Sarah
McCarthy-Fry: The new state aid guidelines on
environmental protection were introduced in 2008, as the hon. Gentleman
has said. The guidelines stipulate that if, after the tax reduction,
the tax payable on any taxable commodity is above the minima set out in
the directive on the taxation of energy products, a notification can be
approved without considering new and challenging necessity and
proportionality tests set out in the guidelines. The rates of levy for
all taxable commodities are comfortably above the directive minima, as
are the reduced rates of levy for electricity and liquefied petroleum
gas. However, the reduced rates of levy for solid fuel and gas are
below the
minima. The
British Plastics Federation represents a new sector wishing to join the
scheme, but it has been unable to satisfy the Commission that the
reduced rate is necessary to its members. The Department of Energy and
Climate Change estimates that the plastics sector’s entry to the
scheme would provide annual savings of 32,000 tonnes of CO2
against the 2006 baseline. We have therefore looked at
alternative methods of admitting the sector to the scheme.
During
discussions of the plastics sector’s application to join the
climate change agreement scheme, the Commission indicated that the UK
could limit aid given through the scheme to those commodities for which
the UK’s reduced rate is above the minimum set out in the
directive on the taxation of energy products. In those circumstances,
the aid would fall within the provisions of a block exemption and could
be introduced without first being subject to scrutiny by the
Commission. The Government therefore intend to limit the
sector’s entitlement to claim the reduced rate of levy to its
use of electricity and liquefied petroleum gas.
Since
electricity use accounts for around 80 per cent. of the sector’s
energy use, the restriction will still make a significant difference to
the sector’s energy costs. Moreover, despite the restricted
entitlement to the reduced rate, the DECC will not alter the targets
originally negotiated with the plastics sector, which were based on
entitlement to the reduced rate for all taxable commodities. There will
therefore be no weakening of the environmental benefits accruing from
the sector’s membership of the
scheme. The
clause enables entitlement to claim the reduced rate of climate change
levy to be restricted to certain taxable commodities. The restriction
will be given in certificates issued by the Secretary of State for
Energy and Climate Change with the agreement of HM Treasury, which I
think answers one of the hon. Gentleman’s questions. Where no
such restriction is specified, businesses participating in the scheme
will be able to claim the reduced rate on all taxable commodities used
in processes covered by their agreements. Limited entitlement to claim
the reduced rate will therefore be focused on members of the British
Plastics Federation who would otherwise be unable to comply fully with
the state aid rules. The entitlement of other sectors already within
the scheme will be
unaffected. The
clause will allow businesses in the plastics sector to enter into
climate change agreements, providing relief from the climate change
levy to energy-intensive industry, while at the same time delivering
significant environmental
benefits. Question
put and agreed to.
Clause 116
accordingly ordered to stand part of the
Bill.
Clause
117Removal
of reduced rate where targets not
met 1.15
pm Question
proposed, That the clause stand part of the
Bill.
Sarah
McCarthy-Fry: Clause 117 is an enabling clause that
provides for schedule 59 ,and I think that the meat of the debate will
be on that. If the hon. Gentleman wants to make any comments, I am sure
that he will be with us then to do
so.
Mr.
Hands: Sorry, I was under the impression that we would
take the clause and schedule together.
The
Chairman: Up to now we have been more or less doing that,
and I am happy for that to continue if it is more helpful to the
Committee.
Sarah
McCarthy-Fry: I am sorry, Mr. Atkinson, I did
not hear you; I thought that you said clause
117.
The
Chairman: I did. The Minister was not here in the earlier
stages. When we have a simple one or two-line clause introducing a
schedule, the tradition is to debate the two together, so if the
Minister would like to speak to the clause and the schedule, that would
be fine.
Sarah
McCarthy-Fry: I will broadly introduce the schedule and
will then welcome debate.
The climate
change agreements scheme is a state aid scheme. It was designed to run
for 12 years, until 2013. When the UK notified the scheme as state aid
in 2001, we made that clear to the European Commission. However, in
accordance with the prevailing Community guidelines on state aid for
environmental protection, approval could be given for 10 years only.
Therefore, the Government intend to seek a two-year extension to the
state aid approval before the current approval expires in
2011. The
scheme is structured around two-year certification periods, within
which are 12-month target periods. If a sector passes its targets, all
facilities within that sector are certified as entitled to pay the
reduced rate for the subsequent two years. If a sector fails to meet
its target, facilities within that sector that also fail their
individual targets lose their right to the levy reduction for the
subsequent two years. Currently, the only consequence of failure, and
therefore incentive not to miss targets, is prospective loss of the
levy reduction.
A condition
of state aid approval for the scheme in 2001 was that for the last two
years of the 10-year approval—2009-11—the UK must
introduce a mechanism to recover tax from facilities that fail to meet
their targets during the period. The recovery of levy must be
proportional to the missed
targets.
Mr.
