Select Committee on Environment, Transport and Regional Affairs Fifth Report



REPORT ON THE GUARDIAN DOSSIER ALLEGATIONS BY RICHARD SILLS, CHIEF EXECUTIVE, ENTRUST

INTRODUCTION

  1.   The Guardian dossier, published on 5 May 2000, made a range of observations and allegations about possible abuse of the Landfill Tax Credit Scheme. ENTRUST submitted an immediate commentary to HM Customs & Excise, giving details of those items that

    (i)  could be refuted directly, and

    (ii)  needed to be investigated further before any definitive statements could be made.

  2.  This paper draws together all ENTRUST's investigative activities and summarises the findings from that work. This paper also itemises those allegations that ENTRUST lacks authority to investigate or to comment upon.

  3.  ENTRUST has investigated the allegations as far as it has authority to do so under the landfill tax regulations. ENTRUST is empowered to access EB documentation only. Where relevant documentation was held by other organisations, ENTRUST was reliant on the goodwill and probity of these organisations. During these investigations, ENTRUST relied on expert advice from appropriately qualified organisations and individuals on specific topics.

  4.  While ENTRUST has specifically examined all of the EBs named in The Guardian dossier, it continues to monitor all enrolled environmental bodies as a normal part of its regulatory activities. Scrutiny of the named EBs and all others will continue.

RESULTS OF ENTRUST'S INVESTIGATIONS

Canford Environmental Ltd (CEL)

"The Rural Road Trial"—Guardian Memorandum—Page 235

  5.  Following thorough review of the project details provided by CEL, discussions with the local authority, the consulting engineers involved in the research project and a site inspection, it has been established that:

    (i)  The road was until recently a main road, but has now been by-passed.

    (ii)  Several other residents and businesses are located on this road, including farms and a naval munitions depot.

    (iii)  The experimental section of the road is less than .5 mile, out of a total length of about four miles.

    (iv)  The local authority is responsible for road maintenance, not the contributing landfill operator (LO), who has no obligation to maintain it.

    (v)  There is no evidence of an improper relationship between Canford Environmental Ltd and North Ayrshire Council.

    (vi)  It is not true that the data sought from this experiment are already well known and that the work is merely duplicative.

  6.  ENTRUST is satisfied that the project is a valid research exercise which will provide information relevant to aggregate recycling. An already-published interim report has provided valuable data about the relative performance of virgin and recycled aggregates. A 700 metre stretch of road has been widened as a result of the trial and we accept that this gives rise to some benefit to users of the road, including the LO, William Tracey. However, the benefit in terms of reduced journey times is very small and is shared by all users of this public road.

SUMMARY: ALLEGATIONS UNFOUNDED —PROJECT COMPLIES WITH REGULATIONS

"Canford Park Sports Pitch" Development—Guardian Memorandum—Page 237

  7.  Also following thorough review of the project details, including the original and subsequent documentation, a site inspection and an independent report from the Valuation Office Agency (VOA), it has been established that:

    (i)  There are two separate but adjacent developments, a private one (Canford Park Arena) on land owned by the contributing LO and a public one (Canford Park Sports Pitch) owned by Poole Borough Council.

    (ii)  Both developments relate to leisure facilities (which could be a cause of confusion to The Guardian).

    (iii)  The funds from Canford Environmental Ltd have been exclusively applied to the public leisure facilities, which is on land owned by Poole Council.

    (iv)  The VOA report makes it clear that ENTRUST's recommended project management procedure (open, competitive tendering, etc) was not implemented in fully by Canford Environmental Ltd.

    (v)  The VOA report confirms that the project has, despite the absence of tenders, obtained acceptable value-for-money and that the project documentation is correct in respect of the ownership of the property.

    (vi)  There was an infringement of the Construction, Design and Management Regulations 1994, due to the absence of a mandatory project health and safety plan.

    (vii)  There are interlocking directorships between Canford Environmental Ltd and the private facility development organisation (which, again, is a possible source of confusion).

