A statement of good intent?
In his pre-budget statement on 27 November 2002, Chancellor Gordon Brown announced major changes to the landfill tax, which could have profound implications for manufacturing industry. Jason Rayfield reports.The recent pre-budget report acted as a reminder, as if anybody needed reminding, about an issue that has been the subject of a fair amount of debate recently - that of waste. This time, the issue is landfill - holes in the ground which were once testament to the UK's industrial muscle, now ironically overflowing with waste from households and industry. It is no secret that the UK relies far too heavily on landfill, and this has been facilitated by our low rate of landfill tax compared to the rest of Europe.
The landfill tax became effective on 1 October 1996 and is levied on waste deposited in landfills. The objectives of the tax are to encourage waste producers to minimise the volume of waste generated, reduce the amount deposited in landfills and to encourage recycling.
Taken one by one, these original objectives simply have not been met. Household, or 'municipal' waste is rising faster than ever, UK industry still lags behind Europe in terms of reuse and recycling. The technology does exist, but lack of awareness, and the cheapness of landfill have proved to be major obstacles. The amount of waste deposited in landfills has risen to the point where it is simply not sustainable, and the UK's recycling record as a whole is primitive at best.Landfill tax
With all this in mind, it is timely, to say the least, that the waste problem is finally being addressed by government. Chancellor, Gordon Brown revealed in his pre-budget report that the government will consult on a revenue-neutral proposal to raise the landfill tax escalator - currently the tax is at £13 per tonne, and is raised by £1 per year until 2004-05 - to £3 per tonne in 2005-06 and to increase the rate of tax by at least £3 per tonne in future years, on the way to a long-term rate of £35 per tonne. The landfill tax credit scheme will be reformed with approximately a third of the funding - nearly £50 million - continuing to be available for spending on community environment projects. The remainder - almost £100 million in 2005-06, rising to £110 million in 2006-07 and 2007-08 - will be allocated to public spending to encourage sustainable waste management.
For manufacturing industry, the issues surrounding its management of waste and reliance on landfill centre, inevitably, around money. For the majority of industry, it is simply cheaper to send waste to landfill, than it is to re-use or recycle. It has long been thought that a major step change is needed to drive industry towards recycling and away from reliance on landfill. Many companies have demonstrated commendable initiative with recycling, but to change the practice of a lifetime may take more than a lot of people realise.Waste industry
So will this announcement actually make a difference? The Chartered Institution of Wastes management (CIWM) thinks not. In what it describes as a 'blow to the waste industry', CIWM speaks of a high expectation amongst the waste management industry as it was fully expected that there would be a significant increase in the level of tax to bring the UK more in line with its European neighbours. CIWM has been key amongst a wide range of stakeholders, who, whilst supporting the landfill tax in principle, have called for much higher levels if its aim of diverting material away from landfill is to be realised.
Currently set at £13 per tonne, on an escalator over the next two years to £15 per tonne, it was anticipated that a doubling of the level of tax would be needed to put the cost of landfill disposal on par with, or higher than, alternative waste management options, thereby presenting a more level playing field. More importantly, a higher tax would present more opportunities for hypothecation of the taxes into sustainable waste management initiatives.
CIWM communications manager, Jane Beasley, says: "Whilst any increase in the landfill tax could be viewed as demonstrating positive support from the government, the reality is that a £3 per tonne escalator will do little to promote further diversion from landfill or provide sufficient funds for infrastructure development through the landfill tax credit scheme. We are disappointed and will proactively urge government on behalf of our members to review the level of escalator set, and promote the figure of £35 per tonne to be a short rather than medium-long term target."Missed opportunity
The feeling of missed opportunity is one shared by the Environmental Industries Commission (EIC), who has been calling for government action to tackle the UK's reliance on landfill and drive sustainable waste management solutions. EIC, which represents the UK's environmental technology companies, welcomes the landfill tax regime reforms, stating that they are 'good for the environment and good for industry', however, EIC makes the point that the failure to expand the Green Technology Challenge tax incentive to recycle revenues from environmental taxes to provide a greater incentive for the development of environmental solutions is a blow to the UK's environmental technology and services industry.
The UK faces a massive challenge if it is to move away from reliance on landfill and EIC has therefore been calling for an increase in the tax on waste and reform of the landfill tax credit scheme to focus the revenues on sustainable waste management practice. EIC has therefore welcomed the announcement of an increase in the landfill tax by £3 per tonne in 2005-06 and by at least £3 per tonne in future years to a long-term rate of £35 per tonne as well as a diversion of two thirds of the landfill tax credit scheme revenues to sustainable waste management.
However, EIC believes that an opportunity has been missed to expand the Green Technology Challenge tax incentive to provide incentives for the development of the best solutions across the environmental agenda (it is currently restricted to providing tax incentives for energy efficient technologies, clean fuels, and for reducing water use and improving water quality). EIC has also called for the scheme to be extended to provide 150 per cent enhanced capital allowances to incentivise the development of the most innovative environmental solutions.Greater focus
EIC director, Merlin Hyman, comments: "We welcome the Treasury announcement of an increase in the landfill tax and greater focus on sustainable waste management in the landfill tax credit scheme. EIC has long been calling for these measures which will help the UK's move away from its reliance on landfill and towards sustainable waste management.
"However, the Treasury has missed a valuable opportunity to support investment in innovative environmental solutions by expanding the Green Technology Challenge tax incentive to tackle the many key environmental challenges Britain faces. For example the scheme provides no support for innovative waste technologies which will help end our reliance on landfill. We urge the Chancellor to expand the scheme in the Budget."
The Chemical Industries Association (CIA) takes a similar stance in welcoming the proposed landfill tax increase, while pointing out the need for investment in alternatives to landfill. CIA gave a cautious welcome to the Chancellor's announcement that he is prepared to listen to business views on potential hikes in the landfill tax before coming forward with firm proposals, and stated that the UK chemical industry would be pleased to participate in the consultation process.
The CIA believes that the consultation process should consider impacts that recent and planned legislation will have on the cost of waste disposal before introducing further tax increases.Waste Forum
The CIA has been calling for the creation of a UK government-led Industrial Waste Forum that would be an appropriate mechanism for tackling such issues. The UK Department for the Environment, Food & Rural Affairs (DEFRA) has indicated that a 'National Hazardous Waste Forum' will be convened and the CIA urges the UK government to go ahead with this at the earliest opportunity.
Commenting on the Chancellor's announcement, CIA director general, Judith Hackitt says: "Any increases in taxation on waste must be matched by investment in the much-needed infrastructure for alternatives to landfill. Investment in recycling infrastructure would achieve far more that arbitrary 'green taxes'. Unless they are carefully thought through, such taxes can amount to no more than a convenient revenue raising mechanism that provides little environmental benefit."Alternative methods
Throughout all the reaction and response to the pre-budget report, both posivive and negative, a common theme seems to be the need for the government to match any increase in landfill tax with initiatives, and investment in alternative methods of dealing with waste.
The potential consequences of the government's failure to do this can be seen in other areas, such as transport, for example. In recent years, the phenomenal rise in the number of cars on Britain's roads has sadly not been matched with the level of investment in public transport needed to achieve a viable alternative, hence the current situation of intolerable road congestion, the prospect of congestion charging and seemingly no painless solution.
If the UK's reliance on landfill is to be ended, then businesses faced with spiralling taxation simply must be encouraged and helped to develop viable alternatives, for the good of the environment and UK manufacturing in equal measure.