TUESDAY 28 NOVEMBER 2000
_________
Members present:
Mr Andrew F Bennett, in the Chair
Mr Hilary Benn
Mr Crispin Blunt
Mr Tom Brake
Christine Butler
Mr John Cummings
Mr Brian H Donohoe
Mrs Gwyneth Dunwoody
Mrs Louise Ellman
_________
EXAMINATION OF WITNESSES
MR STEPHEN TIMMS, a Member of the House, (Financial Secretary to the
Treasury), and MR JON ANDERSON, Landfill Tax Team Leader, Customs &
Excise, MS PATRICIA HEWITT, a Member of the House, (Minister of
State, Department of Trade and Industry) and MR AlistairKEDDIE,
Director of Environment Directorate, examined.
Chairman
958. Ministers, can I welcome you to the Committee and apologise
that we are running late. Could I ask you to identify yourselves for the
record please?
(Ms Hewitt) Thank you very much, Chairman. I am Patricia Hewitt. I
am the Minister for Small Business and E-commerce in the Department of Trade
and Industry. I also have responsibility for environmental matters within the
DTI. Could I introduce AlistairKeddie who is the Head of the Environment
Directorate at the DTI.
(Mr Timms) I am Stephen Timms, Financial Secretary at the Treasury with
responsibility for environmental tax matters. I am joined by Jon Anderson who
is responsible for the Landfill Tax at Customs & Excise.
959. Do either of you want to make an opening statement or are you
happy to go straight to questions?
(Mr Timms) We are happy to go straight to questions.
Mr Blunt
960. Mr Timms, the Treasury said in your submission to us that
"The Government believes that taxation can be a useful tool in promoting
sustainable waste management". How will the Government support the aims of
the Waste Strategy through taxation?
(Mr Timms) In a number of ways. There is a taxation aspect to this but
of course there is a public spending aspect as well. The announcements made
in the Spending Review in the summer contribute directly to achieving the
goals of the Waste Strategy. We are looking currently at the landfill tax
credit scheme because we think that while landfill tax itself undoubtedly
contributes to the goal of reducing the proportion of waste going to landfill,
we think that the credit scheme could make a greater contribution than it is
doing currently to achieving the objectives of the Waste Strategy on
sustainable waste management, and so we announced in the pre-Budget Report a
couple of weeks ago that we will, between now and the Budget, review the way
that the credit scheme works and see whether there are ways in which we can
ensure that that contributes more directly to the targets in the Waste
Strategy. There is a number of other tax matters that I could draw on if you
wanted me to look at that.
961. I am slightly concerned. Your focus on the landfill tax
credit scheme, however worthy that is, is in a sense focusing on the trees
rather than the wood. For example, we have taken evidence from Peter Jones
of Biffa who advocates the creation of a "Green Tax Commission" and tried to
look at all these incentives and disincentives before public expenditure tax
from a position of fiscal neutrality, but on the Waste Strategy in your
evidence to us there is very little on exactly how you are going to achieve
the environmental benefits that could be driven out through taxation of public
expenditure. It is all rather vague. Why, for example, have you discarded
the idea of introducing a tax on virgin materials and packaging?
(Mr Timms) The objectives and the targets in the Waste Strategy have
been clearly set out. Those are the Government's aims in this area. We have
put in place and are putting in place the mechanisms to achieve those targets
through spending and through some measures on the taxation side as well. I
am very confident that those measures will allow us to achieve the
Government's targets that have been set out in the Waste Strategy. There have
been a number of proposals floated at different times. We do not think that
the measures that you have referred to are necessary or indeed helpful but
they are not necessary to achieve the targets that we have published.
962. But there are some perverse incentives floating around, are
there not, in the taxation system, for example, the external costs of
incineration, and since incineration of waste produces energy 24 hours a day
it in effect reduces the base load of electricity generation, so is equivalent
to displacing the average-mix electricity generation. The external
environmental costs of that are actually worse than landfill according to the
Government's own evidence in the published Waste Strategy 2000. When are you
going to introduce a tax on incineration?
(Mr Timms) We are not proposing a tax on incineration. We do need
incineration as part of the range of measures we are taking to achieve the
objectives of the Waste Strategy. I do not think there is any doubt about
that. Where there is incineration we want there to be energy generated from
the process but I think it would be perverse at a time when it is clear that
there will need to be some increase in incineration to be taking steps with
another hand to disincentivise it. However, the focus of our strategy is very
clearly on promoting recycling and increasing the proportion of waste material
that is recycled from waste.
963. But if the local authority, who is trying to manage waste
disposal strategy, is faced with a company coming forward with a commercial
proposal for an incinerator which benefits from a Non-Fossil Fuels Obligation
subsidy of the electricity of the order of œ2 million a year for a quarter of
a million tonnes of waste, benefits from private finance initiative for the
construction of the plant, benefits from the exemption from the climate change
levy, benefits from some form of rates rebate, you can see that there is a
very substantial subsidy to incineration as opposed to recycling are driving
up waste disposal further up the waste hierarchy.
(Mr Timms) Energy generation of that kind would not benefit from the
Renewables Obligation. Patricia may want to comment on that. It is the case
that the PFI criteria for waste projects have been revised in line with the
Waste Strategy particularly to look at the concerns you were raising and the
revised criteria do reinforce the central place of recycling and composting
in waste PFI applications. Those are the criteria that will be looked at in
considering whether or not to award PFI credits for a particular scheme. I
will ask Patricia to comment on the fuels obligation point.
