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Mr. Tim Smith: That is nonsense. The whole point is that, although the tax is new, it will not raise any extra revenue. The money is being handed back to industry and commerce. One of the greatest tax burdens on industry and commerce is national insurance contributions, because they constitute a levy on jobs. Why does not the hon. Gentleman welcome the reduction?
Mr. Pearson: I welcome the reduction in employers' national insurance contributions, but I am saying that that reduction is a sensible measure that the Government should and would have wanted anyway. I see no
compelling reason for a link between the two. If something is worth doing, it is worth doing for its own sake, and that applies both to environmental taxes and to reductions in national insurance charges.
In addition, there is no guarantee that the 0.2 per cent. reduction will hold in the medium term. If, as seems likely, employers modify their behaviour and, as a result, make less use of landfill, the revenue raised from the landfill tax will decline. The Red Book projections show a surplus yield to the Exchequer through to 1998-99. They say that, in 1996-97, landfill tax will produce a net £110,000 above national insurance contributions reductions. In 1997-98, landfill tax is forecast to bring in £450 million, and employers' national insurance contributions reductions are forecast to cost the Exchequer some £495,000. It is only in 1998-99 that there will be a cumulative surplus yield to the Exchequer. I therefore remain to be convinced of the importance of the link between national insurance contributions and the landfill tax.
Contaminated land is an issue of great importance to my constituency, Dudley, West, in the black country.I have had representations from the Building Employers Confederation and a number of other organisations which are concerned about the effect of the landfill tax on them. Much redevelopment of contaminated land--I have some major developers in my constituency--is undertaken through Government grant regimes.
Government grant is allocated only on the basis that the projects would not proceed unless such money was forthcoming. The landfill tax makes no exemption for contaminated land, so the Government will have to pay out more in grant in order to redevelop the land, or developers will decide that they do not want to proceed with much needed urban regeneration. Exempting waste taken from contaminated land from landfill tax is worth considering.
The authority is currently engaged in discussions with a number of companies in connection with an incineration contract that it wants to let. I suspect that there will be a strong trend among authorities that are major users of landfill sites towards incineration. No one would object to that if the incinerators conformed to European standards--environmental benefits would result--but it is feared that they will not.
At present, my local authority makes considerable use of recycling. In the event of a long-term contract with an incineration company, it will try to deliver the best possible deal to council tax payers, but it will lose money. The Government should act, perhaps by means of the "other services" part of the standard spending assessment.
On the one hand, small businesses will be subject to the landfill tax; on the other, they will benefit from national insurance contribution rebates. The tax will, however, be
subject to VAT, which will be charged in accordance with section 19 of the Value Added Tax Act 1994: landfill tax will be deductible in the computation of profits or income for direct tax purposes. The Government should consider exempting small businesses that will have to wade through all the regulations and Treasury orders--and pay extra VAT on their landfill tax.
I think that landfill tax should be aligned with VAT as far as possible. I understand that the Law Society recommended that, and that operators who are not registrable for VAT should be exempt from the landfill tax.
One of the penalties of the tax is the imposition of a separate interest charge on tax shown on returns but not paid by the due date. I have often spoken in the House about the effect of late payment on small businesses, but the House should note that the Bill proposes a complete departure from previous tax arrangements. We are replacing the default surcharge regime with a penalty interest rate. The compounded interest rate of 10 per cent. over the standard rate could rapidly add up to a large sum: with an interest rate of 7 per cent., after three years, the penalty interest could amount to some 66 per cent. of the tax. If it is good enough for the Government to introduce legislation on late payment to raise money for themselves, surely it should be good enough for them to do the same for businesses.
Mr. Austin Mitchell (Great Grimsby):
I support the amendment, as it would delay the onset of the tax, but it would be more sensible to levy a zero rate for inert materials on land disposal sites, because they do not cause the environmental problems that might justify a landfill tax. A zero rate would allow our chemical industries to compete with those elsewhere in Europe.
The Government have introduced the tax as an opportunistic way of raising more money, and they have done so in their usual fashion. Admittedly there has been consultation, but they have ignored the arguments for zero rating for inert materials, thus cutting across long-standing contracts and investments made years before and damaging the competitive position of the firms that made those investments. It is extraordinary that a so-called business man's Government should make no allowance for investment decisions made some time ago, and should suddenly slap on a tax that will penalise British firms that are in competition with European firms that do not have to pay such a penalty.
I raise the issue because the tax will have a serious effect on Tioxide, a Grimsby firm which produces titanium dioxide.
The Chairman:
Order. Is the hon. Gentleman going to relate his remarks to--
The Chairman:
Order. "Order" means "sit down".I hope that the hon. Gentleman will relate his remarks to employers' national insurance contributions. Perhaps he did not hear the hon. Member for Bristol, South(Ms Primarolo) move the amendment, and therefore missed the significance of that issue, which he has not yet mentioned.
Mr. Mitchell:
I mentioned it in my introduction,Mr. Morris. Tioxide is a major contributor to Grimsby's
I was about to cite the decisions that Tioxide made. The main waste product in the production of titanium dioxide is sulphuric acid. Disposal is a problem. There are two possible treatments of the waste: it can be concentrated and recycled, or neutralised to form gypsum. Tioxide decided to comply with the European directive on waste disposal, and opt for the neutralisation treatment. That commercial decision was taken on the ground that gypsum, an inert material, could be disposed of in two ways--first, as an ingredient in plasterboard manufacturing further along the Humber bank and, secondly, in an ex-British Steel ironstone quarry at Roxby, close to the Grimsby site. It planned to fill in the quarry there with the inert material, and the site was to have been made available for various leisure uses once it had been filled in--a sensible procedure.
As a result of that commercial decision, which was taken some time ago, when there were no proposals for a landfill tax in exchange for a compensating reduction in employers' national insurance contributions, Tioxide went in for a two-stage neutralisation system at the Grimsby site. Its substantial investment was tailored to produce gypsum, partly for plasterboard manufacture and partly for disposal in the quarry. The Roxby quarry landfill site was set up with a licence to take only gypsum or similar waste. Tioxide negotiated a direct rail link to the site to minimise disamenity and an agreement to convert the site into a nature park once it had been filled in.
Tioxide took a commercial decision in a competitive titanium dioxide market. Its competitive position will not necessarily be improved substantially by a reduction in employers' national insurance contributions, but it will be changed by the impact of the tax on landfill, the method by which it decided to dispose of the material.
The neutralisation system produced an investment at Grimsby of £27 million. That major decision and investment is now called into question by the sudden imposition of a landfill tax, against which Tioxide has protested. The employers' national insurance contribution reduction is minimal, and inadequate compensation, because competitors in Europe operate on the basis of zero-rating for landfill disposal of such material.
Tioxide was complying with the industry-specific European Community directive that aims to harmonise competition by applying similar environmental constraints to every producer in the sector. The idea of that directive was to reduce liquid effluents and increase solid waste effluents. It therefore encourages firms to use landfill. When European competitors do that, they have the benefit of no landfill tax or of zero-rating for the inert gypsum material that they produce, but Tioxide is suddenly faced with a decision to tax the product in this country.
Tioxide has done its best to meet European requirements, but the Government have come in, with little consideration for the realities, the scale of the investment or the competitive position of the firm, and slapped on a tax, proposing compensation by way of a reduction in employers' national insurance contributions. That compensation is not sufficient, because this industry is not labour-intensive.
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