Examination of Witnesses (Questions 80
- 99)
TUESDAY 4 APRIL 2000
MR STEPHEN
TIMMS MP, MR
JOHN HALL
AND MS
HEATHER MASSIE
80. It probably depends on the proportions,
does it not?
(Mr Timms) If one was to get into the position where
a huge amount of material was being used up in that way, then
there might be a problem, but I think on the whole filling in
landfill and closing off landfill in that way is something which
none of us would have a problem with.
81. So would you see these exemptions continuing
for some time?
(Mr Timms) We are talking about exemptions from the
levy?
82. Yes.
(Mr Timms) Yes, I would expect them to be an enduring
feature of the arrangements.
83. Is there not a danger that possibly the
exemption actually results in an under-statement of the true environmental
cost of landfill?
(Mr Timms) I think I would have to ask you to press
me further. Tell me more about the problem you envisage.
84. In effect, if there is an excessive use
of secondary aggregates for that purpose, whether by giving that
exemption we are actually disguising the full environmental cost
of landfill?
(Mr Timms) Let me ask John to comment on this.
(Mr Hall) I think we need to be very clear there is
a standard £2 rate of tax on inert landfill and that has
been exempted by two very specific uses—restoring landfill
sites and backfilling quarries—both of those to assist landfill
operators and quarry operators to comply with their planning applications.
Customs is reviewing at the moment the rules on licensing waste
sites to make sure there is no form of avoidance occurring—there
have been allegations in the past, for example, on issues such
as golf courses—but stuff used as aggregates clearly would
be taxed as aggregates and would be exempt from landfill tax if
it is used to backfill quarries or to restore landfill sites to
their original condition, as laid down in the planning applications.
85. Thank you very much. Given the massive reduction
we have to make in biodegradable and domestic waste, from 85 per
cent to 35 per cent, in order to satisfy the EU Waste Directive,
do you feel that an annual increase of £1 in landfill tax
is sufficient to help you achieve that?
(Mr Timms) I certainly think it will help to achieve
that. I think it is a change which has been widely welcomed. We,
of course, published the draft Waste Strategy last year which
proposed a number of targets. The final Waste Strategy will be
published shortly. I think we are going to need a range of measures
and I have no doubt at all that the escalator on landfill tax
is a significant help in achieving the targets that we have.
86. Would you accept that achieving those targets
will not simply be done by recycling? Are there complementary
measures you are considering and could you perhaps indicate what
measures you might be considering and when we might expect any
firm proposals on that to be published?
(Mr Timms) The final version of the strategy is going
to be published shortly and it certainly will contain a range
of measures. The draft strategy proposed that we should be recycling
or composting 25 per cent of household waste by 2005. There is
no doubt at all in my mind that we do need to do a good deal more
on recycling in order to hit the targets. I think it is going
to require partnerships as well between local authorities and
those engaged in waste disposal. I think there is going to need
to be quite a range of measures and there is no doubt that the
targets are demanding and stretching.
87. Are we talking about combined heat and power
incineration or what other possibilities?
(Mr Timms) Certainly waste incineration has its attractions.
As you know, we have proposed an exemption within the Climate
Change Levy for combined heat and power sources. I think that
will be helpful certainly.
88. We understand that you are currently reviewing
the Entrust scheme for voluntary diversion of tax into environmental
projects. Have you any concerns at present with the operation
of the scheme and are you able to give us any advance idea of
what the main findings of the review are likely to be?
(Mr Timms) I think the scheme has a number of attractions
and that it has achieved a good deal. A key strength of it is
in promoting the involvement of the private sector in protecting
and promoting the environment and we have certainly no wish to
undermine that. I see it continuing to go forward and playing
a useful part in progress in this area.
89. Given your positive response there, would
you see scope for more extensive use of tax credit schemes of
that sort?
(Mr Timms) An approach of that kind is one of the
options, for example, for the Sustainability Fund arising from
the Aggregates Levy. That is a possibility. It is not the only
one by any means but it is a possibility and I certainly think
it is an option that we will be considering in that connection,
and perhaps others, as things develop as well.
Mr Savidge: Thank you very much.
Chairman: Mrs Walley?
