MEMORANDUM BY SOUTH WEST ENGLAND ENVIRONMENTAL
TRUST (DSW 68)
We welcome the Waste Strategy 2000 which is
both comprehensive and innovative. While some areas of the strategy
need developing (for example, the role of WRAP which we believe
is being developed), the integrated approach to waste disposal,
the comprehensive definition of recycling, the introduction of
recycling targets and the innovative tradable permit system and
introduction of "green" procurement policies for local
authorities, among other policies, are positive and decisive steps.
THE OPERATION
OF THE
LANDFILL TAX
CREDIT SCHEME
(LTCS)
As an enrolled registered Environmental Body
(EB) established by Lyons Davidson's Solicitors for the purpose
of encouraging the uptake and use of the LTCS in and for the South
West, SWEET-UK has wide experience working within the LTCS over
the past three plus years across the UK. SWEET-UK primarily acts
as a broker for projects, dealing with a wide range of groups
(including local authorities) and a diverse section of landfill
operators (sole operators and national companies). In addition,
we adopted the role of company secretary or administrator for
a number of distributive EBs. It is from this range of experience
that we base our comments on the operation of the LTCS.
We applaud the proposed intention of using the
LTCS to implement the Waste Strategy 2000, notably increase recycling,
especially for local authorities, and develop secondary materials
markets. In our experience the scheme, as originally designed
and enacted, enabled funding these types of activity (provided
funding could be found) and should not require further amendment
to accommodate these activities. However, anomalies within the
operation of the LTCS must be addressed.
1. PUBLIC V.
PRIVATE DESIGNATION
OF TAX
CREDITS
The designation of the qualifying contribution,
once received and expended by EBs as "private" money
creates an incongruity within the operation of the Regulations.
1.1 If the contribution is "public"
money when in the hands of the landfill operator, what is the
mechanism that turns it into "private" money when it
is received by the EB?
1.2 If it is "private" money when
distributed by an EB, how can C&E retain the power to reclaim
the tax credits if that "private" money is expended
on a non-compliant project? This should be a private law matter
between the landfill company, ENTRUST and the EB; rather than
a traceable, government matter between C&E and the landfill
operator.
1.3 While there is an argument that the
contribution represents "tax foregone" and is the same
(or similar to) the private pensions scheme, this explanation
does not accommodate the analysis of the above process. In the
private pension scheme, the benefactor is the contributor and
there is no tracing mechanism to allow C&E to reclaim the
tax foregone from the contributor. This argument tries to compare
two distinct systems.
1.4 While it might be desirable to have
the money classified as "private" money to allow greater
flexibility of expenditure (eg as matched funding where "public"
funds would not be allowed; equally, the opposite applies to other
funding schemes) or to avoid the restrictions or other barriers
to spending imposed on "public" funds, the present two-fold
system is incoherent and causes confusion.
1.5 We suggest the contributions should
remain public money throughout the distribution chain, with proper
accountability. If, however, the government wants the contributions
to be perceived as private money, the tracing and claw back provisions
should be removed from the Regulations. There is confusion engendered
by the lack of coherence in the present designation which should
be regularised immediately to avoid further misunderstanding.
2. STATUS OF
ENTRUST
ENTRUST is presently constituted as a private
company with a limited regulatory role.
2.1 ENTRUST's primary role is to register
Environmental Bodies and monitor their expenditure, with approval
of projects submitted as a secondary role. Their only mechanism
for enforcement of their primary role is the removal of an enrolled
Environmental Body from the register.
2.2 ENTRUST has stated that it will not
guarantee that projects approved are the same projects that receive
landfill tax credits. While this is a sensible position for a
private company to take to decrease its liability; coincidentally,
this increases the liability borne by landfill operators and EBs.
This position, understandable as it may be for ENTRUST, limits
its secondary Regulatory function in that project approvals become
only partially certain, leaving compliance and conformity with
the Regulations of projects receiving funding to be finally validated
by the landfill company and the EB.
2.3 ENTRUST has recently moved to apply
consistent audit procedures across the regions. Auditors check
the records of EBs against a list of criteria identified by ENTRUST,
and then inspect some projects that have received funding. It
is through this mechanism that ENTRUST identifies whether those
projects inspected and receiving LTCs comply with the Regulations
or not.
2.4 This leaves a number of projects not
inspected and not receiving a guarantee of compliance by ENTRUST's
approval letter, and yet still receiving LTCs. Equally, there
are a large number of enrolled EBs still not fully conversant
with the Regulations as interpreted by ENTRUST. These factors
combine to increase the risk of projects not being compliant,
and the tracing and claw back provisions being instituted against
landfill operators.