(Ms Hewitt) Of course the point is that the Non-Fossil Fuel Obligation
has been the chief means by which we have encouraged renewable energy but we
are not proposing any new rounds of the Non-Fossil Fuel Obligation although
of course we will honour existing contracts that have been entered into under
that order. As to the new Renewables Obligation which will replace the Non-
Fossil Fuel Obligation, we are consulting on the details at the moment, but
we are proposing to exclude energy from waste incineration from the sources
of renewable energy that are eligible for the new Renewables Obligation. That
is precisely because we want to get the right level of incentive in order to
ensure that we get some increase in the production of energy from waste
incineration because, as we explain in the -----
Chairman
964. Some? How much?
(Ms Hewitt) We estimate that it will deliver about a quarter of our
total target for energy for electricity generation from renewables. As we say
in the Waste Strategy, we believe there is a role for energy generation from
waste incineration as part of achieving that target of 10 per cent of energy
generation from renewables. We think that we can get that incentive in
particular through the exemption from the climate change levy but if we were
to add to that the inclusion of energy from waste incineration in the
Renewables Obligation we would either encourage too much energy from waste
incineration, or indeed we would simply be giving a deadweight subsidy to
incineration schemes that were going to be built anyway.
965. Mr Meacher cited recently DTI projections for NOX emissions
in response to a recent parliamentary question, which was 15 megatons I think
by 2010, which implies a huge increase in incineration by 2010. What are the
DTI assumptions about incineration capacity by 2010?
(Ms Hewitt) Our assumptions are precisely the same as the assumptions
in the Waste Strategy. That is the Government's Waste Strategy. Our
assumption that energy from waste incineration will deliver about a quarter
of our total target for energy from renewables is simply based upon the
assumption of the Waste Strategy.
Chairman
966. That is an absolute contraction, is it not? They are not
renewables because you burn them. Therefore they are not there to be renewed.
Something like wind power goes on and on so you can claim that is renewable.
I suppose you can claim that the waste stream is renewable but actually the
materials are not renewable, so it is a total contradiction, is it not?
(Ms Hewitt) I do not think we do accept that, Chairman. Indeed, in
line with most Member States in the European Union we believe that energy from
waste does constitute a renewable form of energy. We would define renewable
sources of energy as those which are continuously and sustainably available.
As Stephen has rightly said, our first objective is to minimise the generation
of waste and then, where that is not possible, to maximise re-use and
recycling. But where there is creation of waste that we cannot avoid, if we
burn it to generate energy we will save fossil fuels that would otherwise
themselves be burned to generate energy. We will thereby reduce emissions,
contribute to the Kyoto targets and avoid adding to the amount of landfill
which is where otherwise the waste would be disposed of.
967. So if we take some crude oil which we refine to produce fuel
from it which we burn, that clearly is not renewable. But if we turn it into
some product which we can then use for some years and then burn it, that is
renewable?
(Ms Hewitt) Chairman, I do not pretend to have your scientific
expertise in these matters.
Chairman: I am not suggesting any scientific expertise at all. It is
a very crude statement.
Mr Blunt
968. How is burning something renewing it?
(Ms Hewitt) What I have tried to do is to indicate why we think that
burning waste material where we have not been able to avoid the production of
the waste and we have not been able to re-use and recycle it, is renewable
because we are generating energy that needs to be generated and we are thereby
reducing the amount of fossil fuel consumption that would otherwise be used
to generate the same amount of energy. If I can put this in the broader
context, Chairman, it must be utterly unacceptable that of the materials that
are used to create products in the economy only one per cent of those
materials are still in use six months later. Therefore, increasing resource
productivity, reducing waste generation in the first place, increasing
recycling and re-use and then, where we have down to an unavoidable level of
waste generation, re-using it to generate energy, seems to us to be crucial.
969. Everyone would agree with that, Minister. If you have an
incineration capacity that is very large it is going to have the effect of
sucking in material that might otherwise have been recycled or re-used if it
had been economic for waste disposers to do that. The fact is that there are
projects in the DTI, I understand, of 19 million tonnes of incineration
capacity by 2010, there are projections in the DETR of 15 million tonnes of
capacity by 2010, and we have now been told by the Energy from Waste
Association that they expect that there will be 3.2 million tonnes of capacity
by incineration by 2010; this is by extrapolation of pollution expected from
nitrous oxide. There is, I believe, an inconsistency in the Government's
position of what capacity of incineration you expect to have in 2010. I
suppose you might not know the answer to this but I would be grateful, if that
is the case, if you could go back and look at these projections because there
is a great deal of alarm out there that there are incentives for incineration
that are going to cause there to be more incineration than necessary and take
us further down the waste hierarchy than we need to be.
(Ms Hewitt) May I say, Mr Blunt, (and not just I) that the Government
as a whole is very alive to those fears. That is why we have been very
careful about how we have designed is you like the market, the structure of
incentives for the various uses of waste, including generation of energy
through incineration. It is why in particular we are proposing to exempt
energy from waste incineration from the new Renewables Obligation. I am not
aware that those projections that you have referred to and I will ask
Alistairif he would like to comment on that in a minute, although I will
certainly check the point and let you have a further note if there is further
material to supply, but if I could make a further point, you referred earlier
to PFI and the changing nature of the rules for PFI.
Chairman
970. We will come back to that as a separate question.
(Mr Keddie) I am not sure I could add anything to what the Minister
has said.
971. Perhaps you would like to look at the transcript and if
necessary send us a note.
