WEDNESDAY 11 DECEMBER 2002

__________

Members present:

Mr John Horam, in the Chair
Gregory Barker
Mr David Chaytor
Sue Doughty
Mr Mark Francois
Ian Lucas
Mr Simon Thomas
Joan Walley
Mr David Wright

__________

Memorandum submitted by John Healey MP

Examination of Witnesses

JOHN HEALEY, a Member of the House, Economic Secretary; MR PAUL O'SULLIVAN, Head of Environmental Tax Team; and MR MICHAEL COLLINS, Environment, Farming and Rural Affairs Team, HM Treasury, examined.

 

Chairman

1. Good afternoon, Minister. We have to apologise for the fact that there is no heating in this room, but we have to set an example and be sustainable in heating terms! Thank you for your memorandum and thank you for coming here today. Is there anything you would like to say by way of a brief introductory statement before we begin the examination?

(John Healey) I would, if I may, and thank you for that invitation. I thank you for the invitation to come and give evidence to the Committee. I served on an ordinary departmental committee for two years so I know the special role that this one plays looking right across government. I should begin, if I may, by introducing Paul O'Sullivan who is the Treasury's head of environmental and transport taxation policy, and Michael Collins who is from our environment, food and rural affairs team. Mr Horam, just by way of setting the scene, your Committee has established an interest in the general process of government policy-making in relation to environmentalists using sustainable development, and also an interest in specific environmental policy, so my predecessor, Paul Boateng, gave evidence before your committee a year ago so I thought to set the scene I would say a few words about the most significant developments in the Treasury's approach since then, and then I will mention some of the most significant policy developments and decisions which we have either taken or that we are now considering which members of the Committee may want to know about.

2. That is fine, but please be brief.

(John Healey) First of all, if I may, on the spending review, if we look at the period since last December when you had the last Treasury Minister before you, for the first time we had a specific process established for considering sustainable development as a key part of government spending plans and decisions. All departments were required to build in a report on sustainable development as part of their bidding process to the Treasury. Important announcements obviously followed including big increases in resources for the neighbourhood renewal fund and also to help support sustainable food and farming but more importantly, from the spending review, more departmental aims, objectives and targets than ever before were required explicitly dealing with sustainable development. The spending review also in a sense with the Treasury beginning to practise what it preached resulted in the Treasury agreeing a new public service agreement objective for the first time. This I would suggest will help ensure that environmental policy is more firmly embedded as a core part of everything the Treasury does, and I think it is that combination of factors and features in the spending review 2002 that led the Green Alliance to describe it as the greenest yet. The Pre Budget Report the Chancellor introduced a fortnight ago took that process forward. First and most important from my point of view as the minister responsible for environmental policy was that, alongside the Pre Budget Report we published a new strategic framework, "Tax in the environment - the use of economic instruments", an important document, if I may say so, which builds on the government's commitment in the 1997 statement of intent on environmental taxation which sets out the principles we believe should underpin government policy on the environment. I hope the Committee will find this document useful because it sets out how we appraise the costs and benefits to ensure that any intervention we take is proportionate to the problem. It also sets out our approach to the policy development process with early consultation on the objectives, further consultation on the approach, and long lead times before the introduction of measures so that those affected have time to respond and, if members have not already studied it in full, I would recommend in particular chapter 7 and the table 7.1 on pages 42 and 43 which set out how since 1997 we have applied these principles in practice. Finally, the document also explains how we have recycled revenue on environmental taxes so these have not been introduced in order to swell the general coffers of government. So I think in summary on this it reflects the Treasury's commitment to ensuring that growth is environmentally sustainable as well as socially and economically sustainable. In other words, we recognise the growth that is built on the short term exploitation of the environment is simply not sustainable in the long term. Finally, alongside this new strategy on environmental taxation, the Pre Budget Report itself set out specific policy announcements and the continuing work that we are currently conducting and this is principally in chapter 7. I know members have very strong individual and specific policy interests but I am sure you will have examined in this PBR document some of the announcements on waste, including the land fill tax and the land fill tax credit scheme, our proposals for further work on aviation, domestic energy, efficiency in agriculture and also the proposals we are making for duty rates on bioethanol. These are all areas you may wish to discuss during this evidence session but we are entirely in your hands.

Chairman: Thank you very much indeed.

Gregory Barker

3. Minister, we last met when I came to the Treasury as part of an all party lobby to press the case of bioethanol and I am grateful for the time you took to listen to the points they made. For the sake of the Committee, can you explain to us why bioethanol and biodiesel are taxed considerably more than LPGs even though LPG is a fossil fuel?

(John Healey) I well remember meeting you, Mr Barker, and somebody else who you came with at that time, Peter Cleary, I have just left at a reception down the corridor, and he said to me that the announcement the Chancellor was able to make on bioethanol in the Pre Budget Report had given a big boost to the people he was dealing with but he also served a warning that he would be coming back for more. The reason for the differentials is that we are pursuing different environmental objectives with the treatment that we are pursuing with the different fuels. With bioethanol we have been able to propose this duty cut of 20p below the rate for ultra low sulphur petrol because we believe there is a case for supporting and recognising the additional production costs in order to help bring more of this potential greener fuel to market, so the dynamics of the intervention that we believe we need to make in the case of bioethanol or biodiesel is different from that of the fuel gases that you mention.

4. You acknowledge in paragraph 7.31 of the PBR that the production of ligno-cellulosic bioethanol needs more support, so why do you not zero rate the duty for this fuel like you have for hydrogen?

(John Healey) Quite simply, the support we wish and are able to give to the development of the bioethanol market cannot be at any price. I spoke in general terms about the balance of cost and benefit that we have to strike and the framework we are setting to try and weigh up those sort of decisions: the duty cut we are proposing we think reflects the level of environmental benefit that we gain from grading use of bioethanol, but simply reducing it to a zero rate would have made the costs disproportionate to the potential environmental benefits. We also have to consider, shall we say, the state of maturity of British production because there would be a risk if we moved in my judgment too far, too fast that production of bioethanol for a British market would not develop at a pace sufficient to stop widescale importation from those countries where this is a market that is already better developed. So it is a balance of those specific factors that led to the judgment that the Chancellor took and confirmed in the pre budget statement a fortnight ago.

5. But do you recall that is not consistent with what the industry partners at that meeting you and I attended were telling you? While they said it was moving in the right direction they said it was a definitive investment threshold which the 20p was just coming under, and without that little bit more support they simply would not be able to make the investment case which they were wanting to do?

(John Healey) For the benefit of other members, the industries at the meeting that Mr Barker came to were Cargill and British Sugar. I am well aware of the judgments in the case that they make and the outline costings that they present. In many ways we were faced with similar arguments from industry when we looked at the question of a duty cut of biodiesel and, although it is too early to tell definitively, I have to say that the early signs on biodiesel are very encouraging. In the first two months since the duty rate came into force we have seen a five-fold increase in the production and sales of biodiesel and we are looking to probably 80 outlets by the end of this year supplying biodiesel, so I suppose in summary, and quite directly, the judgment that we have taken at this point is different to the case that the industry has been making, although I quite understand the reason that companies such as British Sugar are looking for a 30p rather than a 20p cut in the rate.

