Select Committee on Food Standards First Report



68. From the text of the Resolution of the House setting up this Committee[105] it is unclear whether we were expected to examine the Government's proposals with respect to the levy as part of our scrutiny of the draft Bill. As stated above, these proposals were issued separately from the draft Bill[106]—although at the same time, and with the same deadline— and were the subject of a separate consultation procedure. We were copied responses to this consultation paper in the same way that we were copied responses to the consultation document on the draft Bill.

69. The Agency's basic levy-raising power is on the face of the draft Bill, at Clause 23; and subsection (2) of that clause sets out which expenditure of the Agency the levy is to provide partially or as a whole. However, the specific details relating to the levy are set out in the consultation paper, and Clause 23 of the draft Bill simply provides for those specifics to be prescribed in secondary legislation. We decided that our duty to Parliament, and to the public, required us to look at the proposals for the levy and to consider the rationale underlying them.

Background to the Levy

70. The Government first announced that it was considering the setting up of a levy scheme to pay for some of the Agency's costs in its White Paper on the Food Standards Agency: it was mooted in the context of a possible licensing system for food premises.[107] These cited costs included the set-up costs (spread over three years) which are an inevitable part of the establishment of the new Agency; costs to cover the work carried out currently by DoH and MAFF which upon being transferred to the Agency was expected to be more expensive due to dis-economy of scale; and extra costs relating to some of the new powers and functions in the Bill which would obviously require entirely new funding.[108] The option of raising the extra money from general taxation was set aside early on in favour of the industry paying for it. Indeed, the White Paper explicitly states "that the food industry should bear the bulk of the costs of improving food safety and standards".[109]

71. Public and industry responses to the principle of a levy were generally unfavourable, although many people in the scientific and academic communities echoed the Government's view that it was about time that the industry contributed more to the cost of implementing a national food safety policy. Many of those consulted also expressed the view that the levy would only be appropriate in the context of a licensing scheme.[110] The Report of the Agriculture Committee was also critical of the proposal for a levy,[111] and indeed critical of the proposal for a universal licensing scheme which took no account of comparative risks.[112]

Current levy proposals

72. The proposals for the levy scheme issued in late January of this year—in conjunction with the draft Bill[113]—make clear that the Government considers these criticisms to be outweighed by its desire to see the industry pay for food safety and standards improvements. The consultation paper proposes that the levy be raised at a flat rate at the final point of sale to the customer. There is no licensing system to be introduced in connection with the levy. Premises selling only wrapped confectionery, soft drinks, crisps and similar wrapped goods, are to be exempt, as are premises currently exempt from registration requirements under the Food Premises (Registration) Regulations 1991.[114] As the National Food Alliance pointed out to us in evidence, this exemption appears to convey a rather perverse nutritional message.[115] The collection of the levy is to be tied to the collection of any other charges associated with the inspection of registered premises falling within the scope of the levy, and will thus be carried out under the aegis of local authorities.[116] It is to be considered unfortunate that in thus refining the proposal for a levy the Government has abandoned the only aspect of it that had some broad support—namely that it be part of a system for the licensing of food premises. We recommend that the Bill should empower the Secretary of State to extend the scheme by regulations to encompass a licensing scheme if so advised by the Agency.

73. Of course, the very principle that there should be a levy to co-fund the Agency is obnoxious to some both inside and without the affected industries. Indeed, the majority of submissions made to the Government during the consultation period on the draft Bill and draft levy proposals have concentrated on these proposals, often to the exclusion of any other comment on the legislation proposed. Most of these comments have been negative in tone. Public health is seen by many to be primarily a public concern and as such the industry in particular resents the supposition that it ought to co-fund a public body set up by the Government to monitor and influence public health in its relation to food.

Independence and the levy

74. There is also a fear expressed in some of the submissions to the Government—and to the Committee—that the industry will be able to exercise leverage over the Agency because it will be responsible for some of its funding. The industry itself denies this, rightly stressing the compulsory nature of the levy, but expresses the same concern in a different way—namely that public confidence in the Agency will be compromised because of the perceived financial link between it and the industry.[117] We do not agree that the levy will enable industry to bring pressure to bear on the Agency, because payment of the levy will not be voluntary, but this point must clearly be put across to the public by the Government, and by the Agency when set up, lest the impression prevail that the independence of the Agency is compromised by the source of its funding.

The future of Agency funding

75. There is also a wide-spread fear in the industries affected that the proposed levy will be just the beginning of the Government's attempts to get the Agency to be funded primarily or even entirely by the industry.[118] Many submissions claim that the Government has been in some respects a little unclear about the future of the levy once the start-up costs have been paid. It is seen as self-evident that there will be need for it to continue in order to cover the recurring new costs, but whether the rate of the levy will drop once all start-up costs have been paid is seen as open to question. Many witnesses consider that it ought to, but think it inevitable that there will be demands from within the Agency for the extra monies raised by the levy after three years to be put to good use in Agency research, for example. Many submissions have expressed particular concern that the Clause 23 of the Bill proposes no cap to the monies to be raised by the levy, although they accept that such a statutory limit could be considered inappropriate in the context of a piece of legislation.[119] Nonetheless most witnesses consider it important that the Government clearly express its intention with regard to the future funding of the Agency. Although the Agency will of course make its own decisions as to how much money it requires to do an effective job, and the Government can obviously not speak for the Agency on this matter, it is clear that the DoH will have to "sponsor" those regulations put before the House pertaining to the levy, and indeed will have to agree to their content. Some view must have been taken by the Government as to its expectations in this regard. The Government must make clearly known the mechanisms by which any future changes to the levy will be decided upon and made.

