Examination of Witnesses (Questions 1-19)
JOHN HEALEY
MP, MR GRAHAM
DUNCAN, JOAN
RUDDOCK MP AND
MR DANIEL
INSTONE
17 DECEMBER 2007
Q1 Chair: We are very grateful to the
pair of you for being here at our meeting today to help us to
explore in slightly more detail the proposed local government
pilots, as a follow-up to our earlier report on waste collection
in general. I will leave it between you to decide which of you
responds to which question unless members of the Committee ask
a question directly. To begin with, could I explore the issue
of the increasing cost to local authorities of waste disposal,
particularly the looming issue of increasing landfill taxes and
fines on waste to landfill if local authorities do not manage
to reduce the amount of waste that is going to landfill. What
has the local government finance settlement done specifically
to ease that pressure?
John Healey: Perhaps I could begin
by introducing Graham Duncan. He is the Deputy Director of our
Local Government Finance Team, so he is the man with the figures
at his fingertips. My answer would essentially be this—and
of course I was able to see this on both sides of the fence, having
been in the Treasury for part of the preparation for the Comprehensive
Spending Review and then subsequently in this Department with
its responsibility when it was confirmed. The first important
thing is that the work went back at least 18 months in the preparation
of the Comprehensive Spending Review, work in detail within Government
and with the Local Government Association, with other experts
and the local authorities, to try to analyse where the biggest
pressures on local government were likely to be over the next
few years. They were essentially adult social care and waste.
The settlement then reflected and incorporated that work. I think
you can see it in two ways. First of all, a very importantly increasing
provision for PFI credit to help fund the infrastructure in new
recycling and new disposal capacity. In, essentially, a flat cash
PFI settlement over the next three years, waste is the big, big
winner. In the first year, instead of PFI cover of about £280
million this year, it will be more than doubled, and in the following
two years, it will go up to £700 million in each year; in
other words, an extra £2 billion in PFI cover over that period.
The second is an increase in the specific capital grant cover
for waste. That has been incorporated into the general provision
for capital expenditure, but, once again, shows a very significant
increase. Over the three-year period it is almost £217 million.
That is certainly an extra, from the current baseline, of about
£50 million over that period. Of course, that is an arrangement
where government bears the cost of the borrowing.
Q2 Chair: What percentage increase
is that £217 million over and above inflation?
John Healey: The waste performance
and efficiency grant is worth £55 million this year. If you
take £55 million over the three years of the spending review,
the total of £217 million over the three years represents
around about a £50 million increase over those three years.
Q3 Chair: Is that £50 million
in cash terms or in real terms?
John Healey: That is in the total
amount over the three years—now paid through the general
grant system.
Q4 Dr Pugh: PFI money is very welcome
and very important and crucial to the task in hand. Sir Michael
Lyons recommended that local authorities should form joint waste
authorities and so on. There are in fact a number of waste disposal
authorities which are effectively planned and there are some very
good examples of where the money going into the waste disposal
end helps councils, helps collection rates and helps recycling.
In Hampshire they have invested in plastic recycling facilities
and all the local authorities have bought into that. In my own
area, Merseyside, there is a substantial PFI credit but there
are a number of different authorities with numbers of different
approaches towards waste collection. Before granting a credit
or considering writing off the plans, I wonder whether the Department
looks at not just the money they are giving at the waste disposal
end but how well, collectively, across the piece, the recycling
is going to be delivered, progressed or whatever. What do you
do to ensure not that the credit is given but that the credit
is used within a particular area to maximum effect, ensuring that
all the local authorities' consents are brought into the plan?
There is a serious danger in my own area that a plastics recycling
and separation facility will not occur, simply because not enough
local authorities think at the moment they are going to go ahead
and involve themselves in this.
John Healey: You are quite right:
one of Sir Michael Lyons' recommendations and observations was
that often authorities act alone when they could do better acting
together. He advocated in his report back in the spring that there
ought to be the power to create joint waste authorities. You may
be aware that in the new Local Government Act which received Royal
Assent last month we have created just that power, to create joint
waste authorities specifically reflecting the analysis that Lyons
had.
Q5 Dr Pugh: But you will still have
a multiplicity of collection authorities, will you not? The overall
template will not work where there are different authorities,
different regimes in terms of what they collect and how they collect
it. I am worried about a disconnection between the collection
policies of individual constituent local authorities and the grand
plans of whatever joint body gets the PFI credit. I am trying
to rule out the possibility of that happening and you are telling
me that, in a sense, it ought not to happen but there is nothing
to prevent it happening.