6. Was that factored into the decision you made?

(John Healey) Yes. I have already indicated the sort of factors that were taken into account in the sort of decision we made. They include an appraisal of the projected environmental benefit that we think we can achieve as a country from increased use of bioethanol, an assessment of the state of the British production and industry and a judgment about the balance between the cost to the public purse and the benefits that we would gain, so it is, if you like, an early and specific example of the general case we set out in the framework here. It is by no means a perfect or a scientific process but, by approaching it rigorously and making sure we are able to look at the environmental factors, the social factors, the economic factors and based on the best evidence available to us, and as I said at the meeting to you, Mr Barker, on bioethanol the quality of the evidence of the analysis we have now that has enabled us to make this decision is far superior than what we had available to us twelve months ago.

7. You mentioned the environmental calculation that you had undertaken. Can you tell us how you did that and how that arrived at 20p?

(John Healey) As the technical expert I will invite Paul O'Sullivan to give you the explanation of the approach to appraisal.

8. It does seem rather arbitrary.

(Mr O'Sullivan) The environmental benefit was calculated using estimates of what the CO2 benefits would be for certain levels of production of bioethanol and also the air quality benefits, so for a litre what would be the environmental benefit per litre.

9. So how did you get to 20p rather than 22p or 18p?

(Mr O'Sullivan) It is a combination of both the environmental benefits and the market stimulation effect that we need in order to build up an industry that would be able to deliver those environmental benefits, and it is the market stimulation effect that we were after with the 20p that was larger here than the environmental benefits. They were rather lower but we thought that making some allowance for market stimulation was beneficial if it meant that we could grow the industry to be able to be in a position to get those environmental benefits.

10. If there is an element of environmental impact, why not set out a comparative appraisal table which would demonstrate this?

(Mr O'Sullivan) The convention has been that we will put things into the table at the same time that we make a decision to go ahead with something and score it, and if you look at biodiesel there are now on the DFD website various studies that have been published making those sort of comparisons.

(John Healey) Was that clear? Perhaps I could try and be more helpful to the Committee. We will only do that in that way once we have essentially adopted the policy. To set out in the terms that you describe the potential policy options that we may be considering at any time is in danger of misleading people into considering perhaps that the decision has been taken when it has not. However, if it is helpful to the Committee, we can certainly let you have the details of the sort of appraisal work that has been done if that helps the Committee understand why we have reached the proposed 20p cut rather than 22p or 30p or any other figure but you will see, if I may say so, that we lean, as Mr O'Sullivan has suggested, further towards supporting the environmental benefit than a strict economic cost analysis would lead us to.

11. But do you think this incremental approach is going to produce the step change that is necessary? Have you considered things like the Californian zero emissions legislation?

(John Healey) The honest answer is that with biofuels it is too early to tell. What is clear, though, is if we try to go too far too fast we risk severely distorting not just the biofuel market and production but producing other perhaps less intended consequences and potential consequences as well. The outline appraisal that we can let the Committee have will help make that dimension to the policy decision clear.

12. How do you think we are faring compared to our EU partners?

(John Healey) On biofuels?

13. Yes.

(John Healey) Better than some, worse than others. There are some European countries in which this is now quite a mature market where there is already a significant duty rate differential, but then there are others where by comparison this will be a step forward and a step ahead.

14. So do you think our middling performance is a reflection of a rather unambitious government policy?

(John Healey) No, I do not accept it is unambitious but I would urge you to consider some of the complexities and the consequences of wanting to go too far too fast on a policy like this, because I think the objectives you may wish to see and that we would probably share may not be realised by the "big bang" that you might be looking for on biofuels.

15. When you abandoned the fuel duty escalator in the Pre Budget Report in 1999 you stated you would hypothecate the revenues from any real-terms increases in fuel duties. Can you confirm that this Pre Budget Report does not include any real-terms increase in duties?

(John Healey) I can as far as the Pre Budget Report goes - quite simply it does not. Those sorts of decisions are made on a budget-by-budget basis and will be a matter for the Chancellor in the run-up to the forthcoming budget.

16. Did you consider among your policy options the case for a real-terms increase?

(John Healey) Not at this stage of the budget cycle.

17. Is that because that is something you do not do now at this time of the year?

(John Healey) Generally those sorts of decisions are considered and then made as part of the run-up to the budget rather than the Pre Budget Report stage of the budgetary cycle

Sue Doughty

18. On the question of landfill tax and the landfill tax credit scheme, first of all, I want you to look at the escalator. This Committee was concerned about seeing an increase in landfill tax when we interviewed Mr Boateng and had some concern about what the purpose of the escalator was doing - whether it was escalating as rapidly as we would like to see in terms of being a real disincentive away from landfill and income generator and starting to move up towards £35 a ton which is seen as a minimum appropriate level. You have put the £3 on escalator, which is an increase and we did ask for an increase so that is recognised, but it is going to take a long time to get to that minimum level, particularly when we are looking at something like £45 a ton, which is where we are really looking at recycling kicking in very heavily. Do you think it is going to take too long? Will you be reconsidering it? What are your views on the escalator?

(John Healey) Just for the sake of clarity and confirmation, the current escalator runs at £1 a ton increase until 2004-5. At that point the Chancellor in his Pre Budget Report confirmed that in the year 2005-6 it will increase by £3 and after that by at least £3 and the target level we have set is the one that the Environmental Audit Committee itself suggested at £35 pounds a tonne. I am interested that you have already upped your target level by another £10 a tonne --

19. This is only what the recycling people are saying.

(John Healey) You are saying it is not as much as the Committee would like to see. I would say as it stands at the moment the landfill tax rate is not as much as it is necessary for us to see, hence the policy confirmation announcement that the Chancellor has made. In terms of the timing of this, you will notice if you look at the Pre Budget Report text we talk about a target level of £35 per tonne in the medium to long term. Setting the target level is important at this stage in our judgment because it sets the long term signals in order for the lead time for the investment and change in behaviour that we need to see take place in the waste management industry. The detailed judgments we need to take about timetabling are not ones that we are in a position at present to confirm in my view. It will be one of the areas that the group I have been asked to chair of middle-ranking ministers from three other departments will consider between now and the forthcoming budget, so whilst the target level is confirmed, the timetabling for that is not.

20. So there is a possibility that you may increase the escalator sooner rather than later to get there?

(John Healey) What we have announced and confirmed is that in 2005-6 the landfill tax will rise by £3 a tonne and from 2006-7 onwards it will rise by at least £3 a tonne but the timetabling and those sort of judgments are not ones that we can make precisely at this point.

21. Did you give any consideration to an incinerator tax again where we are looking at sustainable waste management and moving towards increases in recycling. Was any consideration given to this?

(John Healey) I am sure you will remember from the Budget this year there was confirmation that we are looking at incineration tax. That was confirmed by the Chancellor when he introduced the Budget in April. We are continuing that work: we are looking at the possible role that incineration tax or other economic instruments relating to incineration might play. The important next step in this process is to commission as thorough an environmental health audit as we can of the impacts of the range of waste management methods and techniques. In my view, one of the weaknesses of the way that waste has been approached in the past and one of the weaknesses of the debate about this has been that focus has been on specific methods of waste management disposal, and I do not exempt governments from that general observation. The European Union Landfill Directive does exactly that - it is simply about landfill tax - when what we need to do and what the Pre Budget Report lays the grounds for us to be able to do is take a judgment about the proper mix and balance that is appropriate for Britain in terms of how we minimise the amount of waste we produce, how we dispose of it most effectively and environmentally sustainably, and also how we increase the amount of re-use and recycling that we can achieve. Incineration plays a part in that at the moment; I have no doubt it has a part to play in the future; but whether or not an incineration tax or other economic factors relating to incineration have a part to play is a judgment that we will be in a better position to make once we have solidly based and better based the information we have about the environmental and the health impacts across the range of different technologies and waste disposal methods.

