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Dr. Alan Whitehead (Southampton, Test): The hon. Gentleman speaks as though the entire amount that is currently gained in tax forgone will suddenly disappear. Does he accept that, even under the proposals, most of the money that currently goes into the scheme will remain? The money to which he refers relates to the increase and is not taken away from the present amount. Does that not mitigate his case that the money is disappearing from the groups that he is talking about?

Mr. Osborne: I accept that a proportion of the money will remain, but it is quite small; indeed, it will be less than half. According to the letter that I received from the Economic Secretary, approximately £47 million will remain in the scheme annually, but £100 million will be taken out. Only a third of the money will remain. Given the environmental credentials of the hon. Member for Southampton, Test (Dr. Whitehead), I wonder whether he supports the change. Does he think that the Government would be better at spending the money centrally than local charities and environmental groups on the ground? I would be surprised if he took that view, as it is certainly not my view or that of the groups involved.

I ask the Economic Secretary to reflect on what I have said and deal with my points, some of which he will no doubt have heard about from environmental groups. In particular, will he address the loss of match funding and the question of where the groups will get their money? I know that he is phasing in some of the changes, but in a

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year or two those involved will be hit with a big shortfall. Will he also comment on the serious job losses that at least one organisation that has written to me predicts?

The Economic Secretary to the Treasury (John Healey): The clause is relatively narrow in the context of this rather wide debate. In line with the escalator that we announced in 1999, it increases the standard rate of landfill tax by £1 a tonne to £14 a tonne, with effect from 1 April this year, and by a further £1 a tonne to £15 a tonne, with effect from 1 April next year.

The Government are committed to a sustainable approach to waste management. The increases will encourage waste producers to seek more environmentally friendly alternatives to landfill, as they will encourage producers and the waste management industry to switch from landfill to minimising waste and increasing re-use and recycling rates—the very purposes that the hon. Member for Arundel and South Downs (Mr. Flight) urged us to adopt.

The increases are part of a principled national policy to reduce the volumes of waste going to landfill, and they are complemented by additional public spending on sustainable waste management that was announced in the House on 6 May by my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs.

The hon. Member for Arundel and South Downs asked about revenue from increasing the landfill tax by £3 per tonne in 2005–06—not in 2003–04 or 2004–05, which are covered by the clause. Although that will make a significant contribution to the increased investment, it is not directly hypothecated. However, the Government made a commitment in the pre-Budget report and the Budget that additional revenue from the increases in the standard rate would be recycled to business.

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Discussions with business and other stakeholder groups have already shown that there is broad support for a package of measures, including some tailored to those sectors facing the greatest waste management challenges. We will continue to pursue that package of measures through developing the options and consulting further, and we plan to make decisions to the time scale in the pre-Budget report and the Budget.

The hon. Gentleman raised the spectre of fly tipping connected with increases in the landfill tax. There is no evidence to justify that. A Tidy Britain Group survey in 1999 showed that the majority of fly tipped waste is household waste. As householders do not directly pay the landfill tax, it is unlikely to be the cause of the increase in fly tipping. That said, we take illegal waste disposal by fly tipping very seriously. The penalties are now severe: they include unlimited fines and up to two years in prison.

The hon. Gentleman and the hon. Member for Ceredigion (Mr. Thomas) asked about incineration. As announced in Budget 2003, the Government have commissioned a review of the environmental and health effects of all waste management and disposal methods,

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and we aim to report on its findings later this year. The case for using economic instruments in relation to incineration will be considered in the light of that work and in consultation with those with an interest in the field.

The hon. Member for Ceredigion urged the Government to increase the rate of landfill tax more quickly in order sooner to reach what we set as the medium to long-term level of £35 per tonne. Our research and the recommendations of several reports suggest that that level will result in alternatives to landfill being more widely available and becoming more economically viable. As the hon. Gentleman will know from his work on the Select Committee on Environmental Audit, that view is widely shared. Given the lead times for investment, however, the most important factor in stimulating a shift in behaviour away from landfill is not the current rate of the tax, but the confidence, knowledge and certainty that it will reach the medium to long-term level of £35 per tonne. That gives the lie to the accusation by the hon. Member for Arundel and South Downs that we have a short-term set of policies.

I have been fortunate enough to give evidence to the Environmental Audit Committee a couple of times. I say to the hon. Member for Ceredigion that I am confident that the landfill tax increases, alongside the other policy measures that we have introduced or plan to introduce, will deliver a waste policy that is better suited to Britain, and which increases recyling and re-use, minimises waste production and helps us to make the reductions in volume that we need to meet our European Union targets.

The landfill tax is not our only measure. We recently passed legislation to introduce a scheme of tradeable landfill permits, which will help. We have substantially increased public spending through the EPCS—environmental, protective and cultural services—block grant to local authorities and the transfer of the landfill tax credit scheme to public spending. That will help. We have also announced plans for a performance fund for waste management for local authorities, and that, too, will help. All those measures will play an important part in helping the United Kingdom meet our targets.

The hon. Member for Tatton (Mr. Osborne) asked about the national insurance contributions increase, which was introduced in last year's Budget and took effect last month. It will help fund the 7.5 per cent. real-terms increase each year in spending on the national health service from 2002–03 to 2007–08. It has nothing to do with the landfill tax. However, the hon. Gentleman is right that when the previous Government introduced the landfill tax, it was accompanied by a 0.2 per cent. cut in employers' national insurance contributions.

The Government estimate that in 2003–04, the cut that was originally introduced with the landfill tax will be worth approximately £780 million, compared with about £670 million raised by the landfill tax. Next year—2004–05—the NIC cut will be worth approximately £820 million, compared with £745 million raised by the landfill tax. The revenue from the landfill tax has yet to recoup the original cut to employers' national insurance contributions.

The hon. Member for Tatton is a member of the Public Accounts Committee and knows the flaws in the design of the landfill tax credit scheme better than many

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other hon. Members. He knows that flaws in its design caused the problem, because the Committee examined the matter, as did the then Select Committee on Environment, Transport and Regional Affairs. The problem arises from the design rather than the principle of the scheme. The Government strongly support the principle; that is why we have retained it for non-waste projects. We shall not abandon it, but we will transfer the funding for category C and CC projects to public spending because that will deliver a more strategic, sustainable waste management policy and programme in this country. The hon. Member for Arundel and South Downs urged us to do that.

The hon. Member for Tatton also knows that one of the flaws in the design and operation of the landfill tax credit scheme since its inception has been a chronic lack of information on what the money is being spent. He asked about match funding, but we face a lack of information and evidence on which to assess some of the individual claims and stories that we hear about projects. Glasgow Caledonian university has conducted the only systematic research on that. It suggests that the rate of match funding for waste projects as well as those in other categories of the landfill tax credit scheme is significantly below the levels that the hon. Gentleman cited.

Although it is not directly covered by the clause, Committee members may find it helpful if I say a little about our plans for the standard rate of landfill tax after the two years to which clause 184 applies.

Mr. George Osborne: Before the Economic Secretary moves on, will he deal with the specific point about the loss of match funding and jobs that many groups and voluntary organisations will experience? I presume that people have written to him about that.

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