Select Committee on Environment, Transport and Regional Affairs Fifth Report


  Note: The following paper was prepared for consideration by the Environmental Bodies Council (EBCO) by Dr Malcolm Aickin, the then Chairman of EBCO. It was not submitted formally to the Sub-committee, but was passed on to its Chairman by a third party. (See also session of oral evidence with Dr Aickin, QQ771-821).

  1.  EBCO welcomes the inclusion of the Landfill Tax and the Associated Credit Scheme within the scope of the enquiry, so soon after the completion of the previous enquiry into the operation of the landfill tax[4], and appreciates the opportunity provided to submit further evidence.

  2.  In the previous report it was recommended[5] that since our "function was to discuss with Entrust problems with the scheme" it was essential that we "reflect the diversity of environmental bodies and are accountable to them". We would briefly like to take the opportunity of reporting on the progress that has been made toward this objective.

    (a)  As noted in the Government's Response to the report[6] we have agreed Terms of Reference with Entrust[7]. However Entrust has restricted the number of members of EBCO and the financial resources available to us to a greater extent than we would have liked.

    (b)  In consequence we have made slower progress towards democratic accountability than we would have wished. We have only held one regional meeting, in the West Midlands at which a new member was elected.

    (c )  Our terms of reference specify regular quarterly meetings between EBCO and the Entrust board[8]. To date there have been three such meetings in a three year period. The first two meetings were somewhat unproductive[9]. The third meeting was held in Glasgow on 19 April of this year. At the time all involved believed that this had been a productive and collaborative meeting and a welcome improvement on the previous meetings. From the EBCO side we thought that several joint activities that would make real differences to the operation of the scheme had been agreed. Unfortunately Entrust's draft minutes, provided on 5 June made no mention of these. As a result it is a matter of great regret to us that we have been unable to agree any minutes of the last meeting.

  3.  We acknowledge that there has been criticism by environmental bodies that EBCO is too constrained by Entrust. We have endeavoured to represent the broad spectrum of environmental bodies' views and concerns to Entrust. This in turn has attracted criticism from Entrust that we have strayed outside our terms of reference.

  4.  There are divergent views of the role environmental bodies have within the scheme. On one hand environmental bodies are seen as part of the voluntary sector enabled by the credit scheme to deliver environmental and community benefits to which they are passionately committed. On the other, environmental bodies are viewed as part of the mechanism by which the scheme delivers Government policy. These barely overlapping visions lead to very different opinions on the extent of environmental bodies' legitimate interests and concerns.

  5.  In the committee's previous report there was a recommendation on the use of indicative guidelines to redress the uneven distribution of funds between different objects[10].

    (a)  In simple terms the approved objects[11] fall into three categories:

      (i)  objects (a) and (b); contaminated land reclamation,

      (ii)  (c ) and (cc); sustainable waste management research and education, and

      (iii)  (d) and (e); community projects to redress the perceived environmental disbenefit in the neighbourhood of landfill sites.

    (b)  We are concerned that while indicative guidelines may be being considered their discussion has been far from transparent. We would argue that if a proportionate spend between the different objects is desirable that it should be introduced through amendment to the Regulations.

    (c )  Under the present Regulations a registered person is entitled to a credit of up to 20 per cent of his tax liability[12]. This could be amended to a separate and perhaps different percentage for each of the broad categories.

    (d)  The present Regulations also entitle a registered person to a credit in respect of 90 per cent of each qualifying contribution[13]. If different percentages were allowed for each of the categories this could create sophisticated levers to redress any imbalance in the distribution of funds between them.

  6.  EBCO takes the view, which we believe is supported by many environmental bodies, that the Regulations[14] are inadequate and inconsistent to the point of incompetence. Their complicated nature is admitted by both HM Customs and Excise[15] and Entrust[16] This unnecessary complexity inevitably means that the scheme delivers less than its full potential since resources, which might otherwise be directed to delivering the approved objects, are diverted to taking care of the complications.

