CHARGE TO TAX

Mr. Tim Smith (Beaconsfield)

On a point of order, Mr. Morris. May I seek your guidance? Do you anticipate that there will be a debate on clause stand part, or a wide-ranging debate on the first amendment?

The Chairman of Ways and Means (Mr. Michael Morris)

The occupant of the Chair never anticipates whether there shall or shall not be a debate on clause stand part until the debate on the amendments has taken place, but the debate on the amendment must be confined to the amendment.

Ms Dawn Primarolo (Bristol, South)

I beg to move amendment No. 5, in page 24, line 32, at end insert 'provided that the tax shall not be charged until such time as a matching cut in the main rate of employers' national insurance contributions has been made.'. The amendment's purpose is to bring the rebate in line with the levying of the landfill tax.

The landfill tax was announced in the Budget in 1994 as a tax with an unusual purpose. Rather than raising revenue, it is intended to change behaviour and to encourage the production of less waste by business and consumers, less disposal of waste in landfill sites and, most important, more recycling and other recovery of the value from waste. The detailed proposals to be implemented in the Finance Act 1996 and the statutory instruments that will follow later in 1996 must be measured against that yardstick.

Most important, the subject of the amendment involves the fact that revenue from the tax is to be passed back to business by way of a rebate of employers' national insurance contributions. Within certain limits, rebates will also be given for contributions to certain "environmental trusts". The 1995 Budget confirmed the linkage to national insurance contributions, although it is not complete as the landfill tax is collected for six months from 1 October 1996 and the national insurance contribution rebate comes into effect from 6 April 1997. Our amendment seeks to bring those two dates in line. I should like to explain why that should be done.

Many detailed provisions, which will be set out in secondary legislation, are pertinent to the rebate, but we cannot discuss them this afternoon. The functioning of the environmental trust scheme, the definition of qualifying 149 materials and the cost-compliance assessment will be considered in secondary legislation, but it is the rebate that we are concerned with today.

I need to put it on the record that Labour is broadly in favour of landfill charges and that we are not objecting today to the principle. We made it clear in our document "In Trust for Tomorrow" why we supported a landfill tax. It is based on the principle that the polluter should pay, it targets most dangerous waste, and it introduces credits against increased charges for landfill sites that install equipment to generate energy from methane. Charges should reflect differing regional environmental impact, and that must be done alongside a package of other measures.

We agree with the conclusion of the report from the House of Lords Select Committee on Sustainable Development, which states at page 75: It is not realistic to expect people to change their lifestyles for moral reasons alone. We need appropriate fiscal and legal measures to overcome the barriers to the adoption of more sustainable lifestyles and patterns of consumption". That is the purpose of the landfill tax. There is serious doubt, however, that that laudable aim can be achieved by the Government's proposals.

The Government state that the aim of introducing the new tax is that the additional costs arising will be passed on to waste producers. For local authorities, that suggests that council tax payers should bear the additional cost through an increase in their council tax bills, which will create, in theory, the incentive for them to reduce waste and to make better use of their waste produce. However, any incentive would be very weak.

The problem with the national insurance rebate is clear because council tax payers pay for waste disposal at an undifferentiated sum within their council tax bills. In addition, authorities are already spending at their capping limits, so any additional cost that is not reflected in those limits could result in serious reductions in services elsewhere. The relationship to the national insurance contribution rebate is crucial. If the desired move from waste disposal to waste reduction and recycling is to happen, there must be a major awareness and education campaign on the issues, so that the public can understand the rationale behind the tax.

The problem with the mechanism in the clause is that the conditions on British landfill sites vary. Disposal without energy recovery is at the very bottom of the waste hierarchy. Likewise, landfill sites without the benefit of modern technology to monitor conditions and recover methane are environmentally a poor option for disposing of waste. Inevitably, waste contains a certain amount of moisture and during the process of that waste breaking down leachates—liquid from waste—sinks to the bottom of the land and methane is produced. By the Government's own admission on page 20 of their draft waste strategy, landfill sites are the largest single source of methane emissions in the UK, and methane is the second most important greenhouse gas after carbon dioxide. Therefore, the relationship of the rebate and the environmental trust to those who manage the sites needs to be tightly drawn.

150 Many of the sites have problems with high levels of leakage, which threaten to contaminate the surrounding environment. Delays in money being made available to improve the sites clearly exacerbate the problem. However, surveys show that half the landfill sites operate the dilute and disperse method, which allows leakage into the soil and water beneath the site with no attempt at controlling it. If those sites are to have access to rebates, that will simply encourage bad behaviour. Some sites use modern engineering techniques to monitor and control gas emissions. Indeed, I know of a good one in Avon, which would not be rewarded for its good practice through the payment scheme mechanism in the clause.

