Examination of Witnesses (Questions 80-99)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
80. Does it not? I read it wrongly and Mr Trickett read it wrongly.
(Mr Broadbent) What we have is a service level agreement with them and that has been revised, one of a succession of revisions. You are absolutely right that there is in there for the first time a date at which if nothing else were done it would expire, but that does not hinder our ability to terminate it earlier, particularly if there is a breach.
81. The National Audit Office do not think the scheme is very good. The Ministers are looking at it to review it, then we have paragraph 5 of the Tenth Report of our sister committee. This says, "Nevertheless, we remain concerned about the conduct of ENTRUST, its Chairman, Chief Executive and Board, and its fitness for the role of regulator of the Landfill Tax Credit Scheme. We are especially disappointed that the Chairman and Chief Executive appear, from the evidence which they gave to us, to take no view on the appropriate strategic direction for the regulator of the Scheme, particularly given the Government's declared intention to review the workings of the Scheme". There is another Select Committee worried about it, yet you have given them another contract. Why could you not have waited?
(Mr Broadbent) We have not given them another contract, as I have said before. May I clarify one thing? The NAO report suggests that there are fundamental weaknesses in the scheme. I was trying to explain that I agree that there are weaknesses in the scheme and that is one of the reasons why Ministers are considering it. The NAO report then goes on to make a number of recommendations for changes in the way in which the scheme is controlled by us. At a working level I want to make clear that many of those changes are very sensible and we have indeed implemented most of them or considered implementing most of them. To that extent I certainly meant no disrespect or arrogance to the National Audit Office.
82. We shall have to make a decision in our own minds as to whether we accept that explanation or not.
(Lord Cranbrook) May I, without daring to suggest I could influence you in any way, just draw your attention to what you did not read which is the paragraph where the NAO report says, "I am satisfied that ENTRUST fulfils its duty satisfactorily". We were very pleased with that because we believe that to be true. I should be very happy indeed to examine with you in detail on any occasion whether or not you actually think the recommendations which are made on page 20 are fundamental because what the NAO call fundamental weaknesses entail small procedural changes. These weaknesses which are identified in the recommendations are ones which we have very easily been able to tackle.
83. How do you answer the criticism then of the Environment Committee in its Fifth Report, paragraph 155, which said, ". . . the best interests of the Landfill Tax Credit Scheme will be served by the replacement of the regulator, ENTRUST. The new regulator should be closer to Government and will be required to play an active role in steering the credits available into the most appropriate projects". How do you answer that?
(Lord Cranbrook) I can only answer it by the actions I have taken. Having taken note, I have made a point of engaging with Ministers, I have had ministerial visits and at the working level we are constantly in discussion with other groups. We are in discussion with the Local Government Association and with others and it is something we have very much taken on board and we are prepared to assist by taking steps which we as a regulator can do to assist Government policies. For instance, when the Government announced that it favoured a 65:35 division of contributions to sustainable waste management and to other projects, we put our heads together and together with the industry we devised a minor alteration to one of the reporting forms we have so that now we begin to be able to get a grip on the way this money is going to go at the time that it is contributed. We can already show you that something like 58 per cent of a sample of the contributions which have been made in the latter part of this summer are directed towards sustainable waste management. The ship is changing its direction.
84. What you are telling me is that you have changed your ways.
(Lord Cranbrook) Exactly. We have also adopted Nolan principles in our recruitments and the director I mentioned to you just now was recruited through the Nolan process.
85. It is quite clear that as an organisation you have had to lobby quite strongly with Customs to keep the job. What has been the cost of this lobbying?
(Lord Cranbrook) We have not lobbied Customs at all. We have performed the job and we have communicated with Customs at all stages to ensure that we cut costs as hard as we possibly can. We have adopted new IT in order to facilitate that cross-communication we have with Customs and there are many other ways in which we improved our efficiency. We do not lobby Customs.
