Select Committee on Environmental Audit Second Report


Memorandum from the Environmental Services Association

  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 policies.

Resource Productivity indicators and environmental accounts and the scope for incorporating these within the Pre-Budget Report

  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 this process.

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 stimulate e-commerce.

  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 Directive.

  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:

1998-991999-2000 2001-022002-03
7,7678,0598,216 8,377

  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 by:

    —  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.


Disposal Tax as per cent of turnover
(000 tonnes) @ 12 per tonne @ 45 per tonne
Industrial Sectors
Food, drink and tobacco2,677 0.05 0.17
Textiles356 0.05 0.17
Chemicals2,078 0.06 0.22
Rubber and plastic products 8260.09 0.33
Basic Metals2,833 0.24 0.9
Computers and Electrical 2890.01 0.04
Commercial Sectors
Wholesale2,003 0.01 0.02
Retail3,544 0.02 0.08
Hotels, catering2,796 0.070.26
Finance587 0.0004 0.0015
Education32,285 0.06 0.22
Public Administration 1,4720.02 0.07

  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 streams.

November 2001

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