22. Can I ask you about the Waste Not Want Not report at this stage because it was mentioned in the Pre Budget Report, and very little information was available about what was happening with that document and on the website there was an executive summary but not the report, and since then I understand it has been issued to selected people in draft form but not available by and large in printed form. This seems to be a document partly underpinning some of the other things that are happening in terms of not only looking at fiscal instruments which are discussed in the documents described but also the areas under consideration which go hand in hand so that you look at the whole problem together and see how these fiscal instruments in practical terms are going to be used to deliver sustainable waste management.

(John Healey) You are right, it is a useful document published alongside the Pre Budget Report; it was a report to government, not of government; and my understanding was that it was published on the day alongside the Pre Budget Report. I am happy to make sure you get a copy if you have not yet seen one, and it was useful basis for some of the further work we need to do and the Pre Budget Report announcements in many ways represented the first and early government response to some of the issues and analyses that they set out.

23. On that report, and I would appreciate a copy, certainly my department and others spent some time trying to get hold of a copy of that, and printed versions have been available to certain people in draft form but not necessary in final form, with only the executive summary on the website, and when I have been to the Vote Office to request it, it has not been available.

(John Healey) I am puzzled by that because it does not fit with my understanding of what has happened. I am not sure what your department is but I can certainly make sure you get a copy.

24. This is the Vote Office. Having gone there it certainly has not arrived on my desk, so I would appreciate one. Could we move on to the landfill tax credit scheme because this is an area which I think has been very popular? It is seen also as funding for environmental schemes; it has been very popular because it is identified as private fund raising; it can be used to leverage other funds in a very successful way; and we have seen quite a wide variety of initiatives resulting from this. The industry is now saying that this scheme is effectively being chopped off at the knees, and there was a question in the House last week asking about the landfill tax credit scheme. What is happening to it?

(John Healey) Once again, if you study the detail of the Pre Budget Report it is pretty clear. You will be more familiar than I am as members of the Committee about the criticisms made of the landfill tax credit scheme and of the report by the PAC and the Environmental Select Committees. From April next year, roughly two thirds of the revenue stream from the landfill tax credits will be transferred to public spending programmes to support better waste management, better levels of recycling. That will mean about £100/110 million per year. Roughly one third of it, about £47 million, will be available for a reformed but reduced landfill tax credit scheme that will be focused on local community environmental projects, and it is a balance between recognising that some of the credit systems of the scheme demonstrated that this was not producing a strategic or a significant impact on waste management and recycling challenges we face, and - quite rightly as you point out - the value that many local groups and local communities place on having the landfill tax credits and payments from this scheme for very local projects. I have to say, as others have said, having a scheme in this area when we are faced with the sort of challenges that other members of your Committee have already pointed out, dealing with waste that is supporting the renovation of churches or the refurbishment of village halls, in the context of having to make from time to time some quite difficult decisions about priorities is simply now not sustainable, so in terms of the landfill tax credit scheme around about a third will remain in a reformed scheme that we are discussing within trust, and about two thirds will be available from April to support more strategic, if you like, developments trying to deal with the waste and recycling problems we face.

25. I am rather concerned. I appreciate that complaints were made and concerns about the variety of what that scheme was really there to achieve and it was a scheme that was never going to entirely satisfy everybody, but on the other hand there are schemes which are running now which will suddenly find themselves without funds because of the suddenness with which the announcement was made, where funds were almost allocated and then there was expectation that the scheme would run next year and they are not. These are not the church roof schemes but more the remediation, the substantial environment improvement schemes where suddenly the money seems to be disappearing. My concern about this is that if the escalator is in place and, as you have said, the revenue that you are getting from increased income is not to swell the government's coffers, and I appreciate the points about local government and the other recycling schemes there too and I support those, then some very good schemes that have been happening to start building in that area may not continue because of the way that scheme was being treated.

(John Healey) I am grateful to you in a sense for raising that point because the one feature on which we have made a commitment which I did not mention is that for those projects which have already had tax credits allocated on to the scheme and for which the credits are already available and will continue, our assessment of the balances in the scheme will mean that we can secure that. In terms of new projects one area of the work that the group that I will lead will do over the next few months is to ensure that good projects, new projects, that may previously have looked to the old landfill tax credit scheme will have an opportunity to secure funding under the other method that we will use for disbursing the funds, the £100-110 million.

26. Will this happen in sufficient time? We are talking about jobs here as well, organisations which may have 20 or 30 people, where the funding is going to dry up unless this is taken as a matter of urgency to understand what the succession schemes are going to be and to enable them to plan for the future through this change.

(John Healey) I am very conscious of the uncertainty that there is in many of these environmental groups. As I say, those projects that have already secured the funding and had that committed will continue and I hope that will give some reassurance to those involved, but I am also conscious of the importance and the urgency of the work we need to do to make sure we can put in place clear arrangements for both parts of the system from April so that we minimise the period of disruption and certainty and allow the best continuity that we can where we have projects that we do want to see developed.

27. Could I raise one more concern as well about this which is the anomaly with the church roofs and the village halls which a lot of groups have profited very nicely from. It has been very nice to see and I appreciate they may have been anomalous within the scheme. However, it has been a very welcome source of funding from groups who do not want to take lottery money because their religious or personal beliefs will not allow them to take the profits from the lottery. Will there be any other schemes or opportunities to look at schemes which will allow such organisations to benefit without going back to lottery-sourced money?

(John Healey) The short answer is no, that has not been part of the work we have been doing in trying to develop a much more soundly and sensibly based waste policy. In my role in considering this that is not a matter that I regard as my direct responsibility, though I recognise there are going to be consequences for local organisations and groups in the future and I do recognise it is probably going to make me one of the most unpopular members of the government as a result. Nevertheless, the decisions that we have taken on this I think are right because of the challenges that this Committee above all recognises in the waste and recycling field.

Mr Wright

28. I am intrigued by this. Why did you not just change the criteria of the old scheme? If you were not happy that the money was being spent on church roofs and buildings, why did you not change the criteria at that point instead of re-inventing wheel on the scheme? Secondly, a number of organisations are counting income from the landfill tax credit scheme as a private sector leverage contribution, and I have talked to organisations that are getting a 5/6/7:1 leverage ratio on the basis of this money. How will they tie into the new scheme and will it be incredibly bureaucratic like most of the other schemes that people have to apply for from government?

(John Healey) Firstly, our analysis - not just ours but the analysis - of the way that the scheme has worked suggested that in order to achieve the objectives we need to in this area the degree of redesign and reform of the scheme was such that it would have been quite difficult to do, and a more effective way would be to redeploy round about two thirds of the funding, as I have indicated, to a different method of delivery and disbursement - and that is what we propose to do. In terms of the match and potential of the money from the credit scheme, I am highly conscious of that. I have in my own constituency a number of organisations, including Groundwork Dearne Valley, that do a remarkable job in terms of environmental work and I know from my close association with them how valuable this is as a source of funding. They will be able to draw, I hope, from the successor scheme. I hope on the other side that the design of the delivery arrangements that were made for this essentially public spending programme do avoid some of the common features we see in some funding programmes of excessive bureaucracy which I know are a source of frustration, particular for smaller local groups that do not have the experience or the capacity to jump through some of the administrative hoops that are required.

