authorities will need to address if we are to achieve a sustainable waste management system and meet our international commitments to reduce the amount of biodegradable municipal waste sent to landfill.
The Government is particularly keen to see local authorities work in partnership with their neighbouring authorities, their local businesses and their communities to tackle local waste arisings. Local waste management plans, which must be drawn up in partnership with all interested parties, will be placed on a statutory basis, with guidance on their content and scope being issued as quickly as possible. If councils in two-tier authority areas fail to take effective action on these issues, then the Government will consider a move towards single tier waste management authorities.
The Government recognises that the move to more integrated, sustainable waste management has cost implications for local authorities, and will consider these as part of the next Comprehensive Spending Review, in addition to considering alternative waste disposal funding mechanisms between waste collection and waste disposal authorities, and undertaking a review of the recycling credit scheme.
Finally, the Government believes there is a range of schemes that might be effective in changing behaviour, cost effective, practical to operate, and compatible with local government finance and expenditure arrangements. Subject to the outcome of further work to develop possible schemes, the Government will work with local authorities to establish pilots to trial any which look promising. This will not affect the working of the council tax system.
Paragraph 48
We recommend that the uneven distribution of funds between objectives be addressed by setting indicative guidelines for distribution to each object. Such guidelines would be set each year by the DETR and monitored by ENTRUST and HM Customs and Excise. The setting of such guidelines would not lead to the funds being classified as public expenditure.
A key strength of the scheme is that it encourages private sector involvement in environmental protection schemes. The Government does not want to undermine this.
That said, the Government is keen to encourage greater spending on education and research into sustainable waste management, especially recycling. The Government will discuss with the waste industry the setting of indicative guidelines for the distribution of funds, in line with Government priorities as set out in the draft waste strategy, A Way with Waste.
Paragraphs 51 and 72
Accordingly, we recommend that ENTRUST should be given the powers to evaluate schemes using a cost benefit analysis. Moreover, a continuous and objective evaluation should be made of the success of the Environmental Bodies Credit Scheme in obtaining the maximum environmental benefits from the tax credits allowed.
We recommend that better information be obtained to measure the effectiveness of the Environmental Bodies Credit Scheme.
The Government recognises that, on one hand, judgements about the value of individual schemes are a matter for those who wish to contribute (that is, landfill site operators), but nonetheless, the Government does have to have regard as to whether overall the scheme is delivering worthwhile environmental improvements, given the cost of the revenue forgone. DETR officials are, therefore, discussing with ENTRUST how this monitoring function could most cost-effectively be carried out.
Paragraph 54
It is essential that ENTRUST have the powers effectively to monitor the administrative costs of Environmental Bodies. If the scheme is to work properly it is essential that ENTRUST be able to demonstrate that Environmental Bodies are providing value for money and that administrative costs are not too high. Where costs are too high, they should either be reduced, or the project disallowed, as appropriate.
This is not necessarily a matter of inadequate powers, although this too is something which HM Customs and Excise will consider. The scheme already covers notification to HM Customs and Excise by ENTRUST in cases where they are unable to gain assurance that contributions have been spent on qualifying approved objects, and sanctions exist to deal with such cases, including, where appropriate, the clawback by HM Customs and Excise of tax credits. However, the Government does accept the need to look at the issue of administrative costs incurred by Environmental Bodies. This will be considered as part of the revision of the regulations later this year.
Paragraph 57
Since the user group's function is to discuss with ENTRUST problems with the Environmental Bodies Credit Scheme, it is essential that this group reflects the diversity of Environmental Bodies and is accountable to them. We recommend that ENTRUST be given the task of ensuring that this matter is reviewed and the proposals implemented.
ENTRUST has now finalised arrangements to create a user group, which will be known as the Environmental Bodies Council (EBCO). EBCO's Terms of Reference have been defined by ENTRUST, within its obligations to HM Customs and Excise. Included in the Terms of Reference, is an elective process to ensure democratic representation. EBCO will consist of eight elected representatives, including one each from Scotland, Wales and Northern Ireland, and the rest from the English regions. There is also a facility for EBCO to co-opt up to four individuals for up to one year, in order to ensure both geographic and sectoral balance. Elections will occur over a period of three years, with two or three of the EBCO members being elected annually. Each approved environmental body will have one vote. EBCO is expected to hold two or three regional meetings per year at various locations, open to all environmental bodies for discussion of matters relevant to the Scheme.
