Finance Bill

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Mr. Michael Jack (Fylde): I rise to support my hon. Friend and others who have discussed fly-tipping. When I ask my local authority to respond to that problem, it says that it does not have the resources to mount in-depth observations and enforcement of the law to stop that nuisance.

I anticipate the Financial Secretary asking the same question for the third time. I was in the Treasury when the landfill tax was introduced; I approved of it and voted for it, but there was an important proviso. The proviso was that it was fiscally neutral when it was first introduced, by virtue of a national insurance rebate. Why do the Government choose not to replicate that fiscal neutrality? We have seen and heard nothing to suggest that, at the end of the period of the application of the escalator, a review would take place of national insurance payments and a corresponding reduction would be made.

Given the problems and constraints on areas, situations or techniques for the disposal of waste, it is right that we should raise awareness of these issues by economic signals. However, I find it difficult to relate the different strands of Government and European Union policy over the question of waste disposal to the role played by the landfill tax. In paragraph 6.95 of the ``Financial Statement and Budget Report'', we learn:

    ``Industry and commerce in England and Wales produce around 78 million tonnes of waste a year. Local authorities in addition collect a further 28 million tonnes''.

That 78 million tonnes of waste is of the kind that is by and large disposed of privately by contracting organisations levying the landfill tax from their commercial customers in their invoices. One can see an immediate cause and effect in that case. However, in the case of the 28 million tonnes of waste, most people would be unaware of the effect of the landfill tax on the collective charges that they pay their local authority for waste disposal. Household waste is increasing by 3 per cent. a year, so a significant part of waste in the United Kingdom is not immediately influenced by the landfill tax.

The same document states that the European Union landfill directive has set a series of targets supposed to affect the amounts of waste—especially biodegradable material—that can be disposed of. However, paragraph 6.95 does not appear to relate the effectiveness of the landfill tax to the numbers. A theme of the debate has been the attempt to establish whether there is a proper cause and effect. In other words, is it an effective tax? Is it doing its job in deterring people from producing more waste? I cannot disaggregate the effect on waste of the European Union landfill directive, the subsequent measures involving tradable permits, the outcome of waste strategy 2000 and the landfill credit scheme. It is a bit of a muddle—it has not been well joined up.

Governments can justify changes in taxes, in the sense that they are a price put on an activity, only if it possible to see the effect.

Mr. Bennett: Presumably the right hon. Gentleman knew what the expected effect would be. How far does it vary now from what he hoped that it would be?

Mr. Jack: The original imposition of an environmental tax in this area forced people to think, because an economic consequence ensued from an activity that was untaxed or unpriced—apart from the immediate marginal cost of tipping a load of waste into the local tip. The tax focused people's minds and assisted in their strategic thinking about ways of reducing a potentially avoidable cost. It was in action for a relatively short time; we were then removed from office, but we are invited to show our agreement for an increase when other measures have been introduced that may complicate the assessment of the success of the tax.

Mr. Bennett: Does the right hon. Gentleman that when he was in the Treasury, he must have made the decision whether £5, £10 or £15 was the right rate? Will he share with us the thinking that went into the introduction of the tax?

Mr. Jack: I do not want immediately to retreat to the excuse that the tax was not one of mine. Other hon. Members have recognised that a sensible lower rate would have a chance of being accepted. The tax was fiscally neutral, so perhaps the rate was less important than the signal that it sent. To be honest, I cannot remember the exact arguments about why the figure was chosen. In the Treasury, I often asked officials who came to brief me, ``Why this particular number?'' Had I been directly responsible for the tax under discussion, I suspect that I would have asked the same question. Had I been able, I would have been happy to share my experience with the hon. Gentleman, but he makes a fair point.

Mr. Mark Hendrick (Preston): Will the right hon. Gentleman give way?

Mr. Jack: I should first reply to the hon. Member for Denton and Reddish (Mr. Bennett). As with any pricing arrangement, the question is which one will have an effect. If we had gone too far the other way, perhaps we would have had an even bigger debate on fly-tipping than we have had today.

