15 August 2018 by Joshua Doherty

EU State Aid case sought over commercial collections

EXCLUSIVE: Max Recycle has reported Durham county council to the European Commission for allegedly breaching state aid rules with regards to commercial waste collections.

The complaint was filed earlier this month and accused the council of “under-cutting the private sector” by using publicly funded resources to offer cheaper rates, thus distorting competition.

Commission

The EU Commission will now decide if it feels Max Recycle has a case, but is under no obligation to take the case to court, even if it agrees

The referral is part of ongoing efforts by Max Recycle, a waste management company based in Durham, to secure a ruling that allowing local authorities to compete for commercial waste contracts, without having to charge VAT and using equipment and vehicles also used for municipal waste work, is wrong.

The European Commission referral comes less than eight weeks after Max Recycle was denied permission to appeal a 2016 High Court ruling, which found that VAT exemptions provided to local authorities for waste collections were not anti-competitive (see letsrecycle.com story).

The complaint to the EU Commission this month claims that as well as VAT exemptions, the council “has at its disposal” waste vehicles, manpower and other resources which are publicly funded from its statutory obligation to collect residential waste.

It is then able to “undercut” the private sector with lower rates for private commercial waste collection by using these for private commercial collections.

“The day-to-day experience [of Max Recycle] is that local authorities are able to undercut private companies by offering commercial collection services at prices which would simply not be profitable or capable of being maintained if the authority was subject to the same commercial considerations as a private company in relation to the cost of providing the service,” the complaint submitted by legal advisors for Max Recycle says.

State aid is described by the EU as “any advantage granted by public authorities through state resources on a selective basis to any organisations that could potentially distort competition and trade in the European Union”.

Evidence

The complaint states that authorities can “undercut” the private sector, partly because of VAT exemptions they are entitled to, which is currently under judicial review, “but also because council utilise publicly funded resources” such as wheelie bins and also allowing council waste vehicles into bus lanes, allowing them an “unfair time advantages” over others, according to the complaint.

When reporting an authority to the European Commission, one must outline details of any steps “already taken to obtain redress” and also describe exactly how a national authority has infringed the law.

Collection

The dispute follows on from a case earlier this year regarding council VAT exemptions for commercial waste collections

Max Recycle and its legal advisors submitted 139 pages of accompanying evidence, which included freedom of information (FOI) requests and correspondence with the council and government bodies such as WRAP.

Freedom of Information

The FOI requests submitted include asking the council in December 2015 how much it pays for cost disposal of mixed municipal and commercial waste for both the 2015/16 financial year and the following year.

The council responded to say this costs £79.69 a tonne, which Max Recycle said in its complaint it “could not afford to undercut the council based on the disposal costs it has to pay compared to the council”.

For mixed recyclables at three different MRFs in the area, this ranged from £0-35 in gate fees per tonne.

In May 2016, Max Recycle director Scott Hawthorne submitted another request, asking information on marketing which he had claimed to have seen on council waste vehicles, which advertised “county-wide trade waste services ” instead of household recycling.

The 10 questions submitted included the amount of lorries with this advertising and who was behind the scheme. The council responded to say that the council operates 85 lorries, nine of which advertise the county-wide services.

Following on from this request, Mr Hawthorne asked if the council plans to increase the amount of commercial waste collection it offers, and also why it would do so if, as he described, “the council is prevented from profiting from them”.  Mr Hawthorne also asked if the council still uses household collection vehicles for private collection.

Durham

Max Recycle says Durham council offers private waste collections across the borough ‘using publicly funded resources’

However, this request for information was rejected by the council, stating that the requests were “based on opinion” and not fact. The request for correspondence was also rejected as “it would harm its “confidential commercial interests”.

On subsequent dialogue between the council and Mr Hawthorne, the council said “the pattern” of requests was “vexatious”,  saying they believed they were focused on the “personal interest” of Max Recycle managing director Scott Hawthorne and not the public.

The latest FOI request, which is not in the complaint but has been seen by letsrecycle.com, asks if the council is still collecting commercial trade waste, and also any council tax allocations towards its collection and details of its market share.

The questions included: “On what basis does Durham County Council believe it can perform services under a public statute, but yet not provide information regarding the cost and practical applications of those public services provide, under the grounds of protecting its commercial interests?”.

WRAP

The evidence attached also included correspondence with Patrick Mahon, strategic assistant to the CEO at WRAP.

The correspondence related to guidance which the government-funded body published in 2011, which stated that there are a number of benefits of co-collecting commercial and household waste/recyclables on the same vehicles included revenue generation and efficiency savings.

WRAP released guidance in 2011 on the co-collection of household and commercial waste, which was criticised by Max Recycle

When asked by Mr Hawthorne if WRAP had considered EU state aid laws when publishing the guidance, Mr Mahon claimed the regulations are “not relevant” to the guidance.

“As I’m sure you are aware, section 45(1) of the Environmental Protection Act places a duty on waste collection authorities to collect waste from commercial premises if requested by the occupier,” he explained.

Mr Mahon added: “Our guidance focuses entirely on providing waste collection services to commercial premises…. in an efficient way”.

In the complaint, Mr Hawthorne stated that there are other instances of groups such as LARAC “encouraging others to seek out alternative sources of revenue including the promotion of commercial waste activities. “

WRAP itself has previously been at the centre of state aid cases at EU level. In 2003, the group won legal clearance from the European Union to offer financial support to projects run by large firms (see letsrecycle.com story). 

The approval came 16 months after a complaint was filed in regards to WRAP’s grants to companies which are not SMEs (employees of 250+).

Commission

The European Commission will now decide if there is reasonable grounds for a case. However, even if its finds that there is, it is under no obligation to take the case to court.

“It is a shame it has come to having to take the case to the European Commission, but if the council had acted with greater transparency this wouldn’t need to be the case.”


Scott Hawthorne
Max Recycle

Previous examples of state-aid cases include Lloyds having to split off TSB Bank and sell it in order to comply with state-aid laws following the UK government bailout in 2008.

Apple was also ordered to pay €14 billion to the Irish government in 2016 after it was found to have not paid the correct amount of tax as part of a deal with the government. Both parties have appealed that ruling.

Reaction

When contacted by letsrecycle.com, Durham County council stated that it would be “inappropriate” to comment on the matter while it is ongoing.

Jacob Hayler, executive director of the ESA, explained that while he can’t comment specifically on the case, councils need to be “aware of state aid implications when conducting commercial collections”.

He said: “ESA is aware of the State Aid complaint which has been brought against Durham County Council.

“While we aren’t in a position to comment about the specifics of this case, it shows clearly that councils need to consider carefully State Aid implications when conducting commercial collections. In particular, Local Authorities need to ensure that they are not unfairly cross-subsidising commercial activities with vehicles and infrastructure utilised for household services.”

Transparency

Speaking with letsrecycle.com, Scott Hawthorne, managing director of Max Recycle, said: “It is a shame it has come to having to take the case to the European Commission, but if the council had acted with greater transparency this wouldn’t need to be the case.

“I understand competition, and its importance, but hiding behind a public service is not right.”

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