  8.  ENTRUST is satisfied that Canford Environmental Ltd funds, contributed by the LO, WH White, have been spent exclusively on a project which is compliant with the Landfill Tax Regulations. Hence, neither the contributor nor any associated company has received any benefit from the expenditure of the contribution, and the facility will, when complete, be available to the public, as required by the regulations. ENTRUST is disappointed that its project management advice was not implemented in full but accepts the expert advice from the Valuation Office Agency that satisfactory value-for-money was, nevertheless, obtained for the credit scheme.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECT COMPLIES WITH REGULATIONS

Cheshire Environmental Services Limited—Land Reclamation at Sandiway—Guardian Memorandum—Pags 237 and 271

  9.  The implications by The Guardian is that this environmental body by having share capital is operating for profit. ENTRUST has examined all records including those held at Companies House and can confirm that this is a NOT FOR PROFIT organisation and is compliant with the regulations.

  10.  This major project, which is approaching completion, will make seriously contaminated land available for housing use. The arrangements made between the environmental body and the landowner, concerning the enhanced value of the remediated land, comply fully with the agreed interpretation of the regulations. These arrangements will ensure that the increase in the value of the site due to the remediation will be paid back into the scheme and applied to approved objects.

  11.  The arrangements for open tendering required by the agreed interpretation of the regulations have also been met in full by this project. The contracts for haulage and landfill of the contaminated material removed from the site were awarded through an open tender process, which was managed at arms length from the environmental body, by the main contractor for the works.

  12.  This project was the first very large value project and as such underwent extensive and detailed discussion of the agreements with landowners and remediation contractors, to assure complete compliance with the regulations and the principles of the credit scheme. We have reviewed these arrangements again since publication of The Guardian dossier, and we remain satisfied that they comply with the regulations.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECT COMPLIES WITH REGULATIONS

Viridor Waste Management—Guardian Memorandum—Page 243

  13.   The Guardian made no specific allegation, although its statements could be interpreted as implying that Viridor has exercised some control over one or more environmental bodies, to which it has made credit scheme contributions. ENTRUST has investigated EBs which have received funds from Viridor (and its predecessor, Haul Waste), and found no evidence of any activities that infringe the regulations.

SUMMARY: SUSPICION UNFOUNDED

Shanks Group & Peterborough City Council—Guardian Memorandum—Page 224

  14.  The dossier alleges that Shanks obtained benefit from a "cell recycling" project, which had been organised by a partnership between Shanks, Valpak and local authorities. ENTRUST has found no evidence that indicates any infringment of the regulations.

  15.  However, it is worth noting that experimental work, such as this project must comply with rules laid down by the Environmental Agency, which, inter alia, require such work to be carried out on a suitably licensed site. It is inevitable, therefore, that a contributor must host the experiment and in equity, ought to be compensated for resulting costs—at standard industry rates, less profit. It has been established that Shanks did not benefit and in fact exceeded their obligations by not charging for the facilities provided for the project when they could have done so.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECT COMPLIES WITH REGULATIONS

Onyx plc (LO) & Onyx Environmental Trust (EB)—Guardian Memorandum—Pages 245 and 270

  16.  The allegation appeared to be that Onyx Environmental Trust (Onyx ET) had given money to various LAs or implemented projects that benefited local authorities (Wandsworth, Hampshire, Windsor, Maidenhead, Three Rivers, Rugby, Telford and Wrekin, Derbyshire and Buckinghamshire) in areas where either Onyx plc already operated or it was/would be bidding for waste management contracts. None of the "projects" nominated by The Guardian has any identifiable connection with projects registered or funded by Onyx ET under the credit scheme. Neither has ENTRUST managed to identify any other registered, funded Onyx ET project which has any apparent connection with the allegations.

SUMMARY: ALLEGATIONS UNFOUNDED

Energy From Waste Association—Guardian Memorandum—Page 249

  17.  The allegation was that the environmental body (the Energy from Waste Foundation) is virtually indistinguishable from the Association and that the funds supplied from the Foundation were used for PR or on industry responsibilities.

  18.  The Energy from Waste Foundation is a properly constituted and enrolled environmental body. Energy from waste is a legitimate aspect of sustainable waste management, indeed it is very positively advocated in the EU documentation. The argument as to whether or not a report should be described as "independent" or not, does not invalidate it as a compliant project.

