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Landfill Tax


Mr. Barry Sheerman (Huddersfield): It gives me great pleasure to introduce a short debate on the landfill tax credit scheme and environmental taxation, and even greater pleasure to know that my questions will be answered by the Economic Secretary to the Treasury. He and I are old friends. Although it is enjoyable chairing Select Committees—I am Chairman of the Education and Skills Committee—some of us are quite glad to escape that role to speak about something else that we believe in.

I must declare an interest. Some six years ago, before the landfill tax credit scheme was introduced, I started an environmental organisation with a professor and a lawyer, which is a strange combination. We started a not-for-profit environmental group—Urban Mines Ltd.—that is now one of the largest in the country. Instead of viewing the waste flowing from our towns and cities as rubbish, we see it as a new raw material to be mined and used again—rather than digging holes in the earth's crust to take virgin material.

Over the past six years, our company has grown to employ 30 people. We have a portfolio of innovative projects and have developed a totally new methodology for identifying brownfield land and giving it new use. We have introduced a range of new businesses that use waste as a raw material—successful private sector ventures that make a profit and employ people on good wages right across the board. Our most ambitious task is to build sustainable growth parks, which are rather like themed industrial parks on which clusters of small, medium and large industries use waste as their raw material. That is the background of my special interest and explains why I am concerned about landfill tax credits.

Mr. Bill O'Brien (Normanton): Will my hon. Friend give way?

Mr. John McWilliam (In the Chair) : Order. May I check that the hon. Gentleman has the permission of the Minister and the hon. Member for Huddersfield (Mr. Sheerman) to intervene?

Mr. O'Brien indicated assent.

Mr. Sheerman : I give way.

Mr. O'Brien : Does my hon. Friend include in his remarks about his own programme all the other agencies that have grown out of the landfill tax credit? They are doing great work and offer tremendous value to communities. They will be hit hard if the programme described by the Chancellor goes ahead.

Mr. Sheerman : I would be happy to include those agencies. I know that my hon. Friend, who is one of the chairmen of the all-party group on sustainable waste, is concerned about the matter.

As you know, Mr. McWilliam, anyone who holds on to the job of Select Committee Chairman for even a short period becomes one of the most knowledgeable people on the subject. I have been Chairman for only

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two and a half years, but all the relevant Ministers have changed in that time, apart from one whose ministerial responsibility has changed from early years to higher education. All the others have disappeared, including the present Economic Secretary. I have stayed in the field of education. The great benefit is that one learns and remembers a lot about the subject, including where the bodies are buried.

I have been involved in the sector of the environment relating to waste for a long time. I have had the role—which I have always been positive about—of trying to educate Ministers from the Treasury and elsewhere about an industry about which they know very little. Treasury Ministers usually stay in their posts for only a year or 18 months, but I have to hand it to my hon. Friend the Minister for being the fastest learner of any Treasury Minister with whom I have dealt. He actually understands the subject. He has been a very good and fast learner, so some of the remarks that I will make today are about the Government rather than him. The Government could do better. If they had listened to the people who know the industry and sector well, the proposals that the pre-Budget information suggests might be made in April's Budget would be better.

It is unsurprising that some people are not interested in waste. The Minister's constituency borders Rotherham, which has achieved the magnificent target of 5 per cent. for recycling—although that has now slipped back to 4 per cent. The Prime Minister's constituency is Sedgefield; that has achieved 5 per cent. The area that the Chancellor represents has achieved an appalling 1.7 per cent., which is probably the worst percentage in the country. One might say that it is no wonder that some of the significant actors in this House do not really know how much demand there is for changes in this practical side of environmentalism.

I like this area of environmentalism because it makes a difference at the practical level: I will leave the blue-sky and long-term thinking to people such as Jonathan Porritt. I have always concentrated on this area; if we crack what we do with waste by making a real difference in recycling and the use and the hierarchy of change, which is recommended by all the enlightened people in the environmental sector, we will make a practical difference that ordinary people can participate in. Schoolchildren, their parents and people in communities will be able to improve their locality and the global environment in a practical way—rather than in a highly theoretical way that sometimes puts them off. Sometimes, when someone on the news says that the problem is all about global warming, the people who are listening think, "What can I, as an individual, do about that?" Ever since I became involved in this area, I have responded by saying, "Here is a practical way to do something that will change the planet." That is where I am coming from.

