Examination of Witnesses (Questions 340
TUESDAY 18 JANUARY 2000
TIMMS MP, MR
340. Do you see any possible problems from increased
recycling, that there may be adverse environmental impacts, say,
from more transport of the materials?
(Mr Timms) The point has certainly been raised that
recycling is not an environmentally neutral process. I would take
that point on board. My guess would be that there is scope for
increasing the use of recycled materials in a way that minimises
environmental damage. However, I would not want to give the Committee
the impression that I believe that recycling has no environmental
disbenefits because I acknowledge in the case that you have given
that there are some.
341. How will a blunt aggregates tax incentivise
the good primary quarrier, as primary aggregates will still be
required, and how will it penalise bad practices?
(Mr Timms) The aggregates tax, as I have said, would
have the effect of increasing the incentive for recycling because
the tax would not be applied to recycled materials. I think that
you are raising the point that the Chairman has already raised
and that I have accepted, that in terms of the local impact of
a quarry in a particular area, there is a good deal more that
may be achieved through voluntary agreements than through a tax.
That is the point that I would accept.
342. You would accept that if in the end you
go ahead without these voluntary agreements, there would be no
discrimination as to the type of business to which that tax is
applied? If all products coming from quarries are subject to a
tax, and, therefore, the margins of the quarrier come under pressure,
there will be an incentive for quarriers to cut corners and there
will certainly be an incentive for quarriers not to provide, on
a voluntary basis, the additional environmental benefits that
they have provided in the past, for example, 700 SSSIs in this
country. A blunt tax will promote bad practice rather than good
practice and you are not prepared to go into any banding of good
or bad practice, or whatever, as you seemed to suggest you would
on banding for pesticides impacts.
(Mr Timms) I would not accept those points. A number
of those points will depend on the design of the tax. As yet,
there are no decisions on that. It is the case, as I have said,
that there are a number of attractions to a voluntary approach,
particularly in terms of local environmental impact. Therefore,
we shall look at the industry's proposals with great interest.
It is important that we make significant progress on this because
there are substantial environmental costs associated with quarrying.
343. I agree that it would be better to have
voluntary agreements, but you have stated that you are not happy
that the industry has come up with good enough voluntary agreements
and unless it improves its offer as you see it, you will forge
ahead with a blunt tax that will have the implications that I
have just mentioned. However desirable it is not to go down that
road you are prepared to go down that road. If you go down that
road are you saying that there will not be differential treatment
of that tax towards different levels of environmentally friendly
quarrying but simply that if there is quarrying then there will
be a tax?
(Mr Timms) No. I have not described how the tax would
work or how it would be designed. You are making a number of assumptions.
I say that those decisions have not yet been taken.
344. So it is likely that if you do not get
a voluntary agreement, you will want to refine the blunt tax by
penalising the bad quarriers more than the best practice quarriers?
(Mr Timms) There will be a range of design matters
to be determined in drawing up the details of the tax. Today I
am not in a position to talk in detail about what those will be,
but clearly there will be a number of them to be resolved.
345. That is a bit vague, is it not, when you
have looked at this for the last two years? Given the basis of
the environmental impact on which you want to clamp down, will
open-cast coal mining be included in such a tax?
(Mr Timms) We are talking about quarrying for aggregates
and that is what would be covered by the tax. I do not think that
the Committee would expect me to go into great detail about matters,
such as deciding to adopt a tax, that the Chancellor would announce
at the time of his Budget.
346. I do not think that we are expecting you
to go into specific details. The point of having a Pre-Budget
Report is to identify some principles. At the moment we do not
have the principles of what the tax is supposed to achieve and
who it will affect. I know that open-cast coal mining is not covered
by aggregates, but would you not agree that it would open an enormous
anomaly whereby quarriers producing environmental goods at the
same time will get clobbered unless we come up with voluntary
agreements? Open-cast coal mining is one of the biggest defacers
of the countryside and yet it is escaping scot-free in order to
produce coal that goes to coal-fired power stations, one of the
biggest producers of CO2 gases and one of the biggest problems
in the Kyoto agreement targets. Would you not agreewithout
giving away any secretsthat it would open an enormous anomaly
if that were in the Chancellor's Budget?
(Mr Timms) I think it is important that we are clear
about what the purpose of this tax is, and it is to encourage
recycling. As I have said and as I think I have made clear, for
mineral extraction, coal and so on there is not an alternative
that one would go for here, so that the situation is very different,
I think, from the one which applies to aggregates.
347. Are there not ways in which you can encourage
recycling without discouraging primary quarrying? You can have
tax relief for those people who are producing recycled goods,
bearing in mind that with recycling a finite amount of aggregates
is going to be produced by that, unless the Government is also
going to incentivise widescale demolition of buildings up and
down the country, because that is where aggregates come fromit
is from knocking down existing buildings largely. Also I have
one last point to latch onto another anomaly. Is the Government
happy that as the proposals stand at the moment, building materials
made from aggregates which are imported from other countries,
which may be doing vast amounts of environmental damage to those
countries, making big holes in the ground without any regard to
the environment, would be exempt from this tax?
(Mr Timms) On your first point, the Committee has
urged upon merightly, in my viewthe "polluter
pays" principle. That is the principle which underpins the
approach which we are taking, and I would have thought that that
is an approach which the Committee would welcome.
348. Is that it?
(Mr Timms) Was there a further point on which you
wanted me to respond?
Mr Loughton: There are several.
349. We shall take your silence as acceptance.
I think we ought to turn to the Climate Change Levy. I think we
have gone through the aggregates tax fairly substantially, so
perhaps we can turn to that very different tax. Could I ask you,
Minister, whether you agree that much of the complexity of the
Climate Change Levy stems from implementing it as a downstream
energy tax in order to exempt the domestic sector?