(Mr Keddie) Both DETR and the DTI are not making a particular figure,
that there is a very definite figure of the number of incinerators that are
going to be in use by 2010. A great deal depends on how our strategy works.
Mr Donohoe
972. This question might seem like manna from heaven to you. Many
of the witnesses have indicated that the Landfill Tax as it exists is far too
low and that the level should be œ25. When do you, in the Treasury, see that
figure being achieved?
(Mr Timms) Last week I attended a meeting of the All Party Group on
Sustainable Waste Management, where quite a number of the companies who pay
the Landfill Tax are represented, and I must say it was a refreshing
experience from my point of view as the Treasury Minister to be presented with
a case for a significantly higher level of tax than the one we currently levy.
We have chosen though to take a cautious approach on this. We want to
understand properly the effects of the different levels at which the tax might
be set and, as you know, we have introduced an escalator so that the rate will
go up by a pound a year for five years and then in 2004 we will review what
the effects have been of the application of the escalator and decide how we
should take matters forward. While it is in many ways a pleasant experience
to be lobbied by those paying the tax to set it at a higher rate, we want to
be confident that we know what the effects of that will be before deciding how
to set the rate of the levy in the future.
973. One of the effects could be that you could push more people
towards incineration and that might well be why you are being cautious.
(Mr Timms) That is conceivably an effect of a substantially greater
rate. The point the industry makes is that it would incentivise greater
recycling. I think the important thing is that we proceed with some
confidence about what the effects have been of these fairly modest increases
that we are introducing at the moment before deciding how to go forward in the
longer term.
974. One of the less pleasant words you like is "hypothecation".
If you were to take the figure of œ25 and hypothecate it for waste recycling,
would that be something that you in the Treasury would consider?
(Mr Timms) There is a double hypothetical question there. We will
decide in 2004 how we want to see the rate of the levy going in the longer
term. In general, as you know, we are not attracted to widespread
hypothecation because all the sources of Government's income contribute to the
costs of meeting all of the Government's priorities. There have been cases
though where we have introduced a measure of hypothecation and we would
consider that if it arose in this instance at the time. It is just worth
making the point that if there was to be a significant increase in the rate
of the Landfill Tax and if there was something like the Credit Scheme in place
as well, then that element at least of any increase would directly contribute
towards the aims that the Credit Scheme is being focused on.
Chairman
975. You suggest that you will make an announcement in 2004 as to
how the tax might go up, but would it not be logical to make the announcement
fairly soon so that people can actually anticipate in terms of developing
recycling schemes and actually making some of the schemes on the margins of
viability feel that they can hang on?
(Mr Timms) I think we would want to be more confident than we can be at
the moment about the impact of a rising level of tax. As I have explained to
Mr Donohoe, the aim is to proceed cautiously with these pound per year
increases.
976. I understand why you are proceeding cautiously but should you
not give people some idea? It may not be that you will make the announcement
very soon but perhaps in a year or two years' time rather than wait until
2004.
(Mr Timms) I think we certainly want to wait until we are confident
about what the effects have been of the current increases. Once we do have
that information then we will be in a position to talk about the longer term.
Christine Butler
977. How did the Treasury decide how much funding it would
allocate to waste facilities through the Private Finance Initiative? In other
words, how much and to what? On what basis was that?
(Mr Timms) The key driver has been the objectives in the Waste Strategy.
The Waste Strategy was published in May and the Spending Review was set out
in July, so we were able, in putting the Spending Review announcement
together, to take full account of the targets that were set in the Waste
Strategy. That has been the process that we went through.
978. Do you not think that the Private Finance Initiative support
encourages potentially inappropriate capital-intensive approaches to waste
management? That is why I asked my first question.
(Mr Timms) No, I do not. The PFI is a means of procurement and it has
a number of benefits and those benefits apply irrespective across a wide range
of projects, in particular bringing expertise from the private sector to bear
on public sector projects.
979. Could those sums of money not have been better applied to
recycling initiatives and that sort of thing, separation of waste streams?
(Mr Timms) There is no reason why they should not be. I made the point
earlier on that we have reviewed the criteria that the Project Review Group
will apply to PFI projects in the waste area. The criteria do reinforce now
the central place of recycling and composting in waste PFI applications.
980. When we have not got that in place as far as we would like to
have, the recycling initiatives and so on, it will have to be an evolutionary
approach. Could that not be met better through the Challenge Fund?
(Mr Timms) We have set very clear targets in the Waste Strategy for
increasing the proportion of waste that is recycled. There will be statutory
targets set for local authorities in the New Year and I think there will need
to be a variety of mechanisms used to achieve those targets. We are
completely committed to achieving the targets and I think the mechanisms that
we have put in place will allow us to deliver them. The point I want to
emphasise is that we see PFI as contributing to each of those targets and not
in conflict with them.
981. We have had eight waste PFI schemes that have been funded,
how many of those have gone to the construction of an incinerator?
(Mr Timms) I do not know the answer to that. Certainly there will need
to be more incineration in the future than there is at present. I think it
is the case that incineration is an element of most, if not all, of the eight.
The new criteria that we have introduced following the publication of the
Waste Strategy will give, and do give, a new priority for recycling that we
do expect future bids to reflect.
982. I know you have got new criteria but how new are they? Would
those criteria have affected those more recent bids from these eight local
authorities, or is it something you are now putting into place?
