Supplementary memorandum submitted by
Biffa Waste Services Ltd
In response to your request, arising from the
evidence of the Waste Resource Action Programme (WRAP), I am appending
some notes for the Committee on the subject of nappies. As was
pointed out in the course of evidence, we have supported voluntary
groups in this area with £450k being made available to Women's
Environmental Network (WEN) in the form of Landfill Tax Credits
for education and dissemination purposes. The questions raised
by the evidence session centred on the role and context of Producer
Responsibility.
We have maintained for many years the stance
that moves up the waste hierarchy could be accelerated by the
introduction of Producer Responsibility in specific supply chains.
The important point, however, is that Government and, specifically,
Treasury, recognise the competitive and inflationary impacts of
such a process. There is thus a requirement for open discussion
as to how the costs of discharging single point Producer Responsibility
can be offset against the general environmental or employment
cost tax burdens of affected companies. Such impacts should be
defrayed over an agreed extended period of years as a result of
negotiated agreements to which green non-governmental organisations
(NGOs) could contribute. The percentage cost impact for such end
life recovery costs to be absorbed (usually by the manufacturing
stage) range from 50% of turnover (in the case of fluorescent
lamps) to (more typically) 1% or 2% for the majority of products.
Specific background information on these proposals is contained
in Chapter 3, pages 21 and 28, of our recent publication—"Future
Perfect" (supplied in conjunction with out own evidence to
the Committee).
In the case of nappies, the commercial facts
are as follows:
(i) The total UK market value is in the region
of £385 million per annum for 2000. This figure reflects
year on year decline due mainly to falls in UK birth rate;
(ii) The proportion of nappies in the domestic
waste stream has been subject to various estimates:
(iii) The reality is that three billion nappies
are sold each year (Mintel Statistics) for a birth rate of 0.7
million each year (1999) at an average value of 12.8p retail.
This suggests around three million "users" at any given
moment, equivalent to 2.8 nappies per baby/day average. One soiled
nappy weighs in the region of 200g which comprises:
40g nappy weight (20 per cent)
(iv) Three billion nappies sold each year
thus have a waste mass of 600,000 tonnes or 2.5% of the municipal
waste stream (based on 24 million tonnes ex backdoor household
waste yield).
(v) The total current cost to public sector
finances of nappy disposal is:
collection @ £25 per tonne = £15
million per annum (transport);
landfill @ £10 per tonne = £6 million
per annum;
Landfill Tax @ £14 per tonne = £8.4
million per annum;
implied future increases in Landfill Tax
to £35 @ £21 difference = £12.6 million per annum
total = £42 million per annum.
This figure represents the total public sector
cost of managing end life nappies when Landfill Taxes reach £35
per tonne (of which 50% will be re-circulated back via Customs
and Excise).
(vi) A hypothetical management change for
a national segregated nappy retrieval programme would cost in
the order of £200 per tonne—compared to £70 per
tonne to landfill at the highest rate of tax (£25 + £10
= £35). The segregated collection cost figure is based on
industry estimates and reflects current disposal costs for clinical
waste and domiciliary incontinence pad collection systems—which
are in operation throughout the UK already. The figure includes
allowances for economies of scale and assumes disposal via municipal
incinerators at £40 per tonne (not specialist clinical incinerators
At £350 per tonne).
(vii) If the responsibility for installing
a centrally managed industry based retrieval scheme were passed
to nappy manufacturers, the incremental cost to society would
therefore be around £130 per tonne—or £80 million
per annum (compared to landfill on 600,000 tonnes). This assumption
is based on local authorities being unable to divert nappies from
landfill and any associated Landfill Tax charge being circulated
from one arm of Government to the other. From a consumer point
of view, direct and indirect State taxation would remain unchanged
and the £70 per tonne could be regarded as available to offset
incremental industry costs for taking on the centralised management
of nappies (via technologies at an improved point in the waste
hierarchy).
(viii) Used nappies would probably be diverted
into energy conversion via incineration or gasification. Clinical
waste has an energy value of one 7.25Gj per tonne (IMechE papers).
If this "fuel" were considered as renewable power, it
would attract £60 per megawatt hour of sale credits (based
on an energy value from 100,000 tonnes of dry material of 2 megawatts).
At a non-renewable value the energy value would be around 0.4
million per annum.
(ix) There are significant health and safety
issues for dustmen, when collecting 80,000 tonnes per annum, of
sewage.
To summarise:
— the societal financial cost of moving
nappies from landfill to energy systems further up the waste hierarchy
is in the region of £80 million net, £120 million gross;
— the current turnover of the product
at retail sales value is £385 million;
— the net cost of "internalising
externalities" is thus of the order of 2,000 on retail sales
prices of nappies (equivalent to 40% on ex factory gate costs
if this responsibility is borne solely by the two major manufacturers
assuming ex factory revenue is 5,000 retail sales value);
— at £35 per landfill tonne taxes,
the Government will face a tax raising liability/yield of around
£40 million to continue landfilling nappies at the current
rate (based on transport and disposal of £70 per tonne);
— a possible way forward is to consider
how this £40 million tax yield can be transferred into the
product supply chain revenue and charged in retail prices for
the product via a package of tax offsets or relief for nappy manufacturers—at
least on a phased basis over a number of years. Is the National
Insurance Contribution paid by nappy manufacturers known? Could
it be available for 100 per cent rebate, being reinstated over
a number of years;
— at £80 million per annum (net)
and £120 million (gross), a national segregated collection
infrastructure for nappies would equate to the need to increase
the price of an individual nappy by around 2.6p (net), 4p (gross)
ex factory (if manufacturers are to be given single point responsibility).
This equates to a 62% surcharge on manufacturers (gross) based
on an ex factory sale value of 6.4p per nappy;
— such charges could be applied as
a distinct "green levy" so that it is not eroded through
retailer pressure. The whole process of developing the collection
and disposal infrastructure away from landfill would need to be
developed through a process of competitive tendering, if necessary
overseen by the Office of Fair Trading. Tax offsets for manufacturers
could be implemented via selective reduction in National Insurance
reductions from affected companies, subject to EU rules;
— the VAT yield from the sale of nappies
to the Exchequer is 17.5% of £385 million (or £67 million).
EU rules on the use of VAT rebate to facilitate green levies prohibit
this route. Perhaps this should be reviewed.
I hope this note is sufficiently comprehensive.
If there are any points on which I can provide additional clarification,
please do not hesitate to get in touch.
Biffa Waste Services Ltd
10 February 2003
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