Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 340 - 359)



  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.

Mr Loughton

  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 agree—without giving away any secrets—that 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 from—it 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 me—rightly, in my view—the "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 options, yes.

  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 place.'"
  (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 not?
  (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.

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