Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

TUESDAY 4 APRIL 2000

MR STEPHEN TIMMS MP, MR JOHN HALL AND MS HEATHER MASSIE

  60. Could I just raise two things about this fund? Firstly, how much of the estimated £380 million which is going to be raised from this tax is actually going into the Sustainability Fund? Is there any indication of that yet?
  (Mr Timms) We have not put precise figures on that but the 0.1 percentage point reduction in employer national insurance contributions, if I remember rightly, would absorb something like £350 million, so the balance I guess, whatever that eventually turns out to be, would be available to a Sustainability Fund.

  61. Who will administer that, especially in the light of the hostile reaction by the industry and its apparent splitting off in all directions? Who is going to do the administration of the fund?
  (Mr Timms) As you know, we are going to be legislating for the levy next year and one of the main tasks we have between now and then is to sort out precisely those and other details of how the fund will work, and we want to carry out a full consultation on that point. I hope we will be able to do so on a good and well-tempered basis with all parts of the industry.

Joan Walley

  62. A series of further questions on that subject. Can I ask you, first of all, the purpose of the levy presumably is a reduced demand for aggregates?
  (Mr Timms) It is two-fold. It is, as I said a moment ago, to ensure that the price of aggregates more fully reflects the environmental costs associated with quarrying, and also to encourage use of recycled and waste material. Quite how the market will respond to the improved price signals which are created, we will have to wait to see.

  63. I have one very specific aspect in relation to Mr Grieve's comments just now about the reinstatement of street works. In respect of the consultation that you have just referred to which will be taking place, would it be possible, for example, for you to consider not going further forward with the proposal of a levy in respect of reinstatement of street works until such time as the statutory guidance has been changed to allow for the material used to be no longer primary aggregates but to be recycled aggregates?
  (Mr Timms) I think it would be difficult to have a different rate of levy depending on the use to which aggregates were to be used. We have said we will legislate next year, that the levy would be introduced in 2002, so there is a period of time before it takes effect. My initial view is that it would be difficult to set different rates for the levy depending on how the aggregates were to be used, given that they were being sold in the UK. I am not sure one would know at the point at which the aggregates were sold how they were going to be used.

  64. I wonder whether, therefore, through the Green Ministers' Committee, you might be pursuing this case about how to get the code of practice revised so as to allow and encourage the use of recycled aggregate. It seems to me that unless you change that, you are going to have a contradictory policy which will reflect on the finances of the public policy as well.
  (Mr Timms) I certainly cannot think of any in principle reason why recycled aggregates cannot be used in that context and I would be glad to look into the matter again.

  65. So you will be taking that up with the Green Ministers' Committee. We would be very interested to hear the outcome of that. On another slight contradiction, our Committee has been quite critical of the OGC, the Office of Government Commerce, in the past in our reports because of their failure to genuinely put environmental integration at the heart of the work that they do. I just find it a little bit strange that they have actually said, "Procurement must not ...", I stress "not", "... be used as a vehicle for delivering policies such as environmental sustainability." In respect of the aggregates levy, is there not a contradiction in terms here? How do you see this being resolved because presumably the sticking point of the voluntary agreement you were seeking to reach with the aggregates industry is based on this issue of procurements, and if 40 per cent of procurement is government-led, surely we are in a situation where it is virtually impossible to carry out what the Helsinki Agreement and everything else said about putting environmental sustainability and environmental integration at the heart of government procurement policy? Is this not all at odds and is a further item which needs to be pursued through the Green Ministers' Committee?
  (Mr Timms) The central task for public procurement is about value for money and I think all of us would think that is right.

  66. But I thought the Treasury was looking not just at value for money but at environmental sustainability with the indicators and so on as well?
  (Mr Timms) Indeed, but the point I am making there is that the central concern with procurement has to be about value for money and beyond that there is a variety of approaches we can use to address the sustainability point. We are constrained in that by the EU requirements, by competition—

  67. Can I interrupt you there? You say you are constrained by EU requirements, but my understanding is that EU requirements are that we should have environmental integration. Therefore, if it is a point of European policy where there is this contradiction, is this not something which the Government should be taking up with the Commissioner?
  (Mr Timms) There are two points. First of all, what the EU says about public procurement is pretty clear and the sort of things that the QPA was arguing for, particularly with the Sustainability Fund, clearly fell outside what EU rules allow. One of the benefits of the tax route in this area is that by ensuring that the environmental costs are reflected in the price, we can leave it then to the normal market mechanisms to make adjustments and to change the proportion of recycled aggregates and so on which are in use. If one attempts to do that more directly through procurement rules, then we do get into some very difficult territory. Now I am not saying there is nothing which can be done, but it is difficult territory and territory which needs a good deal of thought, and the fact that the Quarry Products Association wanted us to do some things in this area which clearly were in conflict with the existing rules highlights the difficulty.