I want now to deal specifically with the national insurance contribution. Treasury press notice 138/94 of 29 November 1994 quotes the Chancellor as saying in the 1994 Budget statement that it was his intention to look at ways to offset the impact of landfill tax on business, including compensatory reductions in employers' national insurance contributions. This switch in the balance of taxation will discourage an activity which damages the environment while helping to cut the costs of investment. That was a good statement.

In his 1995 Budget statement, the Chancellor confirmed the switch, saying: The money raised by the landfill tax will allow for a matching cut in the main rate of employers' national insurance contributions by a further 0.2 per cent. to 10 per cent. from April 1997. That will cut the cost of employment by half a billion pounds and will make it cheaper for businesses to create new jobs."—[Official Report, 28 November 1995; Vol. 267, c. 1064.] The intention of the amendment is to take the Chancellor's words and put them on the face of the Bill, and it is difficult to see how the Government could possibly object to that.

A clear undertaking has been given time and time again that the tax would be levied and the national insurance contributions would come back at the same time as the compensation. Indeed, the intended reduction was confirmed in the Secretary of State for Social Security's annual national insurance contribution review. Since the annual national insurance changes are introduced by statutory instrument, there is no direct reference to the proposed reductions in the Finance Bill. Consequently, there is no guarantee that the tax will always be offset by national insurance changes in the future.

In addition, although the tax will be introduced in October 1996, the rebate does not take effect until six months later on 6 April 1997. As the proposals do not affect businesses equally, the process will obviously result in winners and losers. If, as the Government intend, the tax succeeds in deterring dumping on landfill sites, revenues will decrease. That will affect future rates of national insurance contributions.

To give an example, the Association of Metropolitan Authorities has made the following calculation—local authorities collect approximately 22 million tonnes of waste a year, so the tax will mean an added cost in the region of £154 million a year. The Government's response to the consultation on the landfill tax last year stated: The concerns of local authorities are also understood by the Government. Local authorities are responsible for the collection and disposal of household waste, and it is recognised that the cost of the tax in respect of such waste that is landfilled will fall on them. The proposed reduction in employers' NICs will affect local authorities and, over the coming months, the Government will address the issue … in the context of the local government finance settlement. 151 A reduction of 0.2 per cent. in employers' national insurance contributions for the whole of local government only adds up to £30 million. There is therefore a net cost of more than £120 million. This is not accounted for in the local government settlement, and authorities will have to find the money from elsewhere. A further delay in introducing the national insurance rebate will clearly make that situation more difficult.

The net costs arise because local authorities have labour-intensive services, and are therefore likely to benefit more than average from reductions in national insurance contributions. Not only do they dispose of waste generated from their own operations—as would be the case in industry generally—but, as waste disposal authorities, they are responsible for disposing of waste generated within their boundaries.

On Budget day 1995, the Secretary of State for the Environment sought to buttress the considerations of national insurance by saying: The establishment of environmental trusts will complement and reinforce our policies for sustainable waste management, for example by promoting recycling, and strengthen the environmental credentials of the landfill tax. The trusts scheme has the potential to generate up to about £100 million of private sector expenditure for environmental improvement. The trusts will be funded by contributions from landfill operators. Local authorities cannot apply to the trust for money because they do not run landfill sites. The money that the operators pay in comes out of their own pockets—it works something like a donation to a charity, on which companies receive tax relief—but they do not pay as much as they would if the rebate did not exist.

Someone more cynical than I am might ask why landfill site operators would want to pay into a scheme that would be a net cost to them, particularly when there is a rebate delay. The idea of the tax is to reduce the amount of waste that goes into landfill, but unless the site operator is also a waste producer, and most are not, why would they want to reduce the amount of waste, which produces their profits, going into landfill? The operators have no incentive to do so, and the manner in which the national insurance contributions are returned does not encourage them.

4 pm

The Government say that site operators will be able to increase their charges to pass on the incentive to the waste producers. Will there be any safeguards on the amount of the charge increases? Could a landfill operator, for example, pass on the cost, not only of the tax but of its contribution to the environmental trust? I shall give another example from my county, while it still exists. Under these proposals, disposal of the waste generated by Avon county is estimated to cost £1.4 million in 1996–97 and £2.8 million in 1997–98, while the total rebate to the authority would be less than £500,000 in the first year. Considerable costs would be borne there, and it is antagonised by the delay.