Point of levy

76. Another contentious aspect of the levy proposals relates to the type of premises upon which the levy is to be raised. Many in the industry have expressed concern that only the final outlet for food products is going to be levied, when much public health concern centres on other premises earlier in the food chain, notably farms and food processing plants.[120] The Government contends that the point at which the levy is to be raised has been chosen in order not to discriminate against UK-sourced foodstuffs (whether sourced at farm or processing level).[121] It must however also be stressed that only premises registered by local authorities will find themselves being asked to pay. Even amongst the sort of premises singled out for payment by the Government, there will be exemptions and premises that simply escape the current registration scheme. It has been stressed in some written memoranda to the Committee that many of the most dangerous premises with regards to food safety and standards are those which habitually escape local government registration.[122] Moreover, local authorities who favour the levy in the context of licensing of premises view the imposition of a levy outside such a context as a possible deterrent on premises seeking to be registered, thus allowing those premises to escape local enforcement vis à vis food health and food standards regulations altogether.[123] However, these cited reservations aside, the chosen point of the levy—at least in the short term—appears to us to be based on practical reasoning.

The flat rate proposal

77. The Government's current insistence upon the flat rate is the most contentious aspect of the levy proposals. The reason for the decision to impose a flat rate, given in the consultation document and very strongly put by the Minster for Food Safety in evidence to us, was that a standard rate was the cheapest to collect.[124] Some memoranda have pointed out that there are of course instances of other levies which are raised on a sliding scale despite the extra cost that involves. Some memoranda also suggest that, given that collection will anyway involve a cost—indeed part of the levy is to be taken by local government to recompense it for the expense of collection,—it clearly seems possible to find a solution by marginally increasing the size of the total monies raised from the levy in order to fund its more equitable imposition. The implication is that most of the industries affected would certainly be content with the total of the levy being larger if their own payment better reflected their size and turnover in relation to the others paying: the only resistance to this suggestion would seem likely to come from the larger retailers. It has to be stressed that Government is not ideologically wedded to the flat rate but is wedded to the cheapest means of rate assessment available: this might in practical terms mean the same thing, but as the Minister for Food Safety stated very forcefully in evidence to the Committee if a proposal for different rates is made during consultation which passes the test of inexpense it will be seriously looked at by the Government.[125] We believe that the flat rate principle is contrary to natural justice and we recommend that the Government implement a graduated system following its consultation exercise.

Administration of the levy

78. The administration of the levy will fall upon local government. It is interesting that most of the memoranda from local government authorities seen by the Committee showed as much alarm over the levy as those from the industry, although for different reasons. Local authorities are concerned that they are having to collect what—if the current proposals are carried through—will be a highly unpopular levy when they are already stretched with their current level of activities.[126] The Government's intention to allow local authorities to retain a portion of the levy to cover collection costs is cautiously welcomed, but local authorities would in addition like to see part of the levy going to assist them in the enforcement of food safety legislation, an area not seen as a priority by most local authorities and which is consequently pressed for funds.[127] Indeed financial pressure on enforcement agencies can only be expected to increase in many local government areas as a result of higher standards recommended by the Agency as part of its work, and it is obviously important that local authorities should be able to finance the imposition of such higher standards.

Local authority costs and the levy

79. The Government has signalled in the consultation paper on the levy—albeit rather tentatively—that some part of the levy over and above that part retained by local authorities to cover collection costs will be able to be retained—if collection is managed economically—to augment local resources devoted to food safety enforcement. However, the Government must be clearer as to its intentions in this regard before second reading. At the very least, it must be made clear that in all cases all costs of collection will be paid for out of the levy. Given that collection of such charges will inevitably vary from authority to authority depending on number and location of registered premises, the costs of collection will also vary. It would be a cause for dismay if the Government were to penalise an authority where collection is unavoidably more expensive than a neighbouring authority, for example, by not covering all of its collection costs. Similarly, if there is a real intention that some of the levy be used to provide extra resources for local enforcement then this should be properly specified. Otherwise it should not be held out as a rather ineffectual carrot.