Mr. Hendrick: How did the Government of whom the right hon. Gentleman was a member measure the effectiveness of the tax at whatever rate it was levied?

Mr. Jack: If the hon. Gentleman listens to what I am saying, he will know that that is my point. Normally, a tax is left in place for a number of years and then assessed. As Treasury Ministers say, taxes are kept under continual review, but the tax had not been in operation long enough to make the definitive assessment that may be required.

I am, however, delighted that the hon. Gentleman raises that point, because it supports my argument. The Committee is being asked to agree a further rise with the prospect of four additional rises, although it is quite difficult to know what the effect will be, particularly given the contents of paragraph 6.95, with which the hon. Gentleman will be familiar.

Mr. Hendrick: To follow up my previous question, if the right hon. Gentleman were still in government, how would he measure the tax's effectiveness?

Mr. Jack: With respect, the question is so hypothetical that I cannot answer it. As with all things, we started with a fiscally neutral tax. If the previous Conservative Government had continued and it was deemed that the rate should rise in order to have a further contributory effect, we might have maintained that fiscal neutrality. The important point is that the Government whom the hon. Gentleman supports are not doing that.

Given that waste from Preston comes to a rather large tip in my constituency that is becoming very full, the hon. Gentleman might be interested in the effectiveness of the Government's waste policy, because it will eventually have an impact on his constituents. When the Financial Secretary comes to justify the Government's position, he might be able to shed a little more light on the relative effects of the different constituent elements of their policy.

Mr. Timms: I welcome you back to chairing our proceedings, Mr. O'Hara.

I am optimistic that I can persuade the Committee that the irony expressed by the hon. Member for West Dorset (Mr. Letwin) was misplaced. It is indeed the proposal that the standard rate of landfill tax will be increased from £11 a tonne to £12 from 1 April this year. It is in fact the second of those increases, rather than the first. We are continuing the programme of pre-announced landfill tax increases set out in the 1999 Budget, which will lead to a standard rate of landfill tax of £15 a tonne by 2004. We want to send a strong signal to waste producers and waste management companies to switch away from landfill towards waste minimisation, re-use and recycling.

The Environment Sub-Committee chaired by my hon. Friend the Member for Denton and Reddish has carefully examined such matters. He has made a number of telling interventions in this debate and will have heard, as I have, calls from the waste management companies in the Environmental Services Association in particular for substantially higher tax levels than those proposed. Calls from the industry for £25 a tonne are not unusual; some players call for significantly more. It is an unusual experience as a Treasury Minister to be lobbied by those who pay the tax for it to be set at a higher rate. The Government took the view, which was expressed by the hon. Member for Kingston and Surbiton, that it is right to proceed cautiously and observe the effects of the steady £1 a tonne increases. That is the only way to find out what their consequences will be.

Mr. Letwin: I am interested in the Financial Secretary's remarks so far. Will he tell us why the Government argue—I have had time to check this—that the aggregates tax should be introduced immediately at the tax optimality point where its cost equals the externalities?

5.30 pm

Mr. Timms: We have not done that; the hon. Gentleman is mistaken. The value arising from the research was £1.80 a tonne and we have set the rate at a conservative and cautious £1.60 a tonne, as I am arguing we should in this case. We are applying the same principle, which was rightly summed up by the hon. Member for Kingston and Surbiton.

Mr. Letwin: That will not do. I take it that the Financial Secretary is responsible for the relevant paper. His argument on the aggregates tax is that a cautious view was taken because there was some doubt about whether £1.80 was the figure for the externalities. That is not the same as arguing that a low rate should be chosen before being rammed upwards. He never argued that he intended to raise the aggregates tax hereafter.

Mr. Timms: No, I did not. My argument, in line with the comments of the hon. Member for Kingston and Surbiton, is that a cautious approach is right and that, by 2004, when we will have reached the £15 a tonne rate, we will be able to judge the correct tax rate for the future by using evidence and experience of the different tax rates.

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