  7.  Our terms of reference require that we do not take environmental bodies' concerns outside Entrust and HM Customs and Excise until avenues within those organisations have been exhausted[17]. EBCO was given the opportunity, in confidence, to comment on a draft of the amendments last year. It was made clear to us that this was only an opportunity to comment on the amendments themselves and not on the Regulations as a whole. We welcomed the opportunity to contribute and submitted five pages of comments, restricted to the amendments and, because of time constraints, to a large extent dealing with generic rather than detailed points. We were disappointed that in their final form[18] few of our concerns had been included.

  8.  When we enquired of HM Customs and Excise why this was the case they told us that "Entrust and the ESA were happy to sign up to the Regulations as they were". At this point we made our concern known more widely[19]. Amongst our concerns was the difference between the audit requirement in the Regulations[20] and those under both Charity and Company legislation.

    (a)  In line with the conclusions of the Better Regulation Task Force,[21] we believe that the difference is needless and can only act to confuse environmental bodies who have to comply with conflicting regulatory regimes.

    (b)  Subsequently Entrust gave us sight of an internal confidential document[22] setting out proposals to harmonise their requirements with others. While we welcome this step we have two reservations.

      (i)  We believe that harmonisation should be achieved by amendment of the Regulations not internal guidance.

      (ii)  There are differences between Entrust's proposals and the recommendations[23]. While minor in nature these differences will lead to confusion and innocent mistake, we feel this is undesirable. Although we have asked, Entrust have been either unable or unwilling to provide any rationale for the differences beyond a rather vague statement concerning the "particular nature of the Credit Scheme" and a need to show that Entrust "are actually in control of the situation".

    (c )  Entrust are required to submit audited accounts to HM Customs and Excise[24] within three months of their financial year end. Entrust's proposals call for a full independent audit for all environmental bodies with income in excess of £100k per annum. Entrust, with an income approximately 20 times this level, is happy to avail itself of the special provisions of the Companies Act relating to small companies[25].

  9.  EBCO considers that there are two underlying components of the credit scheme which create confusion and complexity and detract from the substantial benefits which the scheme can deliver.

    (a) On one hand the Regulations make clear that an environmental body cannot be controlled by an operator[26]. On the other HM Customs and Excise recommend that, if possible, operators insist their interests are represented on the boards of environmental bodies.[27], because of their liability to repayment of credit if contributions are not spent within the Regulations.[28]. Not unreasonably, operators often resolve this tension by seeking 49 per cent of any vote. This complicates the management of environmental bodies and leads to Entrust promulgating complex rules concerning quorum and control. We believe this could be overcome if the responsibility for ensuring that contributions were spent within the Regulations and the liability for any mis-spending were placed unambiguously on Directors or Trustees of environmental bodies.

    (b)  The Regulations forbid an environmental body from providing a benefit to a contributor[29]. This leads to inordinately complex procedures for third party contributions. However the result is that anyone, who is not a contributor, can receive benefit. This seems perverse. Regulating the benefits which can be provided more closely would avoid the need for labyrinthine tracing of who was or was not a contributor.

  10.  Entrust has adopted a programme of extra regulatory activity to over come deficiencies in the Regulations. For example the composition of the Board of an environmental body has to comply with several provisions in the Regulations. There is no provision in the Regulations either entitling the regulator to ongoing information about directors nor a requirement that environmental bodies are obliged to provide such information. Entrust demand that information on changes in directors are provided to them within seven days[30]. We acknowledge that Entrust ought to be entitled to this information within a reasonable time. We believe what constitutes a reasonable time requires further detailed examination, but in any event seven days would be an unreasonable. Companies are required to send notification of changes in directors to the registrar within 14 days[31]. This requirement is not always met even by Companies who have full time employees to carry out the Company Secretary's functions[32].

  11.  Faced with complicated, inadequate and inconsistent Regulations Entrust has had the unenviable task of their implementation. There are more examples than could be included within the limitations of this memorandum where Entrust's interpretation of the Regulations at best strains the language of the Regulations and at worst contradicts their plain meaning.