(Mr Timms) They came into place following the publication of the Waste
Strategy in May, so in that sense they are very new. I do not know how the
previous projects stack up against those criteria but certainly there is a new
emphasis on recycling that has followed the publication of the Strategy.
Chairman
983. You were not certain but you have implied that all eight went
for incinerators, is that right?
(Mr Timms) I do not know whether that is the case or not.
Christine Butler
984. That is what we are trying to find out. Could we know for
certain?
(Mr Timms) That could certainly be done. I imagine Michael Meacher will
certainly know about all of those in some detail when he appears before the
Committee, but I can make sure that we provide that information before he
comes.
985. We are looking at a rigorous approach from the Treasury as
well as from DETR. Do you not think there has been too much subsidy for
incineration up until now? How would you like to take matters forward as far
as the Treasury commitment is concerned?
(Mr Timms) I do not think there has been a subsidy for incineration.
986. We have had PFI schemes, we have had NFFO and rates, all
sorts of ways of subsidising incineration, and not very many ways of
subsidising recycling, composting and so on in the Waste Strategy.
(Mr Timms) I do not see PFI as being a vehicle for subsidising
incineration. PFI is simply a vehicle for procurement and, as I have said,
we expect to see ----
987. May I rephrase that then. I think it encourages waste
disposal authorities to go for that option rather than maybe for an
evolutionary approach, a more complex way of dealing with waste streams, which
is actually part of the Government targets in trying to get more composting
and more recycling instead, but the rapacious jaws of incineration really
would not be helpful to that objective, would it? The waste disposal
authorities tend to go always for a stronger element of incineration than
perhaps is necessary.
(Mr Timms) Let me comment on that and then I will ask Patricia to do so
as well. PFI is a vehicle that makes it easier and in many ways better for
local authorities and other public sector bodies to carry out investment
projects. PFI does not bias them, in the case of waste projects, towards
incineration at all, inherently there is no reason why it should, it is simply
a vehicle for making capital investment easier and more readily feasible for
local authorities. That is a very beneficial impact of PFI. I do not accept
that it introduces a bias towards incineration because I do not think that is
the case.
(Ms Hewitt) I just want to draw the Committee's attention to one
example, which is the local authority I know best in my own City of Leicester,
which has recently announced one of the largest PFIs, a very recent one, for
a new waste treatment plant. That is a local authority that already has a
track record of commitment to the environment, is very conscious of the new
targets that it has been set under the Waste Strategy and, as I understand it,
PFI will deliver to that City a state of the art plant for separation and
treatment of different sources of waste, substantial improvements in recycling
of waste, including composting which of course there has not been effective
facilities for until now, and incineration will simply be a part of that.
Certainly the experience there has not been that PFI has driven the local
authority towards inappropriate use of incineration; instead it has enabled
them to finance a major capital investment that deals really with the whole
life cycle of waste after it has been generated, and I think that is very
valuable. On the broader point about the subsidies, I think it is fair to say
that because energy from incineration was included under the NFFO that did
represent, if you like, a subsidy towards incineration. Of course that has
now come to an end, we are not entering into new contracts under the Non
Fossil Fuel Obligation and we are proposing to exclude energy from waste
incineration from its replacement, which is the renewables obligation.
Chairman
988. On this plant in Leicester, how much flexibility will the
incinerator have about the calorific value of material that goes into it?
(Ms Hewitt) That I do not know, Chairman. Either the Committee could
ask the City Council or I would be delighted, on your behalf, to make sure
they give you some details.
989. Is that not one of the crucial questions, that if we are
going to push up recycling rates there is a likelihood that the calorific
value of the materials going into the incinerators will go down and, as I
understand it, normal incinerators, to get maximum efficiency, are geared to
a particular calorific value of the import material?
(Ms Hewitt) I understand the point you are making and I can see that
could indeed be a theoretical and perhaps practical possibility, but the local
authority is also absolutely conscious of having to achieve its targets for
recycling and recovery. They have embarked upon that with the way they are
collecting kerbside waste, but they need to go much further in order to
achieve the targets, which is why they are making this new investment.
Christine Butler
990. Apart from reviewing the Landfill Tax Credit Scheme, is the
Treasury considering other options to encourage recycling in the form of
different kinds of subsidies or incentives?
(Mr Timms) There was an announcement of a significant package in the
Spending Review in July of œ140 million over three years to help local
authorities make progress on recycling towards achieving their recycling
targets. I think that will be an important contribution. As you have said,
we are looking as well at how the Landfill Tax Credit Scheme can help.
991. I was thinking of new schemes, any new schemes which could be
a real incentive through fiscal measures to encourage composting, recycling,
waste minimisation, that we do not yet have in the public domain?
(Mr Timms) What I would argue is that the variety of existing schemes
and arrangements, including the statutory targets that local authorities will
have to be announced in the New Year, will allow us to deliver on the very
ambitious but very important targets set out in the Waste Strategy. I think
we do have the mechanisms in place to deliver on those targets that we have
announced.
Mr Benn
992. You have just said you think the additional funding that the
Government has put in to help local authorities will enable them to meet the
targets which have been set. If that is the case, why do you think the LGA
has said to us that the funding being sent their way is patently inadequate,
because that is what they have said to us in evidence?
(Mr Timms) I do not think that is the case. I mentioned the œ140
million figure over three years. There was also, of course, a generous
settlement for local authorities and the block from which waste activities are
funded, the PCS block, was substantially raised in the Spending Review
announcements in July, so I think the funding is in place to allow local
authorities to meet the targets we have set. That is certainly our view and
I am sure Michael Meacher will make the same point when he comes on behalf of
DETR, and I am very optimistic we will be able to achieve what we have set out
to do.
