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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. George Howarth
Armstrong, Hilary (North-West Durham) (Lab)
Binley, Mr. Brian (Northampton, South) (Con)
Boswell, Mr. Tim (Daventry) (Con)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Clwyd, Ann (Cynon Valley) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hughes, Beverley (Stretford and Urmston) (Lab)
McCarthy-Fry, Sarah (Exchequer Secretary to the Treasury)
Meale, Mr. Alan (Mansfield) (Lab)
Mudie, Mr. George (Leeds, East) (Lab)
Murphy, Mr. Paul (Torfaen) (Lab)
Ottaway, Richard (Croydon, South) (Con)
Salter, Martin (Reading, West) (Lab)
Truswell, Mr. Paul (Pudsey) (Lab)
Glen McKee, Robert Cope, Committee Clerks
† attended the Committee

First Delegated Legislation Committee

Monday 26 October 2009

[Mr. George Howarth in the Chair]

Landfill Tax (Prescribed Landfill Site Activities) Order 2009
4.30 pm
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): I beg to move,
That the Committee has considered the Landfill Tax (Prescribed Landfill Site Activities) Order 2009 (S.I. 2009, No. 1929).
It is a delight to serve under your chairmanship, Mr. Howarth. It is some time since I have done so; the last time was during the passage of the Armed Forces Bill. I have been seeking confirmation of whether I need to declare an interest, but I think that it is best to do so. My son is a waste management and licensing officer with a local authority.
I am pleased to introduce the order. Landfill tax is payable on each tonne of waste disposed of via landfill in the UK. It is an environmental tax that is payable by the operators of landfill sites to Her Majesty’s Revenue and Customs. Operators pass on the cost to those disposing of waste at their sites, which ensures that the environmental cost of waste disposal to landfill is reflected in business and public sector decision making. Since its introduction in 1996, landfill tax has reduced greatly the volume of waste that goes to landfill. Between 1996-97 and 2008-09, the volume of active waste sent to landfill fell by 35 per cent., despite a growth in the economy of 23 per cent., in real terms.
Last year, in the Waste Recycling Group case, the Court of Appeal found that when material received on a landfill site is put to use on the site, there is no liability to landfill tax. Although that was contrary to our interpretation of the legislation, the Government accepted the decision and invited applications for refunds of tax accordingly. However, the ruling meant that a significant amount of waste was taken outside the scope of landfill tax. Legislation relating to the use of waste on site no longer reflected the policy intention of the tax. When the creation of a tangibly engineered structure is not involved, the use of waste on a landfill site is effectively disposal, in terms of the environmental impact. It is treated as disposal for environmental protection regulation. It should therefore be taxed as disposal, particularly as much of the material that was taken outside the scope of the tax is biodegradable and contributes to greenhouse emissions.
Mr. Tim Boswell (Daventry) (Con): I claim no expertise on the subject, but a large quantity of inert material was once dumped on my farm as part of roadworks. Those concerned escaped paying landfill tax, because that was before its time. Is there any danger that the order will reduce the economic incentive to make the most efficient use of materials, albeit by disposal? Clearly, when one intervenes with a tax, it makes a difference, but as long as there will not be a perverse incentive for people to put material into landfill without processing it, I am happy.
Sarah McCarthy-Fry: I do not believe that the order will create such an incentive. It merely returns us to the position before the Court of Appeal judgment.
Schedule 60 to the Finance Act 2009 provided for the Treasury to prescribe by order landfill site activities that should be subject to landfill tax. Such activities had been deemed taxable prior to the WRG ruling. The order amends primary legislation on landfill tax to prescribe seven uses of material on landfill sites that do not involve the creation of a tangibly engineered structure. Those uses became liable to landfill tax from 1 September 2009. The uses include daily cover—the use of material as a protective cover for landfill at the end of the working day—and cover material placed against the drainage layer and material used to create or maintain a temporary haul road on site. We are aware that certain sectors of the waste industry are opposed to the taxation of daily cover, but I am persuaded that such material should be taxed to reflect the environmental cost of it being disposed of in landfill. Taxation should also be used to influence landfill site operators to use, wherever possible, non-biodegradable material as daily cover.
There is an eighth activity covered by the order. As it is somewhat different from those that I have described, I shall explain the background. Prior to the Court of Appeal ruling, landfill tax legislation provided for tax-free areas. Landfill site operators could temporarily hold material in such areas free of tax if they undertook specified activities, such as sorting prior to disposal. Following the Court of Appeal judgment, it became clear that the provisions were no longer needed because the material in those areas was, in any case, not taxable. The Finance Act 2009 removed those redundant provisions. However, information about the temporary holding of waste at a landfill site continues to be needed by Her Majesty’s Revenue and Customs so that it can establish whether taxable disposals of waste have taken place. The 2009 Act, therefore, provided that HMRC will continue to have appropriate access to such information. Regulations that were laid alongside this order set out the details of the information requirements. Like all the changes in the order that we are debating, those regulations came into effect on 1 September 2009.