Hands: Will the hon. Lady give
way?
Sarah
McCarthy-Fry: I will not give way. The hon. Gentleman
asked me to introduce the schedule and he will have ample opportunity
to respond.
That
requirement reflected the Commission’s concern that the levy
relief for 2011-13, which participants would expect to receive for
meeting targets during the 2010 target period, falls outside the period
of current state aid approval. Consequently, if the UK did not seek, or
was unsuccessful in securing, an extension to the state aid approval
beyond 2011, it would weaken the incentive for businesses to meet their
2010
targets. The
introduction of the recovery mechanism represents a fundamental change
to the scheme. The Government are introducing the necessary legislation
now to ensure that participating facilities are aware of the new
consequence of missing their targets before those targets are agreed
with the DECC later this year.
Schedule 59
introduces a mechanism to enable HM Revenue and Customs to recover the
climate change levy from facilities that fail to meet the agreed
targets and are in sectors that miss their sector targets for the same
period, proportionate to the facility’s extent of shortfall
against their target or targets. I will leave it there and let the hon.
Gentleman come back with his comments and
questions.
Mr.
Hands: I apologise for trying to
intervene but I was confused about one point. It may be a
misunderstanding, but my information is that we are talking about a
10-year process, which ends in 2011. I think that the Minister said
that it was a 12-year process, also ending in 2011. To rephrase that as
a question: did the process start in 1999 or 2001? We seem to agree
that it ends in 2011.
As the
Minister says, the measure is being introduced due to state aid rules.
As I understand it, a condition for the Government receiving state aid
approval is that for the last two years of the 10-year approval, a
mechanism must be in place to receive tax from facilities that failed
to meet their target as set out under the particular CCA. The tax is
proportional to the extent that the targets are
missed. I
was of the view that the recovery mechanism applies to certification
schemes beginning on or after 1 April 2009 because the last two years
of the 10-year period run from April 2009 to 31 March 2011. As the
Minister said, the measure will be a further incentive for businesses
to meet their CCA targets because they will incur a financial cost if
they fail to do so. However, she did not mention that it will introduce
a further level of complexity to the administration of the climate
change levy. Businesses will have to consider the potential
implications of this measure when they negotiate their climate change
agreements and energy consumption
targets. Will
the Minister clarify whether we are talking about a 10-year or a
12-year period? What consultation was undertaken prior to the
introduction of the measure? What studies have been done of the cost of
the new measure compared with the tax that it is predicted
to
raise?
Sarah
McCarthy-Fry: I confirm that climate change agreements
were introduced in 2001. We intended for there to be a 12-year scheme
that ran until 2013, but under the guidelines, approval could be given
for only 10 years. We will seek state aid approval for the final two
years of the scheme because we intended it to go up to 2013. It was
announced in the 2007 pre-Budget report that the Government intend to
extend the climate change agreements scheme until 2017. That, too, is
subject to further state aid approval being
secured. I
shall explain how the mechanism will work. The DECC will notify Revenue
and Customs when a facility meets the criteria. Revenue and Customs
will then inform the facility that repayment of the levy is required
and confirm the amount that is
due. Sector
associations involved in climate change agreements have been consulted
informally by the DECC about the new provision. The sectors accept that
this action, which is taken to ensure that the UK complies with its
state aid obligations, will enable the climate change agreement scheme
to continue, along with the corresponding entitlement to claim the levy
reduction. They understand that, based on performance against targets
in the last target period, the recovery of levy is likely to apply for
a limited number of the 10,000 or so facilities in the
scheme—about a quarter of 1 per cent. There has been no impact
assessment of this measure because the administrative impact on the
voluntary and private sectors and on Government will be
negligible. Question
put and agreed
to. Clause
117 accordingly ordered to stand part of
the
Bill. Schedule
59 agreed to.
Clause
118Landfill
tax: prescribed landfill site
activities Question
proposed, That the clause stand part of the
Bill.
Mr.
Hands: The clause deals with a fairly localised issue
relating to landfill tax. It will introduce changes to landfill tax
legislation from 1 September 2009. The changes originated from the
Court of Appeal’s judgment in the Waste Recycling Group Ltd case
of 2008, commonly known in the industry as the WRG case. The case
related to certain materials that would otherwise have gone to landfill
being used by the site operator to improve the site; for example, to
maintain roads or for daily cover requirements. The court ruled that
such materials were not subject to the landfill tax. In other words,
landfill materials used on the infrastructure of the site were not
subject to the
tax. The
legislative changes in the Bill are intended to clarify the law by
restricting the scope of the court decision so that landfill tax will
continue to apply in the majority of circumstances. In other words, an
activity on a landfill site will be subject to landfill tax, and HMRC
has wider powers to make any provision to ensure that such an activity
is subjected to the tax. In fact, under the provision, an order can be
made to vary almost anything except the rate of landfill tax
itself.