993. Why do you think local authorities, which after all have
responsibility to meet the target, seem to take the view they do?
(Mr Timms) As a former local authority leader, I certainly never missed
an opportunity to lobby for additional resources, and I am sure my successors
are in the same position.
994. So you are confident that they have now got the resources
they need to meet the target, so lack of resources should not be a reason for
not doing so?
(Mr Timms) I think that is the case.
(Ms Hewitt) I wonder, Chairman, if I may just draw the Committee's
attention to another programme which is going to be very important in
developing the market for recycled material?
Chairman
995. Perhaps we could come on to the markets a bit later, if that
is all right.
(Ms Hewitt) Forgive me.
Mr Benn
996. Could we turn now to the Landfill Tax Credit Scheme? Can you
tell us when Customs and Excise are due to complete their quality assurance
work on Entrust? Do you intend to publish the results of that work?
(Mr Timms) I believe that work will be completed in the next few weeks
and we are intending that the results of that should be sent to this Committee
- I think that commitment has already been made - we also propose to send the
results to the Guardian which originally raised the concerns. I think that
amounts to a yes to the second part of your question.
997. Are you satisfied with the performance of Entrust as a
regulator?
(Mr Timms) I think Entrust broadly is doing a pretty good job. We will
see what the outcome of this quality assurance exercise is. They have
certainly carried out a very thorough investigation of the allegations which
were made earlier in the year and on a couple of earlier instances they have
pursued a prosecution where there was clear evidence of impropriety on the
part of a couple of the environment bodies. So, yes. Entrust, of course, is
an arm's length body from the Government, it is not directly controlled by us,
but we have been broadly satisfied with the way they have set about the task
they have been given.
998. One of the issues which has come up very clearly in the
evidence we have received, and indeed earlier today, is that Entrust's remit
is quite narrowly defined, and one of the issues we are debating is the
balanced projects to which Landfill Tax Credits are given. Do you think there
is a case for broadening that remit to allow Entrust to express a view about
where those Landfill Tax Credits go? As we understand it at the moment, in
effect they are prevented from doing so.
(Mr Timms) It certainly is our view that the scheme currently is not
doing enough to support sustainable waste management. We did make some
changes, announced last January, to somewhat broaden the categories for which
the funds could be made available, but the data we have so far, since that
change, suggest that if anything a proportion of the funds going on
sustainable waste management projects has fallen rather than having risen.
So that does raise for us the need to explore how resources going to the
scheme can be better used to increase recycling rates, particularly of
household waste, and we will be considering all options for change. The one
you have suggested is certainly one of them but we will be looking at others
as well.
999. On that very point, what is the logic of leaving the decision
as to where the Landfill Tax Credits go to landfill site operators, people who
are engaged in general waste operations, when one of the areas many people
would like to see more funding going to is community recycling, for instance,
when in truth they are in direct competition? Why are you allowing one bit
of the market to decide whether another bit of the emerging market gets access
to funds?
(Mr Timms) As the scheme was originally designed there was a particular
concern not to add to public spending, and that meant the decisions on where
the money should go would be made outside Government, and that was I think
quite an important consideration in the original design of the scheme. We
will need to consider whether that remains an objective that we will want to
stick with or whether the time has come to make some change on that front.
There are a number of other benefits from the current arrangement, in
particular that the scheme has been quite successful in drawing in other funds
from third parties and others, and if we were to change the way the scheme
worked we would need to be careful not to lose the benefit so far as possible
of the additional contributions being made, which is certainly a good feature.
The third point I would make is that in the case of some of the environmental
bodies there is actually a very good record of promoting community recycling.
There was an exhibition downstairs last week where a number of the
environmental bodies presented what they were doing, and one of them was
telling me that about 60 per cent of the funds which pass through that
particular body do go towards sustainable waste management, including
community recycling. So I do not think the scheme as it is currently
constructed makes it impossible to achieve our aims.
1000. Just to be clear, is there not a potential conflict of
interest if you have one bit of the industry being able to allocate funds or
not allocate funds to another bit of the industry?
(Mr Timms) I am not sure whether there is. I can see the point that you
are making but my impression is that a number of the major waste operators see
very significant commercial opportunities for them in the development of
recycling. So I am not sure that the conflict arises in quite the way you
have expressed it.
1001. Yet if that were the case, would one not expect the situation
of that sector to have improved? You said just a moment ago that so far this
year, indeed I think you were quoting the Pre-Budget Report, the proportion
has gone down?
(Mr Timms) It has indeed gone down and that is causing us to look at how
the scheme works. I do not know, I am only speculating, but I would not have
attributed that necessarily to the self-interest of the landfill operators.
I think it is probably more a function of all sorts of pressures which are
placed on the environmental bodies calling upon them to deploy their resources
in a variety of ways.
Chairman
1002. You have referred to this exhibition by the environmental
bodies downstairs last week, but I think most people walking in, if they had
not been invited by the environmental bodies, would have been a bit worried
as to whether they had been invited by the landfill operators. It did seem
to be a very nice public relations exercise for landfill operators, did it
not?
(Mr Timms) My impression was that particular exhibition was set up at
the instigation of the environmental bodies themselves.
1003. I understand they set it up but when you looked at the
display material there was hardly a major waste contractor which did not have
its name somewhat predominantly displayed.
