Examination of Witnesses (Questions 958
TUESDAY 28 NOVEMBER 2000
TIMMS, MP, MR
HEWITT, MP, AND
958. Ministers, can I welcome you to the Committee
and apologise that we are running late. Could I ask you to identify
yourselves for the record please?
(Ms Hewitt) Thank you very much, Chairman.
I am Patricia Hewitt. I am the Minister for Small Business and
E-commerce in the Department of Trade and Industry. I also have
responsibility for environmental matters within the DTI. Could
I introduce Alistair Keddie who is the Head of the Environment
Directorate at the DTI.
(Mr Timms) I am Stephen Timms, Financial Secretary
at the Treasury with responsibility for environmental tax matters.
I am joined by Jon Anderson who is responsible for the Landfill
Tax at Customs & Excise.
959. Do either of you want to make an opening
statement or are you happy to go straight to questions?
(Mr Timms) We are happy to go straight to questions.
960. Mr Timms, the Treasury said in your submission
to us that "The Government believes that taxation can be
a useful tool in promoting sustainable waste management".
How will the Government support the aims of the Waste Strategy
(Mr Timms) In a number of ways. There is a taxation
aspect to this but of course there is a public spending aspect
as well. The announcements made in the Spending Review in the
summer contribute directly to achieving the goals of the Waste
Strategy. We are looking currently at the landfill tax credit
scheme because we think that while landfill tax itself undoubtedly
contributes to the goal of reducing the proportion of waste going
to landfill, we think that the credit scheme could make a greater
contribution than it is doing currently to achieving the objectives
of the Waste Strategy on sustainable waste management, and so
we announced in the pre-Budget Report a couple of weeks ago that
we will, between now and the Budget, review the way that the credit
scheme works and see whether there are ways in which we can ensure
that resources contribute more directly to the targets in the
Waste Strategy. There is a number of other tax matters that I
could draw on if you wanted me to look at that.
961. I am slightly concerned. Your focus on
the landfill tax credit scheme, however worthy that is, is in
a sense focusing on the trees rather than the wood. For example,
we have taken evidence from Peter Jones of Biffa who advocates
the creation of a "Green Tax Commission" and tried to
look at all these incentives and disincentives before public expenditure
tax from a position of fiscal neutrality, but on the Waste Strategy
in your evidence to us there is very little on exactly how you
are going to achieve the environmental benefits that could be
driven out through taxation of public expenditure. It is all rather
vague. Why, for example, have you discarded the idea of introducing
a tax on virgin materials and packaging?
(Mr Timms) The objectives and the targets in the Waste
Strategy have been clearly set out. Those are the Government's
aims in this area. We have put in place and are putting in place
the mechanisms to achieve those targets through spending and through
some measures on the taxation side as well. I am very confident
that those measures will allow us to achieve the Government's
targets that have been set out in the Waste Strategy. There have
been a number of proposals floated at different times. We do not
think that the measures that you have referred to are necessary
or indeed helpful but they are not necessary to achieve the targets
that we have published.
962. But there are some perverse incentives
floating around, are there not, in the taxation system, for example,
the external costs of incineration, and since incineration of
waste produces energy 24 hours a day it in effect reduces the
base load of electricity generation, so is equivalent to displacing
the average-mix electricity generation. The external environmental
costs of that are actually worse than landfill according to the
Government's own evidence in the published Waste Strategy 2000.
When are you going to introduce a tax on incineration?
(Mr Timms) We are not proposing a tax on incineration.
We do need incineration as part of the range of measures we are
taking to achieve the objectives of the Waste Strategy. I do not
think there is any doubt about that. Where there is incineration
we want there to be energy generated from the process but I think
it would be perverse at a time when it is clear that there will
need to be some increase in incineration to be taking steps with
another hand to disincentivise it. However, the focus of our strategy
is very clearly on promoting recycling and increasing the proportion
of waste material that is recycled from waste.
963. But if the local authority, who is trying
to manage waste disposal strategy, is faced with a company coming
forward with a commercial proposal for an incinerator which benefits
from a Non-Fossil Fuels Obligation subsidy of the electricity
of the order of £2 million a year for a quarter of a million
tonnes of waste, benefits from private finance initiative for
the construction of the plant, benefits from the exemption from
the climate change levy, benefits from some form of rates rebate,
you can see that there is a very substantial subsidy to incineration
as opposed to recycling are driving up waste disposal further
up the waste hierarchy.