  12.  Entrust has adopted the position that the scheme should not be allowed to provide facilities which local authorities have a statutory obligation to provide. At a recent meeting[33] HM Customs and Excise were clear that "the Regulations do not preclude funding by the credit scheme for statutory obligations". Entrust informed us[34] that they have lobbied C&E on many occasions to alter the Regulations to preclude funding statutory duties". They continue by asking, perhaps rhetorically, whether they should have confined themselves "to a totally objective interpretation of the LTRs" or "should we have tried to interpret and translate them for practical use"?

  13.  Entrust's interpretations may have been well intentioned attempts at expressing their own view of the spirit of the scheme. They may, even if inappropriate, have been tolerated by environmental bodies more interested in delivering benefit than in semantics. None the less they have lead to confusion and uncertainty. On many occasions environmental bodies did not use the self approval pilot, not because they were unsure of the Regulations but, because they were unsure what interpretation Entrust would take at the time. This of course means that the scheme has delivered less than it might.

  14.  We became aware that many organisations were experiencing difficulties of the conflicting requirements the Charity Commission and Entrust placed on them. Although these were often resolved by detailed negotiation, case by case, we felt this was wasteful. We therefore arranged a meeting between the two institutions[35] with the aim of developing a policy solution to the difficulties. We believe that Entrust and the Charity Commission are working on a mutually agreed model constitution as a result.

  15.  We were surprised and concerned that the meeting we arranged was their first meeting. The Commission represents nearly four centuries of experience in overseeing activity in the voluntary sector. To have drawn on this accumulated knowledge could only have simplified Entrust's task in establishing its own system of verification.

  16.  during the meeting Entrust described how they monitor environmental bodies' compliance with the Regulations to the Charity Commission. Environmental bodies are monitored by:

    (a)  Scrutinising environmental bodies' constitutions before enrolment.

    (b)  Scrutinising all projects for pre-approval, now registration, before commencement.

    (c )  Examining all projects on commencement.

    (d)  Checking work in progress on an annual basis.

    (e)  Examining annual audited accounts.

    (f)  Requiring Annual Statements of an environmental body's overall activity.

    (g)  Requiring annual statements on a project by project basis.

    (h)  Examining all projects on completion, and

    (i)  Further verification by at least one of three different levels of visit to the environmental body predicated by a risk model[36].

      (i)  Visit by Compliance Contractor, randomly checked by additional visits by Entrust staff,

      (ii)  Inspection by Entrust staff.

      (iii)  Investigation by an accountancy firm.

  17.  EBCO believes that the extent of this monitoring needlessly duplicates work. One volunteer complained that with all of this intrusive monitoring he seemed to be the only person not making money out of the scheme. This is wasteful of time and resources both for Entrust and more importantly for environmental bodies who would otherwise use the resources to further the approved objects of the scheme.

  18.  Entrust seems not to accept that the independence of environmental bodies and transparent, publicly accessible, reporting of their activities, provides one of the best guarantees of compliance.

  19.  One of the issues we raised with the Entrust Board in April related to their Appeals Process[37]. Entrust was required, as an extra regulatory provision of its approval by HM Customs and Excise[38], to establish an appeals mechanism against decisions either to refuse to enrol or to withdraw approval of environmental bodies. EBCO supports the extension of the appeals mechanism to deal with all disagreements between Entrust and environmental bodies. However, EBCO has significant reservations about the appeals process itself. It is ill defined, insufficiently independent of Entrust and may not have given proper consideration to the European Convention on Human Rights[39].

    (a)  It seems unreasonable that the appeal should be convened through the Chief Executive whose decision is being contested.

    (b)  It seems intrinsically unfair that the full case should be sent to the Chief Executive who will have the opportunity to develop his counter arguments in preparing Entrust's file for the Appeals Panel, which the Environmental Body will have no opportunity to see or counter.

    (c )  It seems unfair that the Appeals Panel should make arrangements to consider appeals case by case after they have been presented. In formulating an appeal an appellant must have the right to know the process and criteria by which his appeal will be determined.

    (d)  Finally, we are concerned that the decision should be notified to Entrust who then inform the appellant. The absence of a fair and public hearing or a public pronouncement of any decision provides the opportunity for the panel's decision to be filtered through Entrust.