(Mr Timms) There is no doubt at all that the Landfill Tax Credit Scheme
is very popular with the landfill operators. It does allow them to win
substantial positive publicity for themselves in the areas where their
landfill operations are in place, and certainly they have benefitted
considerably from it. I do not think there is any dispute about that at all.
1004. So some of them are quite prepared to find the 20 per cent,
are they not?
(Mr Timms) Yes, the 10 per cent.
1005. Sorry, 10 per cent.
(Mr Timms) Yes, the contributions ---
1006. It is not bad really if you put up 10 per cent and get all
the publicity, is it?
(Mr Timms) The contributions come from a variety of sources. I think it
has been a very attractive arrangement from the point of the landfill
operators. I would make the point, and I think it was evident in the
exhibition last week, that it has also been very popular in the local
communities which have benefited.
1007. But we have actually got a system which is taxation without
representation, have we not? There is no way the individual householders who
actually are taxed on their dustbins now get any influence as to how that
money is spent.
(Mr Timms) I guess they have through the ballot box, as with other forms
of taxation.
1008. How through the ballot box because it is at arm's length of
Government? It is not supposed to be influenced by local authorities at all
and the whole way in which money is spent is supposed to be not public
expenditure, so it is at arm's length from the Government, but it is
fundamental taxation on the individual whose dustbin is being emptied.
(Mr Timms) I think one could present the arrangement in a number of
ways. As I have said, one of the original intentions of the scheme was not
to add to public expenditure. That does mean a loss of control over the way
the funds are deployed, and that is undoubtedly a feature of the system. It
is important to make the point that it does have a number of benefits.
1009. I understand the benefits, I do not particularly want to go
back over that, I just want to make the fundamental point that the person who
pays the tax actually has no influence directly on the way in which it is
spent.
(Mr Timms) Local authorities can influence the way the resources are
deployed; they cannot control them. There is a channel for influence.
1010. So when local authorities are allowing these contracts to go
to a waste operator they cannot actually say specifically "well, we will give
it to you because then you will support this environmental scheme", but there
could be a nod and a wink, is that what you are saying?
(Mr Timms) I am sorry?
1011. When you have a contract being let by one of the local
authorities letting a waste contract ----
(Mr Timms) Yes.
1012. You are suggesting there can be a nod and a wink that it goes
to a particular contractor who supports a particular environmental scheme and
then the local authority will be sympathetic to that bid rather than to
another bid?
(Mr Timms) That is certainly not how I envisage it working and I am not
aware of any evidence of that having occurred.
1013. It is implied by quite a lot of people but I accept that no-
one gives us the hard evidence of it.
(Mr Timms) I certainly have not seen any evidence of that and, if anyone
does have it, I would be very keen to see it.
1014. You are suggesting that local authorities are in some way
able to influence it, what I want to know is how are they able to influence
it?
(Mr Timms) Let me ask John to comment on that.
(Mr Anderson) Representatives of local authorities may be on the boards
of environmental bodies, so they do have a say in deciding how the money in
those environmental bodies' funds will be spent.
1015. But some of those environmental bodies, in fact, fail to get
any money because someone else is making the decision as to which
environmental body gets the money, are they not?
(Mr Anderson) That is possible, yes.
1016. It is possible or it is correct?
(Mr Anderson) There are projects which environmental bodies would like
to see funding attracted to but they may not be able to attract funds, that
is correct.
1017. So the local authority does not have any influence as to
where the money is dished out, does it?
(Mr Anderson) Not in that particular instance, no.
1018. It only has a way if it is done in the way that I was just
suggesting, which is clearly illegal, that it actually influences the way in
which the contract is let.
(Mr Anderson) Chairman, I am not absolutely sure. I think there are
many projects where local authorities are represented on the boards of active
projects and they do have an influence and a say in what is happening. I
think it would be extreme, in your case, to agree fully with you.
Mr Cummings
1019. A question to the DTI. Do you accept that the achievement of
sustainable waste management will rely on much greater producer responsibility
measures?
(Ms Hewitt) Yes, I do. I think producer responsibility has got a very
important role to play in ensuring that we get much greater recycling and
reuse and, indeed, much less generation of waste in the first place.
1020. Because the DTI write that you favour a "voluntary approach"
to producer responsibility. Can you tell the Committee what evidence you have
to prove that this can be effective in anything other than a few specific
markets? What discussions are the DTI currently involved in to develop
further voluntary producer responsibility measures?
(Ms Hewitt) Both DTI and DETR have been involved in developing
producer responsibility initiatives over the last couple of years. So far we
have targeted packaging, which of course is the area where we have regulations
rather than a voluntary approach, vehicles, tyres, electronic and electrical
equipment, batteries and newspapers. Indeed, DETR recently announced a new
voluntary agreement with the Newspaper Association on newspapers. If I can
give you the example of ACORD, which is the Automotive Consortium on Recycling
and Disposal, that has brought together the vehicle manufacturers, the
dismantling and treading industries and the plastics and rubbers sectors, and
they have made very good headway, indeed it has given us a head start as we
look ahead to having to implement the European Union Directive on end of life
vehicles. We would take this case by case. We are certainly not saying that
it has to be voluntary but we certainly have examples, and I have mentioned
some, where voluntary agreements have delivered a very significant improvement
in recycling and reuse rates. There are also situations where you will need
statutory regulations. Indeed, in the case of waste packaging, the PRN
system, I understand one of the reasons why we went for the regulation was
because the industry itself said they were worried about bad companies
undercutting good companies by free riding and not actually participating in
the voluntary agreement. So it was industry pressure in that case that led
to a statutory approach. In other cases we would have to do regulations in
order to comply with a particular European Directive.
