Waste and Recycling: Possible Changes
to the Landfill Tax Credit Scheme

SUMMARY OF RESPONSES TO THE CONSULTATION PAPER ON POSSIBLE CHANGES TO THE LANDFILL TAX CREDIT SCHEME

Introduction

1. The Department for Environment, Food and Rural Affairs (Defra), jointly with HM Treasury, published a consultation document in April 2002 on possible changes to the Landfill Tax Credit Scheme (LTCS). The consultation paper sought views on the future priorities for funding for the scheme and set out alternative design options. These ranged from retaining the scheme as it currently exists, to replacement, in part or whole, with a public spending programme.

2. The landfill tax was introduced in October 1996, as a tax on disposal of waste to landfill. The current rates of landfill tax are £13 per tonne of waste for 'standard' waste and £2 per tonne for inert waste.

3. Under the LTCS registered landfill site operators may allocate up to 20 per cent of their landfill tax liability for the year to fund approved environmental projects. Not more than 90% of the cost of these projects may be met by this funding; the remainder of the cost must be funded from other sources. These projects are administered through environmental bodies (EBs) approved by ENTRUST, the private sector regulator of the LTCS.

Consultation Issues

4. The consultation paper invited comments on possible changes to the scheme:

'Priorities for Funding' - this section sets out the potential areas that LTCS funding could be used for. Three broad areas were considered in turn:

1. encouraging further or quicker behavioural change in line with the environmental objective of the tax (i.e. more sustainable waste management);
2. dealing with environmental externalities associated with landfill (i.e. local community projects in the vicinity of landfill sites);
3. achieving other Government objectives (this could include biodiversity and land remediation objectives or other wider objectives).

• 'Potential funding mechanisms and the design options' - having asked what resources currently distributed through the LTCS should be used for, this section invited views on how resources should be made available to meet those aims. The possible funding mechanisms proposed were tax credit schemes; other tax allowance schemes and public spending programmes. This section included the option of a Single Environmental Body (SEB) or regional SEBs, with responsibility for distributing all tax credits. The consultation exercise broadly suggested three options for the future of the Landfill Tax Credit Scheme:
• Tax credit schemes
• Other tax allowance schemes
• Public spending programmes.
• 'Transitional arrangements' - this section raised issues which are generic across the UK, if there is any change to the scheme. The consultation document asked for views on the form that any transition should take, the length of any transition and on whether there was a case for different treatment of different projects.

Overall Response to the Consultation

5. The consultation generated a total of 700 responses.

6. The summary of responses to the consultation exercise has been grouped broadly in line with the questions put in the consultation document.

7. The decision on the future of the LTCS will be made in the autumn, informed by the results of this consultation, and will be considered in the light of Spending Review 2002 and the Prime Minister's Strategy Unit's waste report.

PRIORITIES FOR FUNDING THROUGH THE LTCS

8. On the priorities for funding, those that favoured moving the scheme to a form of public expenditure commented:

• Essential to find long-term funding for local authority recycling schemes
• Prioritisation of funds raised locally should be set locally, i.e. with local authority lead.
• Restrict projects to category C/CC and sponsorship of local community environmental projects.
• Encourage the development of products from waste or the development of markets for recycled waste.
• Funding should be available to landfill sites where environmental improvements stipulated in existing planning conditions are not sufficient
• Divert 80% of funds raised by 20% LTCS scheme to local authorities to help meet statutory recycling targets. Remaining 20% should continue to fund local projects under existing scheme.
• The bulk of the funding should be distributed to local authorities specifically linked to the achievement of targets contained in their Recycling Plan or Waste Strategy - 50% of funding by formula-based allocation to individual local authorities; 50% funding via a regional body. This could be on a challenge fund basis.

9. Those that favoured keeping the LTCS as it is or with modifications (Options A or B), made the following comments on priorities for funding:

• Different priority levels should be set around the funding of the existing project categories.
• There is a need to prevent population migration from rural areas by providing funds to improve social communities.
• Funding for environmental improvement projects should be at least 35% in order to reach funding equivalent to £7 of per tonne tax. Additional funding should be directed primarily to sustainable waste management schemes.
• Additional research is required into sustainable waste management, funded by an additional 20% of the revenues raised by landfill tax (i.e. in addition to current scheme funding).
• The highest priority is sustainable waste management.
• The prime purpose of the scheme should be the regeneration of environments and communities that have suffered as a result of landfill, not simply to support the Government's waste strategy.
• Diverting LTCS funding to national waste schemes would have a small effect on the national scheme but a significant impact on communities that can benefit from the current scheme.
• Funding under categories D and E goes some way towards ameliorating the impact that landfill has on a community. It shows that the Government is aware of this inconvenience and is prepared to put some money raised from landfill tax into projects for the benefit of the local population.
• Criteria for environmental improvement projects should include:
  • protection or improvement of environment
  • benefit to local community
  • direct benefit to disadvantaged communities
  • public accessibility
  • encouraging use of recycled materials
  • consideration of sustainable access.