(Mr Timms) Energy generation of that kind would not
benefit from the Renewables Obligation. Patricia may want to comment
on that. It is the case that the PFI criteria for waste projects
have been revised in line with the Waste Strategy particularly
to look at the concerns you were raising and the revised criteria
do reinforce the central place of recycling and composting in
waste PFI applications. Those are the criteria that will be looked
at in considering whether or not to award PFI credits for a particular
scheme. I will ask Patricia to comment on the fuels obligation
(Ms Hewitt) Of course the point is that the Non-Fossil
Fuel Obligation has been the chief means by which we have encouraged
renewable energy but we are not proposing any new rounds of the
Non-Fossil Fuel Obligation although of course we will honour existing
contracts that have been entered into under that order. As to
the new Renewables Obligation which will replace the-Non-Fossil
Fuel Obligation, we are consulting on the details at the moment,
but we are proposing to exclude energy from waste incineration
from the sources of renewable energy that are eligible for the
new Renewables Obligation. That is precisely because we want to
get the right level of incentive in order to ensure that we get
some increase in the production of energy from waste incineration
because, as we explain in the
964. Some? How much?
(Ms Hewitt) We estimate that it will deliver about
a quarter of our total target for energy for electricity generation
from renewables. As we say in the Waste Strategy, we believe there
is a role for energy generation from waste incineration as part
of achieving that target of 10 per cent of energy generation from
renewables. We think that we can get that incentive in particular
through the exemption from the climate change levy but if we were
to add to that the inclusion of energy from waste incineration
in the Renewables Obligation we would either encourage too much
energy from waste incineration, or indeed we would simply be giving
a deadweight subsidy to incineration schemes that were going to
be built anyway.
965. Mr Meacher cited recently DTI projections
for NOX emissions in response to a recent parliamentary question,
which was 15 megatons I think by 2010, which implies a huge increase
in incineration by 2010. What are the DTI assumptions about incineration
capacity by 2010?
(Ms Hewitt) Our assumptions are precisely the same
as the assumptions in the Waste Strategy. That is the Government's
Waste Strategy. Our assumption that energy from waste incineration
will deliver about a quarter of our total target for energy from
renewables is simply based upon the assumption of the Waste Strategy.
966. That is an absolute contradiction, is it
not? They are not renewables because you burn them. Therefore
they are not there to be renewed. Something like wind power goes
on and on so you can claim that is renewable. I suppose you can
claim that the waste stream is renewable but actually the materials
are not renewable, so it is a total contradiction, is it not?
(Ms Hewitt) I do not think we do accept that, Chairman.
Indeed, in line with most Member States in the European Union
we believe that energy from waste does constitute a renewable
form of energy. We would define renewable sources of energy as
those which are continuously and sustainably available. As Stephen
has rightly said, our first objective is to minimise the generation
of waste and then, where that is not possible, to maximise re-use
and recycling. But where there is creation of waste that we cannot
avoid, if we burn it to generate energy we will save fossil fuels
that would otherwise themselves be burned to generate energy.
We will thereby reduce emissions, contribute to the Kyoto targets
and avoid adding to the amount of landfill which is where otherwise
the waste would be disposed of.
967. So if we take some crude oil which we refine
to produce fuel from it which we burn, that clearly is not renewable.
But if we turn it into some product which we can then use for
some years and then burn it, that is renewable?
(Ms Hewitt) Chairman, I do not pretend to have your
scientific expertise in these matters.
Chairman: I am not suggesting any scientific
expertise at all. It is a very crude statement.
968. How is burning something renewing it?
(Ms Hewitt) What I have tried to do is to indicate
why we think that burning waste material where we have not been
able to avoid the production of the waste and we have not been
able to re-use and recycle it, is renewable because we are generating
energy that needs to be generated and we are thereby reducing
the amount of fossil fuel consumption that would otherwise be
used to generate the same amount of energy. If I can put this
in the broader context, Chairman, it must be utterly unacceptable
that of the materials that are used to create products in the
economy only one per cent of those materials are still in use
six months later. Therefore, increasing resource productivity,
reducing waste generation in the first place, increasing recycling
and re-use and then, where we have down to an unavoidable level
of waste generation, re-using it to generate energy, seems to
us to be crucial.
969. Everyone would agree with that, Minister.
If you have an incineration capacity that is very large it is
going to have the effect of sucking in material that might otherwise
have been recycled or re-used if it had been economic for waste
disposers to do that. The fact is that there are projections in
the DTI, I understand, of 19 million tonnes of incineration capacity
by 2010, there are projections in the DETR of 15 million tonnes
of capacity by 2010, and we have now been told by the Energy from
Waste Association that they expect that there will be 3.2 million
tonnes of capacity by incineration by 2010; this is by extrapolation
of pollution expected from nitrous oxide. There is, I believe,
an inconsistency in the Government's position of what capacity
of incineration you expect to have in 2010. I suppose you might
not know the answer to this but I would be grateful, if that is
the case, if you could go back and look at these projections because
there is a great deal of alarm out there that there are incentives
for incineration that are going to cause there to be more incineration
than necessary and take us further down the waste hierarchy than
we need to be.
(Ms Hewitt) May I say, Mr Blunt, (and not just I)
that the Government as a whole is very alive to those fears. That
is why we have been very careful about how we have designed if
you like the market, the structure of incentives for the various
uses of waste, including generation of energy through incineration.