1021. So you are quite happy with the responses you are receiving
from industry?
(Ms Hewitt) Yes. We have been making some very good progress in the
sectors that I mentioned. The next one that we have singled out for targeting
is junk mail, which as we all know produces an enormous amount of waste paper,
and we have started working with the Direct Mail Association to see if we can
conclude a producer responsibility agreement there.
Chairman
1022. If you have started doing it for motorcars, why can you not
do it for chewing gum?
(Ms Hewitt) I do not know. It is a very interesting and good point,
given the way in which we all suffer from chewing gum waste of various kinds.
I will make enquiries, Chairman, and let you know. I am not sure, to be
honest, whether that is DTI or another department.
(Mr Keddie) I am not sure. That is an interesting point.
(Ms Hewitt) I will have to check and tell you in a note.
Mr Cummings
1023. Some witnesses have suggested that the Government has taken
a very weak approach to industry. How do you respond to those suggestions?
For instance, Friends of the Earth write: "The target in the strategy for
industrial and commercial waste cannot be described as challenging. It is
weak in the extreme and shows an unwillingness in Government to challenge
industry and commerce to improve its performance."
(Ms Hewitt) I do not accept that. Clearly there is a certain amount
of industry would say what they say, which is that they are facing some
extremely challenging targets. When I look at the combination of the
voluntary and the industry agreements on producer responsibility and the
European Union Directives, the End of Life Vehicles Directive, the Directive
on Electronic and Electrical Waste that is coming our way, various other
Directives, it seems to me there is a pretty powerful combination there both
of industry self-interest and response to our pressure to deliver more
achievements on this and regulation, whether it is coming directly from the
UK Government or indirectly via Brussels.
1024. How much of a real contribution can the Waste and Resources
Action Programme scheme make to the development of markets for recycled
materials and waste minimisation?
(Ms Hewitt) I believe that WRAP, which we have just launched, will
make a very substantial contribution indeed. The Government is backing this
new programme with œ30 million investment over the next three years. What I
think we have identified, and we began to identify in the earlier DTI
recycling programme, is the very real barriers that have prevented the
development of an effective market in recycled material. You have got the
problem in some cases that manufacturers or producers simply do not know about
the possibility of using recycled material as an import to their own
production process, there is the problem that in many cases there are not good
standards for recycled material, and therefore producers do not know and they
cannot rely upon information to tell them that a recycled material can do the
job just as effectively as the virgin material, and there is the problem that
in some sectors we have got out of date regulations which instead of
specifying, as it were, the quality of the import material specifies the
nature of the material and specifically specifies virgin material and thereby
excludes recyclates. What we have started to do in the DTI with a very small,
almost a pilot programme, the recycling programme, is to support research and
development that can pull through research and development in recyclates but
also work in standard setting, and that is what WRAP will now take forward on
a much, much larger scale. I believe the Committee is getting evidence from
Vic Cocker, who is the new chairman of WRAP.
Mr Brake
1025. Could I just ask both Ministers whether you would agree with
me that when the public think about renewable energy, they think about
something that is clean and virtually limitless?
(Ms Hewitt) My sense is that when the public think about renewable
energy, they want something that is going to reduce the rate at which we are
consuming fossil fuels and that will help to achieve a reduction in emissions.
1026. Mr Timms?
(Mr Timms) I agree with that. Patricia proposed a definition of
renewable energy earlier in the hearing as a source which is continuously and
sustainably available, and I think that will also marry with what members of
the public think too.
1027. But we have been told by Greenpeace that when you burn waste
you get 80 per cent as much carbon dioxide as you do from generating
electricity in a gas-fired power station. Surely the purpose of renewable
energy is to help stop climate change, is it not?
(Ms Hewitt) I was trying to make the point earlier that providing you
are taking a proper approach to minimising the generation of waste in the
first place and then recycling and reusing where possible, the generation of
energy from the residue, as it were, of waste will displace the generation of
energy from fossil fuels and the accompanying emissions which go with it, and
therefore it has got a contribution to make in achieving our goals for
sustainable and indeed affordable energy. The other point I would make is
that we have already got a pretty powerful system of regulation for waste
incineration. We have demanding technical standards and we have two European
Union directives being proposed on this, one on waste incineration and the
other on hazardous waste incineration, which will raise those technical
standards further across the European Union although, because we have taken
a lead in this, it is true to say most if not all of our newer incineration
plants would already meet those new standards.
1028. Could I ask, again both departments, whether you have no view
whatsoever in terms of what the hierarchy should be for renewable energies?
Are not some renewable energies - and you are suggesting energy from waste is
a renewable energy - better than others? What are you doing to promote those
which are cleaner and do not, as in the case of energy from waste, generate
four-fifths as much emissions as a normal gas-fired power station?
(Ms Hewitt) I would make two points. First of all, even methods of
disposing of waste which Greenpeace might prefer, like composting, make their
own contribution towards greenhouse gases, in particular methane gas.
Secondly, of course, we take a view about how we design the system of
incentives and subsidies, and I was saying earlier that we very deliberately
propose to exclude energy from waste incineration from the new renewables
obligation.
Chairman
1029. Can you tell us exactly what it is and how it is breaking
down? It is 10 per cent, is it not? How is it going to be met by the
different sectors?