2.5 With ENTRUST not able to provide security
of project compliance, there is likely to be less risk taking
in funding innovative projects by landfill operators. Thus the
categories that will benefit are categories D and E, with "safe"
category C projects all receiving funding. Initiatives that benefit
local authorities possibly to provide a recycling infrastructure
could suffer, along with a range of other projects.
2.6 We would suggest that ENTRUST become
a government sponsored regulatory body, with more comprehensive
regulatory powers, to thereby offer greater security to both EBs
and landfill operators. It would speak with more assurance and
with a better defined role. We suggest that as it is, it is a
rather expensive operation for such a limited role.
2.7 We also suggest that this is not an
appropriate role for a private company because its private status
leaves the company vulnerable to civil action. As a result, the
private company structure can lead to a diminishing of the regulatory
role.
2.8 ENTRUST requires EBs to report the receipt
of qualifying contributions from landfill operators. This serves
a dual purpose. One is to inform them of the amount of the fee
they are to receive, and the second is to inform C&E that
the EB has received the contribution. Since at this stage in the
transaction, the contribution is still "public" money,
ENTRUST is information gathering for C&E, and acting in a
quasi-official capacity. This also makes ENTRUST in receipt of
"public" money, thereby increasing its accountability;
unless this initial expenditure of a contribution is the transforming
mechanism that transforms the "public" money into "private"
money. In either case, we suggest this issue should be resolved
by C&E and/or Treasury as soon as possible.
2.9 ENTRUST has only just started to collate
information about projects in Category C for wider dispersal.
One of the purposes of this is to avoid duplication of projects.
Thus far, there has been no talk (that we have heard) of either
a qualitative analysis of projects in any category in terms of
value for money, or an environmental impact analysis. While individual
EBs may do either or both of these on a limited scale, ENTRUST
has a large supply of money which could either assist those EBs
wanting to undertake this analysis on a local/regional level or
commission this work on their own behalf. Transferring this task
to EBs who often operate under financial constraints is not a
viable answer. We believe that part of our 2 per cent contribution
should be put to this important use.
3. LANDFILL OPERATOR
DISCRETION
The Regulations allow for a registered person
(landfill operator) to exercise a discretion over the allocation
of LTC.
3.1 This position is consistent with the
"private" money designation, and has undoubtedly advanced
the uptake of the LTCs. Also when viewed with the limits ENTRUST
puts on project approvals (see 2.2 above), landfill operators
often feel obliged to become actively involved in the allocating
of funds. Two issues emerge from this.
3.2 First: C&E informed us that they
designate the qualifying contribution as "public" money
until it is transferred and expended by an EB when it becomes
"private" money. Under this analysis, landfill operators
determine where "public" funds are spent. It is questionable
whether landfill operators know this distinction exists; or whether
the industry as a whole believes that the funds are always "private"
money. This anomaly should be removed or corrected.
3.3 For there to be an incentive for landfill
operators to fund projects which implement the Waste Strategy
2000, landfill operators must identify that need as not competing
with their core business, as well serving some benefit they can
identify. While many implementation strategy projects have been
supported, particularly recycling collection systems, education,
waste minimisation information and market development programmes,
this support is variable across the country, and totally dependent
on local conditions. Equally, the quality of the programmes supported
is variable. We have found that some companies are very open to
this type of project while others are not. The same applies to
local authorities. Marrying these two is one of the many jobs
we undertake.
3.4 Response to a call by the Minister for
the Environment to fund more category C projects resulted in more
funding for projects in this category. Whether there are any statistics
to indicate an increase in market development or recycling projects
across the country would be a question for ENTRUST. Certainly,
industry based EBs, such as ESART, initially showed that industry
based research projects were their priority. Important as these
may be, they do not advance the range of waste management options.
3.5 It is questionable whether the EB system
itself is the best vehicle for directing LTC to the range of implementation
strategy projects. Many EBs admit they do not have the expertise
to analyse the quality of efficacy of such projects, while others
have systems in place for external examination of these projects.
The result is that some EBs do not fund this type of project at
all while others do; but local conditions apply here.
3.6 We suggest that as part of the consideration
of the designation of the qualifying contribution, a proportion
(one third) of the total LTCs allocated are withheld and this
amount is distributed to WRAP or regional EBs solely for delivery
of viable local or regional implementation strategy projects.
