Mr. Letwin: Does the hon. Gentleman agree that, first, the optimality theory suggests that such a tax, if genuinely intended to have an environmental effect, should be set at the level of the externalitiesthe level of the damage caused to the rest of society? I recall that the aggregates tax is so intended to be set. That would show a settled rate rather than one that increases. Secondly, notwithstanding my first point, if his logic were right, does he agree that there should be an accompanying change downwards in national insurance contributions or in some other fiscal measure?
Mr. Davey: I am happy to agree with the hon. Gentleman's second point. We believe strongly in the level of neutrality in respect of environmental measures. It is a significant issue because, hopefully, it wins more public support for such an important change that is being made to our economy and our society.
I am not sure whether I can agree with the hon. Gentleman's view on an optimal tax theory. If he does not mind my saying, his analysis of the position is static. Optimality theory in respect of tax should take in the dynamic picture. When trying to move an economy and a society from one form of behaviour to another, we cannot suddenly introduce a tax at a theoretical optimal rate. That would go against the grain of society, the grain of business and the grain of the private sector. We should aim towards what may possibly be calculated to be an optimal rate, but we cannot introduce a tax, especially the landfill tax, straight away at such a rate, partly because the information that would be required to calculate that rate does not exist. We need to see how the private sector and the public sector react as the tax is incrementally increased slowly and know whether it is sending out the right incentives.
There is a problem with the operation of a landfill tax in that it has created some perverse incentives. Fly-tipping has increased as people try to evade the tax. We cannot pass tax legislation in the House and assume that the net result will be positive. All the analyses suggest that it might be positive, but account is not taken of the externalities, the side effects and how people try to adjust. When people are adjusting to the tax by way of illegal activities, such as fly-tipping, we must ensure that the Government's policy is taking that into account elsewhere.
I have cited an example of how, if we had gone immediately into a high level of tax, we may have created some damage more widely in society. I believe that the Conservative Government got it right. The tax had a relatively low start, with a clear long-term signal. The Government are to be congratulated for continuing such a process. Their only failure is that they are not more radical in their recycling and reuse strategies. Such issues are crucial. They concern our constituents and members of all political parties. Conservative and Labour Members who want to improve the way in which businesses and organisation can recycle goods and the incentives for so doing have drafted several private Members' Bills. If there is a criticism of the Government on the matter, it is that they have not gone further with regard to wider aspects of environmental policy.
Mr. Letwin: Does the hon. Gentleman recognise that the Conservative position is not far from his, apart from in one important respect? We also want economic levers to be used to achieve desirable environmental goals, but we would prefer to see tax reductions, rather than tax increases. Where it must be so, we would rather see regulation than tax increases, and certainly any method rather than non-fiscally neutral tax increases.
Mr. Davey: I am grateful to hon. Gentleman, but I suggest that he stop digging. The former Conservative Government introduced the tax, raised it when in power, and argued at the time that the tax was good. They were not reducing taxes on the level argued, but using marking mechanismstaxation signalsto try to promote good environmental behaviour. They were right then, but I am concerned that the hon. Gentleman does not share his former colleagues' support for the approach, and that he puts regulation above taxation. In some cases, regulation can be the optimum way of securing environmental benefits, but often it is not, and taxation is the most appropriate method providingwith the very important caveatthe receipts produced are given back to the wider tax-paying community for tax reductions elsewhere. That seems to us to be the economically, socially and environmentally optimum approach.
We will continue to support the policies, with two slight caveats from the Government. They should make the wider environmental policies in the area more ambitious than currently and, as the hon. Gentleman said, if there is an increase in receipts from the landfill tax as a result of the measures, the receipts should be given back to the private sector in reductions, presumably in employers' national insurance contributions.
Mr. Peter Luff (Mid-Worcestershire): I am grateful to you, Mr. O'Hara, for allowing me to catch your eye. I am breaking the silence that I usually adopt in these proceedings because I have a strong and powerful constituency interest in the matter, and I am grateful for the opportunity to raise it.
I was a passionate devotee of recycling as a child. My Corona bottles always went back to the newsagent shop, and the deposit was duly collected. It grieves me no end that modern plastic bottles are thrown away into landfill sites, and I also grieve at the way our computers litter landfill sites of the United Kingdom, which represents a scandalous failure to recycle.
