THE LANDFILL TAX CREDIT SCHEME
137. Under the Landfill Tax Credit Scheme, landfill
operators can claim up to 90% tax credit against donations they
make to approved environmental bodies. These environmental bodies
may carry out various activities of general environmental merit
as defined by the regulations. Eligible projects include reclamation
of contaminated land (category A), the pursuit of more sustainable
waste management activities (category C/CC) and the provision
of public amenities (category D).
138. Our Report of 1999 made a number of criticisms
of the Credit scheme including that it could not be demonstrated
that the maximum possible environmental benefit was being gained.
Many of the criticisms we made then were echoed in the evidence
we received on this inquiry. In particular, witnesses complained
that the scheme fails to divert sufficient funds towards sustainable
waste management, and lacks co-ordination to achieve this objective,
as funding decisions are entirely controlled by landfill operators.
To date, £135 million worth of credits has been distributed
but only one-third of this has gone into developing a more sustainable
waste management system whilst more than half have been spent
on the community-based, category D projects.
139. Indeed, there was a strong and almost unbroken
consensus that more of the landfill tax credits should be used
to promote truly sustainable waste management and the aims of
the Waste Strategy 2000.
Waste Watch suggested that the credits should be focused on two
areas: market development initiatives and education and communication
WyeCycle suggest that a set, high percentage of the credit funds
go into category C/CC projects. The LGA summed the problem up
rather well when they wrote that:
"Whilst so far the Landfill
Tax Credit Scheme has provided many worthwhile and useful environmental
schemes, few appear to be as essential as the delivery of an adequate
140. In January 2000, the Government broadened the
categories of project eligible for funding to encourage more funds
into sustainable waste management. However, Mr Timms, the Minister
of Trade and Industry, acknowledged that this had not taken place,
indeed that "if anything, the proportion of the funds going
on sustainable waste management projects has fallen rather than
The South West England Environmental Trust told us:
and/or Environmental Bodies 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)"
Mr Meacher summed the problem up:
"One of the concerns
about the Landfill Tax Credit Scheme, one of the inbuilt flaws,
is that the last thing the landfill operator really wants to do
is to have his money used to promote recycling which he is in
In line with our recommendation of last year,
the Government has announced that it will produce indicative guidelines
for the proportion of funding that they would like to see going
into the different categories of project. However, there is no
mechanism (other than exhortation) to change the proportion of
credits going to the different categories. Although we originally
hoped that guidelines would be sufficient in themselves to shift
credits towards C/CC projects, we are no longer convinced that
this will have a significant effect. It is now difficult to avoid
the conclusion that the landfill firms are operating with too
great a sense of self-interest in the choice of projects they
141. One of the fundamental problems of the Landfill
Tax Credit Scheme is that it was designed such that the funding
it releases for environmental projects is classified as private
sector expenditure, not public expenditure. It is a direct result
of this feature that it is not possible for Government - or even
the private sector regulator of the Scheme, Entrust - to control
where funds released under the scheme are spent. The Financial
Secretary noted that "we will need to consider whether that
[keeping it as public spending] remains an objective that we will
want to stick with or whether the time has come to make some change
on that front."
The National Audit Office recently concluded that this feature
of the scheme "makes external examination of the value-for-money
achieved by the scheme difficult to assess."
The Landfill Tax Credit Scheme is hamstrung by the need to be
classified as private spending: it is de facto public spending,
which is (or should be) aimed at furthering the aims of the Waste
Strategy 2000. The Community Recycling Network note their
conclusion that "the LTCS should be reformed such that the
money is in publicly accountable hands ... Sooner or later, for
this or another environmental tax or instrument, the bullet of
hypothecation must be properly bitten by the Treasury."
142. The Government announced plans to tinker with
the credit scheme in the Waste Strategy 2000 and listed
possible options for further changes which include reviewing the
types of approved projects to see if they can better reflect the
Government's priority to deliver more sustainable waste management,
increasing the proportion of contributions going to sustainable
waste management activities and using the scheme to help local
authorities raise recycling levels.
Local authorities are currently debarred from receiving any financial
benefit from the credit scheme, chiefly to avoid any conflict
of interest that may arise as a result of local authorities receiving
money from landfill operators who would be competing for waste
management companies from those same local authorities. Many local
authorities that submitted evidence to the inquiry suggested that,
given that local authorities were often having to divert money
away from waste management schemes such as recycling projects
in order to pay Landfill Tax, they should be able to bid for funds
to offset this extra expenditure.
One way round this could be to set aside the credits raised as
a result of increases in the tax to provide a parallel, separate
fund, for which local authorities could make bids.
143. There are other criticisms of the way the scheme
works: one is that there is little or no information published
about where the credits are spent or how to obtain them.
Another is that there has been no cost-effectiveness checking
of the projects funded so far. In our Report on the Landfill Tax,
we recommended that:
be given the powers to evaluate schemes using a cost benefit analysis.
Moreover a continuous and objective evaluation should be made
of the success of the Landfill Tax Credit Scheme in obtaining
the maximum environmental benefits from the tax credits allowed."
Witnesses to this inquiry echoed our previous conclusion
as did Entrust themselves who stated that:
"there needs to be some
overall cost benefit analysis of the system and we would like
responsibility for running that..."
It is also clear that the credits are not being distributed
equitably across the country: there tends to be a bias towards
those areas where the landfill companies operate.
144. Witnesses suggested radical mechanisms to overcome
the problems of the Credit Scheme. Amongst the ideas put forward
were removing some of the categories of acceptable spending (specifically,
category D, the 'community' projects), taking half of the credits
at source and distributing them separately from the others, bringing
a whole new regulator with powers to channel funding, channelling
some (or all) of the credits to local authorities directly.
We understand that the Government is going to review the scheme
although Mr Timms told us that "I do not think the scheme
as it is currently constructed makes it impossible to achieve
This seems to be slightly in conflict with the views of the Environment
Minister, Mr Meacher, who was asked whether it was possible to
change the Landfill Tax sufficiently with its current structure
and replied that he was "doubtful of that."
145. The Landfill Tax Credit Scheme provides a
convoluted and, to date, ineffective method of funding sustainable
waste management. Rather than attempt reform of the existing system
whilst protecting its status as 'private expenditure', we recommend
that this charade be abandoned. The new system should consist
of a fund which takes a given percentage of the revenues from
the Landfill Tax (and the incineration tax which we propose) and
is bid for by those wishing to undertake work. The landfill operators
would no longer control the destination of any of the funding.
Community schemes and general environmental projects (categories
D and E) should be restricted to a smaller portion of the credits
than they receive at present, and we expect all the additional
credits raised by the increased landfill tax and the new incineration
tax to be put directly towards minimising, re-using and recycling
waste. There would be no bar on those wishing to apply for funding
and the eligibility of local authorities should be related to
their ambition and performance in meeting targets for improving
recycling and composting. The fund should be seen, in particular,
as a way of covering the transitional costs, for example, of setting
up a kerbside recycling scheme. The revenue should also be the
source of funds for WRAP to meet its essential task in establishing
markets for recycled products.