I have also tried to educate the Government. An express train from Europe is hammering down the tracks and it is bringing regulation that is to be welcomed, but that has a dramatic effect on our lives and industries. There are the statutory targets; local authorities must meet very rigid and demanding targets for recycling over the coming years as a result of the European Union landfill directive. That is an important directive, but it means that local authorities have to make superhuman efforts to do something to their waste

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other than merely dump it in a hole in the ground. Most of them will not meet their targets, and the European Commission will impose enormous financial penalties on them, which will be a great burden on the British taxpayer and council tax payer. That will have a significant impact on our national life. As is suggested by the figures that I have quoted for Rotherham and for the constituencies of the Prime Minister and the Chancellor, the targets will be very difficult to meet.

The end of life vehicles directive will be introduced in September 2003. That is another very important regulation that will make a great difference to people's lives. It will be very expensive to achieve what it demands—£75 million is a conservative estimate of the cost. Following that, there is the waste electrical and electronic equipment directive: every piece of electrical and electronic equipment will have to be taken back by the retailer or the manufacturer. Then there is the hazardous waste directive, which people in the commercial waste management sector—who should know about this—say will result in billions of pounds of expenditure by the public or private sector. Both of those sectors will probably pay for some of that.

I have tried to alert the Treasury to all of this. I saw the Chancellor's chief economic advisor, Ed Balls. I have met a succession of Ministers in the Treasury to try to inform them about the scale of the problem and about how much it would cost the country if we do not act now. I have put two proposals to Ministers.

A strategic waste authority should be set up to bring together all proposals and to give us direction on the different organisations that are spread all over the place, which do nothing to help joined-up government. I see no action on that so far. The responsibility is being left with local authorities, most of which have a poor record in meeting any targets. In addition, the Department for Environment, Food and Rural Affairs does not have a good reputation in this area, either in leadership or management. The waste sector is the Cinderella of the Environment Agency, mainly because it does not have the resources to tackle the problem in a significant way.

The country is running into real problems with waste and in meeting the European regulations that will come towards us. A key element in tackling the waste issue was introduced by the Conservative Government in 1996–97. Overnight, the landfill tax increased the cost from zero to £7 per tonne. Historically, 20 per cent. of that tax has flowed into a fund called the landfill tax credit scheme, which goes to a range of environmental initiatives, all of which are worth while.

I know about those initiatives and schemes and about how they have worked since they started. They take time to develop, to mature and to become effective. I have seen them operate from the early days, when most of the money was spent on community and environmental improvements close to landfill and other areas where waste blights the lives of citizens. Having done much work in such areas, the schemes moved on to other purposes, including the remediation of brownfield land and educational priorities in terms of the environment, and to many other things. When the Government suggested that there should be another category and that more money should be spent on recycling programmes and sustainability, the organisations that

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disburse the money moved quickly to ensure that 65 per cent. of the landfill tax money flowed in that direction. At the moment, that sum is about £150 million.

The pre-Budget proposals are that £50 million should be retained in local environmental projects, but no one is clear about what those will be. Will those be the environmental projects that have already been going on and which are the most criticised part of the scheme? Why is the £100 million—two thirds of the money from the landfill tax credit scheme—going to be sucked into the public sector, into DEFRA, or to DEFRA's child, the waste and resources action programme? That will do two, very damaging, things.

First, that will withdraw the money from a large range of community, national and regional organisations that have effectively and magnificently tackled recycling and issues regarding the practical sustainability agenda. The Government underrate the effectiveness of such groups.

Secondly, that would kill the ability to use the £100 million for a multiplier effect. It has been assessed that the best schemes can, through match funding, European funding and many other routes, multiply by four or five times the original investment from the landfill tax credit scheme, which is certainly true of my group, Urban Mines Ltd. Such schemes can do that because the money is presently deemed to be private—not public—sector money, so it can be used for match funding, as a multiplier and for leverage. That will go and all that will be left for the Treasury is £100 million. What a strange way to go about things. That must be the worst investment since Jack got the beans and threw them out of the window. The Government are throwing the beans out of the window, but nothing will grow. The £100 million will now be thrown at local authorities, which will enable them to do nothing. All of the really innovative groups throughout the country will cease to get those funds and will gradually go out of business.

It is unclear whether there will be any transitional arrangements or any of the 3,000 to 5,000 jobs will survive. Not only jobs but innovation and partnerships will be lost. Things have worked best when there have been creative and innovative partnerships between universities, green groups, non-governmental organisations and the private sector. I wish that we had the American system that would allow me to read into the record. We have seen a number of magnificent proposals, such as Recycle IT in Norfolk, Cheshire's schools waste action club, Waste Watch's landfill tax case studies, the national industrial symbiosis programme, and the Furniture Recycling Network. There have been dozens and dozens of schemes, some worth £8 million. There has been tremendous innovation and that has had a great effect on our environment.