Paragraph 69
Changes must be made not only to ensure that there is no abuse, but also to ensure that it can be seen there is no abuse. We recommend that where money is given for schemes there should be a public register setting out the rules for the scheme, including how much publicity the donor(s), including third parties, can expect. Any links between the donor(s) and any benefits derived from patents developed as a result of funding by landfill tax credits should be clearly stated, by requiring donors to register such potential patents with ENTRUST, which would in turn create a benefit, and disallow the tax credit to the landfill Operator. The structure, operation and accountability of ENTRUST lacks clarity and openness. It should be reviewed. We are pleased to note that directors of ENTRUST board and their officers make a public declaration of their financial interests. No one should serve on the Entrust board who is currently employed by a Landfill Operator. The potential for abuse of the Environmental Bodies Credit Scheme should be reviewed, and responsibilities between ENTRUST and HM Customs & Excise clearly established. Although contributions to Environmental Bodies are not public money, and therefore outside the control of HM Customs & Excise, the credits claimed by landfill Site Operators is tax, and HM Customs and Excise should examine and verify a reasonable sample of schemes each year with the same rigour with which they look at VAT returns.
The Government is determined to minimise the risk of abuse of the Environmental Bodies Credit Scheme. HM Customs and Excise already visit landfill site operators as part of their wider Landfill Tax audit function, and an examination of Landfill Tax credits forms part of this. The Government shares the Committee's view about the public declaration by ENTRUST directors of their financial interests. However, provided their interests are properly declared, the Government sees no reason to bar employees of landfill site operators from serving on the ENTRUST Board. Indeed, the Government considers it important that the Board should have a balanced membership, including someone with experience of the waste management sector.
We agree that where money is given for schemes there should be a register setting out the rules for the scheme, including how much publicity the donors, including third parties can expect. This should be maintained by ENTRUST and available to HM Customs and Excise as part of their audit function. Having considered the matter carefully, the Government is not, however, persuaded of the benefit of a public register of donors.
Most donors are happy to publicise their involvement in schemes, but given the need to respect taxpayers' confidentiality, it would not be appropriate for the Government to publish details of credits claimed. The Committee's recommendation in terms of patents is covered in the response to paragraph 71 below.
Paragraph 70
Third parties should be bound by the same conditions as a Landfill Operator. ENTRUST intends to keep a register of third parties on a confidential basis. This is unacceptable; the register should be in the public domain, and be published at least annually.
The changes to the Environmental Bodies Scheme, which the Government announced in the 1999 Budget, and which will be introduced later this year, include a new requirement that ENTRUST be notified of the identity of third parties. This will enable ENTRUST to be satisfied that no benefit arises from the contribution. The Government sees no need to go further by requiring that a public register be kept.
Paragraph 71
The Regulations insist that Landfill Operators should not benefit from the Scheme. It is difficult to establish what this means in practice. The definition of what constitutes a benefit must be reviewed.
Both HM Customs and Excise and ENTRUST are quite clear about what is meant by "benefit". ENTRUST publishes guidance on this in question and answer form, and will be publishing further guidance in the near future.
Paragraphs 74 and 75
Therefore we recommend that the Treasury, HM Customs and Excise and ENTRUST consider what arrangements could be put in place to use these under utilised tax credits and what changes in the Regulations are necessary to distribute all available tax credits to the approved objects and enrolled Environmental Bodies.
We recommend that the revenue which goes to the Treasury from the Landfill Tax be kept constant, despite any increase in the tax rates. The remainder should be available to the Environmental Bodies Credit Scheme. If the Landfill Tax fails to reduce landfill, the percentage of the tax going to the Credit Scheme through tax credits accordingly will rise above 20 per cent.