  20.  We felt Entrust accepted that EBCO would work with them and the Appeals Panel to develop a more fair and transparent system. When we queried the draft minutes Entrust told us the Appeals Panel were unconvinced of the need for change. We have subsequently pressed Entrust and understand that they have taken legal advice and are considering revising the process themselves.

  21.  The inept, if well intentioned, manner in which Entrust has interpreted and implemented the Regulations has caused inconsistency in their decisions. There is strong anecdotal evidence of forum shopping for the regional manager most likely to approve any particular project. This variability leads to resentment, creates uncertainty and causes environmental bodies to be over cautious. As a result the scheme may not be achieving its full potential.

  22.  We are concerned at the potential for abuse which arises from Entrust's status as a private company. As a Limited Company Entrust's accounts, Memorandum and Articles etc are available to the public at Companies House[40]. For each of the three years for which accounts are available the audit was completed in mid January or mid December following the end of the financial year on 1 August. The accounts show that directors have been remunerated in each of these years. There have been amendments to the Memorandum and Articles[41] aimed at legitimising this remuneration which was clearly forbidden by Entrust's constitution[42] and arguably may still be[43]. We do not believe that it is improper for the directors to be remunerated for their time and trouble. Whether it is proper for them collectively to gain more than they are prepared to provide EBCO to carry out its functions, hold meetings, produce a newsletter, run a website and reimburse its members for their time and expenses is for others to comment.

  23.  The primary concern here is not that the remuneration might have been ultra vires but the continuing difficulty experienced in matching the language of the constitution with the desired outcome of "fair reward of the directors"[44]. This raises real questions concerning Entrust's institutional competence to interpret and enforce the meaning of the Regulations.

  24.  There is a secondary concern. Entrust's current constitution requires the members to set the remuneration of the board[45]. While this might, at first glance, provide for independent setting of remuneration, the members of the company are identical with the board. Thus directors, who are prevented from voting in a board meeting on any matter in which they have an interest[46], set their own remuneration. We consider that the potential for abuse should be avoided.

  25.  Entrust currently has assets approaching £2 million the majority of this is, we feel prudently, held against the future requirements of regulation of contributions which have already been made to the scheme. We are concerned at the fate of this money were Entrust to loose its role as the regulator of the scheme for any reason. The Memorandum and Articles used to provide that on winding up the remaining property should be transferred to "some other charitable institution or institutions" having similar objects[47]. This has now been amended to "some other institution or institutions"[48]. The history of Entrust's constitution shows the ease with which it can be changed, even if Entrust has encountered some difficulty in achieving its objective. We are concerned at the possibility that the members, at present its directors, could legitimately further amend the constitution. We do not believe that the potential temptation to divert such sums of money, levied from environmental bodies, should be placed in the hands of even the most upright, honourable and public spirited.

  26.  The Landfill Tax Credit Scheme has delivered real and significant benefits, both to the environment and to communities in the neighbourhoods around landfill sites. It is the very nature of the voluntary sector that these have not always been well co-ordinated nor consistently publicised. There is of course always room for improvement.

  27.  This enquiry is interested in the effect the Landfill Tax Credit Scheme has had on the reduction of the amount of waste going to landfill. As a result of the confusion caused by inconsistent and inappropriate implementation of complex and inadequate Regulations the scheme's contribution to the achievement of sustainable waste management is probably less than it might have been.

  28.  EBCO has wanted to work with Entrust to make a difference to this situation. We believe that the Regulations and their implementation should facilitate, rather than curtail, the approved objects. Entrust has tended to consider our concerns as criticism for its own sake. It is a matter of deep regret to us, and ultimately of failure, that we have been unable to convince Entrust of the benefits collaboration would bring or of the valid role that environmental bodies have in such a process.

