According to Bristol-based Eunomia, the £8 a year Landfill Tax escalator, which was introduced in April (see letsrecycle.com story) and will rise to £48 a tonne in 2011, will generate an additional £4 billion for government by 2020.
Treasury needs to consider whether the tax, as currently structured, is properly aligned with its own Statement of Intent on environmental taxation
Dr Dominic Hogg, Eunomia
However, the consultancy claims that, contrary to the Government's green objectives, the tax fails to reward more sustainable waste treatment technologies – and in particular those which biostabilise waste using Mechanical Biological Treatment (MBT) methods – thereby putting the UK's Landfill Directive targets at risk.
And, echoing concerns raised by the LGA (see letsrecycle.com story), it says that promises by the government to make the tax revenue neutral seem to be “weakening significantly” – placing an increasing financial burden on councils and businesses.
The concerns were outlined in a study entitled 'Impact Assessment of the Landfill Tax Escalator', which was published last week following the release of a previous Eunomia study which called for a lower rate of Landfill Tax for wastes which have been biostabilised.
Writing in the report's executive summary, authors Dr Dominic Hogg, Adam Baddeley and Hannah Montag said: “Whilst there is an entirely legitimate revenue-raising role for environmental taxes, such taxes should seek to retain their environmental credentials.”
“We reiterate, therefore, our call for a lower rate of landfill tax to be applied to waste, which, having been treated in an MBT facility, achieves a pre-defined level of stability.
“Such a change would function as an incentive to pre-treat a high proportion of waste, the higher the differential becomes between the tax on treated and untreated waste. This appears to be a cost-effective change to the existing structure given the environmental benefits which are likely to be delivered,” they added.
Cost
The goal of Eunomia's study was to estimate the impacts of the new escalator on both local authorities and businesses, in terms of not only the additional level of tax paid, but also the cost of waste treatment facilities developed to avoid the tax (“pre-tax outlays”) and further climate change impacts.
The Eunomia report also made calculations based on lower rates of Landfill Tax for biostabilised waste alongside the new higher rates for untreated wastes sent to landfill.
Defra included a retrospective analysis of the impacts of the escalator in the new Waste Strategy for England, published in May 2007, but the full financial burdens were not fully explored, because the obligation to carry out Impact Assessments of this nature falls on the HM Treasury.
Benefits
Eunomia's study found that under the present system, councils will pay an additional £1 billion in Landfill Tax by 2020, with £0.5 billion in “pre-tax outlays”. Climate change benefits only amount to £0.3 billion and the UK's Landfill Directive targets for 2012-13 will be missed.
Businesses, meanwhile, will have to pay nearly £33 billion in Landfill Tax, while climate change benefits are again £0.3 billion.
However, if the tax system was to change in the ways detailed within the study, councils would pay an additional £0.4 billion in “pre-tax outlays”, but this would deliver climate change benefits of £2.8-3.2 billion and Landfill Directive targets would be met.
At the same time, businesses would have to pay an additional £1.2-1.6 billion in pre-tax outlays – but would save £2.2-3.6 billion in the landfill tax payments.
Advance
Eunomia also found that in the medium-to-long term, any further changes in the Landfill Tax Escalator ought to be pre-announced well in advance – labelling the current situation, whereby the Treasury keeps open the possibility of further increases in tax beyond the £48-a-tonne level, “less than satisfactory.”
Commenting on the lack of a formal Impact Assessment accompanying the Escalator, Dr Hogg said: “Treasury does not seem to have looked at options for changing the tax's structure. It has merely looked at increasing the tax.
“Treasury needs to consider whether the tax, as currently structured, is properly aligned with its own Statement of Intent on environmental taxation. Not only were lead times insufficient for those dealing with waste to change their plans, but the blunt structure actually discourages the introduction of new technologies which could be introduced quickly, and with positive implications for climate change”.
Mr Baddeley added: “This is an instrument which should be used to encourage positive environmental change, but where stabilising waste is concerned, the Treasury clearly has a blind-spot. We reiterate our call for a lower rate of Landfill Tax to be applied to waste which achieves a predefined level of stability. This appears to be a cost-effective change to the existing tax structure given the environmental benefits which are likely to be delivered.”
Treasury
Eunomia liaised directly with Defra during the development of the report, whilst also keeping the Environment Agency informed. The consultancy is currently working on a collaborative proposal for further research into the evidence base to support the proposed lower rated of Landfill Tax.
Since a Eunomia presentation in November 2007, the consultancy said there had been no further comment from the Treasury.
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