House of Commons - Communities and Local Government Committee

Select Committee on Communities and Local Government Committee Fifth Report

5 FINANCIAL INCENTIVES AND CHARGING

66. UK citizens are unusual within the European Union in paying no direct charge to anyone to have their refuse collected and removed from their homes. Belgians pay a charge for each refuse sack they use. Austrians pay depending on the size of their bins. The Irish pay between 150 and 300 Euro (about £100 to £200) in direct charges. About 84 per cent of the French pay a local waste tax of about £50 each on average.[105] All the rest of the EU 15 states allow local municipalities to charge residents directly. We, on the other hand, contribute towards the cost of local government services directly through our annual council tax bills and indirectly via general taxation, with no specific amount allocated to most individual services, including refuse collection and disposal.

67. Local authorities in England are currently prevented by the Environmental Protection Act 1990 from charging directly for waste collection, although they are allowed to charge for collection of particular items, such as bulky furniture or garden waste. Sir Michael Lyons recommended that this legal prohibition should be overturned to allow councils to charge locally using schemes of their own devising. A charge could be a powerful incentive for householders to reduce waste and recycle and compost more of it. It could also, he said, be seen as a fairer way to spread the costs, with those who produced most waste paying most for its disposal.[106]

Financial incentive schemes

68. The Government responded in May in their Waste Strategy for England 2007, but rowed back substantially from what Sir Michael recommended in two respects—by preferring "financial incentive schemes" to "charges", and by insisting that any such scheme should be "revenue-neutral." Launching the Strategy, the then Secretary of State for Environment, Food and Rural Affairs, the Rt hon. David Miliband MP announced: "We do not believe that a new tax-raising power for local authorities is the right way forward […] I am launching today a public consultation on proposals to allow revenue-neutral financial incentive schemes to reduce and recycle waste."[107] That public consultation is scheduled to end on 16 August 2007 and the Government is expected to legislate in the next parliamentary session.

69. The consultation follows Sir Michael in stressing that whatever incentive schemes are introduced should be as far as possible a matter for local authorities themselves to determine. Both the LGA and the CIWM in supporting the principle of local variable charging emphasised that local authorities should retain both the right to choose whether to bring a scheme in and the right, as far as possible, to set the terms of its own scheme. WRAP was also among the organisations supporting the principle of charging, citing European evidence that direct charging can increase household separation of waste and reduce overall waste.[108] The Government picked up the same point in the Waste Strategy, naming Flanders in Belgium where 98 per cent of municipalities charge residents according to the amount of non-recyclable waste they throw out and where the recycling rate of 70 per cent dwarves England's 27 per cent.[109]

70. Where the Government differs from Sir Michael, the LGA, the CIWM and more is in sedulously avoiding the word 'charge'. The preferred wording is set out in the Waste Strategy for England 2007: "The Government has concluded that it does not wish to introduce a local variable waste charge, as seen elsewhere in Europe. Instead the Government wishes to allow revenue-neutral financial incentive schemes that encourage recycling and waste prevention without increasing the amount residents as a whole pay to their council […] High recycling, low waste households would get money back. There would be no overall increase in charges from such a scheme."[110]

71. The stipulation that schemes will be revenue-neutral means that councils will not immediately be able to raise any additional finance to help them close the funding gap Sir Michael Lyons identified. He believed that "Charging powers in this area would represent a significant new flexibility to manage pressures on budgets according to local preferences."[111] This will not be the case with what the Government now propose. In the long term, perhaps, if the schemes work as planned, local authorities will see financial benefits because householders are reducing their waste, meaning less has to be sent to landfill and tax paid on it. The question remains whether local authorities will judge themselves able to achieve the same landfill reductions by other, cheaper means, such as greater local enforcement. In the short term, revenue-neutral financial incentive schemes aimed at improving local recycling will raise no money for councils and will therefore do nothing to help them manage their waste budgets in the face of rising costs. Indeed, since 'revenue-neutral' does not mean 'cost-neutral', and since any scheme introduced by a local authority will require substantial administration and enforcement costs, they may in practice, run directly counter to the intentions Sir Michael Lyons expressed in recommended local charging schemes, by adding a further cost to the growing burden local authorities must carry.

