TUESDAY 18 JANUARY 2000
_________
Members present:
Mr John Horam, in the Chair
Mrs Helen Brinton
Mr Neil Gerrard
Mr Dominic Grieve
Dr Brian Iddon
Mr Jon Owen Jones
Mr Tim Loughton
Ms Christine Russell
Mr Jonathan R Shaw
Joan Walley
_________
MEMORANDUM SUBMITTED BY HM TREASURY
EXAMINATION OF WITNESSES
MR STEPHEN TIMMS, MP, Financial Secretary, HM Treasury, MR SIMON VIRLEY,
Head of environmental tax team, HM Treasury, MR DAMIEN McBRIDE, Tax
policy team, HM Treasury and MS HEATHER MASSIE, Excise policy group,
HM Customs & Excise, examined.
Chairman
290. Good morning. Thank you for coming here this morning. We
are delighted to see you. We have decided to start five minutes early. Thank
you for your various memoranda and the letter dated 13 January, which dealt
with the various questions on the Climate Change Levy that we are anxious to
hear more about. I would not encourage you, but if there is anything further
that you want to add before the Committee questions you, please do so.
(Mr Timms) I shall say a few words, if I may. First of all, thank you
for the opportunity to appear before the Committee for the first time. I am
grateful for the Committee's work in pushing forward the environmental agenda
in a number of ways. I hope that the committee will agree that a number of
its previous recommendations were reflected in the environmental tax measures
that were announced in the Budget in March and in the Pre-Budget Report in
November. A lot of progress has been made since the statement of intent on
environmental taxation in 1997. The Committee described the last Budget as
the "greenest" ever. The recent Pre-Budget Report contains significant
progress on environmental modernisation. Responding in particular to this
Committee's recommendations, there was, for the first time, a separate chapter
in the Pre-Budget Report on environmental issues reiterating the importance
that we attach to economic growth taking place in a way that ensures effective
protection of the environment and prudent use of natural resources. I would
be very happy to answer any questions that the Committee may wish to put to
me. I shall introduce the officials who are with me. On my right is Simon
Virley, who heads the Treasury's environmental tax team. Immediately on my
left is Damien McBride from the tax policy team in the Treasury dealing with
indirect taxes. At the end of the table is Heather Massie who has
responsibility for environmental issues at Customs & Excise.
Chairman: Thank you, Minister, for that brief statement. We want to
take it tax by tax. To begin with, on one or two general points, I shall ask
Joan Walley to start.
Joan Walley
291. Minister, I welcome how much you have done personally to take
this agenda forward. We were pleased to see that the Pre-Budget Report has
a special chapter on environmental issues. In the light the statement of
intent back in July 1997 as regards the precautionary principle, we are a
little bemused about the section in 6.4 on page 101 of the Pre-Budget Report.
You refer to the fact that environmental policies must be based on sound
evidence. Does that not conflict with the precautionary principle? Should
we not underpin everything with the precautionary principle? Is there a
conflict there?
(Mr Timms) I do not see a conflict. I think we have been quite careful
to research thoroughly all the measures that we shall discuss this morning.
There has been some research work commissioned at the outset, some
consultation following the conclusion of that work and only then have we come
forward with announcements. I believe it is very important, particularly
given the uncertainties in some of these areas, that we research thoroughly
and prepare for the announcements that we make. That is what we have done and
that has been the right thing to do. I do not see a conflict with the
precautionary principle, and certainly no conflict with anything in the
statement of intent.
292. You do not feel that the formulation such as the one that is
in the Pre-Budget Report would have been at variance with the lessons of the
BSE crisis or the lessons from asbestosis where you need a long incubation
period to find out the long-term effects? Why not spell out the precautionary
principle? Why not have it set out as clear as daylight?
(Mr Timms) If you look at the range of issues with which we are dealing,
they are rather different in character from the examples that you have just
given. There is a substantial body of work on climate change, for example.
That is not to say that we know everything about what will happen in the
future, but there is a good body of research to draw on. The same is true in
the case of the use of pesticides. It has been possible, therefore, to
proceed on the basis of careful research in each of these areas. There may
be areas where in future that will not be possible and I take your point.
However, where it is possible - it has been in these cases - we should proceed
on the basis of research where we can, not least because if we were to get it
wrong the consequences could be quite damaging and we want to avoid that if
we can.
293. In terms of the water environment, there are a lot of
questions to be asked. Why not have the precautionary principle included?
Will you look at that further?
(Mr Timms) I am not sure what you mean. I do not imagine that you are
urging me to do things before we are reasonably confident at least about the
implications of those measures. For example, there was a good deal of concern
about the proposals announced in the Budget on some aspects of the Climate
Change Levy. You and I discussed those. I think it was important that we
were careful, consulted thoroughly and carried out widespread research before
moving on to the next step of the announcements that were made in November.
That is quite a good illustration of the importance of being careful and
thorough in planning measures that we take in this area. It sounds a little
as though you may be encouraging me to rush ahead before we know what the
implications are.
Joan Walley: I am not trying to do that. I feel that there are
questions raised by the way in which this is framed, not least in terms of how
much research, for example, might have been done on any particular subject.
You might have one particular area where a lot of research has been done, such
as Climate Change Levy and greenhouse warming, but you might have other issues
where the same sort of research has not been done and it is a question of
where the precautionary principle underpins all that follows.
Mr Jones
294. Welcome, Minister. I do not envy you your role. I have been
there before. On the Government's proposals on pesticides, in the
representations that our Committee received from the RSPB and the NFU there
was some dispute concerning the external environmental costs imposed by
pesticide use. What is the view of the Government on that?
(Mr Timms) I have seen different figures assigned to that as well. I am
aware that conflicting evidence has been presented to the Committee. I think
the ENTEC report put a figure of œ274 million on that. Industry figures have
been somewhat less. The figures are different. However, I believe that there
is agreement on the fact that there is considerable potential in reducing the
damage caused by pesticides while consistent with providing an adequate level
of crop protection. We have seen the different views that you have seen. We
have not taken the view about which is the more accurate, but we have
proceeded on the basis that there is potential there for some beneficial
change.
295. Given that you have looked at the evidence, as we have, and
that you have seen that it is conflicting, why have not the Government
commissioned their own study into such environmental costs?
(Mr Timms) We have commissioned a number of studies in that area, in
particular the Department of the Environment, Transport and the Regions
commissioned the ECOTEC study that was published and consulted on during the
course of last year. That was a very valuable piece of work and it led to
quite a wide-ranging discussion. It has allowed us to take forward the
process of deciding what needs to be done in that area. It was a good piece
of work. It drew on a lot of previously carried out research which happened
to be available in that area, and that was helpful. It has been a valuable
piece of work from our point of view.
296. Have you considered any work to compare the costs and
benefits of the use of pesticides with the disbenefits?
(Mr Timms) There are a number of existing studies that address both
those issues. I believe that we have the research information that we need
to make progress on this. I do not think that there is a need to commission
further work before we go forward, although that is not to say that we know
everything possible that could be known. I think we have the basis for making
progress.
297. Have the Government considered the costs that the water
industry bear in capital costs of plant and running costs of treating drinking
water to remove pesticides?
(Mr Timms) Yes, we have had some data on that. Certainly the water
industry has figures. Yes, we are aware of those figures.
298. The figures are considerable - hundreds of millions of
pounds. Would you agree that that is a considerable distortion of the market
and in effect, a hidden subsidy, whereby water consumers are paying hundreds
of millions of pounds for intensive agriculture?
(Mr Timms) There is a good deal of uncertainty in this area. It is
certainly the case that the water companies spend a lot of money cleaning
water. It is quite difficult to say that part of the spending is as a result
of pesticides and the rest is the result of other things that have to be
cleaned up. It is not clear that if there were to be even no pesticides in
the environment how much of the water companies' spend could be avoided. In
reality, of course, there will always be some pesticides, so I am not sure -
I have not seen the data on this and the Committee may be aware of more data
than I am - that we know quite what the relationship would be between a
reduction in the use of pesticides and a commensurate reduction in the spend
of water companies in cleaning water.
299. Do you see it as the responsibility of the Government to find
out, given that we are talking about considerable sums of money? There is at
least an arguable hypothesis that organic farming, for example, is
considerably disadvantaged by that very large subsidy that water consumers pay
for products that they may not wish to buy.
(Mr Timms) There is an agreement about what we want to do which is to
reduce the level of pesticide use commensurate with adequate crop protection.
We have the data that we need to make progress on that. I am sure there are
a number of other things that it would be interesting to know, but I would not
want to hold up progress on that by commissioning additional research at this
stage.
300. You do not believe that the Government's view that "the
polluter pays" should apply to this industry?
(Mr Timms) No, I do believe that the "polluter pays" is the right
principle. That was one of the reasons for looking at a pesticide tax.