I am all the more a passionate devotee of recycling because the Hill and Moor landfill site is in my constituencyit is called a landfill site although it is actually a land rise site. A mountain is being constructed between the villages of Throckmorton and Wyre Piddle, and that is Worcestershire's major site for the disposal of household waste, particularly since Labour members of the county council voted against the incinerator, which is a crucial part of their own waste management strategy. Never mindthat is another matter.
My constituents in the villages around the Hill and Moor landfill site should have the bare minimum of transport going to that land-rise siteI must get my terminology right.
Mr. Andrew F. Bennett (Denton and Reddish) rose
Mr. Luff: I am delighted to give way, although I cannot think of what I said to prompt the hon. Gentleman.
Mr. Bennett: Is the Conservative party now for incinerators?
Mr. Luff: The hon. Gentleman leads me into a full and frank confession of what happened at the party meeting in Kidderminster last week, when I am afraid that the Conservative party joined forces with the Labour party to vote against the incinerator. There you are, Mr. O'Hara, the truth will out, although I am not afraid of the truth.
As the hon. Member for Kingston and Surbiton remarked during his contributionI thought that he contradicted himself but he was thoughtfulthere are perverse incentives for the landfill tax. The hon. Gentleman dismissed the perverse incentives by supporting the Government's strategy that, as we read in the Red Book, is part of a strategy to increase the current standard rate of landfill tax by
Mr. Davey: How does the hon. Gentleman believe that we should deal with those perverse incentives? Does he believe that we should reduce the tax, abolish it, or as I do, deal with such illegal activity in other ways?
Mr. Luff: One should not be a single-club golfer in such matters. All such taxes can be benign at the right level and become offensive at the wrong level. The Government are moving the tax towards the wrong level. Already, at the current level, Worcestershire farmers complain to me regularly about the fly-tipping in their fields, typically by small building and gardening contractors, but in a more organised way, too.
Mr. Timms: I cannot resist the temptation to ask the hon. Gentleman the same question. In the House, the hon. Member for West Dorset said:
Mr. Luff: I was; I did, with a little reluctance, and in the hope that it would not be increased sharply above the rate of inflation, which is what is happening. My mental arithmetic is not what it used to be, but the increase is not far short of 10 per cent. Increasing £12, £13 or £14 rates by £1 is a smaller percentage increase, but still represents a significant increase over and above inflation each and every year.
One company in my constituency in particular has made a large sum out of the consequences of the landfill tax. A company called Ivory Plant Hire, of which the Financial Secretary has heard me speak before, systematically fly-tipped large quantities of building refuse around Worcestershire and Herefordshirepretending to reputable building contractors that it was reputable, and callously dumping the muck that it gathered from building sites wherever it could.
The fines levelled by magistrates courts are lower than the landfill tax revenues that must be paid to take refuse to proper landfill sites. That is a huge issue. We managed to persuade local magistrates substantially to increase the fines, which is welcome, and that company now seems to have gone into liquidation, but only after two years of huge environmental damage to my constituency. I fear that it is likely, like a hydra, to re-emerge with other heads after the so-called liquidation, and more damage will be done.
The Financial Secretary must be extremely confident that the increase, and the further increase that the Government plan should we have the further misfortune of Labour winning the coming election, can be guaranteed not to cause further perverse incentives such as the hon. Member for Kingston and Surbiton described and further environmental havoc in my constituency. I am deeply worried about this sharp increase.
The Government plan that moneys raised from the landfill tax will, under the landfill tax credit scheme, be turned to different purposes. I find that highly objectionable. My constituents who live around the landfill site pay the price of the activity that goes on there in, I suspect, loss of value of their homes, and certainly in the environmental impact of lorries and the visual amenity of the extraordinary mountain of rubbish growing in their back gardens.
At present, there is at least the prospect of the landfill tax credit scheme and some of the extra money that the Government are trying to raise going back to that community. In fact, scandalously, that has not happened in Worcestershire. The money has gone all around the county, not to the local communities around the land-rise site. However, the Government now say that they will end all that and spend the money on broader schemes to encourage recycling in the county.
I have no objection to recycling, as I said, but when landfill sites have a substantial environmental impact on a local community, that community should receive some of the benefit of the landfill tax credit scheme. All the benefit should not go to the wider community in order to encourage greater recycling. I find it deeply offensive that my constituents will suffer increased fly-tipping as a result of the increase, while facing the prospect, if the Government press ahead with these ill-guided policies, of not receiving the benefits that should flow from the landfill tax credit scheme.
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