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Draft Landfill Tax (Material from Contaminated Land) (Phasing out of Exemption) Order 2008



The Committee consisted of the following Members:

Chairman: Mr. David Wilshire
Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
Cable, Dr. Vincent (Twickenham) (LD)
Clarke, Mr. Charles (Norwich, South) (Lab)
Coffey, Ann (Stockport) (Lab)
Dorrell, Mr. Stephen (Charnwood) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Greening, Justine (Putney) (Con)
Iddon, Dr. Brian (Bolton, South-East) (Lab)
Keeley, Barbara (Worsley) (Lab)
Malins, Mr. Humfrey (Woking) (Con)
Michael, Alun (Cardiff, South and Penarth) (Lab/Co-op)
Newmark, Mr. Brooks (Braintree) (Con)
Pugh, Dr. John (Southport) (LD)
Raynsford, Mr. Nick (Greenwich and Woolwich) (Lab)
Redwood, Mr. John (Wokingham) (Con)
Southworth, Helen (Warrington, South) (Lab)
Edward Waller, Committee Clerk
† attended the Committee

Third Delegated Legislation Committee

Monday 27 October 2008

[Mr. David Wilshire in the Chair]

Draft Landfill Tax (Material from Contaminated Land) (Phasing out of Exemption) Order 2008