However, I am saying that I think we have enough research data currently in
order to make some progress on this, while recognising that there are still
some things that we do not know everything about yet.
301. Why does the Government's approach on aggregates differ so
markedly from the Government's approach on pesticides?
(Mr Timms) I would not agree that it does. In both cases we have
commissioned research, we have carried out consultation, and we have developed
proposals on the basis of the results. One difference of which I am aware is
that the research work that has been carried out in the case of aggregates was
a good deal more costly. It was a larger-scale study. There were a number
of reasons for that, one of which I have already mentioned, that there
happened to be more existing work on pesticides than there was on aggregates.
The approach that we have taken, the careful step-by-step approach that I
described at the outset, has been the same in both cases. That is the
approach that I would like to see applied for future issues of this kind as
well.
Mrs Brinton
302. I want to take us back to the question raised earlier in
relation to the RSPB evidence to us. That organisation was quite firm about
this. It quoted two studies, saying that farmers could cost-effectively
reduce pesticide use now and save between œ100 million and œ274 million a
year. They were not firm on the figure of œ274 million. If the industry is
in such a crisis, why do you feel that farmers are not actually making such
cost-effective savings? Why are they not taking advantage of that?
(Mr Timms) Certainly I am conscious of the pressure that farmers feel
that they are under at the moment. I think that there is widespread agreement
about the potential for reducing costs here. As you will no doubt know, we
are looking at the possibility of taking action on pesticides forward with a
partnership approach. The sort of measures that would be examined within that
package would be along those lines: looking at ways of working with the
industry and farmers to reduce the amount of pesticides used, perhaps using
less environmentally damaging pesticides than have been used in the past and
a variety of measures of that sort. I believe you are right that everybody
would benefit from that. There would be savings in costs and there would be
a reduced degree of pollution as well.
303. Concentrating more firmly on the NFU and BAA estimates of the
impact of such a tax on farm incomes, some of us are being strongly lobbied
by the NFU. I believe that it is fair to say that some of us believe that the
NFU/BAA estimates are, in fact, rather grossly exaggerated. It seems that
they have chosen to use worst-case scenarios all the time. What would you say
about that? Do you think that they are deliberately slanting the argument
and, in fact, avoiding a partnership approach?
(Mr Timms) As I said earlier, there is a range of views here. It is
clear that the figures involved are substantial. There is no dispute about
that. Everybody agrees that that is the case and that there is a case for
action as a result. The BAA has indicated that it is interested in a
partnership approach to tackling the issue. They are coming forward with
proposals on that approach. We shall look at those carefully and decide how
to go on from there. I would not say that BAA has been unhelpful. It has
sent in its proposals and we shall look at those very carefully.
304. I find that encouraging, particularly as government policy is
to encourage farmers to be custodians of the countryside with significant
environmental responsibilities and they do not want farmers to be on one side
and environmental groups on the other. Taking you on to the objectives of the
pesticide tax, should those objectives be to influence distinctly the
behaviour of farmers or to fund other measures to reduce usage, or as a sort
of stick with which to encourage a voluntary change?
(Mr Timms) The objectives of the tax would be a reduction in the level
of pesticide usage, consistent with adequate crop protection. That is what
we would look for. Because of the banding approach to the tax that was
proposed - I think that the proposal made in the ECOTEC report was widely
supported - I believe that we could look to a move towards less harmful
pesticides where pesticides are used. The overall aim would be a reduction
in the level of usage consistent with adequate crop protection.
305. Looking at the long-term as well as the medium and short-
term, what sort of level of elasticity would you consider would be the
absolute minimum for any such tax to be justified as a demand management tool?
(Mr Timms) The actual level of tax would be a matter for the Chancellor
at the time of the Budget, as you know. The research that we have seen
suggests that a tax of around 30 per cent of the product price would reduce
pesticide use by between eight per cent and 21 per cent. That figure has been
developed from research. The question of the level would be a matter for the
Chancellor to decide at the time of the Budget.
306. As always, you are not giving away any Treasury secrets. In
terms of such a pesticide tax, I think it is true of all environmental
measures of taxation and that is why we get such worried and frightened
letters from particular lobbies. How much more work would you say would be
required to develop detailed, clear, transparent tax proposals? In your view,
when is the earliest that such a pesticide tax could be introduced? I know
you cannot do it tomorrow.
(Mr Timms) No. The earliest point for the announcement would be the
Budget.
307. The coming Budget?
(Mr Timms) The coming Budget. Before moving to a decision on that we
shall need to consider proposals put forward by the BAA.
308. It is quite clear that the Government will be open and
transparent about that and let people see the detailed work that has been
going on. Whenever you try to change the tax base, lots of worries appear
unless people are taken on board. All our witnesses have said to us that they
feel that hypothecation of any tax to fund technology transfer and advice to
farmers would be absolutely vital for its success. Would you agree with that?
(Mr Timms) Do you mean hypothecation of an element of the pesticide tax?
309. Yes.
(Mr Timms) I would not necessarily agree, no. If we accept that the aim
is a reduction in pesticides use consistent with adequate crop protection, I
do not believe that that necessarily implies that the portion of the revenue
should be used in the particular way that you imply. Clearly, that would be
an issue that the Chancellor would need to take a view on in the run up to the
Budget, but I would not regard it as an inevitable or unavoidable feature of
a well-designed pesticide tax.
Mr Loughton
310. Minister, as to good working practice, you have used the
mantra that you want to see a reduction in the level of pesticide usage
consistent with adequate crop protection, although I am not sure what that
means. In practice, how will that be done? Will there be dual charging of
different sorts of pesticides? You have also mentioned that less harmful
pesticides should be encouraged. What is a less harmful pesticide? Is it one
that is more dilute than a more harmful one? In that case, will it be taxed
less and then the farmer can use more of that less harmful one, which would
produce the same result? How will it work in practice?
(Mr Timms) The proposals that we are starting with are those contained
in the ECOTEC report. A system of four bands was proposed there and the
report proposed how those bands should be defined. The suggestion was that
there should be a variable level of tax added to the price of the pesticide,
depending on which band the pesticide was in. That was fairly
straightforward. That was a reasonably well-supported structure. Of course,
the idea of a tax has been quite hotly debated, but in terms of the best
structure for making a tax work, I think the proposals in the ECOTEC report
have been widely supported.
311. The key thing must be the effect. At the moment it strikes
us that pesticides are bad and will be taxed - a broad-brush approach. There
may be some variation as between some bands, as you say, but the Government
seem to have done little work on the effect of them. You have quoted that a
tax of around 30 per cent as an average would reduce usage between eight and
21 per cent. That is an enormous band. It strikes me that the Government
have not done enough work on the effect. We have heard witnesses from the NFU
say that there may be stronger pesticides that can be used through the use of
technology right up to satellite positioning, or whatever, concentrated on
areas of weeds in a field, rather than just a broad-brush approach. There are
all sorts of technological advances that can be used, but what encouragement
are you giving for those to be used if you just tax heavily the actual
pesticide being used while being reluctant about any hypothecation towards
better stewardship or farm management. At the end of the day will this just
produce money for the Exchequer? What incentive will there be for the good
farmer and the environmentally sensible farmer, who uses fewer pesticides or
more effective pesticides which means having less of an impact on a wider area
of land? One final point, are you taking on board the fact that it is not
just a question of using less pesticide? If you use less pesticide the whole
crop may, in some cases, become unviable. You will not just have an 80 per
cent yield or a 90 per cent yield; unless you use a minimum amount of
pesticide the whole crop may become unviable.
(Mr Timms) First of all, I have not proposed a 30 per cent rate for the
tax. I was simply referring to one research finding which was based on that
figure. It is not a figure that I have endorsed. The structure proposed in
the ECOTEC report, by having a different level of tax for pesticides,
depending on their environmental impact, would have an encouraging effect of
the kind that I think you are seeking. The imposition of a tax at all would,
as we have said, reduce the level of pesticide usage, which I think would be
widely acknowledged as a good thing. There may be other ways of achieving it
and that is why we are looking at the partnership approach with the BAA, but
nevertheless I believe that the tax would have the effect of reducing the
level of use. It is important that we acknowledge that there is a need for
pesticides to be used. That is why the statement that you referred to as my
"mantra" includes the point about being consistent with adequate crop
protection. I entirely recognise that and it is an important point.
Pesticides have an important part to play in agriculture. We can frame a tax,
I believe, that would acknowledge that and be consistent with adequate crop
protection but would nevertheless produce increased incentives for lower or
cautious or sensitive use of pesticides. That would be our aim.
Chairman
312. Going back to your mantra, the fact is that both the NFU and
the BAA have said to the Committee that there is no scope for reduction in
pesticide use. I am surprised to hear you say that everyone is agreed.