That brings me to the eighth activity, which I mentioned. The order provides that such material is deemed taxable if the new information requirements—specifically those relating to the notification and designation of information areas, the provision of information or the keeping of records—are not complied with. That protects HMRC’s access to information on processing and recovery activities at a landfill site, and enables it to ascertain the tax liability of the landfill site operator. In practice, the requirement to supply HMRC with information directly replaces the redundant tax-free area information requirements. Landfill site operators are, therefore, unlikely to see any practical difference. Importantly, there will be little or no increase in the administrative burden on landfill site operators. The Government are determined that landfill tax should remain robust and a cornerstone of our policy for reducing the UK’s reliance on landfill.
The Chairman: Before the Minster responds, may I say that interventions should be brief? I am sure that Committee members will take note of what I say when they make further interventions.
Sarah McCarthy-Fry: The hon. Member for Croydon, South, has brought up a subject that is particularly important to constituents, many of whom raise it with me. There is nothing in the order that will have any impact on the matter, because all that it does is put us back in our previous position, taxation-wise. I know that local authorities, which are responsible for the collection, disposal and management of waste, take fly-tipping very seriously, and that many have robust procedures in place, which, hopefully, will address the problem that he raises. I am confident that the changes introduced in the Finance Act 2009 and completed by this order will ensure that landfill tax can continue to play a central role in supporting waste policy.
4.39 pm
Mr. Greg Hands (Hammersmith and Fulham) (Con): May I say what a pleasure it is, Mr. Howarth, to serve under your chairmanship for the first time? The order does not, to our eyes, seem objectionable. As the Minister said, it takes a range of activities on landfill sites that might currently be used for avoidance and makes them taxable. It also requires proper records to be kept of such activities. Neither aim seems unreasonable, and we on the Opposition Benches have yet to hear any coherent arguments against the definitions that the Government have chosen to employ.
As the Minister said, the order is designed to return landfill tax to the position that existed before the WRG court case, which I discussed with her predecessor-but-one in debate on clause 18 of the Finance Bill earlier this year. Throughout proceedings on the Finance Bill, which caused the Government a great amount of difficulty, they were clear, for once, on the general direction that they wished to take on landfill tax, and they had already published their consultation document. I agree with the points raised by my hon. Friend the Member for Croydon, South, about the dangers of fly-tipping in relation to a landfill tax accelerator. I will not repeat the arguments, because we heard them at some length in debate on the Finance Bill, but we are keenly aware of the issue.
Mr. Boswell: I warmly endorse the comments of my hon. Friend the Member for Croydon, South. Does my hon. Friend the Member for Hammersmith and Fulham not agree that there is concern that what I might call contraband—unlicensed illegal waste—sometimes goes into landfill? I presume that the order does not bind on that—it is a matter for legal prosecution and the criminal law—but it would be useful to have a comment or an assurance on the subject.
Mr. Hands: I thank my hon. Friend for his intervention. I think that he is right, but it would be useful to hear from the Minister whether illegal contraband landfill is still covered. I am sure that it is.
In debate on the Finance Bill, two Exchequer Secretaries ago, the hon. Member for Wallasey (Angela Eagle) confirmed that the Government would lose approximately £150 million through repayments as a result of the WRG case. We, like the Government, favour restoring the status quo ante, which would have the double advantage of protecting revenue and, as importantly, the environment. The environmental impact of waste used in cell bunds or on a temporary haul road is equivalent to, or can even be worse than, placing that material straight in the ground. It is therefore right that waste used in those ways is taxed accordingly. I understand that today’s measures will be reviewed in the light of the consultation process. I should be grateful if the Minister would indicate when the Government will produce their response to that consultation and whether they still intend to press ahead with their lead options.
The explanatory note states that the instrument will have
“a negligible impact on the private or voluntary sectors”.
I would appreciate it if the Minister could confirm that and say how she has gone about studying what the impact might be—both the administrative impact and the impact for those operating within the new rules. Will the Minister also confirm that the order applies to the public sector, too? It is not mentioned but is significantly affected by the landfill regime. I am confused about why the Minister has chosen 1 September as the effective date of the measures, and about why the order has come up for debate today, given that I could find no sign of anyone having prayed against the measures. I should be grateful, on procedural grounds, if she confirmed precisely why the order is before us today.
Will the Minister confirm that the budgeted loss resulting from the court case is still £150 million, that the figure has not changed, and that that is the sum that will not be recovered? Does she anticipate that any further measures will be required to counteract the effects of the WRG court case, beyond the statutory instrument that we are discussing? I should like to know whether more are in the pipeline. We see no reason to oppose the technical changes before us, subject to our receiving some reassurance on the points that I raised.