4.30 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,
That the Committee has considered the draft Landfill Tax (Material from Contaminated Land) (Phasing out of Exemption) Order 2008.
I welcome you to the Chair, Mr. Wilshire. This is the first statutory instrument that I have introduced under your chairmanship, but I am sure that it will be the first of many.
At the moment, the Finance Act 1996 provides for exemption from landfill tax of waste from the clean-up of contaminated land. Anyone who wishes to make use of the exemption, such as a developer, must apply in writing to Her Majesty’s Revenue and Customs. HMRC will then consider the application with a view to issuing an exemption certificate.
The order will preclude the issue of exemption certificates if applications are not submitted to HMRC before 1 December 2008, the cut-off date for applications for certificates being 30 November 2008. That approach to the cut-off date strikes a balance between drawing a line under the ability to apply for an exemption certificate and allowing reasonable flexibility, so that applications reaching HMRC before 1 December 2008 will still be considered valid even if they are not accompanied by all the information that HMRC needs to issue a certificate.
Mr. John Redwood (Wokingham) (Con): Does the Minister think the timing of the measure is felicitous as we are going into recession? Will the extra cost not be damaging to businesses?
Angela Eagle: The overall implication of the changes should be seen as a package with our proposals to extend land remediation relief, which is a corporation tax relief, to cover expenditure on derelict land and land contaminated by Japanese knotweed. Our approach, on which we have consulted at length, is to achieve fiscal neutrality, so I do not accept the right hon. Gentleman’s implication that the measure will cost money. It is a redistribution approach, which we aim to make fiscally neutral.
We believe that the time is right to phase out the exemption. The order will achieve the phase-out in a way that ensures that the exemption comes to an end within a defined period. At the same time, those who have worked up projects for land in expectation of being able to benefit from the exemption will have a reasonable opportunity to do so. Our plans for land remediation relief, which is the other side of the equation, will be introduced to the House in next year’s Finance Bill.
With that brief introduction, I am happy to listen to the debate, and to answer any questions about our proposals, but I ask hon. Members to bear in mind that this is only one aspect of a joint package.
4.33 pm
Justine Greening (Putney) (Con): It is a pleasure to serve under your chairmanship, Mr. Wilshire.
Whenever we consider statutory instruments about the environment, at least two questions need to be asked. One concerns the proposed impact on the environment, and I have a few questions about that. The second, of course, concerns the tax implications of the changes, and I shall come to those shortly.
I am sure that all hon. Members are aware that landfill tax was introduced in 1996 by the previous Conservative Government. It has proved to be a useful tool in encouraging recycling and bearing down on landfill. However, there is still some way to go when we see the rate of our landfill compared with that of some of our European neighbours. We welcome this move to use a better tool to encourage the clean-up of contaminated land, but how effective will the switch to land remediation relief be? The impact assessment states that £40 million in additional tax revenues is likely to come to HMRC as a result of the changes. Where will that tax burden fall?
Obviously, there has been an issue with so-called dig and dump, whereby developers have cleaned up contaminated land but dumped the surplus into landfill, causing environmental issues. As I have said, I understand the desire to move to on-site decontamination of contaminated land, but has the Minister assessed the number of sites where on-site decontamination is not possible? Clearly, there will be some development sites where it will be impossible to decontaminate land, so some developers will still need to use off-site decontamination. Is there a Treasury assessment of how many sites will be affected and of the level of landfill tax that will be charged on sites that are currently exempt?
The background to the measure is the consultation on land remediation relief that was carried out last year. Can the Minister tell us whether the key stakeholders mentioned in the consultation paper felt that the option currently being brought forward—option 6—would be welcomed by the industry or whether they expressed concerns about its impact?
Moving on to the environmental aspect, I notice that not much detail was given about the direct impact on CO2 emissions or about any other environmental measurements by which we might be able to say whether the measure has been effective vis- -vis the environment. Ultimately, such an impact is critical for the landfill tax. If there is no direct impact on the environment, the measure simply becomes another tax on business. It would be helpful to hear from the Minister about any detailed review of the environmental impact. The impact assessment states that there was a minor increase in CO2 emissions during the transitional period followed by a reduction. The assessment goes into minute detail about the one-off costs of £3,000, but some more detail about the environmental impact would be welcome.
Another area on which the Committee will be keen to hear answers relates to the assessment of the increased tax yield of £40 million once the exemption has been phased out. The first thing is to clarify is whether that means £40 million per annum, which is how I read it. Can the Minister confirm that? Obviously, that will be a net £40 million from an increase in landfill tax, which is often paid by local authorities, less a reduction in corporation tax, which is paid by companies. It would be helpful if the Minister could give us the two aspects of the calculation that net off to £40 million. It is important for local authorities to understand the Treasury’s assessment of the extra landfill tax they may be paying so that they can manage their budgets.
In addition, can the Minister provide us with a breakdown of the landfill tax increase that will fall between local authorities and the private sector? That will help us to understand who will bear the extra £40 million a year. In the context of the environmental questions that I asked a few moments ago, this is an important issue—£40 million is not an insubstantial amount to take out of the economy every year. If that is the Government’s proposal, it is vital that we have some assurance that there will be a discernible, measurable and positive environmental impact.
Finally, we have £40 million coming into the Treasury, but where will it go? Recent answers to my parliamentary questions over the past couple of weeks have confirmed that the Department for Environment, Food and Rural Affairs budget to tackle fly tipping, which is a key aspect of landfill and landfill tax, has been cut by £500,000, which is a reduction of 25 per cent. in the Environment Agency’s budget. Does the Minister see the £40 million simply going into the Exchequer’s black hole or will it be used to ensure that environmental measures can be more successfully met? For example, it could go to DEFRA to bolster the landfill communities fund, which I understand is predicted to get £70 million in 2008-09, whereas landfill tax is predicted to raise £1.1 billion. Will the Minister talk about what will happen to that £40 million and whether she feels that the landfill communities fund is receiving the amount of landfill tax revenue envisaged by the Government at the beginning of the process?
4.41 pm
Dr. John Pugh (Southport) (LD): Big projects are riding on getting the regime for contaminated land right. The affordable housing programme is concentrated on brownfield sites. The Olympic park is being built on a highly contaminated site.
As I understand it, the statutory instrument simply suggests a taxation switch. Previously, turning contaminated land into landfill was tax exempt. Instead, there will now be a reduction in corporation tax or the like from land remediation relief, which is being extended to contaminated land. If it is achieved, it seems wholly laudable in terms of the environmental effect. The object is presumably to have less contaminated land dumped and more modern methods used. Presumably there is also the expectation that £40 million will be in the Treasury’s coffers that previously was not there.
I do not expect the Minister to answer my questions with any degree of certainty because I am not sure that any of us knows the answers. Under the heading “Key Assumptions”, the explanatory memorandum states:
“There is significant uncertainty around the reduction in waste being sent to landfill as a result of this change. The costs of landfill and of alternative treatments are assumed to be roughly equal, based on limited information.”
I am left applauding the direction of travel, but worrying about the element of uncertainty attached to the measures under consideration. I am looking for an acknowledgement from the Minister that should the scheme not work out as expected, there will be a process of review. Can she assure us that before the introduction of the scheme, there was thorough consultation with the people who know about contaminated land, who are presumably developers by and large?
4.44 pm
Mr. Redwood: I wonder whether the Minister has studied the analysis of costs and benefits as carefully as the Committee would like. I notice that she has not personally signed the document, as is clear in the typescript. There are some surprising lapses in the costs and benefits, which probably means that, because of other pressures, she has not looked at this as carefully as one might like. We are invited to believe that the one-off transitional costs to everyone are just £3,000. Is that conceivable for a set of proposals that might lead to an increase in tax revenue of about £40 million? That implies quite a lot of substantial projects across the whole of the United Kingdom.
We are invited to believe that the annual average additional cost to business would be zero. Like the hon. Member for Southport, I read that the Government are proceeding on the assumption that alternative methods of cleaning up land are fairly similar in cost and price. I am not sure that that is true. Just like everybody else on this Committee, I would like more land to be cleaned up, and I would like it to be done in the most environmentally friendly way.
I suspect that so much has been done by dumping to landfill because that is the cheaper and easier option. I would therefore expect to see a rather larger set of figures. I would also expect to see figures of some kind under the average annual cost figures setting out the additional cost of alternative procedures for tackling this land to give us a better feel for whether this is going to be a restraint on getting more land decontaminated.
If we look further on, towards the bottom of the page there is nothing in the column titled, “What is the value of proposed offsetting measure per year?” It would be nice to have an explanation as to why that part of the exercise has not been carried out. We also see that there is no costing of the changes in greenhouse gas emissions, yet we know that there are going to be changes in greenhouse gas emissions, because the document tells us that in the middle paragraph.
The biggest lapse of all that worries me is that, when we come to the section on the annual cost per organisation, which is on these forms for the very good reason that Members would like to see the impact of proposals on very small, small, medium and large businesses, there are no figures at all. Surely, if a proper exercise is being done to appraise such a policy, one would start with that. As a Minister, I remember always asking myself what, if it was a business-orientated policy, the impact of my action would be on small, medium and big businesses? If the policy would put a burden on the wider community, I asked myself how it would affect different groups of people.
When we come to the part of the document on the impact on administrative burdens baseline, we are asked to believe that it has a precise, tiny decrease of £7,200. That would make me, as a Minister say, “I don’t believe that.” How can one be sure that we would save £7,200 in an overall Government budget of £600 billion?
 
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Prepared 28 October 2008