Landfill tax – a cautionary tale

Matthew Farrow
25 June 2014

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Matthew Farrow says environmental legislation like landfill tax, however well intentioned, needs to make sense out in the reality of a waste transfer station.

Landfill tax is often held out as an example of successful environmental policy making where for once policy intention and actual outcome matched very closely and there was wide stakeholder support.   And in many ways this is true. 

The visual and physical impacts of landfill sites tally nicely with the intellectual concern over the wasted resources they embody, so everyone agreed that the aim of cutting waste to landfill was right. The escalator in particular, under which it was made clear that landfill tax would rise from its initial modest rate by £8 per tome each Budget until it reached a target level of £80/tonne, delivered that holy grail of environmental policy – long-term investor certainty. 

Waste producers, waste management companies, and local authorities, all recognised that there had to be better way than 90% landfill and set about investing in alternatives further up the waste hierarchy. 

But while the standard rate has been a success story, the history of the lower rate, is more of a cautionary tale.

The lower rate covered inert material such as stones and building rubble.  The logic was that such material, not being biodegradable, did not produce greenhouse gases and so was less environmentally damaging to dispose off.  The lower rate was set at £2.50 per tonne, compared to £8 for the standard rate.

"HMRC inspectors were rarely to be found at the landfill site weighbridges where landfill staff had to decide whether to record incoming waste loads as standard or lower rate."

So far, so reasonable.  However, the escalator only applied to the standard rate.  So within a few years, the differential between the two rates was enormous.  In itself, this was not necessarily a huge issue, except for the problem that some types of mixed waste, such as demolition waste or the residual fines from trommels at Material Recovery Facilities can contain both materials subject to the lower rate (eg pieces concrete and bricks) and materials attracting the standard rate (eg fragments of wood). 

 The HMRC regulations tried to be pragmatic by allowing loads of waste which were primarily lower rate material but had ‘incidental’ amounts of standard rate material to still be charged at the £2.50 rate.

What ‘incidental’ meant in practice though was never defined and I have witnessed two HMRC inspectors debating whether a sample load was within the ‘incidental’ threshold or not.  Moreover, HMRC inspectors were rarely to be found at the landfill site weighbridges where landfill staff had to decide whether to record incoming waste loads as standard or lower rate.  Tales abound of loads of standard rate material disguised with top coverings of inert material.

The combination of a regulatory grey area, a huge financial incentive to exploit this grey area, and inadequate enforcement led to predictable consequences. In addition, the grey area existed for so long that alongside those who deliberately defrauded the system, there were probably others who genuinely thought that it was legitimate to designate mixed loads as lower rate.

In 2009 there was an abortive attempt to reform the system in ways which would have increased the lower rate relative to the standard rate but it was abandoned after opposition from the CBI (where I  worked at the time although not on waste policy) which was concerned about the cost impact on  industry.

Eventually, concern about assumed malpractice (and also lost tax revenue), grew to the extent where HMRC in 2012 sought to clarify the relevant guidance as parts of efforts to enforce the boundary between the two rates more effectively. 

"The seductive rhetoric of the circular economy needs to be implementable in the uncompromising environment of a waste transfer station yard on a rainy Tuesday afternoon."

The result was skip operators blockading Parliament Square in protest as some feared that an abrupt change in enforcement practices would raise their costs unacceptably.  Government changed tack and instead started a long period of consultation and discussion which culminated in the announcement in this year’s Budget proposing a system of ‘loss on ignition’ testing of mixed loads against a quantified threshold. 

This is a crude solution, not without some cost, but probably the only way to resolve a situation which has ended up with no one happy, and at the Environmental Industries Commission we are likely to back it.  I also think that there should be some phased increase in the lower rate – after all, inert material may not give off greenhouse gases but it should be still be being recycled where possible.

So, what do we learn from this saga.  First, that even the most straightforward, widely supported green policies can breed complex, unforeseen consequences over time.  And second, the seductive rhetoric of the circular economy needs to be implementable in the uncompromising environment of a waste transfer station yard on a rainy Tuesday afternoon.

Matthew Farrow is executive director of the Environmental Industries Commission www.eic-uk.co.uk

This article first appeared on Business Green.