  19.  The project relating to the "Practical effects of North American Recycling" is clearly of interest to everyone involved in recycling and waste minimisation, whether or not it is pro- or anti-recycling.

  20.  The "Practical effects of recycling" as briefing material for councils and others is a legitimate project.

SUMMARY: ALLEGATIONS UNFOUNDED—ALL PROJECTS COMPLY WITH REGULATIONS

Devon County Council (DCC)—Guardian Memorandum—Page 251

  21.  The allegation relates to the control of an EB, the Green House Visitors' Centre, by the DCC and benefits obtained by the Council which is also a contributor through its waste disposal service. There are two parts to the response to this accusation:

    (i)  ENTRUST has established that there is no council majority on the board of the EB, although former council employees and members sit on the board.

    (ii)  It has also been established that any benefit obtained by DCC is shared amongst all of the ratepayers and other constituents of the council, and is not confined to either the members or direct employees of the council.

  22.  There is neither a requirement in the regulations nor power granted to the regulator to preclude former councillors or council employees being members of an EB board. The membership of the Green House Visitors' Centre is, therefore, completely compliant with the regulations.

  23.  The £62,000 in question has been spent by the EB on an item which is, arguably, a statutory duty of the council—hence the alleged benefit to the council. Although ENTRUST has consistently advocated that EBs avoid spending their funds in such areas, there is nothing in the regulations which precludes the use of the money in this way. Hence, the regulations have not been infringed.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECT COMPLIES WITH REGULATIONS

Essex County Council (ECC)—Guardian Memorandum—Page 253

  24.  The allegation is that ECC is using its power, in new waste disposal bid documents and contractual arrangements, to require LOs to make their contributions to a specific, nominated EB (the Essex Environment Trust—EET). The Guardian says that:

    "Essex has inserted a special clause in the 10 year contract it will award to a landfill operator to dispose of its municipal waste. It requires the operator to make donations only to the specific environmental body named and set up by the local authority."

  25.  This EB is, therefore, implied to be under the control of the council and will implement projects at its behest. Again, there are two elements to the response:

    (i)  There is nothing in the regulations about arrangements—contractual or otherwise—that may be made between councils and landfill operators, and therefore ENTRUST has no powers to regulate such matters.

    (ii)  ENTRUST has reviewed the membership of the board of the EET and it is not under the control of a majority of council members and/or employees, although (as observed in other cases), former councillors and council employees may be members without infringing the regulations.

  26.  ENTRUST's findings are, therefore, that it has no power to address or intervene in any Council/LO contractual matters and that Essex County Council does not control the Essex ET, within the meaning of the regulations.

SUMMARY: ALLEGATIONS UNFOUNDED

Essex County Council/Essex Environment Trust (EET)—Guardian Memorandum—Page 253

  27.   The Guardian alleges that EET requires that certain projects "must have local financial support to at least 25 per cent of the total cost of the project" and that, "In respect of all applications for local amenities, the Trust will look for a contribution to their provision from the local parish or town council. A letter of support from the parish or district council or other local body or organisation can also assist an application."

  28.  The first requirement, ie that the project supplies some of the money itself, is not unusual and many funding sources require a similar or larger proportion to be used for "matching". The second piece of advice, ie that the local authority backs the project, may not actually contravene the regulations but does, in ENTRUST's view, reveal too close a relationship between council and EET. As a matter of policy, in order to ensure that this EB does not contravene the regulations by being controlled by an LA, ENTRUST's response is to raise the assessment of potential risk of non-compliance presented by EET and to increase the frequency and depth of scrutiny to which the EB is subject.

  29.  Similarly The Guardian's accusations against Oxfordshire CC, Lincolnshire CC and Kirklees DC appear not to be contravening the regulations but ENTRUST has increased its vigilance and frequency of scrutiny.

SUMMARY: ALLEGATIONS UNFOUNDED

Neath-Port Talbot—NPT Environ Aid Ltd—Guardian Memorandum—Page 253

  30.  The allegation here is similar to that in the Essex case, ie that the council controls and uses EB funds for work that should be performed by the council itself. ENTRUST has examined the control of the EB and can find no evidence that present council members or staff are in a majority on the board, or control management decisions. Ex-councillors are not banned from membership of EB boards. Similarly, EB funds being used for (what The Guardian regards as) council work, is not precluded by the regulations, although (as above) ENTRUST has always advised EBs to avoid funding statutory duties.