86. The final point I want to mention is the point the Chairman brought up right at the very beginning of the meeting. This was to do with the Chief Executive, Dr Sills, who was given a golden handshake. Mr Broadbent was very reluctant to give any details of that because he said there was a confidentiality clause. I do not know whether you are aware, but this Committee, since I have been on itand that is two years, possibly more now because time flies when you are enjoying yourselfhave been very much against the idea of confidentiality clauses and certainly as far as the Health Service were concerned, we suggested, recommended, that such clauses should be got rid of. The last Chairman was quite adamant about this and I think the Treasury have accepted that. It seems clear to me that if the Department of Health are prepared not to have confidentiality clauses, there is no reason why anybody else should. It is public money and I am asking what the golden handshake was.
(Mr Broadbent) I tried to make clear that I am entirely willing to answer questions like this. I was perhaps looking for some guidance as to whether it is right to answer questions about an individual, his private affairs, when there is a confidentiality agreement. I am prepared to do so if I am asked, recognising that that is what we are doing.
87. Would you like to discuss it in a private session at the end of our meeting?
(Mr Broadbent) I am very happy to do that.
Chairman: Shall we do that, Mr Steinberg.
Mr Steinberg: If that is what you are ruling, then yes.
88. May I start with a rather esoteric point but it is one of interest in relation to this particular scheme? Due to the foot-and-mouth disease we had an awful lot of dead animals which have had to be buried this year; some were burnt but some were buried. Has this landfill tax been paid on those dead animals as well?
(Mr Broadbent) I look to my right for assistance. My deduction would be no, because landfill tax applies to waste being put into licensed disposal sites. I believe that most of the animals disposed of would be disposed of in special sites, essentially pits dug by the army. I look for confirmation to my right. Because the tax is payable on licensed waste sites, if dead animals came to a licensed site then yes, they would have been taxed, but I do not believe many animals did.
89. How much other waste is disposed of and avoids the tax because it is dumped somewhere which is not a licensed site?
(Mr Broadbent) Very little one hopes, although fly tipping is a problem wherever it occurs.
90. Are we saying that when the Government decide to dispose of something it can dispose of it wherever it likes, even if it is not on a licensed site and does not have to pay any tax, but other people always have to pay tax as they always have to dump things at licensed sites?
(Mr Broadbent) Customs and Excise were not involved in the disposal of animals as a result of foot and mouth disease and I imagine that decisions were taken by the appropriate authorities in government at the time in the light of what was necessary. What we do is tax waste going into licensed sites.
91. None of this disposal of dead animals was in licensed sites as far as you know.
(Mr Broadbent) If there were disposal of dead animals in licensed sites, it would have been taxed, but my understanding, partly I have to say from watching the television screen, is that most of it was done as an emergency measure very close to the site of slaughter in pits for that purpose.
92. You were talking about the fact that most of the landfill operators get the last ten per cent of their contributions back from third parties of one sort or another. Is that true for all of them, or do some operate the scheme without getting any money back from third parties?
(Mr Broadbent) I am sure it is true of the vast majority. I could not say whether it is true of all of them. I believe it to be true of the vast majority.
(Lord Cranbrook) At the beginning of the scheme there were several landfill operators who made the decision that they would not seek the ten per cent. With the escalation of the tax, which has inevitably reflected in an increase in money against which they can claim their contributions, I believe that some of them have changed their behaviour.
(Mr Carrigan) Some of them have actually introduced a cap. If they had reached £300,000 say of annual bottom-line cost in paying the ten per cent and that did not cover all the credits available, they would say they were happy to continue making that contribution themselves and if third parties came along they would release additional credits. That certainly happens with some of the larger operators.
93. Why did the landfill operators want to take part in the scheme?
(Lord Cranbrook) You would probably have to ask them. What I have said and I believe to be true is that they began to take part in the scheme, and you can see this happening, because they gained confidence. In our first nine months of setup, a regulatory regime was put in place which evidently satisfied the landfill operators that, with ENTRUST operating as a regulator, they would not be liable arbitrarily to clawback through excessive non-compliance by the environmental bodies. They had confidence in this scheme, I believe as a result of the regulatory regime we put in place from the very beginning.
