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(a) fees payable in respect of applications for authorisations;
(b) fees payable by persons holding authorisations in respect of,
or of applications for, the variation of authorisations; and
(c) charges payable by such persons in respect of the
subsistence of
their authorisations".

Those words are quite specific--authorisations, variations and subsistence, which is to say on-going costs. That is not present government policy and it ought to be recognised that there has been a substantial change.

Last November, the Director General of the CBI, Adair Turner, wrote to my noble friend Lord De Ramsey--who, as he reminded us earlier, was chairman of the Environment Agency--to complain about increases in the charges. I think that it would be proper to read Mr. Adair Turner's letter virtually in full:

    "The paper lists the factors driving the increases. It assumes inflation of 3 per cent., which is above current levels, and asserts that business chargepayers should support higher pension contributions by the Agency, following the removal of tax credits, and further year 2000 compliance expenditures. There is no justification of why business chargepayers should pay for items which are arguably part of central overheads, nor is there any indication of how big a contribution business is called upon to make in relation to that coming from the Agency's grant in aid.

    "At a time when the economy is likely to slow and parts of manufacturing are in recession, a further year of increases in charges on the proposed scale is unacceptable. I urge you and your colleagues to challenge the proposals and rein them back. If the Agency is bidden to assume new responsibilities, they should be borne by the taxpayer, not by very heavy imposts on business.

    "I am copying this letter to Michael Meacher and John Battle."

That was followed by a much longer and more detailed letter from the CBI to the Environment Agency's finance director, Mr. Huntley. The Committee will be

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relieved to know that I do not propose to read the whole of it. However, I must quote one passage, on page 2:

    "The letter accompanying the consultation document indicates that by far the greatest proportion of the increase of 15 per cent. is due to a shift"--

I ask the Committee to hang on to the word "shift"--

    "of the funding of chargeable activities from Government grant-in-aid to charges; i.e. of the 15 per cent. 11 per cent. is due to the shift, with 4 per cent. due to the expected rise in Agency's costs. The consultation document notes that this shift from grant-in-aid to recovery occurred as a result of a review by the Government and its Agencies under the Comprehensive Spending Review. The polluter pays principle is well understood by business but there is totally inadequate explanation of what element of cost of services provided to business were not being borne by business. Until there is far greater transparency on the part of the Agency in terms of its cost structure, and the actual items that are chargeable to IPC operators, there will be no confidence that these Agency charges are appropriate. It is not a foregone concept to business that licensing and authorisations to operate within a framework of high legal and environmental standards is a value-added service provided by regulators."

We find ourselves with the concept of a shift. That letter argues in effect for the two amendments that I tabled. If the Government are abandoning--as appears to be the case, although I have detected no public announcement to that effect--the specific and limited charging regime in Section 8 of the 1990 Act, what are the new limits?

Paragraph 10 adds three new heads--(a), the testing or analysis of substances; (b), validating such testing; and (c), assessing how the environment is affected by any substances. It goes on to say that charges for those may be included in the scheme.

Sub-paragraphs (a) and (b) may be acceptable, provided they are limited to substances that are actually used by applicants or those with permits but (c) appears totally open ended. It goes far wider and could force industries to pay for other regulatory activities that have nothing to do with those industries.

The polluter pays principle is sound. The issue is what the polluter should be expected to pay. Amendment No. 29 is inelegantly drafted but the intention should be clear. Its purpose is to limit assessing under sub-paragraph (c) to substances tested under (a) or validated under (b). The charges levied by regulators should be ring-fenced and spent only on defined regulatory activities, not used to subsidise other, unrelated activities outside the context of process authorisation. That was the position under the 1990 Act and should remain so under the Bill. If that is not done, increases of 14 per cent. or 15 per cent. per annum of which the CBI has complained are yet another surreptitious tax increase, about which we have not been told.

The second complaint is lack of transparency. Industry does not know the costs that it is required to pay. The CBI believes that there is a serious lack of transparency surrounding the charges that the Environment Agency and SEPA--the Scottish body--levy on business. The agencies do not publish sufficient information to enable business or other interested bodies to judge the proportion of costs of regulating environmental licences that the agencies are recovering

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from industry. Nor do they disclose how that income is spent. That is a matter of widespread business concern, following the substantial increases to which I referred.

The CBI's opinion is that the Environment Agency in particular has failed adequately to justify the reasons for the increases and that it is impossible for businesses to make a judgment as to whether those charges are set at the appropriate level because of the lack of clear, published accounts. The CBI strongly recommends that that situation is not allowed to continue. Enforcing authorities should be required to publish proper accounts of their income and the Bill should specify how it is to be spent.

My second amendment requires the regulators to publish separate annual accounts for every scheme so that each is ring-fenced. Given the profound anxiety that the huge increases have created and the Minister's repeated profession of the wish to engage in open government, that is the least they should do.

If those accounts show that the shift referred to in the correspondence that I quoted means that industry is expected to pay far more than the direct cost of being regulated, as was the case under the 1990 Act, Ministers must come clean. They must acknowledge that it is in reality a tax increase introduced at the instance of the Treasury.

