A taxing subject

Landfill Tax Credits, Climate Change Levy and Emissions Trading Scheme. All of the above could have a major impact on your business, and all of the above have been affected by the latest Budget, revealed on April 17 2002. Jason Rayfield examines the small print which will raise big issues for industry and the environment

Chancellor Gordon Brown's 2002 Budget promises to achieve economic progress while, where possible, protecting the environment

Chancellor Gordon Brown's 2002 Budget promises to achieve economic progress while, where possible, protecting the environment

The government has launched a consultation on possible changes to the Landfill Tax Credit Scheme
Under the Landfill Tax Credit Scheme (LTCS), registered landfill site operators can claim credit of up to 20 per cent of their landfill tax liability for the year to environmental bodies (EBs) approved by ENTRUST, the private sector regulator of the LTCS. They can claim a tax credit worth 90 per cent of that contribution. The aim of the scheme is to encourage more sustainable waste management practices, including recycling and to deliver lasting environmental and community benefits.

Summing up the problem, EIC director, Merlin Hyman, said: "The Landfill Tax Credit Scheme has failed to play a central role in transforming waste management practices. Urgent reform is therefore now essential to provide greater direction and focus, particularly in funding to support sustainable waste and resource management."

Fast forward to the Budget, and witness the power of positive lobbying, as Financial Secretary to the Treasury, Paul Boateng, and Environment Minister, Michael Meacher launched a consultation on possible changes to the LTCS. The consultation paper seeks views on the priorities for funding as well as potential funding mechanisms for the scheme. Paul Boateng summed up:

"Consulting on the Landfill Tax Credit Scheme allows us to benefit from the views and experiences of the waste industry, environmental groups, local people and other interested stakeholders. We are seeking views on what the priorities for funding should be from the revenue currently going through the scheme. These could include sustainable waste management, local community projects or other wider government objectives. We also want opinions on the best way of delivering these objectives."

The Climate Change Levy (CCL), a tax on the business use of energy introduced in April 2001, was set up to encourage business to improve energy-efficiency and reduce emissions of carbon dioxide, the principal greenhouse gas.

Again, the scheme has been the subject of much debate since its inception, with one notable objection coming from manufacturer, Linpac, who invited the afore-mentioned Paul Boateng to visit its plastics and corrugated fibreboard packaging operations at Featherstone, West Yorkshire. The aim was to allow Mr Boateng to learn at first hand about the damage being done to the manufacturing sector by the CCL, which according to Linpac was adversely affecting the competitiveness of British industry.

Package of measures
The ability for industry to be more competitive has been given a boost in the Budget, which contains a package of measures associated with the CCL. These include exemptions for new forms of renewable energy, 80 per cent discounts for eligible energy-intensive sectors that have signed up to negotiated agreements to increase energy-efficiency and reduce emissions, and support to help businesses use energy more efficiently.

The rates of the CCL have been frozen, and in addition to the existing exemption for renewable forms of energy, the government is exempting two further sources of energy generation from the CCL in view of their environmental benefits. The exemptions will cover electricity from combined heat and power (CHP) plants sold via licensed electricity suppliers and electricity from coal mine methane (CMM) sold via licensed electricity suppliers.

The government launched the world's first economy-wide greenhouse gas emissions trading scheme in April 2002. This new initiative allows participants to meet emission reduction targets at lowest cost, by reducing their own emissions or, if it is cheaper, by buying emissions allowances from other participants who have found it worthwhile to beat their targets.

According to the Budget, 'The first stage of the UK emissions trading scheme, which is now underway, is a 'cap and trade' scheme. This means that an overall emissions reduction target is set covering a group of organisations, all of whom agree to individual targets and receive a corresponding amount of allowances. Provided the overall target is met, individual company emissions are unimportant. Participants in the scheme can therefore achieve their targets in a flexible way by choosing to meet their target by reducing their own emissions; reduce their emissions below their target and sell or bank the excess allowances; or let their emissions remain above their target and buy allowances from other participants.'

The Budget continues: 'Emissions trading in the UK will develop further this year when organisations will be able to generate emissions allowances through specific emission reduction projects, and sell these allowances to participants in the trading scheme. Companies in CCL negotiated agreements will be able to trade allowances in order to meet their emissions reductions targets at the end of this year.'

This year's Budget continues the theme of environmental enhancement, with some changes being made to the charges which have caused the most headaches for British industry, but it seems that companies are still suffering as a result of taxation which stifles their ability to be competitive, both in the UK and in Europe.


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