(Mr Timms) The British Agriculture Chemicals Association, with the
support and some involvement from the NFU, has been working up proposals for
addressing the issue. We asked for them by the end of last week and we
received them by the end of last week. However, I have not yet had the chance
to study them. The fact that those proposals have come forward, and indeed
it has been confirmed in discussions that I have had with the BAA that it is
their view as well, indicates that there is scope for some action in this
area. They would prefer that we did not go ahead with the tax. We shall need
to study the proposals that they have made and see whether they can make
adequate progress in that area. My impression from the discussion that I had
with them was that they saw a good deal of scope on the voluntary front for
reducing the environmental damage from pesticides.
313. If you have done the study, why do you not know what the
scope is? Why does the Government not have a view? You said in answer to the
original question that the Government have no view as to whether the RSPB was
right or the NFU was right. Why do you not know?
(Mr Timms) I think it is a reflection of the fact that there are a good
deal of uncertainties in this area. Equally, skilled and able researchers can
reach different views. However, it is important to acknowledge that the
effects are significant and that there is, therefore, the basis for action to
reduce them. I think there is agreement about that, and that is why we have
proceeded as we have done.
Dr Iddon
314. One of my last research projects was to develop biodegradable
herbicides: molecules that did the job on the weeds, dropped onto the soil
and were converted by organisms in the soil into relatively non-toxic
materials which certainly did not end up in the water courses. That is the
kind of research that is going on.
(Mr Timms) You probably have the edge on me on that point.
315. It is research that is going on and in my view it is research
that you ought to encourage. I am pleased to hear you talk about the banding
of a pesticide tax. My view would be that biodegradable pesticides of all
kinds, if it can be proved that they are biodegradable, should not be subject
to the tax so that we encourage their development. Unfortunately, if we apply
this blunt instrument we may inhibit research of that kind. Has anyone raised
that subject with you so far?
(Mr Timms) The industry has, as you know, urged us not to introduce the
tax at all. I have not yet received from anybody in the industry any
proposals along the lines that you have described. Perhaps it would be
helpful to ask Simon Virley to say a little more about how this banding system
would work. As you know, that was proposed in the ECOTEC report. I think it
has been a principle, at least, that has been quite widely accepted, although
there is certainly scope for debate about the form that the bands should take.
(Mr Virley) That is right. As the Minister has indicated, the
principle of the banding structure has been widely accepted. A large number
of representations on exactly where the band should fit have been made,
allowing for the toxicity of different pesticides. There have been some
representations made about what form of pesticides might be exempt from that.
Obviously, that would be a matter for the Chancellor to decide upon on the
scope of a tax if one were introduced.
Mr Jones
316. Minister, you spoke earlier about the Government's desire to
have a partnership approach with the industry. Would a partnership approach
include representations from environmental organisations and agencies?
(Mr Timms) We would certainly want to take account of the views of
environmental organisations in taking that forward, yes.
317. With respect, that is a somewhat obscure answer. Perhaps I
can ask the question again. Would the partnership approach include
representatives from environmental agencies?
(Mr Timms) I have not seen the proposals that the BAA has come forward
with, so I do not know whether they are proposing a structure on which
representatives from different institutions would come together. If there is
not, then I do not think that the suggestion that you are making would be one
that would apply. However, it is very important. From time to time I meet
with the representatives of environmental organisations. We pay careful
attention to their views on all these matters including the pesticide tax.
The RSPB has been particularly vociferous on this topic, although we meet with
all the organisations. Certainly I am anxious to take full account of the
views of the RSPB and others in taking this matter forward. Whether there
would be a sort of institutional role, I do not know. I think that would
depend on what form the partnership took. I apologise if you thought my
remark was obscure. It was not intended to be. I wanted to make the point
that I want to take full account of the view of those organisations.
318. What public accountability would there be if the Government
decide to agree to some sort of voluntary industry scheme?
(Mr Timms) Again, you are pressing me on the details. It is a little
early to talk about how this will work out in detail. As I have said, I have
not studied the proposals that have been submitted, still less formed a view
as to whether that is the right road to go down. I believe that it would be
important, perhaps particularly in the pesticide area, that there was a good
deal of public reassurance around our proposals and that there would be some
reassurance for the alarm that there has been on this front. It is too early
to say how that would work precisely.
319. I can understand your inability to go into any detail about
it, but I am sure that you understand that if a voluntary approach were
decided upon, there would be a number of interests out there that would need
to be assuaged that this was not simply a sweetheart deal and that there were
some clear targets and penalties involved in the scheme. Do the Government
have any views on those principles if not on the details?
(Mr Timms) I entirely accept and agree with the principle that a range
of interests would need to be reassured. That is something that we would want
to take seriously. What form that would take, whether there would be targets,
and so on, it is really too early to say. If the Committee would want, I
would be very happy to come back to the Committee to talk further about
whichever of the routes that we decide to go down.
320. If the Government were now to forgo any tax on pesticides,
would it not have exempted from taxation a major aspect of influence on our
environment and influence upon one of our perhaps most important resources,
our drinking water?
(Mr Timms) It would clearly be a significant decision if we decided not
to introduce pesticide taxation. Can I ask you to repeat what you are
suggesting we would have to give up?
321. If you gave up the principle of taxation on pesticides, given
that we have accepted that there will be taxes on bad influences on the
environment, it is fairly uncontentious to say that pesticides are a bad
influence on the environment, and to forgo tax on pesticides would perhaps
send a wider signal.
(Mr Timms) I do not think that it should, if that were the outcome. We
would make that decision because we were convinced that the partnership
approach was to be a better way of addressing the problem. I do not think
that anyone should read into that, if that is the outcome, a wider decision
about other issues that we may consider as well. We need to take each of the
decisions on their merits. I believe that there are benefits from a voluntary
partnership approach. The effects would be rather different from the effects
of a tax, and it would simply be a question of weighing up which would be the
more appropriate, given what is available in this instance or any other where
similar considerations arose.
322. What do the Government know about economic impacts that a tax
may have on farmers?
(Mr Timms) There have been a number of pieces of work. For example,
MAFF has commissioned and carried out some work on the impact on farmers.
There is the ECOTEC study and I have also talked about the DETR commissioning
a study in 1997 on the costs and benefits of pesticides. There have been a
number of studies on the subject.
323. What about the differential effects upon different sorts of
farming?
(Mr Timms) Let me ask Simon to comment on that.
(Mr Virley) Yes, the impact of a tax or charge on farming incomes has
been covered in quite a lot of detail in the ECOTEC report in terms of
different types of farming and in different regions of the UK.
Chairman: We now turn to the aggregates tax.
Mr Gerrard
324. I shall start with a couple of points that you have discussed
in some detail in relation to pesticides. You may want to say similar things.
Does the general principle of "the polluter pays" apply to aggregates? On the
cost, there is an estimate of œ380 million for environmental costs. How
confident are you of that figure? We have had some suggestions that it is an
under-estimate and does not really take account of the value of biodiversity,
for instance.
(Mr Timms) On the first question, I believe that the principle applies
here. On your second question, it is inevitable that there is a variety of
views. It is quite hard to obtain precise figures for what we are measuring.
I do not think that it is surprising that there is some uncertainty about the
figures. However, the study that was commissioned on this and carried out by
London Economics was an extremely thorough piece of work. There were two
rounds and an international panel of experts was consulted on the latter part
of the work. What we have is as impressive a body of work on this subject as
one could hope to accumulate. I believe that that gives a high degree of
confidence about the conclusions and their appropriateness to the basis on
which the Government make their decisions.
325. You are happy that the œ380 million is a reasonable figure?
(Mr Timms) I am happy that the conclusions of the study are as good as
one could hope for in making decisions in this area.
326. I think that there is general agreement that if we are to
reduce primary aggregate extraction, that will depend on greater recycling.
There was quite a bit of confusion in the evidence given to the Committee
about the proportions of both construction and demolition waste and of
secondary aggregates currently being recycled. What is the view of the
Government on that? What data do the Government have on the levels of
recycling?
(Mr Timms) We have received some data, some of which the Committee may
have seen. A study was undertaken by Arup in 1990 which suggested that
construction and demolition waste of the order of about 11 million tonnes was
at that time being recycled compared with the total figure of 24 million
tonnes. That was in 1990 and I gather that a survey is to be undertaken
shortly to secure better data. The existing target is that we should recycle
40 million tonnes a year by 2001 and 55 million tonnes a year by 2006. That
includes both recycled and secondary materials. On the basis of the estimates
that are available it looks as though the 2001 target is more or less on
target. The further survey work to which I have referred will produce results
later this year that will give us a better handle on this.
327. Do you have any more up to date figures specifically on the
construction and demolition waste?
(Mr Virley) Not at this stage, no. The Department of the Environment,
Transport and the Regions is commissioning further research.