Mr Francois

29. Can I press you further on precisely that because one of the advantages of the current scheme is that a lot of groups would report that it was relatively straightforward, quick and unbureaucratic and that is why they liked it, because they did not have to spend a tremendous amount of time applying for the money and they usually got a decision one way or the other fairly promptly which allowed them to plan. You made a slightly disparaging comment about some of this money being used for refurbishing village halls. Well, those village halls also used to get lottery money and now invariably do not, and it is extremely complicated even to get what they do because the community fund criteria were changed a couple of years ago. So they do not get much money, if any at all, from the community fund and they are increasingly reliant on this as a source of income and now this is drying up as well, so I think this is quite a serious matter. You had a system which did work in at least some respects very well: it was not broken: and now you have chosen to fix it.

(John Healey) The PAC and the Environment Committee did not take the view that this was a scheme that was not broken. On the other side you say quite rightly that many local groups liked this scheme; you say they did not know how they were going to spend it before they got it, and that is precisely the problem. We are not able, as the PAC in particular will confirm, to tell exactly what sort of impact the spending for this scheme has had; we are unable to tell whether it is value for money or has been effective. In the context where really significant sums of funding are going through this scheme, my argument to you is that that is not sustainable, and whilst we did not want to close down the scheme, as some urged on us, entirely because of the value that there is to many local groups and some of the good local environmental projects that it can sustain, we do need, given the challenges we face in dealing with waste in Britain, to do this in a different way that we believe is going to be more effective and that is the basis of the decisions we took.

30. Those village halls that have been using this money did know how they were going to use it - to refurbish or in some cases rebuild their village halls. They cannot get the money from the community fund any more, and now they are not going to get the money from the landfill tax credit scheme, so where are they going to get the money from?

(John Healey) I think I have already explained to you, Mr Francois, the position of potential sources of funding for village halls has not been a feature of the analysis that we have carried out and the decisions we have taken on this. I am sorry to be so blunt with you but the priorities in this policy area have been to deal much more effectively than we have been able to do in Britain in the past with the increasing volumes of waste we produce, the low levels of recycling generally that we undertake, and secure in this area a better range of programmes and policies that would deliver those environmental objectives which are longer term and much more far-reaching than the issues that you raise.

31. One more quick go on this: there was a national lobby of my village halls groups that I went to that came up to Parliament several weeks ago attended by the government PPS; they then had a meeting with the government minister to go through a number of these issues as I understand it, and they were told that the government would look sympathetically on this issue and would do what it could - and then they get this announcement. So what is the government doing? All these people came up to Parliament, they were met, people said, "We realise this is a problem. We are going to do something about it".

(John Healey) You are an MP, you know how many people come to Parliament and the range of issues that are brought to MPs and taken to government ministers. You ask what the government is doing about it - it is doing what we have set out in the Pre Budget Report and what we will develop further over the next few months in the realms of the Budget. I recognise this is not going to be entirely popular everywhere and that some local organisations and some members of Parliament might have wished us to take different decisions. I have tried to explain clearly the decisions we have taken and the basis for those decisions and the policy objectives we are pursuing on this, and, Mr Horam, you and members of your Committee will have to make your judgments on those.

Chairman

32. Coming back to the objectives of the landfill tax credit scheme, you have just made the point that you felt you could not control it and maybe it was going slightly askew on church halls and so forth, and one of your predecessors did attempt to do something about that in the letter Mr Timms sent out on 3 May 2001 where he said, "We are setting you the target of 65 per cent of credits to go to sustainable waste management projects". My information is that the industry responded quite rapidly to that and did fulfil - indeed, over-fulfilled - their target in that respect, so although certainly as in many schemes of this kind some things went wrong a lot was going right, so are you not killing off the good for the sake of the best?

(John Healey) I do not believe we are killing off the good for the sake of the best which is why we have tried to strike a balance between what are competing arguments in a competing case. You are right that the level of spend on sustainable waste has gone up and I welcome that. In the end the judgment we had to take was that a tax credit scheme could not secure sufficient value for money and in particular could not allow us the strategic direction that we require in this field, and that most commentators, including this Committee, have observed has been lacking from this field in the past. We could not achieve that strategic direction through the operation even of a fully reformed landfill tax credit scheme.

33. But is not 65 per cent good enough when you also consider the point Mr Wright made, that there is a lot of gearing involved in this in the sense that because the existing amount, £137 million according to your document, attracted between £4 and £10 for every pound spent of other public money from Europe and other sources, there was a lot of money which suddenly you have cut out for one or two things that have gone wrong? This is a big, big change for one or two things which may have gone wrong.

(John Healey) It is a big change but describing the weaknesses and flaws not just of the operation but the design in terms of what we want to achieve as one or two things that have gone wrong I suggest may be underplaying -

34. But 65 per cent was going right.

(John Healey) 65 per cent as far as we could tell was going to projects that fitted a category of waste management. The impact of those we were unable to tell: the co-ordination of those was impossible under this scheme, so coming back to the two fundamental weaknesses that were still there in the nature of this scheme: (1) a convincing belief that we could get value for money by doing it simply through the landfill tax credit scheme and (2) because the nature of this scheme, and this Committee knows better than me how it works in practice, does not allow the strategic direction that we need to see in the waste management field if we are going to tackle the job properly.

35. I suggest, Minister, this is the dead hand of the Treasury trying to claim the money back. This was an exciting scheme which had been going for 4 or 5 years, was doing a lot of good, maybe some bad as well, and suddenly the Treasury looked at it and said, "We need a bit of money to be seen to be doing something in another area", and grabbed this money. It is the dead hand of the Treasury and nothing will happen. You have killed of an exciting private scheme because you do not know what is going on.

(John Healey) I reject the suggestion that this is the dead hand of the Treasury interfering and killing off a scheme.

36. I think that is accurate as a matter of fact - you are killing off the scheme.

(John Healey) We are not, and I have to say I do not accept that this is somehow the operation of the dead hand of the Treasury. What I do accept is that we have now in the short term a significant challenge to design and set up the way that we will redeploy these resources because this is not money that is going into the central government coffers of the Treasury, and we have a significant challenge now in producing a programme that allows us to do the things we could not effectively do through the landfill tax credit scheme, and that is work that we will now do across government with ministers from the DTI, ministers from DEFRA, ministers from the ODPM's office as well as myself reporting directly both to Margaret Beckett, the Secretary of State for DEFRA, and the Chief Secretary for the Treasury Paul Boateng, because this relates to taxation and to spending issues.

37. Did you consult with Mr Meacher when this decision was made?

(John Healey) I had discussions with Mr Meacher and with Lord Whitty in the weeks immediately before the Pre Budget Report when we were considering these issues alongside the range of other things that we confirmed in the Pre Budget Report.

38. He is quoted in the public print as being stunned by this decision, extremely puzzled. That does not sound like a minister who has been thoroughly consulted about the radical change in a quite important scheme?

(John Healey) Well, if Mr Meacher is stunned or puzzled I am not aware of it and he has not made those points to me. This is government policy and was set out in the Pre Budget Report.