(Ms Hewitt) The target is for 10 per cent of generation to come from
renewables. We believe that energy from waste incineration will deliver about
25 per cent of that. I have not, I am afraid, got in my head - and I turn to
Alistair for this ----
(Mr Keddie) The answer, Chairman, to your question, is that the other
75 per cent will come from a range - wind power and so on - and to some extent
that will depend on how fast the various other forms of renewable energy
penetrate the market place. So it is partly related to economics and
technical developments.
Chairman: When you say 75 per cent will come from other things and then
you say it is how quickly the market develops, is there not a danger that it
will not be met from that area, in which case is waste going to produce a
bigger proportion of it?
Mr Brake
1030. Is the 25 per cent a cap, in other words?
(Ms Hewitt) We will monitor this extremely carefully but I would
stress ---
Chairman
1031. No, that was not the question - monitoring it. The question
was put very nicely by Tom Brake, is there going to be a cap of 25 per cent?
(Ms Hewitt) I do not think we have the instruments to design a market
such that you could cap the contribution made to generation from waste
incineration at 25 per cent, any more than you could, or would want to, cap
the contribution from renewables at 10 per cent of the total market. But the
new renewables obligation that will replace NFFO is going to be a pretty
powerful instrument for helping to create a much larger share of generation
from wind power, solar power and other sources of renewable energy.
(Mr Timms) We know we are going to have a significant amount of
incineration, we have at the moment and we will have in the future. I think
it must be a good thing if that process also generates energy because it is
a process which is going to happen, so that is a gain. The other point I
would make, arising from my work on the Climate Change Levy, we are supporting
the development of other renewable energy resources from the Climate Change
Levy from the œ50 million over the coming three years.
Mr Brake
1032. But you are exempting energy from waste in the Climate Change
Levy.
(Mr Timms) But the point I am making is that part of the proceeds from
the Climate Change Levy we are re-investing in research and development on
renewable energy sources, particularly wind energy and energy crops. So it
is not true to say we are not investing in the development of those sources,
we certainly are.
Mr Brake: Thank you.
Chairman
1033. What research has the Treasury done into the employment
implications of greater recycling?
(Mr Timms) I am not aware of any research that we have commissioned. I
am aware of beneficial impacts from the development of recycling, for example
I met recently the chief executive of the Groundwork Trust, which has had
quite a big role in the environmental option on the New Deal, and they had
some very interesting projects which have helped people into work and
developed community recycling as well. Whether there is an overall impact on
the labour market from the development of community recycling, I certainly
have not seen any definitive evidence to show that is the case. I think
probably the jury is rather out on that. It may or it may not.
1034. Can I pursue this question of newspaper recycling? As I
understand it, it was one of the ones in which there was a claim of a good
voluntary agreement being in place. Will that level of recycling of newsprint
be possible using newspapers from the United Kingdom, or will it actually
involve the import of recycled paper?
(Ms Hewitt) Michael Meacher was the lead minister on this. My
understanding is that of the targets we have agreed with the industry - 60 per
cent recycled by the end of next year, 70 per cent by the end of 2006 - that
latter target is subject to review and to the availability of UK newsprint
manufacturing capacity, and there is an issue there we need to consider.
1035. I understand one of the crucial questions is that we need one
extra line for producing recycled paper for newspapers in this country.
(Ms Hewitt) That certainly is the point which has been made to us.
1036. I understand a proposal was put up by Aylesford Mill to
actually put in that extra line and that it went to the Treasury for the
Treasury to review it. Do you know anything about that?
(Mr Timms) I am aware that the proposal has been made. I am not quite
sure by which route that would have reached the Treasury but I can certainly
check.
1037. If you could make some enquiries because certainly as far as
the Committee is concerned it seems to be a fairly murky area. It is
suggested that the Treasury then turned down the proposals for the Aylesford
Mill because it did not have many employment opportunities as a result of it.
Having seen one of their production lines at Aylesford, I can well see that
actually on the line there would be very few people employed but I would have
thought that in the process of collecting in old newspapers there would be
quite a number of jobs.
(Ms Hewitt) Chairman, if I can respond on this. No decision has been
made on that particular investment proposal. There has certainly been
correspondence between DTI and DETR on the subject. DETR, I believe, is in
the lead on it, but no decision has yet been made.
1038. It is a question for your colleague when he comes next week.
(Ms Hewitt) I expect it is.
1039. What advice would you, as the Department, be giving? Is it
a good idea? Are the jobs important or not?
(Ms Hewitt) There are commercial considerations which are very
important in this and which I think we are still exploring with the company.
1040. In the House of Commons on Friday John Gummer referred to
some of the problems with the Packaging Regulations and the fact that he
thought there was a substantial amount of tax evasion there or regulation
evasion. Is there anything being done to chase that up?
(Ms Hewitt) I am afraid I did not see Mr Gummer's contribution on
Friday. I am not aware of that as an issue, it certainly has not been raised
with me. Perhaps I could check back on this and let you have a note.
1041. The last comment he made was about this Tyre Recycling
Committee. He seemed a little surprised that on it there was not a single
tyre recycler. Is there any reason for that?
(Mr Keddie) We would need to go back and look at the membership but
as far as I am aware it covers most, if not all, of the interests. I would
need to check the actual facts.
1042. He claims that it has the tyre makers and the tyre retreaders
but not a single tyre recycler.
(Ms Hewitt) That is something I will check and I am grateful to you
for drawing it to my attention.
Chairman: On that note, can I thank you very much for your evidence.