328. Is that something on which we should concentrate? Can we
compare our performance with that of some other countries like the
Netherlands, Belgium and Denmark where between 80 and 90 per cent core
construction and demolition waste is recycled? Our figure is down at 45 per
cent according to the 1990 figure.
(Mr Timms) There is no doubt that there is scope for going further on
this. That is why the targets have been set. Whether those are the right
targets is a matter for the ministers in the DETR to comment on. I would
certainly agree that there is a good deal of scope here. Clearly, one of the
aims of the tax would be to increase the level of recycling.
329. Should we look at a specific target on the core waste rather
than a target of 55 million tonnes that embraces everything?
(Mr Timms) I would be interested in the Committee's view on that. We
have tended to take the targets that have been developed by the DETR which has
the expertise in the area. I have no doubt that there is a case for further
refinements on the work done so far.
330. When do you expect to be able to identify what scope there
may be for recycling? What may the barriers be to improving performance?
(Mr Timms) Clearly, the introduction of a tax would be an incentive to
greater recycling. That is the measure that we are looking at currently,
rather than what is happening in the construction industry more widely which
others may consider. We are also, as you know, in discussions with the main
industry association about an alternative voluntary approach. We shall be
looking at the details of that over the coming weeks. Other than the tax
measure, I cannot think of anything that we, in the Treasury, are doing
specifically to increase the degree of recycling in this area.
Chairman
331. Is not the truth of the matter, Minister, that the Quarry
Products Association say whatever sort of tax you have, whatever extent to
which it is hypothecated, it will never address the efficiency, in
environmental impact terms, of voluntary action, quite simply because quarries
vary in their environmental impact from site to site and a tax, by definition,
is a blunt instrument.
(Mr Timms) There is a good deal of truth in that. Of course, the
voluntary approach would have a more direct local environmental impact than
a tax. A tax would not be directed specifically at the local environmental
impact, whereas voluntary agreements would be. For that reason, and others,
I think there are a number of attractions about a voluntary approach. We said
to the Quarry Products Association last year when it brought forward its
proposals, that what they proposed would not have a large enough impact to
persuade us not to go ahead with a tax. We have asked them to come back with
further proposals. I know that they are in discussion with the DETR about
those. When those discussions are concluded, we shall take a view about which
route to go down. I certainly agree with you that there are a number of
particular benefits to a voluntary approach in this area.
332. So what is the point of a tax?
(Mr Timms) A tax would be a very direct incentive for increasing
recycling, the point that Mr Gerrard asked me about. The tax would not be
applied to recycled aggregates or secondary materials.
333. So you would see the object of the tax as improving recycling
rather than reducing demand directly?
(Mr Timms) I think both of those would be effects of a tax, but I
suspect that increasing the use of recycled and secondary materials would be
the larger of them, given that there is only limited scope for varying the
amount of aggregates used or equivalents.
334. Given the importance of the voluntary and regulated measures
that you have just acknowledged, are you going to have those anyway? Whether
or not you have a tax, will you have more regulatory or voluntary measures?
(Mr Timms) I think the current discussion about whether to proceed with
a tax gives us an opportunity to enter into serious discussions with the
industry. It is a better opportunity, therefore, than we would normally have
to talk about a voluntary arrangement. In the normal course of events, there
is not that much incentive for people to engage in discussions of this kind.
Currently, there is an incentive, and I want to see where those discussions
take us.
335. Given that the Government are an important purchaser in this
area, as it builds roads and so on, and therefore has an influence on demand,
are there any ways in which the Government procurement machinery can improve
practice in this area? The Treasury has talked about procurement and we have
a memorandum from you on it.
(Mr Timms) That may be something that the industry would want to discuss
with us. Those discussions are continuing. It probably would not be
appropriate for me to go into detail about what is happening in those
discussions at this stage. However, that may be an element in the discussions
and we would consider that at that stage.
Mr Gerrard
336. I appreciate that while you are in the middle of discussions
on the voluntary approach you may not be able to commit yourself, but what
sort of criteria are the Government looking at? In the last Budget there was
a statement that a tax would be imposed if the industry did not come up with
proposals that were proportionate to what a tax may yield. What does that
criterion mean?
(Mr Timms) We work closely with the DETR and I work closely with Nick
Raynsford on this. Our view jointly was that the package that was available
last year did not have a large enough impact, although a good deal of work
undoubtedly went into it and, as we have said and as the Chairman has pointed
out, there are a number of benefits to a voluntary approach. While those
discussions are going on I would not want to go into too much detail about
what we hope the outcome of them will be, but I believe we have made it clear
that we would want the voluntary package to go significantly further than the
previous proposals did if we were to reach the view that that would be a
better way forward than the tax.
337. Have you any deadlines in mind for looking at the voluntary
approach when you may have to say yes or no?
(Mr Timms) Clearly, the Budget is a deadline. That is not to say that
everything will necessarily be fully completed by that time, but I hope that
the Chancellor will be able to make an announcement in the Budget which takes
us a good deal further forward.
338. Are you concerned that if you introduce a tax, if
negotiations on the voluntary agreement break down, that that would lead to
some loss of goodwill in the industry and you may then have problems of people
withdrawing from existing voluntary agreements or planning permissions that
have been lying dormant for some years being exercised?
(Mr Timms) I hope that we would not get the second type of problem,
where there are statutory agreements in place, or indeed voluntary agreements
that have been negotiated with others. I would hope that the outcome of this
matter would not affect that. How the industry would respond to its existing
voluntary activities is a matter for it rather than for me. I would have
thought it would be in the interests of quarry operators to maintain good
relationships with their local communities. We have to make the decision on
the environmental concerns raised and that is the basis on which we shall make
that decision. Having said that, I acknowledge, as I have already, that a lot
of work has gone into this on the part of the industry. It would be quite
widely felt as unfortunate if that did not come to fruition. I think we have
to take a firm view that we need significant benefits from a package, if a
package is the route down which we decide to go.
339. You indicated on the pesticide tax that you were not
enthusiastic about the idea of hypothecation. On aggregates, do you see some
clear measures that could be introduced through hypothecating at least part
of the revenues?
(Mr Timms) Our position on hypothecation is that we shall consider the
merits of the case in each situation where the possibility arises. What I
would say to the Committee is rather what I said about pesticides, that I do
not believe that hypothecation is an inevitable or unavoidable element of an
aggregates tax. On the other hand, there may be a case, if not for
hypothecation in the strict sense, for some mechanism for applying revenues
from the tax in a way that addresses environmental issues around quarries.
I think I want to leave that open at this stage and make the point that rather
than saying I am enthusiastic or that I am not enthusiastic, the Chancellor
would want to take the decision on a full assessment of the merits of the
case.
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.
Chairman
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.
360. So you are reconsidering that position?
(Mr Timms) We are looking at it, yes.
361. Also there is a problem in Northern Ireland, I think, in that
regard?
(Mr Timms) Yes, there have been a number of concerns expressed from
Northern Ireland. I met Reg Empey, the Economic Development Minister from
Northern Ireland, a few weeks ago. Again, we are looking at the issues which
he has raised with us.
362. Given that this whole thing has been designed to meet our
Kyoto targets and to reduce carbon emissions, as you agree, why did you
introduce the Climate Change Levy before the Climate Change Programme had been
finalised? It seems to be putting the cart before the horse.
(Mr Timms) I would not accept that. I have no doubt at all that the
Climate Change Levy is the right thing to do, it will be an important part of
our Climate Change Programme. I do not see that one should wait with the levy
until the document is produced. I think the right thing to do has been to get
on with it and make some progress, on the basis, I must say, of an exemplary
process of publication of proposals, of discussion, of consultation and then
finalising the conclusions with, as I have said, some details still to be
addressed.
363. If you had had the Climate Change Programme finalised, you
would know the framework within which the Climate Change Levy should be set
and what targets would have to be achieved.
(Mr Timms) All the work on this has been done very closely in co-
operation with the Department of the Environment, Transport and the Regions,
so I think there has been good information available to us about the thinking
across Government about the programme.
364. None the less, an 18-month or nearly two-year period has
elapsed between the announcement of the principle of the Climate Change Levy
and the Climate Change Programme which has not yet appeared in its final form.
It does seem a long gap if one is informing the other, as it were.
(Mr Timms) That is because there has been a lot of consultation and a
lot of discussion. I would have thought that the Committee would agree that
it is important to give adequate consideration to the quite complex issues
which we face here. I think you would probably agree, and I would certainly
feel, that it would have been a mistake to wait until the document was
published and only then to begin the negotiating period, if that is what you
are suggesting. The important thing is to make progress, as we have done.
I think we have done it in a fairly effective way, and the process has worked
extremely well.