Mr Thomas

39. Minister, in your opening remarks to this Committee you commended to us chapter 7 in the Pre Budget Report and in particular box 7.1, and I would like to start with that because in the text under 7.11 you state that UK carbon dioxide emissions increased in 2000 and in 2001 and were likely to increase in 2002, yet your graph in box 7.1 shows the CO2 emissions going down. Is that graph not misleading?

(John Healey) I was encouraging you to look at table 7.1. Can you tell me what the page is?

40. Page 131, box 7.1.

(John Healey) It is not misleading - and I will ask my technicians to come in - but what you have there is a plot of the evidence we are assembling of what is happening to emissions at present and the projected decline in carbon emissions that we believe on the basis of our best analysis will be produced by the configuration of policies that we are trying to bring to bear to reduce carbon emissions.

41. Before you ask your technicians to explain what I thought was a quite straightforward graph, could I add one piece of evidence to say why I think it is misleading? If you look at footnote 2 on the graph, it says that this includes a projection and includes the effects of renewables obligation, the climate change levy and the fuel duty escalator. You have abolished the fuel duty escalator over a year ago and yet this graph contains projections based on the basis of the fuel duty escalator continuing until 2010. Is this graph not misleading?

(John Healey) You have just elaborated the point I made - that the second line is the projections based on the configuration of a number of policies that we have put in place in order to tackle the carbon emissions.

42. With respect it is not the second line that does that; the second line is the dotted line that has footnote 4 on it. The second line has got footnote 2 on it which says, "Past emissions and future projections in absence of programmes", and then you are stating that these programmes are bringing down CO2 emissions, but it is not happening.

(John Healey) I do not grasp your point. What you have here is a graph that attempts to plot the track of carbon emissions in this country were the government not to have introduced the range of policies that we now have in place against the track and plot of carbon emissions that we anticipate will be the result of what we are putting in place.

43. But your explanation makes it even worse because it is that it is the dotted line that shows the government policies kicking in and bringing down CO2 emissions but your stated evidence is that CO2 emissions have gone up in those three years so your explanation just makes this graph even more misleading. I think I have a very good point. If you are looking at this as a Pre Budget Report, I think it is easier to glance at graphs than normally at text, are you going to have the impression either that CO2 emissions will be slightly declining and then going up again under current policies without the government's various policies, and I hope to ask you in a second about those, but even worse you have the idea that since 2000 CO2 emissions have been going down at a very steady rate due to the fact that we have the renewables obligation, fuel duty escalator and the climate change levy. As I said, one of those has now been abolished and the reality is that CO2 emissions have gone up. You should at least have shown that going up, even if you wanted to project it in the future going down.

(Mr O'Sullivan) This was the information that DEFRA were able to supply to us at the time and I think this is something that they revisit when they do substantial pieces of work, so for the Energy White Paper we will be revisiting this. There may be some small changes to the figures because what has been going on in the energy market has led to some increases here to emissions, as a result of impacts of gas prices and things like that. We will provide the best information we can as soon as DEFRA is in a position to pass that on to us.

44. In fact, this graph dates back to October 2001, so it is wrong to use it in the Pre Budget Report to give this suggestion that you are on top of things?

(John Healey) It is not wrong to use it. This was the best information we had at the time in that four year period to 2001. Largely because of high gas prices and therefore an increased burn of coal generation we had a 1.2 per cent increase in carbon emissions over that time. That does not take away from the analysis and projection that we have for carbon emissions over the period through to 2010 based on the impact of the range of policies that we have in place.

45. Will you take opportunity at the Budget itself to publish a fresh graph showing the reality of the situation up to the end of April 2003, plus your projections for 2010?

(John Healey) As Mr O'Sullivan has indicated and you would expect as the Environmental Audit Committee us to do, we are constantly refreshing the analytical and databases that we are able to work from; we publish progress as regularly as we can; we tend to do that in the Pre Budget Report and again confirm any changes in the Budget; so where we have better and more up to date data you can expect us to publish it.

Mr Francois

46. Following that up, I think a new graph would be helpful. One of the policies that you are relying on in order to achieve this is meeting your renewables obligation targets and this Committee did a very detailed analysis into that and basically came to the conclusion that you are nowhere near it. This was then debated in the House, I think, so really, if you are going to provide these graphs and tables, I think it is encumbent to be realistic about the projections that you make.

(Mr O'Sullivan) As soon as we have the best information we can and the most recent information from DEFRA, we will be keen to publish it and to pass it on.

(John Healey) We will send you a copy of our report, and see if that helps.

 

Mr Thomas

47. Can I turn to one of your policy initiatives addressing climate change, the climate change levy? This is very contentious, you had quite a lot of difficulty in introducing it, and there was criticism of it. The initial forecast was that the climate change levy would generate £1.8 billion worth of revenue, and in the PBR you stated that that in reality was £0.6 billion. Can you state whether the climate change levy is working in terms of its effect on industry and, therefore, on emissions?

(John Healey) Yes. You have not got the figures entirely correct about the forecast revenues but in terms of the impact, given that it was only introduced in 2001 after a very long period of consultation and development - and by the way you say it is contentious; taxation is always contentious and one must expect that - I was quite encouraged by the recent CBI report, I have to say, which showed that 74 per cent of the larger firms and 42 per cent of the small and medium-sized firms have already made or are in the process of making changes in what they do to improve the energy efficiency of their operations. That you will recall, Mr Thomas, was a principal objective of the climate change levy so early signs are quite encouraging although clearly the longer term impact is something that we will need to conduct a much fuller evaluation on before we can make firm judgments of that nature.

48. Do you have a timetable for that evaluation?

(John Healey) No. At the moment Customs & Excise who are responsible for this area are discussing evaluation methods with external independent experts that we could bring in to do just such an evaluation. If we are in a position by the Budget to be able to update you on progress on that, I am sure we will.

49. The PIU report talked about alternatives - if not alternatives certainly things that will sit side by side with the climate change levy; the carbon emissions trading scheme was one, carbon tax was another. Can you tell this Committee what views you have expressed in the Treasury on these options in the evidence that you have given in to the government review for the forthcoming White Paper on Energy?

(John Healey) I cannot give you any detailed information on discussions going on in government at present with the prospect of the government's White Paper on Energy. I can say, and we have already confirmed this, that we have no plans for introducing a carbon tax. That would be a tax that would have rather different policy objectives and clearly a different design than the climate change levy which we have introduced. Really there were three principal dimensions to the policy objectives we had for the climate change levy which clearly demonstrate why carbon tax would not achieve the same thing. The first was our concern to avoid taxing domestic energy use. We have got a situation in this country which is improving dramatically but it is still the case we have so many people on low incomes suffering from fuel poverty. That is simply an unacceptable step to take for a government concerned, as we started by discussing, to balance environmental, social and economic issues. The second was we wanted to introduce, as I have suggested, incentives on energy efficiency, and a Carbon Tax would not necessarily do that. Thirdly, we have got a declared policy of wanting to see a level playing field in terms of the different fuels. The Climate Change Levy allows us to do that; the Carbon Tax would not necessarily do so. Mr Collins wants to come in and make a point on that.