72. The Government's consultation document sets out a model for the sort of scheme it has in mind. Broadly speaking, it anticipates councils setting a flat rebate for every household, say £50, and then, on the basis of the volume of the rubbish collected from each household, billing low-waste homes or high-waste homes. In one indicative example (in which waste would be weighed and bills prepared), "Household A is a low waste house and has disposed of £20-worth of waste. With the £50 rebate, it receives a payment of £30 at the end of the year. Household B is a high waste house disposing of £80 of waste. When the £50 rebate is deducted, the final balance to pay is £30. So household A has gained £30 through the scheme, whereas Household B has lost £30." All the money raised from the schemes would be returned to residents, meeting the Waste Strategy criteria of no overall increase in charges and revenue-neutrality. A key point, however, is that individual residents would gain or lose, and it is hard to see how a resident faced with a 'financial incentive scheme' bill for even the indicative £30 contained in the Government's consultation will see it as anything other than a charge, or a tax. Several of our witnesses raised concern about public reaction to increased charges for a service most feel they pay for already through council tax. Shropshire Waste Partnership, for example, refer to "an adverse reaction from the general public which would be difficult to overcome".[112]

73. The Government's consultation document also sets conditions for the introduction of any incentive scheme. Most public attention has been paid to the suggestion that authorities will have to provide recycling for five waste streams—possibly including glass, paper, cans, plastics and food, already the most frequently recycled streams—but the Government will also require them to have in place strategies to alleviate financial pressure on particular groups such as low-income households, large families and pensioners, and to be able to respond to any increase in fly-tipping or dumping as people try to avoid additional payment for their rubbish.

Polluter pays principle

74. Those who favour charging or incentive schemes argue strongly that they introduce the "Polluter Pays Principle" into household waste management, and that householders will be encouraged not just to sort their waste, but to begin to reduce how much they throw out by buying fewer goods or concentrating on less-heavily packaged goods. Schemes "have the potential to create a degree of understanding of the link between consumer choice and the type and amount of waste generated as a result," says the CIWM.[113] Charging "is a literal realisation of the polluter pays principle", according to the Campaign for Real Recycling.[114] It "rewards recyclers" by "fining or taxing the lazy", says Cylch Wales Community Recycling Network CRN.[115]

75. Evidence is also adduced from elsewhere of changes in behaviour to reduce overall waste while increasing the proportion diverted from landfill by recycling or re-use. Following introduction of a charging system in Maastricht, Netherlands, for example, "the total amount of household waste fell dramatically, described as like going back in time 10 years, and waste separation increased from 45% to 65%."[116] The Institute for Public Policy Research and Green Alliance have identified similar stories around the world, citing examples from San Francisco, Japan and New Zealand.[117] Independent waste consultant Professor Chris Coggins adds: "Evidence from other countries (supported by a wealth of research reports) indicates that direct and variable charging for residual waste is a cost-effective way to promote change in consumption behaviour and promote recycling".[118]

76. Others identify a parallel with the charges households pay for utilities such as gas, electricity and water or sewerage. The Environment Agency, for instance, questions whether the lack of a direct charge contributes to a general lack of public awareness about how much households actually pay for waste collection and disposal: "Households actually pay around £50-60 each year. […] By comparison the average household pays more than £150 every year to have their sewage taken away and managed. This lack of awareness may adversely affect public attitudes to waste management in general."[119] Indeed, the confusion about how much households really pay is reflected in the figures given there—the NAO, for instance, calculates the average household cost for waste at about £75 a year, while Stephen Didsbury, for the CIWM, put the average household cost of disposal and collection at around £150.[120] In short, because waste collection is financed through a mixture of unhypothecated government grant and un-ring-fenced council tax, no-one can say precisely how much each individual householder pays for rubbish collection. To that extent, the introduction of a financial link between the bin being taken and the householder's bank balance may be welcome.

