Memorandum from the Environmental Services
ESA welcomes the opportunity to comment on this
Inquiry by the Select Committee. ESA is the sectoral trade association
for the UK's waste and secondary resource management industry.
The regulated industry represented by ESA contributes more than
£5 billion annually to the United Kingdom economy.
ESA Members want to be enabled to deliver greater
resource efficiency where economic and environmental incentives
are beneficial and similar. With co-ordinated regulatory initiatives,
this requires the Treasury to deliver transparent and coherent
economic incentives enabling secondary materials and products
to compete against unsustainable virgin materials.
The Treasury has sought in recent years to green
economic policy. However, the commitment needs to be stronger
and more sustained to deliver effective environmental accounting
within its economic policy. We remain to be persuaded that sustainable
development has a central role in the developing fiscal and budgetary
Resource Productivity indicators and environmental
accounts and the scope for incorporating these within the Pre-Budget
With the publication of the Performance and
Innovation Unit's report on resource productivity, the Treasurer
has an excellent opportunity to introduce resource productivity
indicators. The Treasury must of course continue to measure success
through economic indicators such as inflation, employment, labour
productivity and economic growth. However, ESA believes resource
indicators showing the level of natural resources needed to deliver
economic outputs should be given similar profile in the pre-Budget
report. We hope PIU's report on resource productivity will start
The consistency of the Government's approach,
and specific areas where further progress may be made (eg. the
scope for more comprehensive "greening" of the corporate
tax system, or fiscal incentives for brownfield development
In recent years Governments have attempted to
shift the burden from taxation of employment towards taxation
of demands on the environment. However, we believe the Government
should go significantly further in this direction.
The tax system is broadly geared towards a linear
system of production, consumption and, finally, disposal. There
are relatively few fiscal incentives to develop a closed loop
and a more resource efficient economy. The Treasury could more
systematically tax environmental pressures to promote resource
efficiency and a more stable carbon cycle. At the moment, essential
investment in environmental handicaps onto future generations
and, in the meantime, to restrict the UK's opportunity to develop
and export new environmental technologies.
Systematic tax credits, capital allowances and
other fiscal incentives could be introduced to promote investment
in sustainable technologies and the development of industries
seeking to grow by using waste as a secondary raw material. We
see significant potential for considerable environmental innovation
and for new sources of employment within the UK.
The Committee will be aware of the comment in
PIU's report on resource productivity that "there is therefore
a case for targeting innovation directly. Policies effectively
targeted to encourage creation of option can help deliver long-term
benefits by smoothing the transition to new environmental standards
without the kind of short-term disruption that would result from
forcing through abrupt changes".
In partnership with the DTI, the Treasury should
show willingness to develop this market as it does in trying to
An effective procurement policy, not confined
to a limited number of easily recyclable, visible and high profile
products is a relatively obvious example of where Treasury could
take further action. For instance, to strengthen markets for recycled
products, the Government could award medium to long term contracts
to facilitate greater investment in new technologies, innovation
and research and development. We see merit in the inclusion within
the Pre-Budget report of a commitment to introduce mandatory procurement
targets if necessary.
The potential of the sector represented by ESA
to double its turnover by 2010 appears to have gone largely unnoticed
by the Treasury. The Treasury also appears not to have undertaken
a systematic analysis of extra costs resulting from delivering
compliance with the UK's statutory obligations under the Landfill
A survey recently completed by Ernst and Young
concluded that £7 billion of capital investment in new infrastructure
would be necessary to enable local authorities to deliver compliance
with the obligation to divert two thirds of all biodegradable
municipal waste away from landfill. If the conditions are right,
ESA's Members are ready, willing and able to make such investments.
However, in contrast to this investment requirement,
the 2000 comprehensive spending review offers direct financial
assistance through £50 million in PFI credits available in
this financial year, £75 million in 2002/03 and £100
million available in 2003/04. The financial support available
for each local authority is capped at £25 million. To this
can be added a £140 million support fund over two years for
new infrastructure and £40 million over three years for the
Waste and Resources Action Programme to develop more efficient
and reliable markets for secondary materials and products.