(Mr Collins) You also mentioned emissions trading and I thought it might be helpful to remind the Committee of the work that has already been done in the United Kingdom on emissions trading. This April the world's first economy-wide greenhouse gas emissions trading regime went live in the UK based on some £215 million of incentive money provided by the Chancellor in SR2000. In addition, we are closely involved currently in negotiations on a European-wide emissions trading scheme, so there is quite a lot of progress being made on that. I think one can say quite safely that the UK is at the forefront of emissions trading as a flexible instrument for delivering reductions in emissions of greenhouse gases.

50. Thank you for that. It is obvious that you are doing a lot of work on emissions trading but not so much on the Carbon Tax. That does not seem to be a favoured option at the moment. The other recommendation of the PIU was to do some work on the shadow pricing of carbon so that could be measured whether through an emissions trading scheme or possible carbon tax or any other environmental impact of other things such as a fuel tax in the future. Are you doing work on that?

(John Healey) In general, PIU reports provided some useful context and ideas that the Government is looking at terms of the run-up to an Energy White Paper.

(Mr O'Sullivan) In terms of shadow pricing of carbon, DEFRA has already done quite a lot of work on this. There is a document in the public domain that sets a range of values for carbon and I think £70 has been used for some analytical work carried out by some departments. We could give you a reference to that.

51. That would be useful, thank you. Can I change tack now to look at another area which is that of pesticides and you will have seen the report from this Committee recently on the Pesticides Initiative in which we more or less said give it another year and we will really get our teeth into it. Of course there is a huge opportunity here particularly within the CAP reform. We already have an opportunity for modulation up to 20 per cent but one of the advantages or disadvantages of that is to match funds of some of that modulation away from production only. It has been suggested, for example, that you could hypothecate revenues from a potential Fertiliser Tax and/or Pesticides Tax in order meet the greater moderation needs that would flow out of CAP reform. Is this something you are actively doing work on in the Treasury to see how you might be able to meet those objectives?

(John Healey) The principal work that is being done in the pesticides area is of course led by DEFRA. I note the fair warning that you are giving in terms of getting your teeth into this in a year's time. As the Pre-Budget Report and the Budget Statements of the Treasury have made clear, a Pesticides Tax remains an option, but equally our whole approach to the use of economic instruments does not pre-determine an outcome that leads us to the view that we should have taxation in every case. There is a range of interventions, and in some cases, including this one, our judgment is that if we can get the voluntary agreement right then this is likely to be the most effective way of achieving what we are going to see in the pesticides field because it avoids some of the additional costs and complexities that inevitably a taxation regime in this field would bring.

52. Are you looking at least in the medium or long term at the need to somehow match some of the modulation proposals that come out of CAP? Would it not be advantageous for you as the Treasury to do some preliminary work on how that can be matched into a ring-fenced taxation system, whether it be pesticides or fertilisers, which would have an environmental benefit but also would have a wider benefit and assisting on that shadow environmental scheme that we are all talking about now as growing out from CAP reform?

(Mr O'Sullivan) I think we are generally looking at options we can use to improve the voluntary initiative and action generally on pesticides and what we might do in the way of incentives to help that scheme, but I am not sure about any further linkage between that and what is going on in the CAP side.

53. I hope I have raised that so you at least might look at that.

(John Healey) I take that point, one of your purposes in doing so is to prompt us to give some consideration to this. More generally let me add, if I may, to Mr O' Sullivan's point there, that DEFRA is due to publish the Food and Farming Strategy fairly shortly on sustainable food and farming. Alongside that, the Treasury -

54. Tomorrow I think.

(John Healey) --- the Treasury will be publishing some of the work that we have done on consideration of economic instruments and the potential role that economic instruments may have in achieving some of the objectives we are setting for sustainable food and farming. Following that, we will do further work with a more full consultation on those sorts of options during the course of next year. I will certainly have a look in the light of what you have said at the points you have made.

Mr Chaytor

55. Minister, in your opening statement you said that growth based on short-term exploitation of the environment is not sustainable. Do you think that the recent growth in short-haul air travel is sustainable?

(John Healey) Quite frankly, that is a complex question that does not lend itself to an easy answer.

56. There are only two possible answers.

(John Healey) Not in my view of the world on the basis of the information that I have that relates to this. In a sense there are a couple of broad issues when you look at the future of aviation. One is the question of demand, economic benefit and some of the capacity questions that the Government is now considering, of which you will be well aware. Secondly, looked at from an environmental point of view, is a concern that, as things stand, the dynamics of the market in air travel and aviation may not fully reflect some of the environmental costs and consequences in terms of noise, in terms of emissions, and in terms of carbon as well. Therefore in the work that the Government is doing towards the production of a White Paper next year on aviation, consideration of those economic issues, and the capacity issues, will be done alongside work we need to do on whether we can build in more effectively a recognition of the environmental costs as well as the economic benefits that many would recognise and acknowledge with greater air travel.

57. So you are saying because I can travel by air to Southern Spain more cheaply than I can return to my constituency, that is not sustainable?

(John Healey) Once again I do not think that is really a question that lends itself very easily to a yes or no answer. What it suggests is ---

58. Is it logical that I can travel to Southern Spain cheaper than I can travel to my constituency?

(John Healey) I agree it does not appear logical. It suggests that in some way there are failures of the market here. The environmental dimension ---

59. Consumers would see it as a success of the market that they can get to Southern Spain so cheaply. This is the dilemma, consumers would see it as the very success of the companies that are exploiting the market. How do we respond to that?

(John Healey) In general we respond to it in the way that I have indicated. Perhaps it is a fair comment that in the past development in the aviation industry has not been accompanied by sufficient scrutiny of its environmental consequences and impact, but that is work the Government is now doing and it is doing that alongside the development of the White Paper that is planned for next year.

60. The Pre-Budget Report is absolutely silent on air transport policy.

(Mr O'Sullivan) We did indicate at the beginning of the report where there was some discussion about the economic case for airport capacity in Chapter 3, but in terms of sustainability of air transport and what we are doing about costs, there was an indication that we will discuss with stakeholders the use of economic instruments for mitigating the impacts of aviation on the environment so use of economic instruments to encourage that we will be taking that process forward early next year.

(Mr O'Sullivan) It is page 139, paragraph 7.4.

61. I will look at that immediately I leave the meeting. The Royal Commission on Environmental Pollution has published its most recent report on air transport policy - and one of its recommendations is there has to be some kind of climate change charge within the European Union. Does the Treasury have a view yet on that and, if so, have you made your view known to the Department of Transport in the course of its preparation for the Aviation White Paper?

(John Healey) It is an important, useful report from the Royal Commission. In principle, there is a commitment already from the Government to being able to internalise much more clearly and directly the costs of aviation, work that in government and within government and across government we are doing at the moment.

Mr Barker

62. I would like to pick up on something you said to Mr Thomas. You stated that it was an important priority of the Government to eradicate fuel poverty as well as having an environmental impact. If that was the case, why did you kill the Home Energy Conservation Bill just before the summer?

(John Healey) I would not accept the description that you have just given.

63. Why not?

(John Healey) It is an interesting and important question because I had started, Mr Barker, by describing the process that we attempt to undertake in a disciplined and deliberate way of considering and then balancing and weighing economic, social and environmental costs and consequences. If you take, for example, the situation which in many ways was responsible for the degree of fuel poverty in this country, which was under the previous Government the very high level of VAT on domestic energy and fuel, when this Government came in in 1997 we reduced to five per cent, which was the lowest that we could, the rate of the VAT on fuel precisely to tackle this problem. Socially it was a very clear and important objective for us. We accepted that in doing so there were negative environmental consequences and that as a result 0.2 million extra tonnes of carbon each year were produced.