POTENTIAL FUNDING MECHANISMS AND THE DESIGN OPTIONS

10. Of the total of 700 responses to the consultation received, there was the following split in terms of their preferred funding mechanism:

11. Those that responded in favour of a public spending scheme, commented as follows:

• Holistic approach required otherwise waste moves from one technique to another without any overall decrease. There is no strategic approach when money is split between diverse private hands.
• Existing scheme has a bureaucracy of its own and is no less complicated than central funding.
• Self-interest stops landfill operators pushing the scheme. It is not in their interests to promote recycling.
• LTCS generally has had an insignificant impact on increased recycling and more sustainable waste management practices. If it is accepted that local authorities are the major players in increased domestic waste recovery, then these are the very organisations that have been effectively denied access to this large source of funding.
• More money needs to be allocated to local authorities recycling and waste minimisation schemes. Current scheme will not enable local authorities to meet their statutory recycling targets, as it does not give any ongoing revenue support for the development of recycling schemes and it relies on third parties for funding.
• Large amounts of 'public' money are being taken from the Waste Disposal Authorities who are responsible for waste management. The council tax payer through his or her elected council should have control of how taxpayers' money is being spent.
• Growing need to move from pilot schemes to long-term sustainable schemes.
• Landfill tax is wasted on community projects with no link to waste related issues.

12. Those that responded in favour of a private sector scheme, as at present, or with modifications, gave the following reasons for retaining a private sector scheme:

• The LTCS is very flexible and has the capacity to react to changing requirements.
• LTCS has a strong local presence. Without the LTCS, much would not have been achieved, especially in the area of small local projects.
• The current system works well. Local Councils should not be used to distribute funds, as there is a danger that money would be wasted on administration and bureaucracy.
• LTCS should not be used to assist local authorities to meet their sustainable waste management (SWM) targets.
• While many worthwhile projects do not benefit from LTCS, it is precisely because LTCS adds value, that demand for funding heavily outstrips permitted supply of funds.

13. Those that favoured retaining a private sector scheme suggested the following modifications:

• Potential conflicts of interest around the distribution of funds by waste operator affiliated Environmental Bodies (EB's) should be addressed.
• The bidding process to EBs is not consistent and has resulted in an arbitrary distribution of funds.
• There should be greater visibility and more accountability around the way funds are allocated under the current scheme.
• Scheme should not be used for environmental improvements that are otherwise the responsibility of the landfill operator.
• LTCS funding should be available to all projects that deal with waste minimisation and that, additionally, fit in with at least one major Government initiative.
• A key area for attention in the last five years has been that of control of the many EB's and the ability of the regulator to ensure there is no malpractice. The regulation of all the bodies entails considerable effort in attempting to maximise control. The LTCS is at odds with all other forms of funding mechanism, in requiring the recipient of funds to be regulated, as well as the donor body.

14. Of those that responded to the question 'does a move to a system of tax allowances form a realistic alternative to the scheme?', less than 1% were in favour of this design option.

15. General suggestions on this section of the consultation document, on potential funding mechanisms and design, were:

• When carrying out a detailed review of LTCS restructuring, there should be consideration given to the wider sphere of waste management.
• In order for local authorities to comply with the standards set by the Government for recycling, an improved system of funding to support the setting up of basic infrastructure will be required.
• The LTCS should be abolished and all landfill tax revenues used to meet the cost to local authorities of meeting the statutory targets set in the waste strategy.
• It would be beneficial to have the replacement LTCS in place before the Waste Minimisation and Recycling Fund finishes, in order that they are compatible.
• A new scheme should be developed that allocates a high percentage (80%) to sustainable waste objectives. Direct local authority funding should be provided through a ring-fenced provision within the Environmental, Protective and Cultural Services (EPCS) block.
• There should be greater public accountability for the EB's.
• Reorganise scheme to move from 3000 EB's to 30-40 Distributing Environmental Bodies (DEB's).
• The regulator role should be focused on audit compliance and not the registration of projects. EB's should determine a project's compliance at the outset before registering the project with the regulator.
• The requirement for a 10% third party contribution should be removed or be lowered to between 1% and 3%.
• The LTCS should be altered to allow operational waste projects to be funded in line with a new definition of the C/CC category.
• Sustainable waste management could be better met by greater allocations to local authorities either to set up recycling schemes or to establish an infrastructure within which local initiatives can evolve.
• Relevant experts including government bodies and local community interests should be represented on DEB grant panels.
• Modify the existing scheme to ensure that sufficient funds are directed through environmental bodies to local authorities.

TRANSITIONAL ARRANGEMENTS

16. Broadly, those respondents that prefer funding mechanism option A (retention of current scheme) favour a transition period of 2-3 years, those that prefer option B (current scheme with modifications) a period of 4+ years and those that prefer option C (public spending) a period of 1-2 years.