John Healey: The power to form
joint authorities is clearly a potentially important step. There
is always, in my judgment, a risk where you have different collection
and disposal authorities in two-tier areas that it makes the relationships
more difficult, it makes the contracts potentially more difficult,
but there are good examples around the country which demonstrate
this can be overcome, particularly if you have local authorities
who are willing to be more collaborative and recognise the scale
of the challenge they face.
Joan Ruddock: Daniel Instone from
my team of officials working on waste may want to say something
in addition, but the PFI criteria do include joint municipal waste
management strategies being in place, so that everything that
is done is now redirected to trying to get the kind of co-operation
you envisage.
Q6 Dr Pugh: When the PFI credit is
given, you need to know from the constituent local authorities,
the collection authorities, as it were, what their collection
policy will be over the next x number of years.
Joan Ruddock: As far as they are
able to determine that.
Q7 Dr Pugh: They are not.
Joan Ruddock: That is why I made
that caveat. There are no absolute certainties, I suppose, in
any of this, but we are all very, very clear on the direction
in which we need to go and which is set out in the Waste Strategy
2007. Joint working, which was recommended and which has been
put in place, is one of the necessary ways forward. Clearly, if
we are going to invest serious money in big infrastructure projects
then it has to be from the point of view of being able to deliver
waste from a number of outlets that will probably be more than
one authority and, indeed, into the future, probably taking commercial
waste as well.
Q8 Dr Pugh: To work well, it would
help if all the constituent local authorities who buy into working
together all had the same collection policy or similar collection
policies to generate similar amounts of the same stuff. If only
one collects plastics, it would not justify the case for having,
for example, expensive plastic sorting facilities at the waste
disposal authority end.
Joan Ruddock: That might make
life much easier for all of us who are working centrally. However,
as you will know very well, it is government policy that local
government should decide what is appropriate in its own area,
for its own population and for its own collection methods. We
cannot dictate that there are common policies across the piece.
However, in bringing forward infrastructure, people have to be
convinced there are going to be enough of the appropriate waste
products to justify the facilities.
Q9 Dr Pugh: Your attitude towards
PFI credits will be influenced by the degree of integration you
see on the ground.
Joan Ruddock: Indeed. Without
a doubt.
Mr Instone: The waste implementation
programme within Defra looks very hard, when expressions of interest
for PFI and PFI contracts are received, at a great range of factors,
including the Waste Strategy and the amount of joint working that
is going on, so that is definitely one of the issues that would
be looked at. I completely take your point that how authorities
dispose is going to be to be a function of the collection policies
that the authorities have. There is no doubt that looking across
at what the collection policies are is a function of that examination.
Joan Ruddock: Also, value for
money criteria are going to impact upon these kinds of considerations
and decisions.
Q10 Mr Betts: Could we look at the
landfill tax escalator and the relationship to grants given to
local authorities. The Government has said in the past that the
escalator would be revenue neutral as far as local government
is concerned. If that is the case, it is not immediately obvious
that the extra amounts of money that local government has to find
because of that—which they have estimated to be about £350
million in 2008-09 rising to £600 million in 2010-11—have
been passed over in the grant settlement. Can that be demonstrated
in a transparent way?
John Healey: The landfill tax
was one element of the analysis that we undertook to identify
the pressures on local authorities over the next three years and
was taken into account in the settlement. Essentially, you will
find, Mr Betts, that there is really no dispute between, say,
central government and the Local Government Association over the
sort of scale of waste pressures and there is a recognition, broadly,
that the settlement deals with the next three years' pressures.
The attention, therefore, turns to the mitigation measures and
policies that can be put in place: How can the extra incentive,
not just of the landfill tax increases but other policies, be
used to increase recycling rates and move to more environmentally
friendly disposal methods that get us as rapidly as possible away
from a reliance on landfill?
Q11 Mr Betts: Does "revenue
neutral" essentially mean that the Government's approach
is to calculate the extra that local authorities would be paying
because of the escalator but then taking off what it is assumed
they can do to mitigate that effect by reducing the amount of
rubbish that is sent to landfill?