(Mr Timms) It certainly is the case that the Government
has been clear that we have no plans to raise energy taxes on
the domestic sector for social policy reasons. We have arranged
other measures like the home energy efficiency scheme which has
been expanded to improve energy efficiency in the domestic sector.
So that has been a decision which has been built into the design
of the levy from the outset. We have been absolutely frank about
that, and I think it is right that we have been.
350. Is that a permanent feature?
(Mr Timms) Clearly it is an integral feature of the
levy which has been proposed. That is not to say that at some
point in the future there might be some change in the way these
matters are addressed, and we shall clearly keep that under review,
but the design of the levy certainly has that as an integral feature
and one which I would expect to endure for a good period of time.
351. Did the Government give any serious consideration
to implementing the tax as an upstream carbon tax with accompanying
measures to balance any effect it might have on those households
which might be considered to be "fuel poor"?
(Mr Timms) We certainly did look at the possibility
of using carbon rather than energy as a basis for the tax, but
the current electricity pool arrangements mean that it is only
possible to determine the carbon content of electricity as a broad
package. As I say, the Government will keep under review the basis
for setting the rates of the levy, particularly in the light of
developments in the electricity trading arrangements, and in a
few years' time that might look rather different from today. It
has been an important principle in the design of the levy that
we do not plan to raise energy taxes on the domestic sector.
352. What I was asking you is whether you did
actually consider that properly and fully in reaching your broad
decision in principle to go for a domestic energy tax as opposed
to an upstream carbon tax?
(Mr Timms) Yes, I think all the issues about the principle
of how this might be tackled were considered in the early stages
of the design, but this point about domestic energy is an important
one for the Government. There is, as you know, a major manifesto
commitment about VAT on domestic fuel, so that consideration has
been built into the design of the levy from quite an early stage
in the process.
353. Why did you not formally consult on this?
You say you did some work on this. Or did you just take it as
a matter of manifesto commitment and therefore you could not tax
a domestic user, therefore you ruled it out almost in principle
from stage one?
(Mr Timms) We do attach a high degree of importance
to social policy considerations.
354. Are you therefore saying you did not really
consider this as an alternative?
(Mr Timms) No, I would not say it was not considered.
Perhaps I can ask Simon, who was involved in the early stages
of this, to comment further on this point. It certainly has been
built into the design from an early stage that because of the
social policy considerations we did not want to increase it to
introduce a new burden on domestic energy. Simon, perhaps you
can say a little bit more about the process and what happened
at the early stage.
(Mr Virley) Clearly the very early stage was the July
1997 announcement on fuel and its effects on the environment.
At that stage the issue would have been considered, and the Government
made very clear that it did not want to introduce new taxes on
domestic fuel and power by that stage, so that was, in a sense,
the key consideration in looking at the options.
355. So the fact that there was a manifesto
commitment, which is very clear, effectively ruled out any consideration
of the other options?
(Mr Virley) It limited the consideration of other
356. Thank you. Why are you taxing electricity
which comes from nuclear sources, when obviously nuclear-power
electricity must be an important part of your efforts to reach
the Kyoto targets? For example, I do not know whether you saw
a letter in The Times recently from Ian Fells, Professor
of Energy Conservation at the University of Newcastle, who pointed
out that "By taxing nuclear electricity it may accelerate
the closure of some of the older nuclear power stations and increase
carbon emissions to the tune of four million tonnes a year by
2012 or earlier. This is just about the saving the Government
expects to achieve by introducing the climate change levy."
He goes on to say, "As the Red Queen remarked to Alice, `here,
you see, it takes all the running you can do, to keep in the same
(Mr Timms) Yes, I am aware of some of those sentiments.
There is a single rate of levy being applied to electricity, and
of course you cannot normally determine what the origin of electricity
was, so a single rate is applied. We have, as you know, announced
in the Pre-Budget Report in November exemptions for new renewable
energy sources and good-quality combined heat and power, but the
great virtue of that arrangement will be encouraging people to
do new things. I would be wary of introducing too much deadweight
cost into levy exemptions, even if it were possible (which, for
the reasons I have said, I do not think it is). So there is absolutely
no discrimination against electricity generated from nuclear sources;
the same rate will be applied across the board.
357. None the less, the practical consequence
of operating the tax in the way you have implied is that nuclear
power, which is a very important part of the clean fuel coming
into this country, will be taxed, therefore it will have an adverse
effect possibly on, as you said and as Professor Fells says, maybe
four million tonnes a year by 2012. That is a big effect, is it
(Mr Timms) Yes. I do not accept the points which are
made in that letter. Obviously I do accept that electricity from
nuclear sources will be taxed, as it will from all the other sources,
and I think it is the right approach that the same rate is applied
across the board.
358. Yes, but we are trying to get down carbon
emissions. Nuclear power is carbon free, and you are taxing it.
It seems perverse.
(Mr Timms) I think there are a number of assumptions
which are being promoted by the nuclear generators about the effects
on their business of this change. There is a good deal of scope
for debate about those and the point which you made, I think,
relating to changes a considerable period into the future. I think
the right approach is to treat all existing sources of electricity
in the same way.
359. As you say, you have, with second thoughts,
exempted combined heat and power and renewables from the tax,
but you have not exempted LPG. LPG will have a tax placed on it
which is directly competitive to CHP which does not have such
a tax and indeed is zero rated. Is this another example of the
contradiction produced by your decision to go for an energy tax
rather than a carbon tax?
(Mr Timms) This is a matter which has been raised
with us. I have met the Managing Director of Calor Gas to talk
about his concerns. In fact, he has recently written to me noting
that he is happy that we are now fully aware of the concerns which
have been expressed by the LPG industry. We are considering those
and we are deciding what is the best way to go forward on this.