Section 8 of the 1990 Act was clear, specific and limited, and was acceptable. This legislation seems to give the Government an open-ended licence to allow the regulators to charge what they like. The shift described in the letter that I have quoted demonstrates all too clearly that that is what they want to do. It is up to Parliament to expose this for what it is and to put limits on this new power to tax industry. My two amendments may seem a modest step in that direction, but they bring to light a serious situation. I beg to move.

6.30 p.m.

Baroness Farrington of Ribbleton: The Government are under an international obligation to introduce a mandatory scheme to control the use and discharge of chemicals into the marine environment by the offshore oil and gas industry. Under the scheme, which is already accepted by the industry on a voluntary basis, individual chemicals and mixtures of chemicals must be assessed for the potential harm that they might cause and the limits put on their use.

The purpose of paragraph 10 of this schedule is to enable the costs incurred by authorities as part of the permitting process to be recovered. It is not intended that the costs of general research or work which is not in anticipation of or in connection with an authorisation should be recompensed.

An example may serve to illustrate the use to which these powers might be put. Under the required mandatory scheme it is intended to reduce the cost to industry by keeping a register of categorised chemicals, thereby avoiding the need for the impact of a chemical to have to be demonstrated each time a permit is applied for. The categorisation will be made by the regulator or person authorised based on the results of standard tests undertaken on behalf of the manufacturer at independent

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laboratories. Clearly there needs to be a means of recovering the small cost of perhaps a few hundred pounds associated with categorisation.

When issuing a specific permit, the regulator would use the register as input to his assessment of the impact of the risks associated with using the specific cocktail of chemicals proposed. That assessment would take the form of applying analytic techniques as against further laboratory testing or research. Again, provision must be made to recover the moderate costs involved in that assessment.

As I hope that example illustrates, there is no intention to use these powers to recover the costs of general research even if it is in the same broad area as the use to which the permit is to be put. Indeed, my understanding of the current wording of the paragraph is that it would specifically prohibit such an exercise.

The second amendment tabled by the noble Lord, Lord Jenkin, relates to the transparency with which the regulators set charges for permits. I entirely agree with the sentiment behind the amendment. Companies which pay charges to the Environment Agency and the Scottish Environment Protection Agency should be able to see how those charges are justified. The agencies' pollution control charges are made currently in accordance with Sections 41 and 42 of the Environment Act 1995. Each charge relates to the particular purpose or function for which it is raised, and income from one charge is not to be used to subsidise charges for another. The agencies' pollution prevention and control charges will be made under the same existing legislation and not under the provisions in this Bill.

The Government will be asking the agencies to provide in their corporate plans greater clarity and detail in their charging proposals. To make that clear, we shall ask that the objective of transparency in the presentation of expenditure plans charging proposals is included among the 10-point action plans which form the heart of the corporate plans. We do not need to have the powers provided by this Bill in order to do that. The noble Lord's amendment is therefore unnecessary. We shall nevertheless be acting to ensure that its intentions are fulfilled. For that reason I shall urge him to withdraw the amendment.

The noble Lord, Lord Jenkin, raised the issue of increases in agency charges. Regulators are required to recover in full from permit holders the costs incurred to monitor and administer the pollution control system. The Government's Comprehensive Spending Review last year found that the Environment Agency was not doing so in the case of an integrated pollution control system and that the taxpayer, through the agency's grant-in-aid, was subsidising permit holders by around £3 million a year. Far from being a tax increase, this is the withdrawal of the subsidy. The Government propose to address that deficit in a way that would minimise the impact on industry, in particular by phasing the increases over two years. The increases were well foreshadowed in advance of the agency's corporate plan and were explained in consultation exercises. The Environment Agency's proposal for a 15 per cent.

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increase this year represents the final stage of the recovery of the subsidy. My department is currently considering responses to the consultation exercise.

The noble Lord also raised the issue of pension costs. The charges share a proportion of the agency's administrative costs and overheads with grant-in-aid from the taxpayer. A proportion of the agency's administrative costs are part and parcel of its function in controlling pollution and should rightly be passed on to the polluter. Every effort is made to reduce overheads using total administrative cost control. In fact, TAC is continuing to fall, as is the proportion of the agency's costs, due particularly to increases in efficiency and rationalisation of accommodation. The Environment Agency envisages year on year efficiency savings of £12 million--about 2 per cent. of its running costs.

The Scottish Environment Protection Agency currently prepares a summary in its accounts of each of the charging schemes. I suspect, however, that industry is much more likely to be interested in the contents of the agency's charging proposals rather than looking at figures after the event. The accounts are a rather formal device and may not allow the flexibility required to meet the information needs of industry. Responding to specific points with appropriate tables may be of more value and more appropriate.

Should there be any particular points that the noble Lord wishes to raise in detail which I have not covered in my reply, I shall of course write to him. But in the light of my reply, I hope that he will feel able to withdraw his amendment.

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