Unless the Government change their mind, we will lose that environmental innovation and the people who have been brought on—the young staff and the undergraduates and post-graduates, people who have been attracted into that part of the public sector. John Smith said that there are some jobs that are better than simply going into the City of London and making a lot of money. The sort of people who work in the

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environment are the very people who want to make our country a better and more sustainable place in which to live.

I am worried about what the proposals say about the Labour Government. I have been a Labour politician for a long time; I still believe profoundly in the things that brought me into politics. One of those things is that a Labour Government will be more in touch with ordinary people, with schoolchildren and their parents, and with local communities and grass-roots organisations. However, when I talk to Treasury Ministers, I see that they have a fear of understanding community groups. They say, "Oh dear. They're not a bureaucracy. I can't get the Audit Commission to look into them. Who are they accountable to? How do I assess them? They're not local government. They're not a quango."

There was a disgraceful exhibition from the Dispatch Box during environment questions before Christmas, when the Minister for the Environment told me that the reason for some schemes disappearing was that there had been an element of "dodginess". However, over many years, only eight appeals have been made to the appeals tribunal to do with any wrongdoing. I have picked up on only two cases of any kind of fraud.

This may be unkind, and I am not suggesting any responsibility, but the Minister, who is a good friend of mine, will know that individual learning accounts are an example of a Government scheme that went wrong. My Committee looked into that in some depth. Millions of pounds disappeared and nobody has yet been successfully prosecuted. If one wanted to look for dodginess in a scheme, one would look there, or at a number of other schemes that the Department for Environment, Food and Rural Affairs has promoted. There has been dodginess around a number of Government programmes. I urge the Minister to be honest and not to discard schemes for any reason such as that. If he is going to say that sort of thing, will he please stand up, be honest, and appraise any schemes in an independent fashion—or get an independent body to do so?

My sadness is that, if we are not careful, we will lose an amazing resource in the country and an amazing number of people who do a good job for the environment. If that happened, the message would go out that the Labour Government did not know how to connect with ordinary people in innovative community groups because they are small, because they are NGOs, or because they are green groups. Such groups are difficult to understand and to put into a tidy category. It is difficult for people at the Treasury to get their heads around them. However, I urge the Minister to try to do so.

3.48 pm

The Economic Secretary to the Treasury (John Healey) : I congratulate my hon. Friend the Member for Huddersfield (Mr. Sheerman) on securing this debate, which I welcome. Parliament is sometimes short of experts but my hon. Friend's expertise in this area is widely acknowledged, as is that of my hon. Friend the Member for Normanton (Mr. O'Brien). We have with us the current chairman and secretary of the all-party group on sustainable waste.

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The Government, to reflect the interests of the group to which my hon. Friend the Member for Huddersfield belongs, are committed to a sustained approach to waste management as an essential component of an environmentally sustainable economy. We currently place too much reliance on landfill, which adversely affects the environment through greenhouse gas emissions, water pollutions, the effect on transport and visual intrusion. We give too little priority to recycling and re-use, and arguably put too little emphasis on other methods of waste disposal.

The reforms outlined in the pre-Budget report, which is the subject of this debate, are only the first of the necessary actions that the Government are taking to try to change waste management performance. Between now and the Budget, an interdepartmental ministerial group that I shall chair will co-ordinate plans on waste policy delivery across Government. Despite what was said by my hon. Friend the Member for Huddersfield, we are acting decisively in view of the challenges we face with waste in the UK. Some, like my hon. Friend, think that they detect a lack of priority and urgency in the attention given to the issue. I hope that the work of DEFRA and the waste and resources action programme—WRAP—and the decisions and long-term signals on landfill tax in the pre-Budget report, as well as the work of the ministerial group and the reform of the landfill tax credit scheme are strong evidence to counter that criticism.

In the pre-Budget report, the Government announced that the standard rate of landfill tax would increase to £35 a tonne in the medium to long term. The current annual escalator of £1 a tonne will increase to £3 a tonne from 2005–06, and the tax will continue to increase by at least that rate thereafter. A clear signal that the tax will ultimately reach £35 a tonne will provide the necessary stimulus for the sort of investment that my hon. Friend is talking about, although we must take account of the often long time taken to develop waste management capacity. The pre-Budget report also made it clear that the measure is to be revenue neutral to business. The Government are considering a range of options for recycling revenue, and are working through some of the issues with stakeholder groups. We will announce our conclusions around the time of the Budget.

Change is always uncomfortable; it creates uncertainty. However, no one can claim that change is unexpected, particularly not in regard to the landfill tax credit scheme. In March 2001, the Select Committee on Environment, Food and Rural Affairs, of which my hon. Friend the Member for Normanton is a distinguished member, reported on delivering sustainable waste management. That Select Committee described the LTCS as providing

It described the scheme as a "charade" and recommended that it be abandoned altogether.