365. The Marshall report which all this springs from did paint a
picture, as I am sure you are well aware, of relatively low and falling energy
prices, so that will have an effect of encouraging the use of energy and
therefore of carbon emissions, whereas you are trying to discourage them by
this new tax. Again, there is a conflict here between what is happening on
the one hand through the regulator and what is happening on the other hand
through the Government, which could indeed cancel each other out so that once
again we shall make no progress.
(Mr Timms) I do not see a conflict on this. You are right, different
things are happening, but the changes which we are making and the introduction
of the Climate Change Levy will undoubtedly have an impact in reducing
emissions. Indeed, the memorandum which I have supplied to the Committee puts
some figures on that. I think it would be widely agreed that the scale of the
impact of the Climate Change Levy is going to be an important contribution to
our achieving our Kyoto targets.
366. Would it not be sensible to accompany this by some firm
indications to the regulator that he must take into account issues such as
carbon emissions, otherwise your entire policy could be negatived by what he
does?
(Mr Timms) No, I think I would rather put it the other way around. We
need to ensure, as we are doing through the Climate Change Levy, that we have
measures in place to provide a good level of assurance that we are going to
meet the Kyoto targets, given what is going on in the electricity market some
of which is influenced by Government, though a lot of it is not. That is the
approach which we have taken, taking steps to ensure that we do meet our Kyoto
targets, and we are looking forward quite soon, I think, to some new DTI
figures about the prospects on that one which I am hopeful will show that we
are going to be able to meet the Kyoto objectives.
Chairman: Thank you.
Joan Walley
367. Minister, in terms of the actual accuracy of the carbon
savings forecasts which we have from the Treasury, are you satisfied that the
information which is being presented is accurate? It seems to us that there
is some variation between what was actually set out in the 1999 Budget Report
when I think there was talk of 1.5 million tonnes of carbon a year by 2010
being saved, and then the Pre-Budget Report which talks about two million
tonnes of carbon being saved, plus perhaps as much as another two million
tonnes which could come about as a result of the agreements. Could you
explain how it has virtually trebled from the one report to the next? Could
you explain that for us, please?
(Mr Timms) Yes, I am very happy to do so. I can reassure the Committee
that there is consistency between the way that those two sets of figures have
been derived. I would make the point - and I think you are absolutely right -
that there is inevitably some uncertainty about these figures, therefore we
have taken a fairly conservative approach and have adopted conservative
figures about the impact of the levy, but we have done so in a way which is
entirely consistent between the figures which were produced at the time of the
Budget and the figures which were produced at the time of the Pre-Budget
Report. If I can draw your attention to the table following paragraph 25 of
the memorandum which we have provided for the Committee, I think I can use
that to explain how these figures have changed. The first line of the table
puts a figure of 1 million tonnes on the price effect of the levy as currently
proposed. The 1.5 million tonnes figure which was announced in the Budget
earlier last year was the figure for the price effect of the levy as then
proposed, at a rather higher level than we currently propose it. So there has
been a change from 1.5 to one in terms of the price effect. However, because
of the exemptions which the Chancellor announced in the Pre-Budget Report, the
two exemptions both give significant additions, in terms of carbon savings,
of about half a million tonnes in each case, so the net effect is that we
have gone up from 1.5 to two. In addition to that, because we are quite close
now to concluding negotiated agreements with a range of sectors, we think we
can put a figure on the amount of carbon savings which are likely to be
generated as a result of the agreements, and we believe again that we can
confidently put a figure of an additional two million tonnes coming as a
result of those agreements. So adding it all up, we can now talk in terms of
four million as opposed to the 1.5 million which was quoted in the Budget.
I hope the way I have explained it shows that that does not mean to say that
we are saying the levy is three times more effective, but we are able to take
in particular the negotiated remits into account now in the figures which we
are putting forward and which were announced by the Chancellor in the Pre-
Budget Report.
368. I am very grateful to you for explaining that. I wish,
though, that that had been included in the documents, because I think one of
the important things with this, I am sure you would agree, is that we should
have transparency. If we are really going to have a grown-up debate about
this very difficult issue of climate change and global warming, is it not
important that there should be this transparency, so that that can actually
be included in the information coming out from the Treasury? Would you agree
with that?
(Mr Timms) I would agree with that, and I am grateful to the Committee
for probing this particular subject and therefore giving me the opportunity
to put that information on the record.
369. Could I just move on slightly, because I still have a bit of
difficulty - I was not very good at maths - with the overall net figure which
you have referred to, because you said that the overall net effect of this
would be that we could have four million tonnes of savings. However, if you
look at other figures which have been included at various stages, particularly
the 10 per cent target on renewables and the potential savings which we might
have, it looks to us as though we could be in a much more generous amount of
savings than you have given us, and that in fact it could be much greater.
Do you think that that target of a net gain of four million tonnes is
challenging enough? Could we not actually be going for more?
(Mr Timms) I think four million tonnes will be a significant
contribution to meeting the Kyoto targets. As you know, we have been anxious
to implement the levy in a way which does not undermine the competitiveness
of UK companies. That has been an important feature of the design process,
and I think we have been able to do that in quite an effective way. However,
I would not agree that four million is too modest a contribution. As we shall
see, I guess, when the DTI figures are published, I think we shall see that
four million tonnes is a very worthwhile contribution to our being able to
meet those targets.
370. Can I say that I would not want to undermine in any way what
you have done to bring together the business of competitiveness and the
environmental safeguards which we need, and I do congratulate you on that, but
I wonder whether or not there is not further progress to be made by actually
setting the Treasury estimates and forecasts alongside what is quoted in the
Climate Change Programme Consultation Paper? I wonder whether or not there
could be more fruitful talks with the DTI, particularly in respect of
renewables and so on, CHP and the negotiated agreements, to get a more
challenging target than that put forward? I would like to see it bigger.
(Mr Timms) I think we have done all that we can at this stage in the
levy on renewables and good-quality combined heat and power, because we are
exempting them altogether.
371. Could I ask you what you mean by "good-quality combined heat
and power"?
(Mr Timms) You certainly can, yes. The Customs and Excise has published
a note setting out what we mean by that. Perhaps I can ask Heather, if you
would like a little bit more detail, to set out how we are approaching that.
(Ms Massie) Thank you. We have been working very closely with the
Department of the Environment, Transport and the Regions on this, and they
have been working for some time on a good-quality index for combined heat and
power. They are, I believe, shortly to issue a consultation document on how
the quality index might be used. It is our intention to link the exemption
to the quality index, so we will be relying on the same definition which the
DTI will be consulting on.
Mr Grieve
372. What is the quality index going to consist of, Ms Massie?
Can you be a bit more specific?
(Ms Massie) My understanding - I am afraid it is very technical, and
I am not a technical expert, I am a tax expert - is that it looks at the
relationship between inputs and balancing outputs of heat and of electricity,
so that the idea of a good-quality CHP is generally one which is more
efficient than stand-alone means of producing the heat and electricity, but
there has to be a balance, because clearly if you produce heat then you may
not be as efficient as a power-only generator.
(Mr Timms) It is perhaps worth adding, I think, that there have been
important technological developments in this area, the technology is
improving, and some of the new technologies are very effective indeed in this.
Joan Walley
373. It might be helpful if the Committee could perhaps have a
note on this, as soon as it is possible to produce one.
(Mr Timms) We shall certainly be happy to do that.
Mr Jones
374. I want to take you back, Minister, to an answer which you
gave to the Chairman in defence of the decision to go ahead and tax all
electrical production equally. You said that you believe this was the right
response. Can I press you on what you mean by "right", given that the
objective is to meet the Kyoto targets and the reason for Kyoto is to
alleviate the problem of climate change? We know what causes climate change,
although we do not know what the extent will be. We even know fairly
accurately the contribution of various gases. What do you mean by "right" in
taxing various forms of electrical generation which do not produce any of
these gases, in the same way as you tax ones which do?
(Mr Timms) For ordinary use of electricity you do not know what the
origin of that electricity is, so the practical way forward is to apply the
same rate of levy, irrespective of the source of the power. However, we have
been able to introduce the exemption we have just been talking about for
combined heat and power, and also there is an exemption for new renewable
sources of energy, but what we are focusing on with those exemptions is
encouraging people to do new things which are less environmentally damaging
than the old things. What we do not want to do is have a very large
deadweight cost which is simply going effectively as a subsidy from the
Government to people who are already doing things.
375. I fail to understand the logic of that. If you wish to
reduce the total amount of carbon dioxide, what difference does it make
whether these are people who have been doing good things for some time or they
are about to do good things, if that is the objective? Would it not be more
credible if the Government said, "We wish to reach our Kyoto targets subject
to our desire to maintain what we've got left of the coal industry, or
progressively other people's coal industry as we get more imports"?