Gainers and losers

77. That welcome may, however, be somewhat limited on other grounds. First, even if the Government succeeds in encouraging councils to introduce incentive schemes, the sums a householder may gain for even the most spectacular waste diversion and recycling will be comparatively small. The indicative example given above from the consultation document on incentive schemes offers £20 and £30 a year as likely sums. When we put the former figure to the Minister for Waste, he confirmed it was "in the right kind of ballpark." He also said: "You are absolutely right to say that we are not talking about huge amounts of money here […] Where these systems operate, they tend to make a difference of tens of pounds in what people pay."[121] Two other witnesses, Ian Davies from Hammersmith and Fulham Borough Council, and Gary Alderson of Mid-Beds District Council were sceptical about how far such a sum would encourage real changes of behaviour: "residents will be so disappointed with the rebate", said Mr Alderson.[122] But Councillor Paul Bettison gave the example of supermarket loyalty cards as something that changed individual purchasing habits in return for comparatively small financial rewards, and the Minister for Waste was optimistic, too: "a little bit of money can be an incentive to people. If people think that they are saving 50 pence or a pound a week or a month by recycling, that has in the experience of those countries [that have incentives] acted as an important incentive to get their recycling rates up."[123]

78. The other side of the smallish coin to be gained by householders is the fact that some will lose. The Government's language on incentive schemes displays a deep desire to avoid the idea that people will be "charged" for not recycling or reducing their waste. The implication of a revenue-neutral scheme introduced by a local authority is that everyone who gets a few pounds back will have to be balanced by someone else paying a few pounds more. As has already been canvassed thoroughly, there is considerable confusion across England about how waste is paid for, but one point stands out: for very many people, the collection of rubbish is one of the most visible and important things their local council does for them, and that is what the council tax pays for: "charges for the collection of waste from households would be regarded as an extra tax", says the National Association of Residents' Associations.[124] Cambridgeshire County Council and Shropshire Waste Partnership both raise the spectre of unpopularity among the public.[125] The Campaign for Real Recycling fears householders may contaminate recycling by diverting as much as possible from the residual waste bin they have to pay a charge on.[126] None of the collection authorities we took evidence from unequivocally supported charging; administrative costs, complexity and local popular reaction were the main reasons given. North Dorset District Council summed up a prevalent view, agreeing with the idea in principle but ruling it out on grounds of administrative cost.[127] Indeed, Councillor Paul Bettison, who spearheaded the LGA's campaign for local authorities to have the freedom to introduce charging, and who leads Bracknell Forest council said much the same: "I am in favour of local authorities having that power. If you are asking whether, if we had the power, I would use it in my authority, the answer would have to be that I do not think I would".[128] The Government's decision to allow local authorities to run the schemes is consistent with the desire to devolve authority. We must question, however, whether the schemes as proposed will translate that desire into practical action. Councils need to avoid paying landfill tax or to meet decreasing landfill allowances, and there are long-term benefits to be gained from schemes that encourage householders to throw out less and to sort what remains. Even so, it is hard to see why any council will want to set up a complicated charging scheme that earns it no money and risks widespread public disapproval.

79. How any new incentive scheme will mesh with council tax remains unclear. In initially pushing for councils to have a power to charge, the Local Government Association argued that charges should be accompanied by a council tax reduction. The Government's consultation on incentive schemes suggests such schemes should run separately from council tax and "should not require any additional funding from council tax".[129] The Local Government Minister told us: "It is possible of course that the incentive schemes will appear in the form of a rebate on the [council tax] bill, but it will not be part of the council tax calculation. Running the schemes though council tax billing could reduce some of the administrative cost, but would merely draw more attention to the fact that those who do not recycle or reduce their waste enough are being made to pay more than they already do for it. A significant complexity arises, too, if the schemes are to be revenue-neutral but included in council tax bills: the need to maintain revenue neutrality means that the amount of rebate/charge for each householder cannot be calculated until the end of the year, and cannot therefore be included in the council tax bill issued at the start of the year. Delayed reward, included in the next year's council tax bill, surely reduces the link between recycling and reward, and conversely between failing to do so and being penalised. Finally, including the rebates in council tax bills would also raises questions about council tax benefit: would poor households receiving a rebate see their council tax benefit cut to match it, and would a household that didn't earn a recycling rebate have its deduction paid for entirely from benefit? We recommend that the Government clarify how financial incentive schemes for recycling will interact with council tax. We seek a detailed explanation of why the introduction of incentive schemes should not be accompanied by reductions in council tax. In particular, we are concerned by the suggestion that schemes "should not" require additional funding from council tax. Whether a local authority raises or reduces its council tax to fund schemes or incentives to local householders is a matter for individual councils.