Joan Walley
90. Could I move on to the Climate Change Levy
and start off by saying that I think many of us welcomed the fact
that the £50 million Energy Efficiency Fund was going to
be increased, but were perhaps a little bit disappointed to find
that the increase amounted to £100 million which was going
to be accelerated capital allowance and not quite in the same
category as the first £50 million. Would you like to comment
on that and also on concerns that there are that the money for
horticulture is going to be, if you like, coming from that £50
million as well so it does not seem as though there is going to
be as much money for investment in energy efficiency as we perhaps
thought at first there might be?
(Mr Timms) I do not think I would agree with the criticism
that is implied there. The £100 million additional support
through capital allowances has been very widely welcomed and responded
directly to points that were put to us in the consultation process.
That is in the first year £100 million of loss to the Exchequer,
if you like, through supporting important and worthwhile investments.
I think that is going to be a pretty powerful mechanism. It is
certainly an order of magnitude increase in public support for
energy efficiency investments. I think it has been widely welcomed
for that reason as well. So I do not accept the criticism that
is implied. What we have said on horticulture is that the horticulture
sector is in a pretty unique position in that it is clearly highly
energy intensive, it is subject to very, very stiff international
competition, it is nowhere near the coverage of the IPPC Directive,
and it is treated differently in other EU countries as well, and
because of the uniqueness of its position for all of those reasons
we have decided it is appropriate to address it in a rather different
way to other sectors and therefore there will be a ring-fenced
element of the £50 million fund which will be exclusively
for horticulture. But of course horticulture was always in the
frame for getting help from that fund. I do not see that as taking
away from others, simply reflecting the fact that we think it
is right with the horticulture sector, which is characterised
also by a lot of very, very small operators and is a very, very
diffuse sector which is another of its unusual characteristics
compared with other sectors, that we put some extra effort into
making sure that those users do benefit from the fund and are
able to achieve energy usage improvements as a result.
91. I do not think anyone disputes the support
that has been given to horticulture. I think the concern is that
there is not quite as much additional money to begin with as some
of us hoped there might be and that the £150 million mooted
as being the extra amount that was going to be a available is
not quite the same thing as £50 million up front and some
of that ring-fenced and then an extra £100 million in terms
of capital allowances accelerating because over time it is not
that much of an addition. If I can move on. Can you perhaps give
us an update in terms of the "first wave" sectors—
(Mr Timms) Before we leave the package point, I think
it is a very substantial package, very substantial indeed, and,
as I say, the announcement we made about capital allowances of
£100 million was directly in response to what people said
to us in the consultation. I am anxious the Committee does not
denigrate that or think it is not a very big step on the part
of government because it certainly is.
92. It is never enough.
(Mr Timms) No doubt. I guess it is one of the Committee's
roles to urge us to do more and that is fine.
93. Of course.
(Mr Timms) I thought the way you expressed that sounded
a little disparaging to what is a very, very major step responding
to pressure from here and elsewhere.
Chairman
94. I agree that it is a step forward but the
Committee's point was it is not in the same category as the original
£50 million because the £100 million is only, as you
said, cash lost to the Treasury and only for one year, it then
diminishes. It is delayed receipts in effect. What would the value
of this £100 million be in resource accounting terms?
(Mr Timms) I do not have a figure for that but in
the first year, as I think you are acknowledging, it is £100
million lost to the Treasury. John is giving me a figure of £140
million for year two because of way this works and beyond that
the figure will still be there and, who knows, it might be reviewed
in the future as well. It is a very, very substantial sum of additional
government support for the kind of investments that all of us
want to see. I am anxious that people should not feel that it
does not amount to very much because actually it does.
Chairman: Okay, we take your point.
Joan Walley
95. When you last appeared before our Committee
you did suggest that the Government was on course to sign four
agreements with all the eligible first wave sectors in the coming
months and very much hoped that this would be done by the end
of March. As we are now at the beginning of April could you update
the Committee on the progress that the Government has made on
the first wave agreements?
(Mr Timms) Yes. We have already agreed memoranda of
understanding with the ten major energy intensive sectors and
those will be translated shortly into full negotiated agreements.