I have a
couple of questions from the explanatory notes. I am sure that there is
a perfectly good reason for this, but why the need for the different
introduction dates? Generally, most paragraphs take effect from the
date of Royal Assent, save for paragraphs 10 and 11, which take effect
from 1 September. Is there any basis for that date? Paragraph 17 of the
background notes
says: “The
removal of the requirement that the landfill tax return form is
prescribed in regulations is a matter of administrative convenience
which will bring landfill tax in line with the other environmental
taxes (aggregates levy and climate change
levy).” I
appreciate that those two taxes are outside the scope of today’s
discussion, but I would be grateful if the Minister could confirm
whether we are seeing a standardisation measure across a whole
selection of
taxes. In
support of the proposed legislative changes, HMRC also announced a
consultation exercise, seeking views on the preferred and alternative
options for change, which are aimed at modernising the definition of a
taxable disposal of waste at a landfill site, and the definition of
wastes that should qualify for the lower rate of tax. Interested
parties have been invited to make comments before 24 July
2009.
I note that
the consultation closes in four weeks. I am not asking the Minister to
make a judgment on the results of that consultation, but could she tell
us how the consultation is progressing and how many responses it has
had to date? Will she tell us whether the new rules will bring in a
change in the tax take, what efforts HMRC has made to inform landfill
operators of the nature of the clause, when it will take effect and
what the likely impact will be on the sort of behaviour that gave rise
to the court case in the first
place?
Sarah
McCarthy-Fry: Let me provide a bit of background. Landfill
tax is payable each time waste is disposed of at landfill. It is an
environmental tax that seeks to ensure that the full environmental cost
of waste
disposal to landfill is reflected in business decision making. Last
year, the Court of Appeal found that where material is received on a
landfill site and put to use on the site, there is no liability to
landfill tax. The Government have accepted that decision and we have
accordingly invited applications for refunds of
tax. The
Waste Recycling Group case means that we are now in a position in which
landfill tax legislation relating to use of waste on site does not
reflect our policy intention. The use of waste at a landfill site is,
in effect, disposal in terms of environmental impact. It is treated as
disposal under environmental protection regulation and, on that basis,
it should be taxed as disposal. However, the WRG judgment means that,
at present, no tax is due. Let me give an example. The use of inert
waste as a protective cover for landfill at the end of the working day
has the same disamenity of lorry movements and noise as the general
landfilling of inert waste. Therefore, it is right that the lower rate
of landfill taxable for inert waste should apply to this use for daily
cover. The
WRG case means that the Government are receiving less revenue from
landfill tax. We estimate that it will amount to £200 million
over three years if not addressed. The changes introduced by this
schedule will mitigate such revenue losses. However, I stress that this
is a case of mitigating revenue losses and not extending the
application of the
tax. The
Government are determined that landfill tax should remain robust and a
cornerstone of our policy for reducing the UK’s reliance on
landfill. To that end, the schedule provides powers to make a Treasury
order, prescribing landfill site activities that are taxable in
addition to taxable disposals that are already caught by landfill tax
legislation.
We have
published a draft of the Treasury order, which we intend to lay
following Royal Assent. It lists eight uses of waste at a landfill site
and they are all uses that do not involve the creation of a tangibly
engineered structure. The order will be subject to approval by the
House within 28 days of it being made. The House will therefore have an
opportunity to debate it in due
course.
1.30
pm The
schedule also seeks to ensure that landfill tax legislation remains
coherent following the WRG judgment by removing redundant provisions.
The exemption from tax of the use of waste for site restoration is
removed because, as a result of the judgment, tax would not in any case
be due. Similarly, tax would not be due in respect of waste for
processing or recovering held in designated areas, often known as
tax-free areas, so the tax-free area provisions are therefore
removed.
The schedule
protects HMRC’s access to information on site restoration and
processing and recovering activities at landfill sites. That
information is important to HMRC’s ability to determine whether
a taxable disposal has taken place. The schedule provides powers for
HMRC commissioners to make regulations about the information that is to
be submitted to them. We have published a draft of those regulations,
which, with the Treasury order, have been sent to all registered
landfill tax operators for information and comment.
In practice,
the removal of the site restoration exemption and the provisions on
tax-free areas will be directly replaced with requirements to supply
HMRC with similar information to that already required under current
legislation. Landfill site operators are unlikely to see any practical
difference, but, importantly, there will be little or no increase in
the administrative burden.
As well as
the changes that I have described, the schedule makes one minor
provision: it allows the landfill tax return form to be set out in a
public notice rather than in secondary legislation, which brings the
position for landfill tax in line with the other environmental taxes.
It will therefore be easier to make amendments to the return form,
should they be required. The change will have no appreciable impact on
landfill site operators.
All the
changes will be put in place from 1 September 2009—a time scale
that gives landfill site operators adequate notice, but reflects the
importance of quickly bringing the tax in line with policy
objectives.
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