There should be greater emphasis on providing economic mechanisms to encourage the recycling of construction and demolition waste. One suggestion, beyond a weight-based tax, is to band it to reflect the level of environmental protection in place at different sites. The idea is to discourage un-engineered sites and to encourage further investment in advanced landfill disposal facilities 152 with containment systems. That would be a sensible way to buttress the national insurance rebate and the applications to the environmental trust for funds—but it does not do that.

Any substantial increase in cost is likely to encourage the cowboy element in the industry, which seeks the cheap option by fly tipping. Although the Government have said that they will look into the problem, the costs of dealing with it are still in doubt and the decisions still have to be made. Like the attempt to label VAT on domestic fuel an environmental measure, the proposed implementation risks of the tax are in danger of discrediting the idea of environmental taxation. It is therefore in the interests of all hon. Members to ensure that the proposals are clearly drafted and that they deliver their drafters' objective.

The Government say that the aim of the tax is to promote a more sustainable approach to waste management. If that is so, why is landfill the only option being considered? Are we sending a signal to the market that landfill is the preferred method of disposal, and are we in danger, therefore, of not making the connections with future development?

Most commentators say that, if the tax achieves anything, as it stands, it will create a distortion in the market in favour of recycling, re-use and environmentally friendly policies. The theory of environmental taxation is that it should be set at the level of the marginal external costs of the environmental damage, but those costs must include wider considerations than have been given in this submission.

The question is whether the tax achieves its purpose. It does not favour recycling over non-landfill, and incineration or dumping at sea could increase. The tax structure does not recognise the fact that, in some cases, landfill is the best method of disposal from an environmental viewpoint—indeed for some waste it is the only method. In those cases, it operates, at best, as a straight tax on disposal and not as an environmental tax.

The tax does not recognise that, in some cases, material can be of positive benefit in a landfill site while still being waste to the person who is disposing of it. Inert materials are a classic example. They can be used as backfill in mine workings or to cap landfill sites. As a result, the tax does not encourage as much as it might the matching of waste from one business to the needs of another. The tax is a blunt instrument for distinguishing waste according to the degree of environmental damage that it causes.

There will be more incentive for individuals and businesses to evade their environmental responsibilities, both in respect of the fly tipping of rubbish on other people's land and of disposing of material on their own land without complying with licensing requirements under the Environmental Protection Act 1990.

The tax is flawed in one important respect. During the consultations, the Government made it clear that the objective of the tax is to force waste producers either to produce less waste for landfill or to find a place higher in the waste hierarchy for their output. Unfortunately, the current proposals do not do that.

Most importantly, the proposals do not provide for commitments that were given to the House. National insurance contributions and the tax are levied at the same time. This is a tidying-up amendment that would put into legislation the commitments made by the Chancellor of the Exchequer, over two years, for national insurance 153 contribution cuts to run in parallel with the levying of the tax. I hope that the House will accept the amendment as a positive contribution to an important debate.

Mr. Tim Smith

The proposed landfill tax has my full support. I have always thought that, if the Government were to intervene in the market to change the environmental behaviour of industry and commerce, the best way would be by means of a fiscal instrument such as this rather than by endless extra regulation of businesses. I believe that it is possible to change behaviour quite quickly by using the tax system. I understand the Treasury's reluctance to adopt green taxes—after all, there will be no net addition to the Revenue.

Our one green tax is the extra tax on leaded petrol, which has been extremely effective in persuading motorists to change to unleaded fuel, with considerable benefit to the environment. The landfill tax breaks new ground, because it is principally a tax on business. It is right that the Treasury should have consulted widely before introducing it, to ensure that it impacts fairly on business.

The tax has my full support, because I have several landfill sites in my constituency. As there is a great deal of gravel in the Thames valley, it has many landfill sites. They are not popular with local people, because they are messy, smelly places. There is no doubt that more could be done to recycle many waste materials, including paper.

The hon. Member for Bristol, South (Ms Primarolo) mentioned the response of councils. Of course they will be concerned if the only option available to them is to pass the costs on through extra council tax, but that is not the only option available. The tax should concentrate the minds of councillors on finding other ways to dispose of the waste. For example, my council—South Bucks district council—has recently introduced the separate collection of waste paper, which will allow it to send paper off for recycling rather dumping it at landfill sites. That is a major step forward. The tax will inevitably encourage other councils to adopt a similar approach.

