VI FUNDING AND THE LEVY
Introduction
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 ibid. Back
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 ibid. Back
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 ibid. Back
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