My hon. Friend will also know that the National Audit Office examined the scheme and pointed out that the operation of the scheme

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My hon. Friend stressed several times the effectiveness of the scheme, but when the Public Accounts Committee reported in July last year, it said that there were

and that the scheme contained

Although strictly speaking the funds flowing through the scheme are classed as private, rather than public, spending, the money is essentially tax revenue forgone. Consequently, it is the Government's responsibility and is in the public interest to ensure that the money is spent in the best possible way. It would have been wrong to take such weighty criticisms lightly.

Between April and June last year, the Government consulted on the future of the landfill tax credit scheme. Rather than abandoning the scheme altogether as the Select Committee urged, the Government recognised that, as my hon. Friend points out, the scheme has supported many worthwhile community and environmental projects that are not connected with waste. Those account for around one third of current landfill tax credit scheme spend. Consequently, the Government will continue to make available approximately one third of the funding that currently goes through the scheme—around £47 million a year—for spending on local community environmental projects. The figure of £47 million will be kept broadly constant in real terms, which will ensure that the current level of support for such projects is maintained.

The Government recognise the strength of the criticisms of the Public Accounts Committee and of the Committee on Environment, Transport and Regional Affairs. Although the scheme supports a range of worthwhile waste projects—my hon. Friend's company Urban Mines is a good example of this—the current funding arrangements do not deliver the strategic and coherent approach to waste management that is needed.

I am sometimes asked what I mean by "sustainable waste management". I have some bottom line concerns. One is waste minimisation to tackle municipal waste growth. That is currently at 3 or 4 per cent. above gross domestic product and costs an additional £70 million a year to the taxpayer. Another concern is about diversion from landfill, and, in particular, to boost the current pitiful rate of 11 per cent. We want to use the additional spending to affect the levels of such activities.

The change that my right hon. Friend the Chancellor of the Exchequer announced in the pre-Budget report in November will take place in April, reflecting the imperative to improve rapidly the management of waste. However, taking note of my hon. Friend's arguments, I recognise the need for those currently involved in the scheme to be able to plan ahead.

In the representations that I have so far had, a range of concerns were raised, some of which are entirely understandable, whereas others are entirely unnecessary. There is no need for landfill operators to stop allocating funding now. Customs' advice to the landfill operators and environmental bodies before Christmas made it clear that funding from tax credits under the current scheme can still be allocated to waste projects until the end of March. Beyond the end of the March, that funding can continue to be spent until either

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the projects are complete or the funding allocated is spent. The LTCS successor scheme will continue to provide funds for worthwhile community environment projects that do not fall into waste management categories. For waste projects currently funded by the scheme, there are challenges during such change. I have no wish to see good projects go to the wall. I am therefore analysing the transitional challenges that my hon. Friend talked about, to see what support may be appropriate from the public spending stream post April.

I am also committed to taking the decisions necessary to give the greatest and earliest certainty possible, as those involved with the changes plan for the period ahead. That will mean confirming the new ceiling to which landfill operators can claim tax credits as a percentage of their landfill tax liability, and outlining plans for continuity of contributions to support waste projects that are up and running. It will also mean setting out the basis on which prospective waste projects that contribute significantly to our sustainable waste management strategy will be able to draw on the funding reallocated from April to public spending.

We have more work to do. I pay tribute to the co-operative approach that Entrust and the distributive environmental bodies are taking in their work with my officials. I hope to make the decisions and announcements soon. Beyond that, we shall consult the many interest groups on the ways to meet the more serious criticisms that have been made of the landfill tax credit scheme in the operation of the LTCS successor scheme. I aim to set out any plans for reform on a budget timetable.

It is the Government's responsibility to ensure that the substantial level of funding currently going through the landfill tax credit scheme is used as effectively as possible, particularly in waste management. We believe that the reforms will help us to do so. Having heard my explanation of the changes, of the issues that we are currently considering, of the decisions that need to be taken in short order and of the decisions that we shall take at the time of the budget, my hon. Friends the Members for Huddersfield and for Normanton will, I hope, be persuaded that, rather than losing the innovation and badly needed impetus that my hon. Friend the Member for Huddersfield talked about, the reforms—the rise in the landfill tax rates, the successor landfill tax credit scheme, and the other work, some of which we detailed in the pre-Budget report—will improve the desired objectives.

Mr. McWilliam : Order. Time is up.

Before I call the debate on education and prisons, I inform the Members concerned that at least one, and possibly two, Divisions are likely. When the Division bell goes, I shall suspend for 15 minutes. If during that 15 minutes a second Division is called, that suspension will be for half an hour.

4 pm

Sitting suspended for a Division in the House.

4.19 pm

On resuming—

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