It is why in particular we are proposing to exempt energy from
waste incineration from the new Renewables Obligation. I am not
aware that those projections that you have referred to and I will
ask Alistair if he would like to comment on that in a minute,
although I will certainly check the point and let you have a further
note if there is further material to supply, but if I could make
a further point, you referred earlier to PFI and the changing
nature of the rules for PFI.
970. We will come back to that as a separate
(Dr Keddie) I am not sure I could add anything to
what the Minister has said.
971. Perhaps you would like to look at the transcript
and if necessary send us a note.
(Dr Keddie) Both DETR and the DTI are not setting
particular figures, i.e. that there is not a very definite figure
of the number of incinerators that are going to be in use by 2010.
A great deal depends on how our strategy works.
972. This question might seem like manna from
heaven to you. Many of the witnesses have indicated that the Landfill
Tax as it exists is far too low and that the level should be £25.
When do you, in the Treasury, see that figure being achieved?
(Mr Timms) Last week I attended a meeting of the All
Party Group on Sustainable Waste Management, where quite a number
of the companies who pay the Landfill Tax are represented, and
I must say it was a refreshing experience from my point of view
as the Treasury Minister to be presented with a case for a significantly
higher level of tax than the one we currently levy. We have chosen
though to take a cautious approach on this. We want to understand
properly the effects of the different levels at which the tax
might be set and, as you know, we have introduced an escalator
so that the rate will go up by a pound a year for five years and
then in 2004 we will review what the effects have been of the
application of the escalator and decide how we should take matters
forward. While it is in many ways a pleasant experience to be
lobbied by those paying the tax to set it at a higher rate, we
want to be confident that we know what the effects of that will
be before deciding how to set the rate of the levy in the future.
973. One of the effects could be that you could
push more people towards incineration and that might well be why
you are being cautious.
(Mr Timms) That is conceivably an effect of a substantially
greater rate. The point the industry makes is that it would incentivise
greater recycling. I think the important thing is that we proceed
with some confidence about what the effects have been of these
fairly modest increases that we are introducing at the moment
before deciding how to go forward in the longer term.
974. One of the less pleasant words you like
is "hypothecation". If you were to take the figure of
£25 and hypothecate it for waste recycling, would that be
something that you in the Treasury would consider?
(Mr Timms) There is a double hypothetical question
there. We will decide in 2004 how we want to see the rate of the
levy going in the longer term. In general, as you know, we are
not attracted to widespread hypothecation because all the sources
of Government's income contribute to the costs of meeting all
of the Government's priorities. There have been cases though where
we have introduced a measure of hypothecation and we would consider
that if it arose in this instance at the time. It is just worth
making the point that if there was to be a significant increase
in the rate of the Landfill Tax and if there was something like
the Credit Scheme in place as well, then that element at least
of any increase would directly contribute towards the aims that
the Credit Scheme is being focused on.
975. You suggest that you will make an announcement
in 2004 as to how the tax might go up, but would it not be logical
to make the announcement fairly soon so that people can actually
anticipate in terms of developing recycling schemes and actually
making some of the schemes on the margins of viability feel that
they can hang on?
(Mr Timms) I think we would want to be more confident
than we can be at the moment about the impact of a rising level
of tax. As I have explained to Mr Donohoe, the aim is to proceed
cautiously with these pound per year increases.
976. I understand why you are proceeding cautiously
but should you not give people some idea? It may not be that you
will make the announcement very soon but perhaps in a year or
two years' time rather than wait until 2004.
(Mr Timms) I think we certainly want to wait until
we are confident about what the effects have been of the current
increases. Once we do have that information then we will be in
a position to talk about the longer term.
977. How did the Treasury decide how much funding
it would allocate to waste facilities through the Private Finance
Initiative? In other words, how much and to what? On what basis
(Mr Timms) The key driver has been the objectives
in the Waste Strategy. The Waste Strategy was published in May
and the Spending Review was set out in July, so we were able,
in putting the Spending Review announcement together, to take
full account of the targets that were set in the Waste Strategy.
That has been the process that we went through.
978. Do you not think that the Private Finance
Initiative support encourages potentially inappropriate capital-intensive
approaches to waste management? That is why I asked my first question.
(Mr Timms) No, I do not. The PFI is a means of procurement
and it has a number of benefits and those benefits apply irrespective
across a wide range of projects, in particular bringing expertise
from the private sector to bear on public sector projects.
979. Could those sums of money not have been
better applied to recycling initiatives and that sort of thing,
separation of waste streams?
(Mr Timms) There is no reason why they should not
be. I made the point earlier on that we have reviewed the criteria
that the Project Review Group will apply to PFI projects in the
waste area. The criteria do reinforce now the central place of
recycling and composting in waste PFI applications.