(Mr Timms) I think that on the first part of your question, the point I
was wanting to make was that I do not believe the imposition of the Climate
Change Levy is going to make a great deal of difference in a short period to
the extent of nuclear generation, for example. What we want to use the
exemption process in the Climate Change Levy to do is to incentivise people
to do things differently from what they would otherwise have done, in a way
which is environmentally beneficial. That is why we have given the exemption
for new renewable sources of energy. I think we have been pretty clear about
what the aims of the levy are and what the starting points for it have been,
and I would certainly defend them before the Committee.
Mr Jones: I was not attacking the aims of the scheme, just the way it
was being implemented. Thank you, Minister.
Dr Iddon
376. Minister, I want to turn now to the energy-intensive sectors
and ask you first of all why the Government has been so committed to the IPPC
Directive as a source of definition for "energy-intensive" industry"?
(Mr Timms) It does have a number of advantages. First of all, it has a
very clear rationale because the sites which are covered by the Directive are
required to operate in an energy-efficient manner, with inspections, and non-
IPPC sites do not have those requirements placed upon them. In addition, the
Directive does provide legal certainty from the point of view of determining
which sectors are eligible or are not eligible to enter into negotiated
agreements. Both of those, I think, are important considerations. I do want
to make the point to the Committee that we remain willing to consider
suggestions for alternative definitions which would target the relief on
energy-intensive sectors exposed to international competition, but if we were
to accept any alternative, there are four requirements which we have said
would need to apply to that. Firstly, there would need to be a clear
rationale for what that alternative was. Secondly, it would have to provide
legal certainty, as I have said IPPC does. Thirdly, it would have to be
administratively straightforward. Fourthly, it would have to be consistent
with the EU rules on State aids. If there were proposals brought forward
which met those four considerations, then we would be willing to have a look
at those.
377. That leads me to the question, did the Government consider
other alternatives rather than, as you have just said, go out and seek
alternatives?
(Mr Timms) Yes, we did. I think I am going to answer that question in
a way that I have answered one or two of the earlier ones. We did a very
thorough exercise in looking at all the possibilities when the design of the
levy was being drawn up, but, for the reasons which I have given, we concluded
that there was a very strong rationale for the IPPC basis which we adopted,
while recognising that there may be a case in some instances for looking at
an alternative; but we need to be very clear about what the requirements for
any such alternatives would be.
378. How are the other European countries which are heading in
this direction of CCL handling this question of energy-intensive industries?
What kind of definitions are they using?
(Mr Timms) My understanding - and I shall ask Simon to comment on this -
is that there is quite a wide variety of approaches being taken on that point
and on a number of other features of the way these taxes are being introduced.
It is important to make the point that a lot of countries are going to need
to be introducing measures of this sort. There are something like eight EU
countries going down this road. It is certainly not just the United Kingdom.
People have sometimes made comments suggesting that we were exceptional in
this regard, but we are not. I shall ask Simon to comment on the approaches
which are being taken to energy-intensive industries elsewhere.
(Mr Virley) As the Financial Secretary indicated, it has been
different treatments in different countries, and that has reflected the
particular circumstances which each country has faced. Some countries have
gone for just a broad sector definition and have just determined which sectors
are eligible and which are not. It is true to say that the EU State aids
rules put some limitations as to how far you can extend the eligibility in
terms of being focused on those sectors which are energy intensive and exposed
to international competition. As the Minister has indicated, we think the
IPPC Directive provides a good rationale for them for that.
379. We have been very edgy, of course, about competitiveness all
the way through this discussion. It has just been mentioned that almost each
European country which has got into this debate is adopting a different
approach. The Chairman referred earlier to some dealing with the carbon tax.
We are dealing with it differently. There are so many differences across the
European Union that it begs the question why did the European Union not get
to grips with this as a whole, I suppose rather than allow each individual
country to thrash about in this way?
(Mr Timms) There already is, of course, the Energy Products Directive
which is an EU proposal. If that is adopted, it will set minimum future rates
on a range of energy products. The history of that Directive I think provides
the answer to your question. It has been extremely difficult to get agreement
on it across the EU, and I think that realistically if we are to make progress
in meeting the Kyoto targets in the timetable which has been set, the only
practical way to do that is for each country to make its own arrangements,
rather than wait for what is bound to be an extremely long process for some
common EU process to be adopted.
380. By adopting the IPPC definition, we have, of course, created
some anomalies. Major energy-dependent sectors and employers such as the
water industries, industrial gases and the china clay industry may be
completely or partially non-eligible. How are you dealing with those
anomalies?
(Mr Timms) It is the case, as I said a few moments ago, that industry
sectors outside the scope of IPPC do not have the IPPC regime, they do not
have to carry the IPPC regime, so in that sense they are being more lightly
dealt with under the Directive than the sectors which are within the scope of
the IPPC. It is the case as well that a number of sectors, perhaps in the
category that you are describing, will benefit from the exemption for combined
heat and power; they will also benefit, of course, from the reduction in the
overall quantity of the levy compared with where they would have been if we
had gone ahead with the proposal which was announced in the Budget. However,
as I have said, if there are proposals to extend a measure of special
treatment for energy-intensive sectors subject to international competition,
which are outside the scope of IPPC, then if they meet the criteria which I
have listed, we will look at those.
381. The IPPC Directive applies to firms above a certain size.
There are a number of small firms - for example, in glass making - who are
highly competitive with much larger firms. That seems also to be an anomaly
created by operating the IPPC Directive.
(Mr Timms) I think we have resolved that, because we have said that
firms which would be covered by the IPPC or sites which would be covered by
the IPPC but are not, simply by virtue of being too small, are eligible for
participation in the negotiating agreements. So I think that one has been
resolved.
382. Have you made any calculations, Minister, as to how much
extra energy savings or carbon dioxide reductions will be delivered by the CCL
by 2010 as against simply operating the IPPC Directive?
(Mr Timms) I guess the answer is four million tonnes, is it not - the
figure which I have referred to earlier. Perhaps Simon can deal with this.
(Mr Virley) Yes, the four million tonnes figure is broken down, as we
indicated earlier, into the levy itself saving at least two million and the
negotiated agreements saving a similar amount, and the last figure is
calculated by comparing what we expect emissions to be under a "business as
usual" scenario with what the latest agreements or the state of play in the
agreements suggest they might be able to achieve with the agreements in place.
383. Finally, witnesses who have been before us have suggested
that the Environmental Agency has not been fully involved throughout this
process and has been carrying on implementing the IPPC Directive on a side-by-
side basis, irrespective of what is going on regarding CCL. Has there been
any discussion with the Environmental Agency? If so, in what direction has
that taken you?
(Mr Timms) My understanding is that there has been a great deal of
discussion with the Environmental Agency and, of course, discussion with the
Department of Environment, Transport and the Regions which we have been
working with very closely on this, so I am surprised to hear that. My
understanding is certainly that the Agency has been very much in the loop.
Joan Walley
384. If I may, I would like to turn to the progress which has been
made on the negotiated agreements. In turning to this issue, I do recognise
that it is perhaps a little bit of an unenviable task. I am interested to
know what fine-tuning there has been. I am conscious also that some
companies, including ones which seem to be shedding a large number of jobs in
my constituency, seem not to have escaped some of their commitment to this.
I am thinking about Corus British Steel. Could you tell me what is in the
"first wave" heads of agreements which I understand the Government have now
signed with ten industrial sectors, when do you expect the contracts to be
drawn up and how much more work is going to be required before those contracts
can be agreed?
(Mr Timms) The "first wave" - the memorandum of understanding signed on
20 December - was a very big step forward in developing the levy and the
negotiated agreements. We think we are on course to sign full agreements with
all the eligible sectors in the coming months. There is a good deal of work
to be done between the memorandum of understanding and the final legal
agreements.
Chairman
385. Will the final legal agreements be done by the end of March,
as was originally planned?
(Mr Timms) I would certainly very much hope so, yes. So I think in
summary the answer is that we are making good progress on the agreements.
Joan Walley
386. Can I ask what of that progress might be the sticking points
between having the hoped-for agreements by the end of March and perhaps having
to wait a little bit longer before you get them signed, sealed and delivered?
What are the sticking points?
(Mr Timms) At the moment I do not see any insoluble difficulties in
concluding the agreements in the timetable which we have outlined. Do you
want to add to that, Simon?
(Mr Virley) Perhaps if I may just add to that, there are some sectors
for which the data on emissions and energy use is of a less good quality than
it is for the sectors which the Department of the Environment has been
studying for many years. So there are some data issues which need to be
resolved, and also the treatment of certain processes in different sectors and
exactly the scope of the exemptions which have been announced in the Pre-
Budget Report where discussions are continuing.
387. In terms of getting access to that data which you need, this
brings me on to my second question really. Is that a matter for the trade
associations, or is that a matter for you to be resourcing and actually
getting that information? Who is going to be providing that audit, if you
like, or that information?