Equally, another similar vehicle may be possible/desirable (see
3.11 below).
3.7 Secondly: Competing demands on a massively
oversubscribed scheme put pressure on landfill operators and EBs.
Some respond by setting their own criteria for determining which
projects are funded. In some cases, these criteria are not made
known to the subscribing public, who apply with a project that
ostensibly fits the LTCS criteria only to find it is refused because
it does not comply with other criteria, unknown, unadvertised
and unique to that landfill operator or EB. Again, this is consistent
with the "private" money designation.
3.8 In our experience, we find that nearly
all landfill companies act with the utmost propriety and in accordance
with the Regulations, as do most EBs, in approving and funding
projects. Ironically, it is the structure and flexibility of the
Regulations that allows diverse direction of funds without restriction.
For example, there is no requirement to spend the funds on all
categories, or in any proportion on any category. Therefore, landfill
operators and/or EBs can prioritise according to their own criteria;
for instance, they can prioritise support for category D projects,
refuse to fund category E projects, refuse to consider projects
outside a five (5) mile radius of their own landfill site, only
consider category C education projects, refuse to deal with other
EBs and the like (we have examples of all these limitations).
In addition, projects in categories A and B can be inordinately
expensive to fund, and therefore, not attractive to landfill companies.
The 10 mile limitation set by C&E is generally adhered to
vigorously, leaving some areas of the country without any funding
on category D and E projects. This is even more pronounced when
that limit is contracted to five miles. As long as these limitations
within the operation of the LTCS exist and the demand for funding
remains high, funding of implementation strategy projects will
continue patchy and with variable quality results.
3.9 This demand on the scheme militates
against funding measures to implement the Waste Strategy 2000.
These barriers are growing. Many funds, or a proportion of many
funds, are committed to projects for up to one year in advance.
Local authority contracts currently being written may incorporate
recycling targets, thereby encouraging the use of LTCs to implement
these. However, existing contracts may act as a barrier, with
no incentive for the contractor to spend LTCs in this way.
3.10 While the government may recommend
that implementation strategies identified in the Waste Strategy
2000 should be funded under the scheme, there needs to be more
of an incentive for this in an industry that is besieged by competing
demands—some national, many local.
3.11 We would recommend that all future
landfill tax escalators are removed from the operation of the
general scheme. We would further recommend they are disseminated
to regional or local projects that actively implement waste strategy
programmes, and that the criteria for determining which projects
to support are within the Regulations and publicly notified. The
projects should be professionally analysed and there should be
a relatively short decision period. Landfill operator discretion
would not need to apply to these projects, but the EB system could
be maintained. The deciding panel should be regional, professional
and volunteer. We suggest this would not interfere with the "private/public
designation" debate. Alternatively, the company WRAP could
be the vehicle for distribution of implementation strategy projects
(as suggested at 3.6).
SUMMARY
We believe the LTCS is an extremely effective
instrument to deliver high quality "environmental improvement"
and other projects, including the goals of the Waste Strategy
2000 provided there is coherence within the scheme and a proper
designation of qualifying contributions. Notably, we suggest the
contributions should remain public money throughout the distribution
chain, with proper accountability, and should be designated as
such. If the government determines that the funds be designated
as "private" funding, we believe this position should
be stated clearly, without the "public/private" divide,
and without the threat of clawback for landfill operators.
In the short-term, we would recommend that one-third
of all LTC and all future landfill tax escalators are removed
from the operation of the general scheme. We would recommend these
funds are disseminated to regional or local projects that actively
implement waste strategy programmes, and that the criteria for
determining which projects to support are within the Regulations
and publicly notified. The projects should be professionally analysed
and there should be a relatively short decision period. Landfill
operator discretion would not need to apply to these projects,
but the EB system should be maintained. The deciding panel should
be regional, professional and volunteer, possibly involving or
led by WRAP.
We would suggest projects funded this way are
accountable, and have to meet performance targets.
Since there has been no commitment to the LTCS
beyond 2004, we believe a review of projects in terms of their
cost effectiveness and environmental impact should be undertaken
locally with financial help and advice from ENTRUST.
We would suggest that ENTRUST become a government
sponsored regulatory body, with more comprehensive regulatory
powers, to thereby offer greater security to both EBs and landfill
operators. We also suggest its role is extended to include collating
and distributing information on projects, and best value and environmental
indices (as above). It would speak with more assurance and with
a better defined role.
September 2000
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