Costs of incentives: administration, fly-tipping and bin-chipping

80. It is generally accepted that the returns to householders from incentive schemes will be comparatively small. Some of those who have submitted evidence fear, however, that even estimates of £30 a household may prove optimistic once the costs of administering an incentive scheme and responding to any increase in fly-tipping or dumping have been taken into account. Stephen Didsbury, for the Chartered Institution of Wastes Management, said there would be "significant administration problems around how you go about the administration of the billing, the debt collection".[130] Gary Alderson, for Mid-Beds District Council, estimated set-up costs of £500,000 plus ongoing administrative costs of £100,000 to £150,000 a year to manage the system.[131]

81. Further costs are implied by the possibility of householders attempting to avoid paying any additional charge. Three concerns are generally raised: fly-tipping, householders dumping rubbish in their neighbours' bins, and increased backyard burning of refuse.

82. The Environment Agency says that fly-tipping costs local authorities around £50 million a year in collection and prosecution costs, and that more than half of fly-tips involve household refuse sacks and household waste.[132] DEFRA and DCLG jointly confirm that 545,000 incidents involved black bags and other household waste, and that £20 million was spent on enforcement in the first nine months of 2006-07.[133] The number of prosecutions for fly-tipping rose by 45 per cent between 2003 and 2005, and the Clean Neighbourhoods and Environment Act 2005 gave authorities new powers to introduce fixed-penalty notices as an alternative to prosecution.[134] Launching the 2007 Waste Strategy, the Environment Secretary said the recent doubling of prosecutions for fly-tipping could mean "either that there is much more fly-tipping or that the authorities are getting better at prosecution."[135] The resulting consultation on financial incentive schemes specifies: "Government would require any authority introducing a scheme to have in place a good fly-tipping prevention strategy, including robust enforcement measures".[136]

83. Experience from other countries tends to suggest that the introduction of any charging scheme is closely followed, at least in the short term, by a rise in fly-tipping of waste. The Environment Agency offers the conflicting examples of Denmark, which did suffer a small but short-lived increase in fly-tipping, and Germany where no increase in illegal disposal was reported. The Environmental Services Association gives the example of Ireland.[137] The Irish Environmental Protection Agency reported in January 2007 that up to a quarter of Irish households were disposing illegally of rubbish.[138]

84. ENCAMS reports that 70 per cent of fly-tipping dealt with by local authorities happened in 88 of the most deprived neighbourhoods. This implies, it says, that those already disadvantaged areas may be disproportionately affected by any increase in tipping.[139] The Association of Charity Shops has also raised the possibility that charging could mean "fly-tipping by stealth" as householders attempt to keep waste out of their bins by effectively dumping on the third sector unwanted items that councils don't recycle.[140]

Weight-based schemes and volume-based schemes

85. The prospect of disputes among neighbours over refuse has also been raised as a significant concern, and the Government's consultation on incentive schemes refers to the need for prevention measures, possibly including lockable bins.[141] To a significant degree, this depends on the collection strategies authorities choose when introducing schemes. In short, there are two basic choices: charging by the weight of the refuse collected or charging by its volume. Under the second system, a flat charge is made for each bin, bag or box collected. In parts of Belgium, for example, householders pay 1.2 Euro (about 75p) for each bag of residual waste with smaller charges attaching to bags for recyclable waste.[142] The advantage of volume schemes is simplicity: every receptacle for waste has a fixed charge attached to it. The disadvantages are that for rigid container-type schemes, once a decision to pay for a larger bin has been made the week-by-week pressure to constrain the amount of waste put out is low. Sack-based schemes preserve the pressure for restraint but can have the disadvantages discussed above of encouraging vermin and animals to break bags waiting to be collected.