The Government will consider the recommendations of the Committee. It announced changes to the Environmental Bodies Credit Scheme in the last budget, and will continue to keep its operation under review to maximise its effectiveness. The Government does not propose to increase the proportion of the tax that may be reclaimed as credits. This already stands at 17%, compared with the theoretical maximum of 20% (1998/1999 figures), raising just under £76.5 million for environmental projects. As the tax rate rises, revenues can increase even though quantities of waste going to landfill fall. In such a case, the quantity of tax that may be reclaimed as credit under the scheme will also rise.
Paragraph 76
The majority of the evidence we received during our inquiry strongly supported the introduction of the Landfill Tax as one of the UK's first primarily environmental taxes. Witnesses also approved the hypothecation of revenues from the tax for environmental purposes. We agree and support, in principle, the introduction of additional environmental taxes. However, the Landfill Tax and the associated credit scheme do have shortcomings which provide lessons for such future taxes:
- The Landfill Tax has been set at a level which is too low to change waste disposal options. In setting the level of future environmental taxes, the Government should decide whether the main aim is to make sure the polluter pays (in which case it will raise money but will not necessarily change behaviour), or to change behaviour (in which case a higher rate of tax may be required).
We welcome the support that the Select Committee has shown for the Landfill Tax and environmental taxes more generally. The Government has made clear its intention to use the tax system to deliver environmental objectives, where this is appropriate, and we will be using the lessons of existing taxes to help shape future policy.
Environmental taxes can help perform many functions: ensuring the environmental costs of activities are better reflected; helping to achieve policy objectives; and helping to shift the burden of taxation from "goods" to "bads", as the Government's Statement of Intent outlines. A single tax measure could perform one or more of these functions. The appropriateness of using environmental taxes and their intended functions will depend on the policy issue in question.
- The tax has had undesirable effects, including an increase in fly tipping and the imposition of a serious and, in the short term, largely unavoidable financial burden on local authorities. When establishing future taxes, it will be necessary to provide funds (which would normally be a fraction of the revenues raised from the tax) to mitigate such consequences.
Although the Landfill Tax was introduced relatively recently by the previous Government, this Government seeks to judge the tax on its efficiency and outcomes. The Government seeks to design instruments generally so as to minimise adverse consequences, and the 1997 Statement of Intent on Environmental Taxation makes this clear. It states that taxation "must be well designed, to meet objectives without undesirable side-effects; it must keep deadweight compliance costs to a minimum; distributional impact must be acceptable; and care must be had to implications for international competitiveness".
In the case of the Landfill Tax, this instrument was introduced to provide an incentive to reduce the use of landfill. The benefits of this tax were carefully weighed against the disadvantages - including the fact that , inevitably, in the short term, increased tax would be paid by local authorities. The new Landfill Tax escalator is being introduced gradually in order to give local authorities and others an opportunity to plan ahead and ensure that less waste goes to landfill.
More generally, the Government believes that the majority of fly tipping is by householders who are not directly affected by the Landfill Tax. There exists a strong regulatory framework to deal with this problem.
- The credit scheme is very complicated and it is difficult to monitor the quality of projects. It was designed so that spending on environmental benefits through claiming tax credits would not be classified as public expenditure. This has led or may lead to a number of problems. We recommend that revenues from similar future environmental taxes be hypothecated to existing public bodies, with a proper audit system in place, to distribute funds for given objectives with a duty of monitoring the implementation of projects.
In general, the Government decides how to spend tax revenues by comparing the funding needs of different public services, and by prioritising expenditure according to Government policy. Government tends not to link expenditure on a particular public service to the revenues raised by a particular tax because this could distort priorities and lead to poorer value for money.
There is no foregone conclusion that any money from future environmental taxes will be set aside. However, should a case be made, the Government will consider it on its merits, and determine in the light of experience, whether this should be through public spending, or along the lines of the Landfill Tax Credit Scheme with private sector involvement.
Published 26 October 1999
Waste Strategy Index
Government Responses Index
Environmental Protection Index
Defra Home Page