  68. I think it would be very helpful and useful if you were able to provide the Committee with the undertakings that the QPA gave and why in your view they were unacceptable. Could you give me that information now?
  (Mr Timms) I hope I have explained—or certainly attempted to explain—what it was that was unacceptable in the QPA package. The QPA was asking us to go down a road which had very, very serious legal problems about it. Clearly that was not something which the Government was in a position to do. This was particularly around the issue of the Sustainability Fund, that public procurement would only take place from sources, from quarries, which were contributing to a Sustainability Fund. That would be in conflict with the rules and, of course, in any case it would not be possible for the Government to bind what, for example, local authorities choose to do with their procurement policies or the devolved administrations. So when it came to a decision being made, the fact is there was not a viable package on offer.

  69. Presumably you took legal advice?
  (Mr Timms) Absolutely, we certainly did.

  70. Could we have a look at this?
  (Mr Timms) The advice is internal Government advice that I have received and it is subject to the normal rules about advice to ministers.

  71. I think you can see our position. We have just been going through a similar issue in respect of VAT, where we were told it would be unacceptable to do it because of European constraints, and now find that that has been reversed—and we are very pleased about that—and we see a similar situation arising here. I think we would be very interested to see that legal advice which ruled out this whole aspect of sustainability being included in Government procurement policy.
  (Mr Timms) The point about VAT, of course, is that it is a result of a policy change in the European Commission. If there were to be—and it would have to be a major policy change—a change on this front, clearly that would change things. But the position currently is pretty clear.

  72. Finally, what policy are you adopting where it might be difficult to calculate the environmental values appropriate for whole life costings?
  (Mr Timms) I am sorry, is this a question about aggregates?

  73. Yes, in relation to the procurement policy and the advice which has come out from the HSE.
  (Mr Timms) Sorry, I do not entirely understand the question. On aggregates, in terms of what the cost per tonne of the levy should be, that was the subject of very, very thorough research commissioned from London Economics, which came out with a figure of £1.80 per tonne, and we proposed a figure which is rather less than that in taking the levy forward. In terms of, can we take the whole life cost into account, then the answer is yes.

Chairman

  74. One of the things which Customs & Excise said in looking at the aggregates tax in the various stages of discussion was that it was very difficult to distinguish between primary, second and recycled aggregates. That was obviously a problem. Are you confident that you can minimise the use of primary aggregates and maximise the use of recycled and secondary aggregates and that the tax would do that in the light of the difficulties in defining what those are?
  (Mr Timms) Yes, I am confident we can resolve those definition questions which, as you said, are quite important.

  75. Why is not all secondary aggregate subject to the tax?
  (Mr Timms) One of the aims of what we are doing is, as I have said, to encourage the use of recycled aggregates and waste. What we have to be careful to do is ensure that we do not end up with perverse incentives or loopholes being created and opportunities for avoidance, and going down the road you have suggested we would have the potential to do that. So there is quite a tricky definitional issue here. I think by ensuring that there will be an exemption for recycled aggregates and waste, then we are on safe ground in that respect.

  76. Yes, you are in danger of getting into a very considerable degree of detail and complexity in exempting some secondary materials and not others, I would have thought.
  (Mr Timms) As long as we do it properly and we get the definitions right, then I think we are safe. As you know, we have consulted on the draft clauses for this already, so we have had the opportunity to look pretty carefully at how to do it and I am confident we can resolve any difficulties of this kind.

  77. I think you might have to rely on the goodwill of the QPA which might not be quite so forthcoming in the light of recent events.
  (Mr Timms) As you know, I am concerned by what I have heard as being reported as them saying.

  Chairman: We will now move to the subject of waste and I know Mr Savidge wants to ask some questions about that.

Mr Savidge

  78. Returning to the subject you have just mentioned of secondary aggregates and perverse incentives, we would recognise the need to use inert waste in restoration work on landfill sites, but would you recognise the danger that the very tax exemptions which are granted for that purpose could be a perverse incentive for people to use secondary aggregates in landfill rather than to re-use them?
  (Mr Timms) I am going to have to ask you to put that point to me again. I am not sure I followed it.

  79. You were talking about possible perverse incentives, to what extent does the fact that we give tax exemptions for using secondary aggregates in landfill restoration work actually provide a perverse incentive for those secondary aggregates to be used in landfill rather than being re-used?
  (Mr Timms) The use of that kind for landfill I think is benign, is it not, and probably helpful from an environmental point of view?


 
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