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Environmental taxes miss the target

Andy Olie

Most will be familiar with the Benjamin Franklin quote “in this world nothing can be said to be certain, except death and taxes”, but it has a certain resonance for our sector now that the only real pol­icy driver, especially in England, is the fiscal driver of landfill tax.

There is no doubt that the landfill tax has delivered one of its primary objectives, a reduction in landfilling of active waste, as can be seen in Figure 1 below, but it arguably hit its zenith in this respect three or four years ago.

At that point recycling figures plateaued, export of refuse-derived fuel (RDF) started and then increased rapidly, and gate fees for energy-from-waste (EfW) started to be competitive. Its objective of ‘equalising’ the cost of the alternatives has arguably been met in most cases (unless we are possibly talking about food waste collection and associated anaerobic digestion).

Hmrc tonnages reported per quarter

Hmrc tonnages reported per quarter

By looking at Figure 2, which shows the amount of tax collected, it can be seen that the tax take has only recently started to reduce, with the decrease in tonnage offset by the increase in cost per tonne.

Thus does the Government pat itself on the back and say ‘job done’ - or do they say ‘what next’, because if you were in the Treasury department rarely could there have been such a tax that has collected so much for so little impact with the electorate – indeed the hypothecation of the tax has made it positively encouraged by wildlife organisations, churches and playing field committees around the country.

Landfill tax revenue

Landfill tax revenue

I can imagine some of the debates by a Conservative government wishing to lower taxes and being lobbied by local authorities to do so – tempted to reduce the cost to UK plc on the one hand, but realising the potential impact to its ‘green credentials’ by being seen as removing or reducing its one policy driver.

At the same time, you can see groups lobbying for taxation further up the hierarchy, targeting for example EfW to stimulate recycling and reuse activities, to drive the front end of the circular economy. The Treasury must be looking at that and thinking it would be an ‘easy win’ and fill some of the gap in its landfill tax take.

Equally there are a number of groups looking to lobby for increased VAT on virgin materials, or reduced VAT on recycled materials to stimulate the circular economy by driving demand, but ‘hot sausage roll’ type taxes look to me to be a tricky one.

A recent case regarding a collection authority’s dispensation not to charge VAT is a good example of how an un-level playing field, and poorly thought through approaches to tax, can have wider consequences than many expect.

Two examples of unintended consequences of the landfill tax spring to mind as a warning. The first is the export of RDF already mentioned, where the fiscal driver and a lack of UK infrastructure has driven material abroad. Materials leaving the country that could be used as a fuel can’t been seen as a good idea can it?

But the counter arguments of delivering a solution that is better than landfill and reduces the demand for delivery of energy for waste in the UK, might be persuasive if it weren’t for the fact that the export dynamics are so finely tuned such that in many cases the export market is now slowing and many are starting to look back to landfill rather than export as a result of a 10 to 15% movement in the exchange rate.

The second is the subject of landfill fines and landfill tax exemptions, especially for engineering materials. The differential in taxation has been equivalent to around £2,000 for an articulated lorry of material over the last few years and it’s a massive temptation for both ‘legal interpretation’ and illegal activities.

The net is tightening, as can be seen by the Loss of Ignition requirements and cases against companies for landfilling fines in inert and exempt sites. HMRC cannot afford to let this carry on, even though their data suggests it’s less of an issue (figure 3) possibly because they don’t capture all types of exempt sites.

So, while taxes are inevitable, it seems to me that the taxation of landfill has not only run its course, but it has started to have perverse consequences. The temptation to tax in other areas on the basis of a ‘green agenda’ looks initially like a ‘no brainer’ but I think we should all be careful for what we wish for in this respect.

Interventionist taxes to skew markets rarely have the impact intended, and often have unintended consequences, (although from an electorates perspective maybe not as directly as hot sausage rolls or bedroom taxes), and the indirect nature of many environmental taxes therefore make them an easy target… but that doesn’t make them the right target.

Andy Olie is the director of Monksleigh

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