SUMMARY: ALLEGATIONS UNFOUNDED

Swansea City Council—Guardian Memorandum—Page 253

  31.   The Guardian allegation is the same as above—the EB funds are being used on projects that should (according to The Guardian) be paid for by councils. ENTRUST's investigation has not found any evidence that the regulations are being infringed.

SUMMARY: ALLEGATIONS UNFOUNDED

Merton LBC—Guardian Memorandum—Page 254

  32.   The Guardian states that:

  33.  "Merton LBC has a 15-year waste disposal contract with AJ Bull (Southern) Ltd. On 27 November 1997 a Deed was signed between Merton LBC, A&J Bull (Southern) Ltd and Groundwork Merton, an Environmental Body. The Council was already committed to paying a grant of £46,000 per annum to Groundwork Merton as a core funding until March 2001. Under the Deed Merton LBC covenants `to pay A&J Bull by way of reimbursement 10 per cent of any landfill tax contribution which it has paid to Groundwork Merton, up to the maximum of £46,000 grant to which Groundwork Merton is entitled or such higher sum as the Council shall agree, and to indemnify A&J Bull'. It was also agreed that if the payments to A&J Bull were less than £46,000 that the balance would be paid to another landfill operator in order to access Tax Credits. If this third party contribution was less than £46,000 in any one year then the balance is to be paid to Groundwork Merton."

  34.  The principal accusation appears to be that the council is acting as the contributing third party (CTP) for Bull's contributions to Groundwork Merton by paying from the fund it had established to donate directly to Groundwork, prior to the agreement with Bull. However, quite apart from the apparent agreement to this arrangement by Groundwork (which is a co-signatory, with the council and Bull), the regulations confer no powers on ENTRUST to intervene in such matters, unless there is a benefit accruing to any contributor. In this case, both the council and Bull are contributors. Therefore, ENTRUST has inquired into any benefits available to either party. ENTRUST can find no evidence that either Merton Council or A J Bull Ltd has acquired any unshared benefit from their contributions.

  35.  The secondary accusation implies that The Guardian believes that the deed makes Groundwork dependent on either or both the council and Bull. ENTRUST's agreed interpretation of the regulations on CTPs is that the CTP must be independent of the EB. It is ENTRUST's view that the deed in this case does not infringe the independence of the EB, as it does not control the activities of the EB in respect of its internal operations and expenditure.

SUMMARY: ALLEGATIONS UNFOUNDED

Western Riverside Environmental Fund (WREF)—Guardian Memorandum—Page 254

  36.   The Guardian alleges that WREF, which was established by the Western Riverside Authority (itself a joint venture by four councils) and managed by Groundwork, is controlled by a group of four councillors (one from each of the joint venture partner councils), two LO representatives, the Authority's GM and the Groundwork Regional Director. There is an "independent" chair of the group, a solicitor.

  37.  WREF is not an EB and it has never requested enrolment. The relevant EB is Groundwork Federation (formerly Groundwork Foundation) and WREF recommends projects to Groundwork but has no control over the EB, as there are no WREF representatives on the board of Groundwork Federation.

SUMMARY: ALLEGATIONS UNFOUNDED

British Waterways plc—Guardian Memorandum—Page 255

  38.  The British Waterways Board environmental body was properly constituted and enrolled. This organisation provides many community services, a large proportion of which are fully compliant with the regulations. British Waterways is not a plc, (as incorrectly asserted by the Guardian, but corrected in its supplementary memorandum) it is a statutory body set up under the Transport Act 1962.

  39.  Brian Donohoe, MP raised this issue at the Select Committee hearing into the operation of the tax in 1999 and later retracted his statement.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECTS COMPLY WITH REGULATIONS

London Waste Action—Guardian memorandum—Page 256

  40.   The Guardian's accusation here is that money from the Environment Agency (EA) was used as a CTP payment, despite the DETR allegedly "ruling against such a payment". ENTRUST has no mandate to intervene in funding issues unless there is reason to believe that an improper benefit has or might accrue to a contributor—in this case either the LO or the EA. There is no suggestion that an improper benefit has been obtained and, hence, ENTRUST cannot intervene. Questions about how funding decisions were reached, and how contributions were made are internal matters, which can only be answered by the parties involved, namely, LWA, the LO, the EA and DETR.