86. Weight-based schemes more precisely tie the charge paid to the amount of refuse produced by a household. In other parts of Belgium, for example, householders pay around 12 to 15 eurocents (about 10p) for each kilo of waste. The difficulty with such systems is the cost of providing weighing equipment and the increased complexity of collecting refuse. With a volume system, the refuse collector picks up each bag and throws it in the back of the dustcart; weight-based systems require on-board equipment to calculate how much is in each bin and chips in the bins to provide information for the final bill. The Bradford-based PM Group, a commercial company that sells weighing equipment, argues that "an elderly couple with minimal waste will not have to pay as much as a large family […] the environmentally conscious are not paying through the council tax for those who refuse to recycle or seek to reduce their waste." But PM also predicts it would take a council an average seven years to recoup the costs of introducing weight-based technology: "Each bin chip costs around £1.20 to buy and install, while the fitting of the weighing equipment to vehicles and IT support costs approximately £15,000 per vehicle. An estimated cost for a fleet size of 20 vehicles, servicing 280,000 people, might be £350,000 […] Overall the capital costs should be recouped after seven years."[143]

87. Some witnesses raised other practical concerns about weight-based systems. Ian Davies, for Hammersmith and Fulham Borough Council, said the equipment was "relatively fragile, it breaks quite easily", as the council discovered when using some to survey local recycling levels.[144] The City of Lincoln also expressed concerns about the "robustness" of weighing equipment and chips, adding that lockable bins could unacceptably reduce collection productivity.

88. Weight-based systems raise further difficulties in areas characterised largely by shared accommodation such as blocks of flats, where charges may have to be averaged out across a number of households, breaking the principle that those who throw most waste out pay the most.

89. As is the case throughout refuse policy, there is no 'right' scheme: local circumstances and preferences will dictate which, if either, type of system individual local authorities choose to employ. To return, however, to the concern about neighbours dumping rubbish in each other's bins, it is clear that the possibility exists and will need to be policed wherever any financial incentive is introduced. Even for councils that choose not to invest substantial capital sums in weighing equipment and lockable bins, there will be additional costs associated with ensuring that charges for refuse attach to those who create it. The Government recognises the risk that new financial incentive schemes to increase recycling and minimise waste may result in more fly-tipping or in people attempting to cut their bills by putting their rubbish in their neighbours' bins. We are not convinced that enough work has been done or guidance given to local authorities on how to prevent such risks from blighting areas and causing disputes. Nor are we convinced that local authorities already faced with increasing waste costs will be adequately funded to deal with increased administration, clear-up and prosecution costs.

Exemptions

90. In recommending that charging be allowed, Sir Michael Lyons argued that "a poorly thought out variable charging scheme would have the capacity to impact most harshly on those people least able to afford it, particularly young families."[145] The same applies to financial incentive schemes, and the Government specifies council tax benefit recipients and families with young children, the elderly and people with disabilities among those whom any proposed scheme will have to avoid disadvantaging.[146] We welcome the Government's recognition that specific groups, such as large families or those on council tax benefit, should not be disadvantaged by the introduction of financial incentive schemes for increased recycling and waste reduction.

Can't pay, won't pay?