The Comprehensive Spending Review 2000 also
announced that the SSA for Environmental, Protective and Cultural
Services would rise as follows:
Of this EPCS SSA, only about £1.5 billion is spent annually
on municipal waste management services, less than half the amount
spent on such services in France, a country an economy and population
of similar size to that of the UK.
However, notwithstanding the need for new infrastructure
over the next three years local authorities will be confronted
landfill tax increases of £140 million;
2.5 per cent inflation of £35 million; and
3 per cent projected growth in municipal waste
arisings of £120 million. By way of caution, DEFRA's municipal
waste management survey 1999-2000 reported an increase in arisings
from the previous year of 5.1 per cent.
What is represented as additional funding from the Treasury
such as the £140 million central support fund appears, at
best, to be fiscal neutrality.
ESA recognises that it is a political decision whether this
funding deficit is compensated through the public purse or as
a direct change on waste producers. To promote greater transparency
and to promote more accountability, ESA has suggested a piloting
of a non-regressive system of direct charging for collection and
management of household waste.
The Landfill Tax Credit Scheme is an innovative private sector
scheme making a positive contribution to communities, the environment
and sustainability. In May 2001, the Government issued "challenging"
indicative guidelines for spending under the Scheme with which
ESA's Members are already broadly compliant.
To convert the Scheme to public expenditure would, in our
view, result in less funding for environmental enhancement. For
instance, on average, each pound donated under the Landfill Tax
Credit Scheme is able to lever additional funding from sources
such as the European Commission but we are advised that a public
spending scheme would not quality as match funding. While it may
be felt to be desirable to cap spending on the Landfill Tax Credit
Scheme at about £100 million per annum, the Scheme is much
too small to fund the Waste Strategies.
ESA understands that the Government may wish to raise the
landfill tax to levels seen elsewhere in the EU. In Holland, for
instance, a tax of £45-49 is levied on each tonne of waste
sent to landfill. This figure will rise to £90 in 2006-07.
Provided it is announced well in advance, ESA's Members can adapt
to such increases in taxation by investing in recycling infrastructure
which becomes more viable as a result. If landfill taxes are to
rise significantly, we would expect additional revenue would be
recycled for environmental objectives including a significantly
enlarged SSA. However, ESA does not endorse formal hypothecation
of environmental taxation to environmental expenditure.
An increase in landfill tax will not place undue pressure
on business. Business is already fairly responsive to price signals
to minimise waste. Further, the Government's Advisory Committee
on Business and the Environment has stated that landfill "is
a very minor cost" for business. The report concluded that,
"even at £45 per tonne, landfill tax costs would rise
to at most only a few tenths of a per cent in any sector, and
for many commercial sectors it would remain at less than one tenth
of a per cent . . . the increases might be enough to make alternative
waste management options more viable.
EFFECTS OF INCREASING THE LANDFILL TAX
||Tax as per cent of turnover ||
| (000 tonnes)
||@ 12 per tonne ||@ 45 per tonne
|Food, drink and tobacco||2,677
|Rubber and plastic products||
|Computers and Electrical||
ESA would hope that this revenue is not only used to offset
other spending priorities but returned in the form of assistance
schemes, tax breaks and other fiscal incentives for environmental
enhancement and the development of a more resource efficient economy.
ESA recognises that the Committee may wish HM Treasury to
confirm whether it has undertaken a systematic analysis on the
economic implications of implementing producer responsibility
Directives and European environmental legislation such as the
Ozone Depleting Substances Regulation. For example, the cost of
management of end of life fluorescent lamps may represent nearly
50 per cent of the value of the commodity. The Committee may therefore
see merit in recommending that the Treasury should produce for
relevant sectors a full environmental account, detailing the tax
inputs from the sector and the environmental issues that could
exert an upward pressure on prices.
We are pleased that earlier this year, and before the Committee
Mr Stephen Timms MP, the then Financial Secretary, agreed that
the Treasury needed to do more to monitor the impact of environmental
taxes. We look forward to receiving details from the Treasury
on how this is to be undertaken and on how, for example, in a
context where data on waste arisings is limited the Treasury proposes
to monitor the impact of the landfill tax on the various waste