  41.   The Guardian acknowledges that these funds were employed on a project compliant with the regulations.

SUMMARY: ALLEGATIONS UNFOUNDED—PROJECTS COMPLY WITH REGULATIONS

The Building Research Establishment (BRE)—Guardian Memorandum—Page 257

  42.  There is no specific allegation but it is implied that BREWEB is not a legitimate EB. The EB has been established and enrolled within the Regulations' criteria.

SUMMARY: SUSPICION UNFOUNDED

English Heritage—Guardian Memorandum—Page 257

  43.  Similarly, no specific allegations are made. ENTRUST has reviewed English Heritage's projects and found them to remain compliant.

SUMMARY: PROJECTS COMPLIANT WITH REGULATIONS

English Partnership—Guardian Memorandum—Page 257

  44.  The English Environment Fund was originally set up with five partners (a sixth was added in 2000):

    —  English Partnerships

    —  Sustrans (a charity and EB)

    —  Groundwork Foundation (a charity and EB, now the Groundwork Federation)

    —  Royal Society for Nature Conservation (a charity and EB and the agent for Biffaward

    —  Institute of Wastes Management (the professional institution for waste managers and also an EB)

    —  Coalfields/Joint Venture (joined April 2000)

  45.  Insurance cover is recommended by the ESA and required by many LOs, in order to protect themselves against repayment requirements by HM Customs and Excise in the event of non-compliance by EBs.

  46.  EB funds are not public—they are the LOs private funds belonging to the LO and for which the LO remains responsible to HM Customs & Excise.

SUMMARY: ALLEGATIONS UNFOUNDED—COMPLIANT WITH REGULATIONS

WRc Plc—Guardian Memorandum Submission—Page 257

  47.  No specific allegations were made, although the implication is that the WRc's EB is somehow, not legitimate.

  48.  The WRc environmental body was properly constituted and enrolled within the LTRs' requirements. ENTRUST checks that the environmental body remains not-for-profit and continues to comply with all other criteria.

SUMMARY: ENROLMENT LEGITIMATE

CORDAH Environmental Management Consultants—Guardian Memorandum—Page 258

  49.  No specific allegations were made. However, it seemed to be implied that the EB's enrolment was not legitimate.

  50.  Cordah Research environmental body was properly constituted and enrolled. ENTRUST checks that the environmental body remains not-for-profit and continues to comply with all other criteria.

SUMMARY: ENROLMENT LEGITIMATE

Going for Green and the Tidy Britain Group—Guardian Memorandum—Page 258

  51.  No specific allegations were made.

  52.  Going for Green and the Tidy Britain Group environmental body was properly constituted and enrolled. ENTRUST checks that the environmental body remains not-for-profit and continues to comply with all other criteria.

SUMMARY: SUSPICIONS UNFOUNDED—ENROLEMENT AND PROJECTS COMPLIANT WITH REGULATIONS

Groundwork—Guardian Memorandum—Page 259

  53.  The existence of a transparent audit trail for LTCS funds was questioned.

  54.  The Groundwork Foundation (now the Groundwork Federation) is a Charitable Trust with connections to a series of independent but interdependent local trusts throughout the UK.

  55.  All Groundwork enrolments are properly constituted.

  56.   The Guardian views the landfill tax credit scheme funds as public sector money, when the regulations are clear that they are private contributions.

SUMMARY: ALLEGATIONS UNFOUNDED—ALL PRODUCTS COMPLIANT WITH REGULATIONS

The National Trust (NT)—Guardian Memorandum—Page 259

  57.  The NT was included, apparently, because it "is the wealthiest voluntary organisation in the UK".

  58.  ENTRUST has examined NT credit scheme activities and has found no irregularities.

SUMMARY: SUSPICIONS UNFOUNDED

Devon Appliance Recycling Project (DARP) Guardian Supplementary Memorandum—Page 271/8

  59.  The implication is that DARP has been unfairly excluded from receiving scheme funding because Landfill Operators did not consider the work legitimate and/or of significant value.