91. A final question arises: What will happen to those who refuse to pay additional charges for failing to increase their recycling or reduce their waste? The Environmental Services Association drew a direct parallel with council tax itself: "local authorities failed to collect 3.2% of council taxes in 2005/06 and if operators were asked to collect charges, the question would arise as to whether operators would be obligated to serve households which had not paid."[147] When asked whether councils would collect the refuse of those who refused to pay, Councillor Paul Bettison, chairman of the LGA's environment board, simply said it would be up to local authorities to decide how to handle the matter.[148] We believe that more thought may be required. Non-payment of council tax may involve sums of £1,500 or £2,000, making prosecution at least feasible. If, as the Local Government Minister suggested, incentive scheme payments were to be administered through council tax bills, the sum involved in non-payment of the whole bill would be big enough to justify enforcement through the courts. If incentive schemes are to be based around giving or taking from householders sums of £20 or £30 a year, and this is separate from council tax it is unlikely that many local authorities will wish to incur the costs of prosecuting those who refuse to pay. Nor is leaving the rubbish uncollected a feasible option, not least because of the impact on those nearby householders who have paid and who have had their rubbish removed. This also leads us to believe that the relationship of any incentive charge to council tax benefit must be clarified; a household on maximum benefits might be left to pay only the incentive charge, or were the incentive eligible for benefit, might have any incentive payment they would otherwise receive taken away from them. We see significant cost benefits in using the council tax collection system to operate any incentive scheme but fail to see how it will be possible for council tax bills issued in March each year to include an adjustment for a revenue-neutral charge. That charge could be calculated only after the end of the financial year, once councils can calculate how many gainers and losers there are and how much has been gained or lost in the light of the amount of residual waste collected. Finally, of course, administering an incentive scheme through the council tax bill, though arguably the most financially efficient way to do it, would significantly lessen the impact of the schemes by breaking the "polluter pays" principle that justifies their introduction in the first place: burying a £20 or £30 incentive gain or charge in a council tax bill of perhaps £1,200 to £2,500 would simply make the incentives invisible and therefore pointless. The Government needs to clarify what will happen to householders who refuse to pay additional charges levied under any new financial incentive scheme. Given the small sums involved, prosecution seems an unlikely answer. Given the impact on other householders, councils cannot be allowed not to collect rubbish left out by non-payers. We are unconvinced that councils possess any adequate sanction against refusal to pay and question whether that might not substantially undermine schemes that local authorities may wish to introduce.

Rewarding effort?

92. Earlier we criticised councils for mistakenly using unnecessarily obscure language—alternate weekly collection—that may have had a counterproductive effect in making a potentially effective idea unpopular. The Government, perhaps rather more consciously, seeks to avoid unpopularity by using "revenue-neutral financial incentive scheme" to mean something that those who end up paying extra will see as a charge or, more probably, a tax. We have already drawn attention to the disparity between the actual importance of the 7 per cent of the waste stream that household waste represents and the remarkably strong reaction rubbish collection can provoke among the public. The sums involved in financial incentive schemes are so minimal—£20 or £30 a year— that their impact on behaviour is likely to be equally negligible, if any council is willing to bear the probable costs and public opprobrium. Yet the impact on public perception of any increase in the amount people pay for a service they already receive through taxation may well be the opposite.

93. The positive case for waste charging is underpinned by notions of fairness—the single pensioner not subsidising the flat full of students, each of us paying for what we throw away—and of establishing a link between what individual tax payers pay and the service they receive for it, as with utilities such as gas and electricity, or water. The financial incentive schemes proposed by the Government offer individual householders very little reward for good behaviour and offer councils no immediate financial incentive. We cannot believe that giving some households £20 or £30 a year will remotely outweigh the negative psychological impact of making other households pay more for a service they believe they already pay for through taxation. Breaking the link with council tax and establishing refuse collection as a utility, like gas or sewerage, might have the radical impact the Government say they want. The half-hearted tilt in the direction of charging contained in their current proposals will not.

105 RC 58, Greater London Authority memorandum, printed in vol. II Back

106 Lyons Inquiry, final report 7.267 Back

107 HC Deb, 24 May 2007, col 1464 Back

108 RC 44, Waste and Resources Action Programme memorandum, printed in vol. II Back

109 DEFRA, Waste Strategy for England 2007, pp 36-37 Back

110 DEFRA, Waste Strategy for England 2007, pp 37-38 Back

111 Sir Michael Lyons, Lyons Inquiry into Local Government, March 2007, para 7.272 Back

112 RC 34, Shropshire Waste Partnership memorandum, printed in vol. II Back

113 CIWM, Direct and Variable Charging for Household Residual Waste, January 2007 Back