Select Committee on Environment, Transport and Regional Affairs Fifth Report



MEMORANDUM BY HER MAJESTY'S TREASURY (DSW 116)

  The Committee asked Her Majesty's Treasury to provide written evidence on the following points:

An assessment of how the figure of £1,127 million increased funding over three years for Environmental Protection and Cultural Services in local government was reached, and whether the Treasury believes this will be sufficient to deliver the aim of the Strategy in doubling recycling/composting rates by 2003 (as the Strategy requires), or whether further funds may have to be made available

  The public spending plans set out in Spending Review 2000 (SR 2000) were set to meet the Government's key objectives as described in the July 2000 White Paper: increasing opportunity for all; building responsible and secure communities; raising productivity and sustainable growth; and securing a modern international role for Britain.

  The Public Service Agreements (PSAs) that accompanied the new public spending plans in Spending Review 2000 sets out the outcomes that every part of Government will deliver. The Department of Environment and Transport Regions PSA included a target to enable 17 per cent of household waste to be recycled or composted by 2004, reflecting that in the Waste Strategy. To ensure delivery of this target, Spending Review 2000 announced £140 million of new money to give central support to council recycling, in addition to the increased funding for Environment Protection and Cultural Services in local government.

What role the Treasury sees for the Private Finance Initiative in providing waste management facilities

  The Private Finance Initiative (PFI) can offer a cost effective method of procuring waste services. It encourages the private sector to think innovatively about exploiting waste resources and to unlock hidden value in the waste, helping to achieve long term service delivery. Spending Review 2000 has provided £220 million of support for local authority PFI waste projects.

  Since the establishment of the Project Review Group, eight local authority waste PFI schemes in England have been endorsed for support by Central Government.

  The Government has developed, in line with Waste Strategy 2000, specific new criteria for waste projects. This is likely to affect the shape of projects coming forward to Office of Government Commerce's Project Review Group for endorsement. The criteria seek to:

    (i)  reinforce the central place of recycling and composting in waste PFI applications. Proposals for incinerators must demonstrate that all opportunities for recycling have been considered first, and should include proposals for combined heat and power where possible.

    (ii)  strengthen the references to different tiers of authority working together; and

    (iii)  the need to accord with national policies, targets and legislation.

  The Government expects to see PFI proposals later this year which will pilot the new policy.

What role the Treasury sees for the Landfill Tax Credit Scheme in promoting sustainable waste management; and in particular, the reasons for leaving the scheme under the control of landfill site operators

  The Landfill Tax Credit Scheme (LTCS) encourages the private sector to help fund environmental projects that promote sustainable waste management, improve local communities around landfill sites, and reclaim brownfield land.

  The scheme allows landfill site operators who contribute to approved environmental bodies, to reclaim 90 per cent of their contribution as a tax credit, up to a ceiling of 20 per cent of their landfill tax liability. The scheme pulls in additional funds from operators and third parties and some projects may qualify for matched funding.

  Recent examples of projects to promote sustainable waste management include recycling of waste from supermarkets, electronic goods and tyres.

  The Government has publicly stated that it would like to see more support for local authority recycling projects. That is why at the start of this year recycling was explicitly added to those research projects that can attract funding. The Government also acknowledged in the Pre Budget Report 2000 that despite this change, it is disappointed to see that, so far in 2000, the proportion of landfill tax credits being spent on sustainable waste management has been falling. Hence the Chancellor announced that the Government would further explore how resources going through the scheme can be better used to increase recycling rates, particularly of household waste.

What role the Treasury sees for taxation in promoting sustainable waste management; and in particular whether they have plans to introduce a tax on a) incineration, b) virgin materials, or c) packaging, given the likely failure of the UK to meet Packaging Directive targets

  The Government believes that taxation can be a useful tool in promoting sustainable waste management. The landfill tax has provided important financial incentives to waste producers to consider and develop sustainable alternatives to landfill, such as minimising the amount of waste produced, and reusing or recovering value from waste material. However, taxation may not always be the best tool to meet the Government's objectives and, where appropriate, other tools such as regulation and public spending should be considered.

  The Government has no plans at present to introduce a tax on incineration, virgin materials, or packaging.

  The Government has consulted recently on proposals to put the UK on track to meet the targets in the Packaging Directive. On the basis of consultation paper, and in the light of more recent data reported in 2000 by obligated businesses, the Government intends to raise the UK targets to 56 per cent recovery and 18 per cent material specific. Such changes will ensure the Government meets the 2001 50 per cent recovery and 15 per cent material specific target under the EC Packaging Waste Directive. The UK targets are higher than the EU targets because businesses with a turnover of less than £2 million, and handling less than 50 tonnes of packaging, are not obligated to meet targets.

Why incineration, being a producer of non-biogenic greenhouse gases, has been exempted from the climate change levy

  Most, if not all, Member States agree that energy from waste constitutes a renewable form of energy as it displaces the use of fossil fuels.

  The Government's starting point for both the Climate Change Levy definition of "renewables" and the definition used for the planned Renewables Obligation is that all types of renewable generation should be eligible for both, unless there are strong economic or environmental arguments to the contrary. For large scale hydro, for example, the Government has concluded that inclusion in the levy exemption and Obligation definitions would have very high dead weight costs, and that there was little scope for building new large scale hydro plants, even with such significant financial incentives.

  For generation from the incineration of municipal and industrial waste, DTI's analysis suggested that inclusion within the Renewables Obligation would have high dead weight costs for any new projects it would bring forward, but that inclusion within the climate change levy definition could produce a small but worthwhile stimulation effect, ensuring that if incinerators are built, markets would be available for the electricity they produce.

  The Government's waste strategy focuses on delivering substantial increases in recycling and composting. But is also recognises that there will need to be an increase in energy from waste if we are to divert substantial quantities of waste away from landfill. Any CCL exemption would help ensure that electricity generation from incinerated waste is as efficient as possible, without increasing waste incineration to levels beyond what the Government believes local authorities may consider necessary to manage their waste.

November 2000


 
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