We expect to reach memoranda of understanding with the smaller
energy intensive sectors over the coming months.
96. I would just like to take a little bit of
licence, if I may, and refer to a constituency interest of mine
which is the ceramic industry. How much progress has been made
that is again cast in stone and how much leeway might there be
for further negotiation because one of the concerns that has been
expressed to me is that, for example, in the construction of bricks
there is a certain amount of innovation that needs to be done
and the detail of the whole issue about the actual production
has not quite been reflected in the way in which the levy is now
being imposed. In other words, you could have a manufacturer involved
in factories who could have a very innovative design which in
the long term is going to be far more sustainable and use less
energy but in the short term of its production is going to require
more energy to be used. Once again we are into a perverse incentive
and I wonder whether or not the Treasury is really looking at
the detail of all of this and how much scope there is for further
modifications in order to make sure that the way the levy is being
imposed is in line with what we want to see in the way of innovation
as well.
(Mr Timms) Let me make a number of points in response
to that. My familiarity with brick-making is limited so I will
not attempt to give too definitive an answer to that question.
I want to take issue with the point where you said "once
again is a perverse incentive". The impact of all of these
proposals, including the negotiated agreement process, has been
an enormous effort right across industry which will yield huge
dividends in terms of reduced carbon dioxide emissions in the
future. It is a massive achievement and it will be a massive success.
You said "once again a perverse incentive". It is not
characterised by perverse incentives, quite the reverse. It is
producing the incentives for people to do the right thing and
it will have a very, very major beneficial impact for us as a
result. The ceramics industry is in the first wave so there is
a memorandum of understanding that has been agreed with that sector.
Whether there are issues along the lines of the one you describe
that are still being looked at by DETR which is carrying out the
negotiations, I am not sure.
97. But you would not rule out looking at some
small modifications which might be required to provide the win/win
situation that I think both of us want to see? You would not rule
it out?
(Mr Timms) It is not for me to rule it out because
it is the DETR doing the negotiations.
98. Is there no joined-up thinking between the
Treasury and the DETR?
(Mr Timms) I do not want to second-guess somebody
else's work. We have got a memorandum of understanding. There
is still some detailed negotiation to be done and I imagine points
like that would be picked up in the course of that.
Mr Chaytor
99. Minister, following that point, could I
ask if you have been satisfied with the way in which the consultation
generally has taken place over the last few months? Accepting
that here is a very difficult and complex levy to introduce, are
you satisfied with the conduct of the consultation and are you
saying, I think you perhaps have answered this question already,
that there is room for further discussion about details of the
levy? I am specifically interested in use of the IPPC criterion
for eligibility. Is that now fixed or is that now still under
review?
(Mr Timms) Am I satisfied with the way the consultation
process has worked? Yes. I think increasingly in the future the
process that we have been through for the levy will be looked
at as a model for how these things ought to be done. First of
all, there was Lord Marshall's report, a very thorough piece of
work commanding widespread respect, then a Budget announcement
followed by very extensive consultation, followed by some further
announcements that were in the pre-Budget report last November
and further discussions and so on. I think it is possible to see
through that whole process how some of the concerns that were
aroused first of all have been dealt with through the course of
that process and I think what we are going to end up with is a
very, very effective measure, a very big step towards achieving
the objectives of this Committee and the objectives of the Government
and I think it is going to be seen as a model of how these things
should be done. Of course it is only going to take effect from
next year so everybody has had lots of time to plan for the change
that is needed as well. On your question about IPPC, we have taken
on board and considered all the points that have been put to us
in the consultation process. We did say that if there were proposals
coming forward for alternative eligibility criteria in place of
IPPC, then we would look at those but that they needed to concentrate
help on sectors that are energy intensive and exposed to international
competition. Any alternative would need to have a clear rationale
(in the way that IPPC does) would need to apply legal certainty,
be simple to administer, and be consistent with EU state aid rules,
and none of the alternative definitions that have been put to
us so far meet the criteria that I have just set out. There is
a further round of consultation due on the precise coverage of
IPPC, parts A1 and A2, and that consultation will be carried out
shortly, but in terms of moving away from IPPC we have not yet
been presented with an alternative that does the job.
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