September 2000

4   HC 150 House of Commons Environment. Transport and Regional Affairs Committee Thirteenth Report The Operation of the Landfill Tax July 1999. Back

5   HC 150 Paragraph 57. Back

6   Cm 4461 The Government's Response to the Environment, Transport and Regional Affairs Committee's Report The Operation of the Landfill Tax October 1999 P6. Back

7   These are posted on our website Back

8   Malcolm Aickin & Richard Sills Environmental Bodies' Council Structure Scope and Funding MC/29/99 (Rev) Paragraph 13. Back

9   The minutes of these meetings are available on the EBCO website. Back

10   HC 150 Paragraph 48. Back

11   Landfill Tax Regulations 33(2). Back

12   Landfill Tax Regulations 31(3). Back

13   Landfill Tax Regulations 31(2). Back

14   The Landfill Tax Regulations 1996 amended by The Landfill Tax (Amendment) Regulations 1999. As there was no official version of the Regulations as amended, EBCO prepared an unofficial copy of the amended Part VII which is available on the EBCO website. Back

15   Notice LFT 1 February 2000 A general guide to landfill tax at 10.4. Back

16   Now you are enrolled p 13 at 4.4.2. Back

17   Malcolm Aickin & Richard Sills Environmental Bodies' Council Structure Scope and Funding MC/29/99 (Rev) Paragraph 3. Back

18   The Landfill Tax (Amendment) Regulations 1999. Back

19   For example our letter to The Chairman of the Select Committee 5 Feb 2000. Back

20   Landfill Tax Regulations 33A(1)(i). Back

21   Access to Government Funding for the Voluntary Sector July 1998. Back

22   Richard Sills & John Morgan Review of Environmental Body Reporting Requirements MC/24/00. Back

23   Annexe E to Access to Government Funding for the Voluntary Sector The Better Regulation Task Force, July 1998. Back

24   Paragraph 5, Environmental Bodies-Regulatory Body Terms of Approval, 16 October 1996. Back

25   Financial Statements for the year ended 1 August 1999 dated 16 December 1999 submitted to Companies House 7 Feb 2000. Back

26   Landfill Tax Regulations 33(1)(f). Back

27   Notice LFT1 February 2000. Back

28   Landfill Tax Regulations 36(1). Back

29   Landfill Tax Regulations 33(1)(e). Back

30   Now you are enrolled p 10. Back

31   The Companies Act 1985 Section 288. Back

32   For example: Roderick Paul, who was a director of Entrust died on 19 September 1998, Entrust notified Companies House on 23 February 1999, Dr Kevin Bond was appointed a director of Entrust on 31 May 2000 Companies House was notified on 14 July 2000 and again on 26 July 2000, and Baroness Scott was appointed a director of Entrust on 29 June 2000 Companies House was notified on 20 July 2000 and again on 26 July 2000. Back

33   South East England Regional Landfill Tax Forum 17 July 2000. Back

34   Letter Sills-Aickin 11 August 2000. Back

35   20 April 2000. Back

36   Entrust Risk: How we assess and manage risk 00/5k/5/99. Back

37   Entrust Information Sheet 4. Back

38   Paragraph 23, Environmental Bodies-Regulatory Body Terms of Approval, 16 October 1996. Back

39   The Human Rights Act 1998. Back

40   Environmental Trust Scheme Regulatory Body, Company No 3221000. Back

41   13 May 1998, 17 February 2000, and 30 May 2000. Back

42   Article 6. Memorandum of Association Environmental Trust Scheme Regulatory Body as amended by Special Resolutions passed on 13 May 1998 and 17 February 2000. Back

43   Article 6 Memorandum of Association Environmental Trust Scheme Regulatory Body adopted by Special Resolution passed on 30 May 2000. Back

44   Dr R Sills quoted in The Guardian 21 August 2000. Back

45   Article 46, Articles of Association Environmental Trust Scheme Regulatory Body adopted by Special Resolution passed on 30 May 2000. Back

46   Article 37, Articles of Association Environmental Trust Scheme Regulatory Body as Adopted by Special Resolutions passed on 30 May 2000. Back

47   Article 9, Memorandum of Association Environmental Trust Scheme Regulatory Body as amended by Special Resolutions passed on 13 May 1998 and 17 February 2000. Back

48   Article 9, Memorandum of Association Environmental Trust Scheme Regulatory Body adopted by Special Resolution passed on 30 May 2000. Back

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