John Healey: In a sense we have
had an approach to the landfill tax increases, both in relation
to local government and to business, which has lasted to this
point in the financial cycle. In the next spending review, it
is not just the approach to local government that has changed,
where we have incorporated any pressures on landfill tax increases
into our overall assessment and incorporated that into the general
settlement—which we think is the right way of doing it and
gives, incidentally, local government plenty of flexibility—but
the same is true on the business side, where, instead of there
being an automatic recycling of 100 per cent through into the
Business Resource Efficiency and Waste Programmes fund that was
there for business, we have made it clear that the corporation
tax cuts in prospect for business are, essentially, the offset
for business for increases in landfill tax.
Q12 Mr Betts: There are offsets to
the escalator assumed in the grant.
John Healey: Yes, indeed.
Q13 Mr Betts: Which are effectively
calculations of how far local authorities can go in reducing their
landfill tax.
John Healey: The sort of additional
costs, a part of the increasing pressure on costs, we have tried
to analyse, assess and then reflect properly in the cover that
we give within the settlement, and that is the way we have dealt
with the landfill tax implications for local government over the
next three years.
Q14 Mr Betts: It obviously is a fairly
complicated area. Is it possible to have a note to explain how
precisely these calculations have been dealt with?
John Healey: We have provided
plenty of evidence and further information for the Committee but
if the Committee would like further information on the sort of
assessment we have made, in the way that we have tried to go about
assessing pressures on local government over the next three years,
we are very happy to do that.
Q15 Chair: It may be that I am missing
the point here but I thought that the escalator was a financial
incentive or penalty (depending on which way you look at it) to
persuade councils to do something to reduce waste going to landfill.
If there is an offset for the increased costs, then there is no
incentive on councils to reduce waste going to landfill.
John Healey: I used the term "offset"
in relation to business. You are right about the rationale for
the landfill tax. Increasingly, to the rate that we plan it, it
is designed to intensify the incentives on local government, in
particular, to reduce the reliance on landfill. But it also—and
this is important—changes the economics in the business
case, for private sector investment in the sort of infrastructure
that allows us to recycle and dispose more in a greener way. However,
there is also—and I think this is right—a recognition
that for local authorities a landfill tax rate that rises by £8
a year from April next year is likely, particularly over the next
three years, also to add to the cost pressures of waste and it
is right that we reflect an element of that in the overall assessment
of the pressures that we have made in the spending review—which
is what we have done.
Q16 Chair: Is it an element or is
it a total offset? If it is a total offset, what incentive is
there for local authorities to recycle or create less waste?
John Healey: Any aggregate element
of the analysis of pressures is clearly part of the overall settlement
that we have made. Each individual local authority will be looking
at the actual costs they are likely to incur if they do not improve
their recycling rates and they do not reduce their reliance on
landfill. It is that which provides the very sharp incentives
for them to look for those alternatives and encourage investment,
to use perhaps some of the PFI credits we have made available
and to look in particular at how they can leverage in some of
the private sector investment that, increasingly—with an
increasing escalator and level of landfill tax—I expect
we will start to see.
Q17 Chair: It is not a total offset.
There are additional costs to councils of the landfill tax which
are not offset by any increases in grant or PFI.
John Healey: Yes. I think I have
made it clear that we have changed our approach in this spending
review period from the way we ran the BREW fund and the way that
we had the full and automatic offset for local government in the
previous period.
Q18 Mr Betts: Could I ask a question
in relation to this financial year? What has been indicated is
a change for approach to, at least, the medium term. I think local
councils were somewhat miffed this year, and probably reasonably
so, when the escalator was increased from £3 per tonne to
£8 per tonne in May with no real warning. It was very difficult
for local councils, with that sort of notice, to take any action
to reduce their landfill.
John Healey: Can I just be clear:
it is £24 a tonne at the moment. It goes up by £8 but
in April 2008. There was really a long-term signal for the decision
that we would make that big rise and that it would rise again
by £8, at least each year until 2011.
Q19 Mr Betts: You feel that is enough
warning to allow councils to adjust their activities and approach.
John Healey: Yes, I do. It was
important that we gave that sort of lead-time signal also to business.
Joan Ruddock: Within Defra we
have the waste implementation programme which is specifically
set up in order to help local authorities to find the most appropriate
and effective ways of reducing the waste they are sending to landfill.
It is not as though we left them out there stranded, facing this
big hurdle. They had a lot of notice but they have also had positive
assistance in order to divert. The answer to being faced with
a financial burden is to divert more and more of your biodegradable
waste away from landfill.
| 