64. The question I asked was why you killed the Bill in the summer, having originally accepted it and given it support?

(John Healey) I was not directly involved in the discussions or decisions on that but I would hazard a suggestion that that Bill was not going to achieve the objectives that the Government had and therefore it was not an appropriate vehicle or legislation for pursuing those.

65. Why did it meet the objectives at the outset?

(John Healey) Mr Barker, if you would like a detailed view and explanation on this, I am very happy to provide that.

Mr Barker: If you would provide that, that would be very good. I just wanted to point out the disparity between your statement that you wished to eradicate fuel poverty and the Government's action to kill the last Bill that attempted to do that in a comprehensive fashion.

Mr Francois: When you reply can you give us an indication on whether the Government has altered its position on that because there is likely to be another Bill coming through very similar to that and it would be helpful to know what the Government's position will be this time round.

Mr Barker

66. I wanted to go back briefly to the aviation fuel question once again and press you to indicate to this Committee whether you and the Government will be leading the way at the European level on seeking some form of aviation fuel tax to recompense the climate change consequences of the growth in air transport, recognising the difficulty that we recognise as a difficulty, which is that this issue is excluded from important international agreements such as Kyoto and the World Summit that took place in Johannesburg because of an ancient last century/1930s Copenhagen Charter.

(John Healey) Chicago.

67. --- Because of something that related to a time of air transport that is nothing like the present system and particularly the growth in cheap flights. Can you give a commitment at least that you will lead the way on the European stage to ensure that some progress is made on this matter?

(John Healey) Mr Thomas, whether you would describe it as leading the way or not is a judgment for you. What I can say is that, first, we recognise that there are constraints at a European and international level including long-standing conventions such as the Chicago Convention, which is an international one rather than a European one, but a part of the picture here. Secondly, we are having discussions at those levels about these very issues.

Ian Lucas

68. Returning to the subject of VAT, can you please rationalise for me why it is that we continue to have a VAT exemption on greenfield sites whilst at the same time charging VAT on developments on brownfield sites. In a world of sustainable development is that not completely ludicrous?

(Mr O'Sullivan) The Government responded to the Rogers Report and followed on from the Urban White Paper in 2001 with its position on regeneration. The new development on the brownfield and greenfield sites is taxed at zero rate. There is an issue that repairs and maintenance improvements are taxed at a rate of 17.5 per cent wherever. At the time the Government responded, it took the view that there should be targeted VAT reductions where it was going to deliver the greatest benefits. Houses that had been empty for ten years got a zero rate and those over three years got the reduced five per cent rate, and it was felt at the time that was the best balance between encouraging development on existing brownfield sites of existing property and the costs involved. I think it remains under review.

69. I will give a concrete example of why this particularly upsets me. Before I came to the House I was the non executive director of a hospital and part of the hospital was an old nurses' home that needed to be dealt with. The old nurses' home could have been improved and redeveloped without knocking it down but because VAT was chargeable on improvements to that particular part of the hospital, the hospital was actually compelled to knock it down and to build a completely new building on the site. It seems ludicrous in a world where we are supposed to be having a positive attitude to sustainable development that the tax system that is in operation at the present time forces an organisation like a hospital to take that course. Can we not do something about this?

(John Healey) It is difficult to make a judgment on a specific tax situation with that limited information but it is likely to be a slightly similar question to the one you already asked. In that area I suspect that we would find in this country that we are constrained by the European-level Sixth VAT Directive which means that for repairs, maintenance and improvements, we can only have a reduced rate of VAT (which is probably, Mr Lucas, what you are arguing for) for housing that is provided as part of a social policy. If the schedule of works that the hospital wanted to undertake for that piece of their real estate did not fit that category, it could not be eligible as things stand not just in terms of UK policy but because of the constraints of the European-level VAT Directive, it would not be eligible for reduced rate VAT, therefore the full rate would be payable.

70. So nothing could be done about that situation?

(John Healey) As things stand, because we are bound by these formal agreements that we have across Europe, in this particular instance, if I am right about its application, nothing could be done. Beyond that, the European Commission has undertaken to do a review of the regime of reduced rates of VAT across Europe and the rules that apply to them. We at the moment as the UK Government (principally the Treasury) are looking at the sort of priorities that we may have as the UK for seeing a reform and change in the system. The best information I have is that we had expected the Commission to produce its proposals and therefore to have a period of consultation and wider debate, but these are likely at the moment, as things stand, to be published some time in the spring next year, and it is in that context that issues such as the one that you raised could be pursued, and if we were successful in pursuing such issues and getting those changes at a European level then that would introduce fresh scope for reform of our own VAT regime for policy purposes which at the moment we simply cannot pursue.

71. Can I turn to another area where I think you can do something about it at the present time. We have already referred to the reduction of VAT on domestic heating bills for good social reasons as you have indicated. I am sure you are aware that B&Q, an organisation that has often used very good environmental policies, last year ran a campaign whereby for a limited period it reduced its prices on energy-saving products by the difference between 17 and a half per cent and five per cent, ie, the different VAT rates, and that was very, very successful indeed in terms of promoting sales of energy-saving products. Why is it that the Government will not move on this issue to promote energy-saving products by reducing the level of VAT charged from 17 and a half per cent to five per cent?

(John Healey) I have had a lot of correspondence about this. Apart from the characteristics of the company, and as Mr Lucas outlined they do have some quite effective campaigns, we are bound, as things stand, on energy-saving products by some of the same restrictions in the European-level Directive. This is an area where we have said as a government we want to try and make some progress and change in the course of the consultation and then the decisions that the Commission will make about any reform to the European-level VAT regime.

72. So again it is Europe's fault?

(John Healey) It is not Europe's fault but it is European level rules that prevent us doing what you and B&Q would wish us to do at present.

73. So you want to do it?

(John Healey) We have committed ourselves on this aspect of the regime to try and win the arguments to see change in the European level rules that would allow us to do the sort of thing that you are arguing for now in the UK which, we cannot do at the moment.

74. So you would like to do it?

(John Healey) We have said we would like to do it. We have said we will argue for a change in the system that will allow us to do it in the future. Decisions about that will be taken as a result of the European Commission's process and will be taken at a European level.

David Wright

75. Minister, in your opening remarks you talked about Spending Review 2002 and you described it as perhaps the most green spending review process that has taken place yet. As part of that process departments have to submit sustainable development reports to you but at the moment the Government is suggesting they cannot be made public. Why is that the case? Why can we not see the reports that come through and would it be a good idea if the Treasury produced their reports in public?

(John Healey) First of all, I was quoting the Green Alliance which described the spending review process as the "greenest yet", they were not my words directly. In a sense this Committee and the Treasury and Treasury ministers have been over this ground. The sustainable development reports that we required (as the Committee I think welcomed) of each department as part and parcel of the bids they were making over the spending review period were part of the internal policy documentation and process that went on in the run-up to the spending review period and, as such, and as with the other documents that were submitted to the Treasury by government departments as part of that spending review process, we regard them as internal policy documents and therefore not appropriate to publish in the way that you suggest.

76. Who assesses them? Can you talk a little bit about the assessment process? What kind of training have people had who are assessing them? What is your view on how successful each department was in terms of delivering what was required in terms of the report?