  60.  ENTRUST cannot comment on the value, or otherwise, of the proposed research work but the project is clearly compliant with the regulations. ENTRUST has issued a project registration letter to this effect. However, the scheme rules are that it is Landfill Operators which make funding decisions.

SCHEME PERFORMANCE ISSUES

Failure to spend contributed funds—Guardian Memorandum—Page 240

  61.  There are several possible reasons for difference between contributions and expenditure:

    (i)  multi-year projects are being funded in total; hence

    —  funds may be awaiting matching finance from other sources;

    —  money may be being built-up for the next phase of funding;

    —  various consents may be awaited is the result of multi-year projects being funded (or the money being committed to them) in total; hence, money is held in reserve for when the appropriate project phase is reached.

    (ii)  Whenever money is awaiting use, it is in a bank earning interest and this interest will also be spent on activities that are compliant with the landfill tax credit scheme objects.

    (ii)  All contributions are available for EBs to spend on projects but, due to phasing, not all funds can be spent immediately although they are committed to the projects. It is also pertinent that ENTRUST has strongly recommended that contributions must not remain uncommitted for more than two years from the date of receipt.

Audit and Inspection Activities—Guardian Memorandum—Page 240

  62.  The number of inspection/audit visits quoted was 20 by the beginning of 1999; the number as at 1 November 2000 was 715.

Absence of value-for-money mandate—Guardian Memorandum—Page 269

  63.  This is being considered by a working group of representatives from HM Customs & Excise, DETR, DTI and ENTRUST.

SCHEME SUPPORT FOR WASTE STRATEGY 2000—GUARDIAN MEMORANDUM—PAGE 230/260

  64.  This is also being considered by a working group of representatives from HM Customs & Excise, DETR, DTI and ENTRUST.

CTP payments & LO's funding discretion—Guardian Memorandum—Page 241

  65.  A question posed by The Guardian was if the 10 per cent balance of the contribution was being paid by CTPs rather than LOs', why should the LOs continue to have the benefit of discretion over which EBs and projects should receive the funding? This is being considered by a working group of representatives from HM Customs & Excise, DETR, DTI and ENTRUST.

Classification of CTP Payments—Guardian Memorandum—Page 241

  66.  The issue here is whether, for instance, local authority CTP payments can be classed as private sector payments so as to preserve the private sector nature of the contribution. The advantage is that private sector funds can be counted as matching funding, whereas public monies can not. This is being considered by a working group of representatives from HM Customs & Excise, DETR, DTI and ENTRUST.

Landfill operator and/or local authority (LA) control of EBs—Guardian Memorandum—Page 250

  67.  The majority of The Guardian's allegations in this area appear to derive from a misunderstanding about the difference between LO or LA board members' influence in EB operations and their ability to control them. One of the fundamental aims of the scheme was to encourage local partnerships. Quite clearly, the influence this entails is different from a majority of members from a LO or LA controlling the activities of an EB, enabling them to direct the management of the body.

ENTRUST PERFORMANCE ISSUES

Fitness to regulate—Guardian Memorandum—Page 229 et seq

  68.  Customs & Excise monitors ENTRUST's activities, its verification and audit systems to ensure ENTRST meets its terms of approval.

Appointment of Directors

  69.  The ENTRUST board is considering the structures of similar organisations, such as the FSA, and will discuss any resulting proposals with HM Customs & Excise.

Lack of Transparency of Operations

  70.  The ENTRUST board is considering the working rules of similar organisations, such as the FSA, and will discuss any resulting proposals with HM Customs & Excise. ENTRUST has already made great effort to be transparent, examples of this are the content of its website; a list of enrolled environmental bodies, active and completed projects, minutes of meeting, etc.

Other Issues

  71.  Sundry other issues, including the definitions of direct benefit and public amenity, and the funding of statutory obligations are being considered by a working group of representatives from HM Customs & Excise, DETR, DTI and ENTRUST.

November 2000


 
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