80. Given the Government's express intention to raise some funding for the Agency from parts of the industry, we consider a levy to be one means of doing so. However we think that in the short-term only the set-up costs of the Agency should be funded by the levy. Recurring new costs should initially be funded from general taxation until the Agency has had proper opportunity to assess its running costs and consider any possible extension of the levy. As Clause 23 of the Bill stands—and the explanatory notes to this clause stress that its drafting is provisional—it presents the Agency (and thus presumably the DoH who will have to "sponsor" any regulations under this Clause) with a blank cheque for not only the set-up costs and the recurring new costs of the Agency, but also possibly for all costs of the Agency and indeed all costs of the relevant enforcement authorities. The explanatory notes to this Clause—and these have been echoed by ministers in oral evidence—stress that the Government intends, "over time, to raise more of the costs of food safety work" by means of this levy.[128] It is clear that the industry is correct in thinking that the Government will gradually place a greater burden upon them in financing the Agency. We believe that it would be unreasonable for all of the funding covered in Clause 23 to be levied from the industry; we therefore recommend that the Government should come back with proposals to limit the possible scope of Clause 23.

Current assumed costs

81. At present the amount of money which the Government intends to raise is provisionally calculated at £41 million per year for three years: the set-up costs account for £12 million of this total, and the recurring new costs for £29 million.[129] In a written answer, the Government has stated that the amount raised by the levy will not exceed £50 million during the three years covered by current expenditure plans: this undertaking is repeated in the consultation document.[130] The Government has made initial calculations as to the rate of the levy, according to the number of premises intended to be subject to the levy and this figure of £41 million that it is required to raise, which suggest that the flat rate will be set at around £84 annually.[131] Of this sum local authorities suggest that between £15 and £23 per premises will be spent on the cost of collection.[132] Given that the Agency, in addition to the sum raised by the levy, will cost in excess of £100 million per year[133]—this money of course to begin with coming from general taxation and from existing charges on industry, most notably those relating to the MHS—the possibility of severe increases to the levy in the future are very real. It has been calculated that on the basis of Clause 23 as currently drafted, with the current assumptions as to the size of start-up costs, Agency running costs, and the cost of local authority enforcement, on a flat rate applied to all food retail premises currently registered, the annual levy could in future amount to a total of £600 per premises.[134] We believe that this would be unacceptable.

The future of the levy

82. We are of the opinion that if the amount of money to be raised by the levy is indeed to increase over time, then the Government must—in the interests of equity—re-examine the way in which it is to be raised. At the current proposed level, the levy would not be much of a burden to all except the most marginal retailers: if it were to increase then many retailers would feel very considerable financial pressure. A flat rate of payment would not be suitable in such a situation. Indeed, the increase of the amount to be raised by the levy could be used as an opportunity to introduce a licensing system that would assist in improving food safety standards as much as would the payments possibly to be received by local authorities.

83. In determining all of these decisions the Government—and, once set up, the Agency—must realise the importance of making clear that the levy is a logical measure that reasonably seeks funding from the industry to increase the safety of their products. It is not intended as a draconian measure and will not be such if handled properly and fairly imposed once the sums involve become more significant. It would be a pity to see a potentially co-operative symbiosis between the Agency and industry on the one hand, and the Agency and the public on the other, strangled at birth by mistrust and misunderstanding over the levy and the future funding of the Agency. When agreeing future changes to the levy, the Secretary of State must be mindful of the economic situation of small businesses and the need to maintain diversity in food supplies.

105  Votes and Proceedings, 8 February 1999. Back
106  The Food Standards Agency-Proposals for a Levy scheme: a consultation paper, January 1999. Back
107  The Food Standards Agency: a force for change, Cm 3830, January 1998-Chapter 8. Back
108  ibid, paras 8.5-8.9. Back
109  ibid, para 8.15. Back
110  See, for example, the written memoranda submitted to the Committee by the Consumers' Association, by the Chartered Institute of Environmental Health, and by the Institute of Food Science and Technology. Back
111  Fourth Report from the Agriculture Committee, Food Safety, HC 331-I, 1997-98-para 93. Back
112  ibidBack
113  The Food Standards Agency-Proposals for a Levy Scheme: a consultation paper, January 1999. Back
114  ibid-para. 16. Back
115  Q.234. Back
116  The Food Standards Agency-Proposals for a Levy Scheme: a consultation paper, January 1999-para. 23. Back
117  See, for example, the memoranda submitted to the Committee by Tesco and by J Sainsbury plc. Back
118  See, for example, the memoranda submitted to the Government by CWS and by the Institute of Directors. Back
119  See the memoranda submitted to the Committee by CWS and by Tesco. Back
120  See the memorandum submitted to the Committee by CWS. Back
121  Q.73. Back
122  Q.899. Back
123  ibidBack
124  Q.74. Back
125  Q.75. Back
126  See the memoranda submitted to the Government by Ceradon District and Gedling Borough Councils. Back
127  Q.863. Back
128  The Food Standards Agency: consultation on draft legislation, Cm 4249-January 1999-note on Clause 23. Back
129  The Food Standards Agency-Proposal for a Levy Scheme: a consultation paper, January 1999-Annex 1. Back
130  ibid-para. 9. Back
131  The Food Standards Agency-Proposal for a Levy Scheme: a consultation paper, January 1999-Annex 1. Back
132  Q.868. Back
133  Q.764. Back
134  ibidBack

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 31 March 1999