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Child Support (Appeal)

Mr. Archy Kirkwood accordingly presented a Bill to enable liabilities of absent parents assessed by the Child Support Agency to be reduced on appeal where those assessments can be shown to cause exceptional hardship; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 16 February and to be printed. [Bill 45.]

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Orders of the Day

Finance Bill

(Clauses 36, 105, 112 and 139 and Schedule No. 15)

Considered in Committee.

[Mr. Michael Morris in the Chair]

Ordered,

That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 36,Clause 105, Schedule 15, Clause 139, Clause 112.--[Mr. Heathcoat-Amory.]

Clause 36

Charge to Tax

Mr. Tim Smith (Beaconsfield): On a point of order, Mr. Morris. May I seek your guidance? Do you anticipate that there will be a debate on clause stand part, or a wide-ranging debate on the first amendment?

The Chairman of Ways and Means (Mr. Michael Morris): The occupant of the Chair never anticipates whether there shall or shall not be a debate on clause stand part until the debate on the amendments has taken place, but the debate on the amendment must be confined to the amendment.

3.45 pm

Ms Dawn Primarolo (Bristol, South): I beg to move amendment No. 5, in page 24, line 32, at end insert

'provided that the tax shall not be charged until such time as a matching cut in the main rate of employers' national insurance contributions has been made.'.

The amendment's purpose is to bring the rebate in line with the levying of the landfill tax.

The landfill tax was announced in the Budget in 1994 as a tax with an unusual purpose. Rather than raising revenue, it is intended to change behaviour and to encourage the production of less waste by business and consumers, less disposal of waste in landfill sites and, most important, more recycling and other recovery of the value from waste. The detailed proposals to be implemented in the Finance Act 1996 and the statutory instruments that will follow later in 1996 must be measured against that yardstick.

Most important, the subject of the amendment involves the fact that revenue from the tax is to be passed back to business by way of a rebate of employers' national insurance contributions. Within certain limits, rebates will also be given for contributions to certain "environmental trusts". The 1995 Budget confirmed the linkage to national insurance contributions, although it is not complete as the landfill tax is collected for six months from 1 October 1996 and the national insurance contribution rebate comes into effect from 6 April 1997. Our amendment seeks to bring those two dates in line. I should like to explain why that should be done.

Many detailed provisions, which will be set out in secondary legislation, are pertinent to the rebate, but we cannot discuss them this afternoon. The functioning of the environmental trust scheme, the definition of qualifying

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materials and the cost-compliance assessment will be considered in secondary legislation, but it is the rebate that we are concerned with today.

I need to put it on the record that Labour is broadly in favour of landfill charges and that we are not objecting today to the principle. We made it clear in our document "In Trust for Tomorrow" why we supported a landfill tax. It is based on the principle that the polluter should pay, it targets most dangerous waste, and it introduces credits against increased charges for landfill sites that install equipment to generate energy from methane. Charges should reflect differing regional environmental impact, and that must be done alongside a package of other measures.

We agree with the conclusion of the report from the House of Lords Select Committee on Sustainable Development, which states at page 75:

"It is not realistic to expect people to change their lifestyles for moral reasons alone. We need appropriate fiscal and legal measures to overcome the barriers to the adoption of more sustainable lifestyles and patterns of consumption".

That is the purpose of the landfill tax. There is serious doubt, however, that that laudable aim can be achieved by the Government's proposals.

The Government state that the aim of introducing the new tax is that the additional costs arising will be passed on to waste producers. For local authorities, that suggests that council tax payers should bear the additional cost through an increase in their council tax bills, which will create, in theory, the incentive for them to reduce waste and to make better use of their waste produce. However, any incentive would be very weak.

The problem with the national insurance rebate is clear because council tax payers pay for waste disposal at an undifferentiated sum within their council tax bills. In addition, authorities are already spending at their capping limits, so any additional cost that is not reflected in those limits could result in serious reductions in services elsewhere. The relationship to the national insurance contribution rebate is crucial. If the desired move from waste disposal to waste reduction and recycling is to happen, there must be a major awareness and education campaign on the issues, so that the public can understand the rationale behind the tax.

The problem with the mechanism in the clause is that the conditions on British landfill sites vary. Disposal without energy recovery is at the very bottom of the waste hierarchy. Likewise, landfill sites without the benefit of modern technology to monitor conditions and recover methane are environmentally a poor option for disposing of waste. Inevitably, waste contains a certain amount of moisture and during the process of that waste breaking down leachates--liquid from waste--sinks to the bottom of the land and methane is produced. By the Government's own admission on page 20 of their draft waste strategy,

"landfill sites are the largest single source of methane emissions in the UK, and methane is the second most important greenhouse gas after carbon dioxide."