(Mr Timms) The information will need to be provided by the participants
in the agreements, but we also think it is important that there should be
independent audit from outside. Quite which body is going to play that role
has not yet been decided. We think it is important that there should be a
consistent approach across the full range of the negotiated agreements, but
precisely who is doing it has not yet been determined.
388. When you talk about the need for independent audit in terms
of getting the information in the first place to bring about the agreements,
will that be linked up subsequently to monitoring what actual agreements have
been made at the start, what then happens next, who will be responsible for
it and who you actually think might do it?
(Mr Virley) Yes, it would very much be part of that. There will be
independent audit of these agreements. As the Minister has indicated, it has
not been decided who exactly would be responsible for doing that.
389. Who might be?
(Mr Virley) It is clear that the Department of the Environment would
have to be involved, and a potential candidate might be the Environment
Agency, but those are subject to ongoing discussions.
390. Can I ask a little bit more about trade associations and the
individual companies in terms of the negotiated agreements? Have you reached
agreement on how that will be proceeded with?
(Mr Timms) I am not quite with you.
391. I am asking whether or not we are talking about a group of
companies who together form a trade association, and the agreement being with
the trade association, or whether or not it is likely to be with each
individual who may not at this stage be under the umbrella of a trade
association, or whether or not, for the purposes of the Climate Change Levy,
they might have to subsume the responsibility for the trade association
agreement under a trade association to which they do not at this stage belong.
(Mr Virley) A variety of different models have been offered as to the
exact form the different agreements might take - whether it is just with the
trade association, or whether they have back-to-back agreements with each of
their individual members. Obviously we try to be as flexible as possible in
allowing the sectors concerned to choose the form of agreement which most
suits their needs.
392. Could I also ask about the majority of "first wave" sectors
which have opted for, as I understand it, efficiency targets rather than
absolute carbon reduction targets? What assurances can you give that the
Government will meet its greenhouses targets and that the energy efficiency
targets will not undermine that?
(Mr Timms) We gave the sectors a choice for the negotiated agreements in
order that they could use whichever approach was the most applicable for
implementing and monitoring in their industry. Whichever target they choose,
it will require significant action on the part of the firms involved within
that sector, and we are confident, as I said earlier, that the result of the
negotiated agreements will be a saving of at least two million tonnes of
carbon a year. But we thought it was important to give the firms the choice
about the approach that fitted their circumstances best, or give the sectors
that choice.
393. I understand, or there have been reports, that you were
negotiating in the second wave sectors, or sub-sectors, with as many as 40
different sectors. Is it feasible to have so many different agreements to
have to deal with?
(Mr Timms) The second wave discussions are going ahead, we expect there
to be a memorandum of understanding which they have signed up to by the end
of February, so, yes, we do think this is a manageable task.
394. How do you propose building the concessions, if that is the
right word to use - I am not sure it is - the extra advantages which the
Government has given in order to proceed with the agreements that we now have
which relate to the extra money, the most welcome money, which will be
available for environmental technologies for energy efficiency, into the
comprehensive spending review so that money will be quickly and easily
available and the information got out to companies which might want to take
advantage of it?
(Mr Timms) We are consulting currently on the detail of quite how those
arrangements are going to work. I do not think there is going to be any
difficulty in identifying the money because it is a stream within the climate
change levy. But there is a consultation document, and consultation is going
on at the moment about precisely how those arrangements will work.
Mr Loughton
395. Minister, are you satisfied that even with an 80 per cent
rebate for British Steel, for example, it will have no serious impact on its
competitive position?
(Mr Timms) I am satisfied that we are achieving two objectives with the
climate change levy. Firstly, we are maximising its environmental benefits
and, secondly, we are not jeopardising the competitiveness of UK firms. In
the case you have cited, there is a very, very large reduction in the impact
of the levy following on from the announcements which were made in November.
The same is the case, for example, in the chemicals industry where the leading
figures in that had a lot of concerns and they have acknowledged they are no
longer worried about what the levy is going to do to their industry. So I am
satisfied that we have met the twin objectives of maximum environmental
effectiveness and maintaining the competitiveness of UK firms in the
announcements we have made.
396. Would you not acknowledge that even with the 80 per cent
rebate to which British Steel may be entitled that works out, I gather, still
as an energy tax of approximately œ2.40 per tonne of steel, which compares
with the equivalent rate in Germany of 4p per tonne and an average for Europe
of 40p per tonne? How is that going to maintain the competitive position of
British Steel even after your most generous rebate?
(Mr Timms) It is necessary, of course, to look at the overall taxation
position of British businesses and, as you will know, we have a very good, a
very competitive, business tax environment in the UK. I think it is important
to look at the overall picture in assessing the competitive position of UK
firms. I would say that the figure British Steel was looking at after the
Budget in the spring was very, very much greater. I have had discussions with
Members of Parliament and others about the effect of the levy on that firm and
others, and I imagine that British Steel is very pleased with the much more
favourable position that they find themselves in now.
397. It is encouraging to hear you talk about the overall tax
burden rather than the headline tax rates, because I think on that basis the
overall tax burden is just up by œ40 billion under this Government, but that
is another issue altogether.
(Mr Timms) No, the tax burden is falling.
398. It is up by œ40 billion according to the House of Commons
Library but we will not go into that, that is for another Committee, another
problem, another day. Within those sectors there are obviously still
anomalies in terms of the agreements which are going to be made and some firms
will qualify for a full 80 per cent, some say 50 per cent, some 60 per cent,
some will be liable for the full whack of tax. Can you give any examples of
any other taxes where there are variable rates not determined by Parliament
but determined by individual agreements between civil servants and companies
themselves?
(Mr Timms) No, I cannot give any such examples but the climate change
levy is not going to be such an example. There will be an 80 per cent
reduction for those firms covered by negotiated agreements but there will not
be a sliding scale for others.
399. So some will have 100 per cent payment and some will get 20
per cent payment effectively?
(Mr Timms) Yes.
400. It is still a variable rate.
(Mr Timms) There will be one concessionary rate which will be based on
the negotiated agreement, or at least there has been an announcement about one
concessionary rate. The other element here which we have not talked about,
which might be worth referring to at this point, is the arrangement for
emissions trading which of course connect with this. There are discussions
still to be had about that. But there is not going to be a sliding scale or
different rates between 0 and 80 per cent amongst the beneficiaries of the
negotiated agreement.
401. I want to come to emissions trading in a minute but the point
I am trying to make is that different companies will be charged either the 20
per cent rate or the full rate on what you have just said, and the
determination of which companies qualify for which rate of tax will not be
made by Parliament but will be made by agreements within your Department,
within the Treasury, with other civil servants making them. Would it not be
much more sensible and fairer and achieve the same objective if the
negotiations were sector by sector so it was revenue-neutral within certain
sectors?
(Mr Timms) Access to the 80 per cent reduction will be conditional on
achieving the savings which have been agreed to within the negotiated
agreement. It is the case as the levy is now proposed that it will be broadly
neutral for the private sector, the package as a whole will be broadly neutral
between manufacturing and services, and that is a change from the proposals
which were described in the Budget in the spring. But I think it would be
unrealistic to expect that one could go much further in achieving sector
neutrality, at least if one wished to avoid the situation which you have
charged me with introducing a moment ago, a very complex arrangement of
different rates of discounts, a sliding scale, dependent on the position in
each sector.
(Mr Virley) Could I just add that there will be publication of the
details of these agreements in due course once we are at the stage of signing
heads of agreements with the sectors concerned for verification by Parliament
and others. Whilst the climate change levy arrangements are pioneering for
the UK, it is true to say that similar arrangements are used in other
countries in their energy tax proposals such as Denmark and Holland.
402. Minister, did I hear you say it was revenue-neutral for the
manufacturing sector?
(Mr Timms) The package as a whole is broadly neutral for the whole of
the manufacturing sector, yes. If you take account of the additional sums we
have built in to incentivise the energy efficiency investments which Joan
Walley referred to a moment ago, yes.
403. So how is it going to work?
(Mr Timms) How is what going to work?
404. How is it going to make any energy savings if it is broadly
neutral at the moment? Companies need not do anything and they will get their
NI rebate and they have to pay the extra tax on energy by not increasing their
efficiency.
(Mr Timms) First of all, it is of course clear that there will be firms
which are paying out more once the levy is introduced, but there will also be
firms paying out less because what they save through the reduced national
insurance contribution will exceed their liability under the levy. What I am
saying is, if you look at the manufacturing sector as a whole, then the
package now is broadly neutral in that those firms which gain under the
package and those which have an extra liability roughly balance themselves
out. But, of course, every firm in all sectors will have a greater incentive
to reduce energy usage as a result of the introduction of the levy. The
amount that they will be liable to pay under the levy will be, we anticipate,
separately identified on their energy bills, so it will be quite clear what
this extra is, and that will be a strong additional incentive for them to
reduce energy usage and so achieve the objectives that all of us want to see
delivered.