94. Even if there is no clawback, they are not actually gaining anything financially out of it and they may be losing a bit if they have to pay some of the ten per cent themselves. What is the advantage to them?
(Mr Broadbent) It is important to remember that one of the earlier objectives of the scheme was to make landfill sites less objectionable, to sooth the pain of a landfill site locally and I believe that landfill site operators originally did see the opportunity to fund local projects and hence make their sites more acceptable locally and perhaps increase the chances of getting extensions for further sites.
(Lord Cranbrook) I hesitate to speak for the landfill operators who are not represented here at all. I do know from my communications with some of them that there are certain landfill operators who are extremely interested in the whole issue of resource management, sustainable waste projects, recycling projects and so on. They have been very interested indeed to support programmes which have been devised by environmental bodies, which have enlarged on those particular fields as well. There are several reasons why they have got involved but I cannot honestly claim to speak for them.
95. Let us look then at the third party benefit. Why would third parties give money towards the ten per cent?
(Lord Cranbrook) Again I cannot speak for them but, for instance, large supermarkets have given money and they like to see this money going towards projects which they think are admirable. Other groups are local people who want to see a local project take place. In a disinterested manner they have given ten per cent. We do have a breakdown of the ten per cent contributions which Mike Whiting can give you.
(Mr Whiting) Charities are about 15 per cent, friends of or supporting societies are about 15 per cent, large companies about 12 or 15 per cent, local authorities about 40 per cent and the rest bits and pieces.
96. I understand from paragraph 4.21 that it is now impossible for schemes to be of any benefit to the third party who provides the money. Does that go for local authorities as well?
(Mr Broadbent) Yes.
97. If a local authority provides some money to a local licensed waste disposal site, they cannot do anything which is of value, they cannot produce any environmental scheme which is of value in that local authority area.
(Mr Broadbent) They can produce schemes which are of value in that local authority area. What a local authority cannot do is have control or have its councillors as the director of the environmental body allocating the money. What they can do is to give money to a landfill operator in their area and that operator can channel the money to local environmental bodies. The local authority will clearly benefit from having more projects rather than fewer in its local authority area.
98. That does not count as a benefit in terms of this scheme.
(Mr Broadbent) That is correct. I think we should recognise that defining what a benefit is, is one of the particularly difficult areas. I said in my opening comments that this is a scheme where there are issues to do with transparency. Clearly if an amenity is created in a local authority area, provided that the money comes from the landfill site operator, provided the environmental body is not controlled by the local authority, that is within the terms of the scheme. Clearly the local authority has an amenity.
99. What about sustainable waste projects? Clearly if the amount of waste the local authority has to collect is reduced by one of these schemes that is of direct interest to the local authority.
(Mr Broadbent) It is, since local authorities are significant payers of landfill tax. One of the areas which Ministers are going to have close regard to in looking at how the scheme works is the increasing involvement by local authorities in landfill tax credit schemes. On the one hand this is not wholly bad, they are local authorities, on the other hand, it does raise some quite difficult questions about transparency and benefit.
(Lord Cranbrook) It might clarify matters if I may also make a point. The so-called C and CC schemes which are the sustainable waste management schemes which are compliant under the regulations are for research and development and they are not perpetual schemes. We have taken great care to examine what we might consider to be a reasonable time in which to test a research project or an R&D project to see whether or not it became workable. We are not able under the regulations to approve as compliant a scheme which is a perpetual subsidy, as you were suggesting, to a local authority at present.
(Mr Carrigan) Two tiny point of detail which might help. One is that contributors, either as landfill operators or third parties, may not benefit from the spending of the environmental body to which they contribute except where that benefit is shared by a general class of which they are a member. Secondly, local authority works which are of benefit to the general public would not be seen by ENTRUST as of benefit to the authority particularly. Benefit to the authority would be something which defrayed some of its costs or gave it a more direct benefit. Work of benefit to the public would not be classified as of benefit to the authority generally.