(John Healey) An honest assessment here would be that the quality of reports produced by the departments - and this is the first time it was required of them - was mixed. One of the features of the spending review process was in this area there were meetings between Treasury ministers and ministers of at least five other departments. They were meetings that were held to examine or discuss in more detail some of the issues that were raised by the sustainable development reports and in some cases and in some areas it was because we felt that there were questions and gaps in reports that had been produced as part of the spending review process by the Treasury. If you would like one of my colleagues here to describe the work that officials did as part of the analysis in the creation of those sustainable development reports and the sort of training that they (like all the Treasury officials) receive, the core training on economic matters including environmental questions, I could do that.

(Mr Collins) I think the Minister has spelt out how these reports were considered at the ministerial level and, as he said, there were five departments with whom bilaterals were held. At the official level there was a parallel process, I suppose, for each of those departments whose sustainable development reports were felt to show particularly significant impacts for sustainable development. There were similar official meetings held to go through the sustainable development report to identify areas where perhaps we thought further work was needed where perhaps the Department needed to expand a little bit on the information that it had provided, so we were then in a position with Treasury ministers for bilaterals. For each departmental sustainable development report, as with the wider departmental bids, there is a whole process of analysis that goes on, carried out partly by the environmental experts within the Treasury for sustainable development reports and by experts on that particular policy area, so there is a spending team that looks at transport issues, a spending team that looks at health issues and so on, and those two sets of people work together in order to produce an overall assessment of a particular department's work.

77. Could you say whether, having gone through that analysis, it was clear that some departments' priorities had moved down and others moved up? Was there a significant impact in spending decisions made through that analysis?

(Mr Collins) In terms of the spending review it is important to appreciate that it has two facets to it, one of which is the allocation of resources, the other of which is the setting of objectives and targets for those departments to pursue during the period covered by the spending review. I think in the case of objectives and targets the process had a very, very clear effect. There have been a wider number of departments that now explicitly set themselves environmental and sustainable development objectives and targets, including the Treasury, than had ever been the case before. That emerged solely as a consequence of this process, bringing out some of the particular consequences and some of the particular impacts that those departments could have that perhaps would not have been picked up during the normal run of analysis of departmental submissions.

78. Minister, do you think that departments really went through that process or did they dress some environmental factors around existing projects they already wanted? Could you give us an example of an initiative or a project that was rejected on the basis of an analysis for sustainability?

(John Healey) I cannot give you off the top of my head an example in those specific terms. What I can say is I joined the Treasury in the last couple of months before the spending review was confirmed so I conducted one of the bilaterals that Mr Collins has mentioned, and I have to say where there was a suggestion that departments' sustainable development reports were not up to scratch or that somehow they were really missing an important dimension to the sort of bids they were making or the policies that they were discussing with us and that we were looking to agree objectives and targets for, then we gave them a pretty tough time. Clearly it was not the only and in most cases would not have been the decisive factor for decisions about targets, objectives and spending, but where it was weak in this area, it undermined the case that we were making for the resources that they were trying to bid for.

79. What long-term analysis are you going to carry out in relation to this for future spending review rounds? How are you going to strengthen the process?

(Mr Collins) Following the conclusion of SR2002, we within the Treasury organised a seminar for departments to get some feedback from them on this particular aspect of SR2002. In addition, as part of the overall evaluation of the spending review this is one of the issues that is being looked at. It is too early at this stage to say quite what will happen in SR2004. We are still at the very, very early planning stages for that, so I do not think we can make any definite statements about what will happen next time round.

80. You can make the commitment that this will be a key thing that you will pursue presumably, having appeared here today?

(John Healey) Yes and I think everything that we attempted to do for the first time in the spending review process and that we have attempted to reflect in the Pre-Budget Report and particularly set out in our approach to tax on the environment suggests that this is something we will develop further and it is something we are not going to let go as the Treasury.

Mr Chaytor

81. Minister, can you tell us how many people you have working in the Treasury on sustainable development issues and where they are located? Is there a dedicated team or do you only have the Treasury tax team?

(John Healey) I cannot tell you that. I suspect there may not be an answer to that because, consistent with the explanation that I have tried to give on a number of fronts, what we are attempting to do is to build questions and considerations about sustainable development into all of our work across the piece rather than have them isolated as a sort of specialist function. I will check that for you, Mr Chaytor, and let you have that back. We may well have experts that are dedicated to this but the principal point I want to get across is that this is not a separate unit that we use as a bolt-on to the policy making process. It is something we are increasingly expecting of all officials in all policy areas to be taking into account and be competent to do so.

(Mr O'Sullivan) I totally agree with that.

(John Healey) Good.

(Mr O'Sullivan) Always a good career move, is it not! We do have an environmental and transport tax team that I head. We have an environmental spending team that covers rural affairs. So on the tax and spending side there is some core expertise although we are keen to do this across the piece. It is also worth bearing in mind that a lot of the policy leads on tax are with Customs and the Inland Revenue and they have in those organisations similar and often greater expertise than some of these specific environmental issues.

82. Specifically within the Treasury, how many individuals in the two teams?

(John Healey) Your original question was how many are dedicated to sustainable development and I cannot give you a direct answer. All I am saying is I suspect you will not find people who are simply and solely dedicated to sustainable development issues, but we will respond to that.

83. As part of the general consciousness raising and the integration of policy across the department, what has the Treasury done to train people or raise awareness? Did you not intend to have an awareness raising session by the middle of this year?

(John Healey) Mr Collins started to elaborate that in response to Mr Wright so if he would like to carry on and tell you about the seminar planned for tomorrow in the Treasury which is part of what we are planning.

(Mr Collins) Certainly. I think there are probably two sides to this. There are the specific bits of training and development that individuals go through as part of their general induction into life in the Treasury. Obviously an important part of that is economic analysis and the sort of core Treasury training courses that we are all required to undertake include a set component that particularly looks at environmental issues and valuing environmental factors. More generally - and this is the second component to Treasury policy - we run regularly various seminars and conferences on environmental and sustainable development issues. We have had two this year particularly on sustainable development in SR2002. We had a seminar with Jonathon Porritt, Chairman of the Sustainable Development Commission, back in May and we had a seminar with David Pearce who is a Professor from University College, London, and a renowned expert on cost/benefit analysis particularly in the environmental field, scheduled for tomorrow. So there is a fairly steady stream of seminars and development opportunities within the Treasury.

(John Healey) Are we able to extend an invitation to members of this Committee to attend that seminar tomorrow?

(Mr Collins) I do not see why not.

84. With longer notice that would have been very interesting. Can I return to internal audit. Am I right in thinking that internal audit has done its first review of environmental issues recently and is that report going to be published? Is it going to be completed and is it going to be publicly available?

(Mr Collins) I would need to check that to find out precisely what is happening. I know that an audit of that sort has been carried out, but I do not know what its status is at this precise moment in time. I would need to get back to you on that.

Mr Chaytor: That would be useful.

Chairman: Minister, I think we will bring proceedings to a close. Thank you for coming to discuss a very wide range of subjects - I think that is the penance for being a Treasury Minister - and doing it without your jacket on, which I think is some sort of record.

(John Healey) I have to say I am regretting that now!

Chairman: There may be one are two things you will want to follow up by written questions but I think we will do it that way rather than prolong the session. Thank you very much, Minister.