405. I think a lot hinges on the definition of "broadly". Can we
come on to emissions trading and can you give us an up-date of the state of
play there and the Government's thinking and when we are going to start to see
a scheme introduced?
(Mr Timms) As you know, the Government is very supportive of emissions
trading and we have been very pleased with the work which has been taken
forward under the leadership of the CBI on what the arrangements for a
domestic trading scheme might look like. The emissions trading group which
has been set up is looking at the full range of possible incentives - fiscal
and non-fiscal - for organisations to participate in a domestic emissions
trading scheme and we will be looking very closely at their findings. But I
think if emissions trading is going to make a valuable contribution, it has
to be very strongly supported by us, by the DTI, by ministers in DTI. I have
had two meetings now with Rodney Chase from BP-Amoco who is chairing that
group and I am very encouraged by the progress they are making.
406. Given we have a world-class financial services community in
the City, what interaction is there going to be using that expertise and that
framework already for trading these and make us a centre of excellence?
Potentially, I think we are streets ahead of everyone else in the world and
can really make a go of this, not just for the UK but trading internationally
in trading permits.
(Mr Timms) I think you raise a very important point. I think this is an
excellent opportunity for the UK because of the skills in the City of London,
and City players are engaged in the discussions which the emissions trading
group is conducting.
Mr Gerrard
407. You talked about the climate change levy as an exemplary
process in terms of consultation which had gone on during the development of
the proposals. How far do you think that is typical of the way the Government
has handled discussions on environmental taxes generally? The impression that
has been given to us is that on some of these taxes, for instance the
aggregates tax, there has not been anything like that same degree of
discussion and involvement.
(Mr Timms) I will certainly be listening with interest to any points
this Committee wants to make about any of these matters. If there are lessons
to be learned from the past, then I will be very happy to learn them, but I
would argue that the approach which we have taken has been pretty consistent
across all of the measures which we have talked about today; that in each case
there has been some serious research at the outset which has led to a report
which has allowed for consultation, and then on the basis of that we have come
forward with proposals. On the aggregates tax, the research which was carried
out was, as I said earlier on, a very, very impressive piece of work, probably
one of the biggest, if not the biggest and most authoritative pieces of work
of its kind ever carried out. So I would hope that the Committee would feel
on reflection that we have been consistent in the careful and thorough
approach which I have described.
408. There are two further points I wish to make, first of all on
the question of the research. You mentioned the aggregates research as being
very high quality. That was the London Economics research?
(Mr Timms) That is right.
409. Did not the Government actually have to go back on that and
commission some further rounds of work on that?
(Mr Timms) Yes, there were two rounds of it, and there was the
international panel of experts which I mentioned earlier involved in round
two. I think that simply illustrates the point that we have been very, very
thorough, and that between those two rounds of work a very impressive piece
of work was done.
410. That is one example. Do you think there is sufficient
expertise currently within Government to allow research and development of
environmental tax proposals? The aggregates tax is just one example.
(Mr Timms) Yes, I think there is, but it is important that we do make
use of expertise right across Government and that all the departments involved
are working closely together - and we are - but also that we have access to
expertise outside Government as well. The study which we have been talking
about was, as you have said, carried out by London Economics. I think it is
important that we do not claim that Government has a monopoly of expertise in
these areas, but there are people outside Government with a great deal of
expertise which we need to access.
411. I think everyone would agree that it would help this whole
debate if we had greater consistency, greater consensus on the data so that
we can discuss the proposals in the light of agreements. Do you think that
the Government would look again at this? We have made the point several times
on this Committee that we believe there is a good case to be made for a Green
Tax Commission that would be able to do that sort of thing and would be able
to commission the research, to develop the expertise, to provide the expertise
to develop the proposals?
(Mr Timms) I am not convinced that a quango of that sort would
necessarily add much value to the process. We do have a number of bodies -
the Advisory Committee on Business and the Environment, the Sustainable
Development Commission and so on - who have expertise, make recommendations
and give advice in these areas. Our mind is not absolutely closed to this,
but at the moment I cannot see that it is going to add worthwhile value to our
work. If the Committee wants to pursue that argument, then I shall certainly
look at the suggestions which it makes.
Mr Gerrard: I suspect we will.
Chairman
412. Would not a Green Tax Commission help with the process of
consultation? There has been some criticism, by bodies who have made
representations to this Committee, about the difficulties they have
experienced with consultation with the Government.
(Mr Timms) We have talked a lot about the Climate Change Levy process
which I hope would be widely recognised as having been exemplary in terms of
consultation, so I think that demonstrates that we can consult very
effectively and well, without the Green Tax Commission. If there have been
difficulties, then I will do everything I can to learn the lessons from those,
but I do not think the case is made that we need a commission to carry out
consultation, because we have actually done well in a number of cases without
it.
Chairman: Minister, we had a point of comment from the Parliamentary
Clerk in the Treasury who was kind enough to send a letter to the Clerk of
this Committee about the VAT on energy-saving materials. We have only five
minutes or so left, but we would like to ask you one or two questions about
that.
Dr Iddon
413. Thank you, Chairman. This question has dogged this Committee
since we were set up in November 1997, as you well know, Minister. Common-
sense tells us - and we put it in a number of reports - that if we are really
serious about saving energy, then we ought to reduce the VAT on energy-saving
materials and measures across the board, not just selectively, down to the
minimum of five per cent. A number of us have written letters to you, we have
put down Parliamentary Questions - I have one on the record today with an
Answer - and we are wondering what the blockage is. It is the 6th European
Directive, we know that, but we have been told that your Department has been
having discussions with other countries in the European Union and, indeed,
with the Commission to try to resolve this thorny problem. In an Answer you
gave, I think, to the Member for Bury South, David Chaytor, I think I remember
you saying that there has not been much contact in that respect with other
countries in the EU or with the Commission on this subject in the last year,
1999, is that correct?
(Mr Timms) I can acknowledge that this has been indeed a long-running
episode. I wonder if I can go back and give an account of what has happened
from our point of view so far. We implemented with effect from 1 July 1998
a new targeted VAT relief for the installation of energy-saving materials in
social housing. That has extended the five per cent rate which applied to
domestic fuel and power to that installation work. There are legal
constraints on going further than that. In particular, there is not any scope
for relief for do-it-yourself installation at the moment. That is why my
predecessor as Financial Secretary, now the Paymaster General, wrote in
September 1998 to Commissioner Monti to outline the step which we had taken
and to suggest that the Commission and other Member States ought to consider
changes to the current Community law in order that things could go further.
He has replied and has confirmed that there is currently no provision for
relief for energy-saving materials for do-it-yourself installation. He raised
the possibility of future Commission proposals for changes to the 6th VAT
Directive which you referred to, in Annex H which is the part which deals with
reduced rates. He has acknowledged that these proposals would be the right
place to tackle this question of energy-saving materials, and we expect the
Commission to make some decisions on this during the course of this year. So
there certainly has been contact between Customs and Excise and the Commission
on this, and we expect some announcements in the course of the year.
414. Why has this Government not taken advantage of the
experimental reduction in VAT on local labour-intensive services which France
jumped the gun on before Christmas and which Italy appears to be doing in the
early part of this year? Why have not we taken advantage of that?
(Mr Timms) Essentially those are being presented, as I understand it -
certainly the French change is being presented - as a job-creation measure.
Essentially, as you know, we have a variety of other measures tackling
employability - effectively, the New Deal and others. So I think the problem
which is being addressed in France is being addressed rather differently here.
I think it is the case that France has somewhat jumped the gun, but we are
expecting some announcement from the Commission in this area in the course of
the coming year.
Dr Iddon: Thank you.
Chairman
415. How many discussions have taken place at ministerial level on
this subject?
(Mr Timms) I cannot answer that question off the top of my head.
416. Have any discussions taken place at ministerial level? You
mentioned quite a lot of consultation at official level, did you not?
(Mr Timms) Yes.
417. I wondered whether you or your predecessors have been
involved at ministerial level?
(Mr Timms) There have certainly been ministerial letters.
418. Could you let us have a note on that?
(Mr Timms) Yes.
Joan Walley
419. Could there also be a note about the question of the
agreements as well and this question of transparency?
(Mr Timms) No doubt that suggestion can be forwarded to the group.
Chairman
420. Unless any of my colleagues wants to ask you any further
questions, we shall close this session, Minister. Thank you very much indeed
for quite a long exposure to our criticisms. May I hope that you stay long
in your post. Although this is your first appearance before the Committee,
you are the third new Minister in the Treasury, and I think we would hope for
some continuity over the remainder of this Parliament. We hope it is you.
(Mr Timms) Thank you. I shall look forward to coming back.