Therefore, the relationship of the rebate and the environmental trust to those who manage the sites needs to be tightly drawn.

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Many of the sites have problems with high levels of leakage, which threaten to contaminate the surrounding environment. Delays in money being made available to improve the sites clearly exacerbate the problem. However, surveys show that half the landfill sites operate the dilute and disperse method, which allows leakage into the soil and water beneath the site with no attempt at controlling it. If those sites are to have access to rebates, that will simply encourage bad behaviour. Some sites use modern engineering techniques to monitor and control gas emissions. Indeed, I know of a good one in Avon, which would not be rewarded for its good practice through the payment scheme mechanism in the clause.

I want now to deal specifically with the national insurance contribution. Treasury press notice 138/94 of29 November 1994 quotes the Chancellor as saying in the 1994 Budget statement that it was his intention

"to look at ways to offset the impact of landfill tax on business, including compensatory reductions in employers' national insurance contributions. This switch in the balance of taxation will discourage an activity which damages the environment while helping to cut the costs of investment."

That was a good statement.

In his 1995 Budget statement, the Chancellor confirmed the switch, saying:

"The money raised by the landfill tax will allow for a matching cut in the main rate of employers' national insurance contributions by a further 0.2 per cent. to 10 per cent. from April 1997. That will cut the cost of employment by half a billion pounds and will make it cheaper for businesses to create new jobs."--[Official Report,28 November 1995; Vol. 267, c. 1064.]

The intention of the amendment is to take the Chancellor's words and put them on the face of the Bill, and it is difficult to see how the Government could possibly object to that.

A clear undertaking has been given time and time again that the tax would be levied and the national insurance contributions would come back at the same time as the compensation. Indeed, the intended reduction was confirmed in the Secretary of State for Social Security's annual national insurance contribution review. Since the annual national insurance changes are introduced by statutory instrument, there is no direct reference to the proposed reductions in the Finance Bill. Consequently, there is no guarantee that the tax will always be offset by national insurance changes in the future.

In addition, although the tax will be introduced in October 1996, the rebate does not take effect until six months later on 6 April 1997. As the proposals do not affect businesses equally, the process will obviously result in winners and losers. If, as the Government intend, the tax succeeds in deterring dumping on landfill sites, revenues will decrease. That will affect future rates of national insurance contributions.

To give an example, the Association of Metropolitan Authorities has made the following calculation--local authorities collect approximately 22 million tonnes of waste a year, so the tax will mean an added cost in the region of £154 million a year. The Government's response to the consultation on the landfill tax last year stated:

"The concerns of local authorities are also understood by the Government. Local authorities are responsible for the collection and disposal of household waste, and it is recognised that the cost of the tax in respect of such waste that is landfilled will fall on them. The proposed reduction in employers' NICs will affect local authorities and, over the coming months, the Government will address the issue . . . in the context of the local government finance settlement."

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A reduction of 0.2 per cent. in employers' national insurance contributions for the whole of local government only adds up to £30 million. There is therefore a net cost of more than £120 million. This is not accounted for in the local government settlement, and authorities will have to find the money from elsewhere. A further delay in introducing the national insurance rebate will clearly make that situation more difficult.

The net costs arise because local authorities have labour-intensive services, and are therefore likely to benefit more than average from reductions in national insurance contributions. Not only do they dispose of waste generated from their own operations--as would be the case in industry generally--but, as waste disposal authorities, they are responsible for disposing of waste generated within their boundaries.

On Budget day 1995, the Secretary of State for the Environment sought to buttress the considerations of national insurance by saying:

"The establishment of environmental trusts will complement and reinforce our policies for sustainable waste management, for example by promoting recycling, and strengthen the environmental credentials of the landfill tax. The trusts scheme has the potential to generate up to about £100 million of private sector expenditure for environmental improvement."

The trusts will be funded by contributions from landfill operators. Local authorities cannot apply to the trust for money because they do not run landfill sites. The money that the operators pay in comes out of their own pockets--it works something like a donation to a charity, on which companies receive tax relief--but they do not pay as much as they would if the rebate did not exist.

Someone more cynical than I am might ask why landfill site operators would want to pay into a scheme that would be a net cost to them, particularly when there is a rebate delay. The idea of the tax is to reduce the amount of waste that goes into landfill, but unless the site operator is also a waste producer, and most are not, why would they want to reduce the amount of waste, which produces their profits, going into landfill? The operators have no incentive to do so, and the manner in which the national insurance contributions are returned does not encourage them.

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