4.43 pm
Mr. Jeremy Browne (Taunton) (LD): I, too, welcome the opportunity to serve under your chairmanship, Mr. Howarth. The landfill tax is another Conservative-inspired tax. My party supports it for the environmental benefits that it brings and because, at this time, there are significant revenue benefits to having a tax of that type. I cite an example in Taunton Deane, the borough in which I live; doorstep recycling is expanding there to include cardboard and plastic collections. It is uneconomic not to proceed with that form of collection, because the escalator on landfill tax is making it prohibitive to maintain the more limited provision that existed beforehand. A clear incentive is being put in place for increasing environmentalism, which is welcomed by many people.
I wish to make two brief points, to which I hope the Minister will respond. They cover the same territory as the hon. Member for Hammersmith and Fulham did. First, since the order came into force on 1 September, what process of consultation has been undertaken and what guidance has been issued? My understanding is that the Government undertook to issue full public guidance. I hope that no one approaches me to say that there is scope for confusion and that they have not received that guidance.
The second, related point is whether the guidance has been sent to all registered landfill sites—in other words, does the guidance exist in that full form, and to whom has it been circulated? Following on from the points about fly-tipping, I would not wish to have a situation in which people protested that they were unaware of the full scope of the changes because the guidance had not been as rigorous as the Government intended. I am also curious to know why the order came into force on 1 September 2009. What was the basis for setting that date, and why are we having a discussion about it almost two months later?
4.47 pm
Sarah McCarthy-Fry: I thank the hon. Members for Hammersmith and Fulham, and for Taunton, for their contribution to this short debate. The hon. Member for Hammersmith and Fulham mentioned our consultation on landfill tax, which was announced in Budget 2009. The consultation is part of a wider reform of landfill tax and is not specifically related to this measure. However, I am happy to update him on where we are in relation to that situation—I think that the hon. Member for Taunton also mentioned the consultation.
We have received more than 100 responses to the consultation from a range of stakeholders, including landfill site operators, businesses producing waste, environmental groups, energy producers and local authorities. We were very happy with that level of response. We are still considering the detail of the responses and we need to follow up points that were raised by some of those who responded. We aim to publish a non-interpretive summary of the consultation responses around the time of the forthcoming pre-Budget report. The summary will be a clinical analysis of the responses and is not intended to provide an indication of our conclusions. We want to follow up some of the issues raised in responses through a discussion with certain stakeholders. It is likely that we will publish the Government response in the spring.
The hon. Member for Taunton asked what we have done to ensure that landfill site operators understand the technical changes. All operators who are registered for the tax have been written to on a number of occasions. In December 2008, we set out the Government’s position and, immediately after the Budget, there were various Budget announcements on the tax, indicating that we would legislate to mitigate revenue losses arising from the court case. In May 2009, we sent all the operators drafts of the Treasury order and commissioners’ regulations, making it clear that if operators wanted to raise any points of detail on the legislation, we should be happy to consider them. In August, HMRC issued a revised public notice for the tax, which included full details of the changes in the order.
Revenue lost as a result of our not introducing the changes as soon as we announced them is estimated at just under £10 million a month in 2009-10, but, as I said, we had to arrive at a balance between mitigating the revenue loss and making sure that the right level of detail was put in.
Mr. Hands: Could the Minister therefore arrive at an estimate of the total? I think that she is saying that there was a £10-million-a-month loss, on top of the £150 million loss resulting from the WRG court case. What will the total be?
Sarah McCarthy-Fry: I cannot say at this stage. I can, however, say that we are still receiving claims, but we estimate that total repayments of tax across the industry as a result of the case will be in the region of up to £300 million, including statutory interest. There was a question about contraband. The order has no impact on contraband waste. I think that I have covered all the questions; it only remains for me to say—
Mr. Hands: There was one further question. Does the Minister see the order as the final element to be brought in as a reaction to the WRG court case, or is there still more to come? If she covered that earlier, I apologise, but I am not sure whether she did.
Sarah McCarthy-Fry: I can easily clarify that. The order relates to the WRG court case. As I mentioned, there is continuing consultation about the future of landfill tax regulation. I think that everyone who has spoken in the debate agrees that the order is a sensible measure to bring us back to our previous position with respect to revenue. As to where we are with landfill taxation, and looking forward, we shall publish the consultation responses and then have further talks with the industry about how we formulate the Government’s response.
Question put and agreed to.
4.52 pm
Committee rose.

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