The important thing for business is to keep a close eye on the objective of the tax. As a matter of principle, it should be levied only where there is a satisfactory alternative that offers an environmental improvement. I guess that that is the case in most examples that one could think of, but I want to mention a company in my constituency, British Alcan of Gerrards Cross, which makes aluminium products. It has a chemical plant in Scotland, which produces not only 220,000 tonnes of an aluminium chemical every year but 220,000 tonnes of red mud.

I am not sure what red mud is, but there is no alternative to dumping it in a landfill site, which the company owns and operates. The company has tried to find alternative uses for the red mud, but nobody seems interested in using it for motorways or anything else for which it might be suitable. As the company operates in an international market with world prices, if we simply impose an extra tax of £7 or even £2 per tonne on what it does, we shall simply render it uncompetitive in that market.

I hope that, when we consider the details of this provision in Standing Committee, we can take the issue a little further forward. I appreciate that today we are 154 debating only the narrow amendment, moved by the hon. Member for Bristol, South, that the introduction of a national insurance rebate should be brought forward to October. I do not know when those who collect the landfill tax will first pay it to Customs and Excise, but if it is anything like VAT, there will be a four-month delay and the first payment will be in January, although the tax may have been collected in October. A company's cash flow position may therefore be a factor.

I support the tax in principle and hope that my hon. Friend the Minister will look at the matters that I have mentioned in relation to British Alcan in Committee.

Sir James Molyneaux (Lagan Valley)

I am delighted to follow the hon. Member for Beaconsfield (Mr. Smith), particularly in the light of his distinguished record as a Minister in the Northern Ireland Office. Having held that office, he will be as aware as I am of the 26 extremely small councils that will be responsible for handling the landfill tax. He will know that they are starved of resources and that their rating machinery does not compare to the machinery that exists on this island. That is why I have doubts about the principle of the landfill tax.

The hon. Member for Bristol, South (Ms Primarolo) used an unfortunate term in her speech when she said that pressure must be applied on polluters. In Northern Ireland, the "polluters" are those 26 small councils, so it is not fair that the victims should be regarded as the polluters. The councils are not large employers of labour. They provide services mainly to their ratepayers rather than large industrialists with an enormous amount of waste for disposal.

To what extent does the hon. Lady think that those councils would benefit from a cut in national insurance contributions? I doubt whether they would benefit greatly; after all, most of the waste they collect is household waste. They will be compelled to collect the landfill tax mainly from householders, and will then have to resort to imposing the burden on ratepayers.

As the hon. Member for Beaconsfield will understand well, we have a peculiar layer of local taxation called the "regional rate", which relates to some mythical council area in north-east England and is pure guesswork. I cannot see how the councils could benefit from a reduction in national insurance contributions unless they transferred the full burden of collecting the tax and the tax itself to ratepayers in their individual counties. The House will have gathered that I am not making a case for the landfill tax, but I am inclined to oppose it as, particularly in our case, it clobbers the wrong sector.

Mrs. Helen Jackson (Sheffield, Hillsborough)

I am speaking to amendment No. 5, not because the Labour party opposes the principle of a landfill tax or levy but because we feel that such a tax should be a fiscal instrument that operates in a way that can truly be said to benefit the environment. The costs and benefits of the employers' national insurance contributions have not yet been properly worked out. The amendment attempts to address those issues and highlight the aspects of the landfill tax or levy that still cause great concern to businesses and major employers that are involved in waste disposal and that will therefore be liable to the environmental tax.

155 When the Environment Select Committee conducted an inquiry into recycling, we were convinced of the case for the waste hierarchy that puts waste reduction at the top, followed by waste recycling or waste recovery through incineration, followed by incineration without any energy recovery, followed by landfill. That hierarchy is roughly correct, particularly in a small, over-populated set of islands such as Britain, where it seems ridiculous to use large areas of land, often in overcrowded urban areas, and to have large, dirty lorries trundling to and fro, causing extra environmental pollution while distributing heavy-duty landfill waste among tips. Such an operation presents a cost to the public, particularly in large, urban conurbations. We are very much in favour of taking whatever measures we can to ensure that those costs are met by businesses in a way that affords better environmental solutions to waste disposal.

My hon. Friend the Member for Bristol, South (Ms Primarolo) also said that large-scale landfill sites that are inadequately managed can also pose a danger. The existence of methane in large landfill sites is well known. If sites are well managed and the necessary resources are provided, the methane can be a source of useful energy recovery; but if the resources are not provided, the site becomes dangerous to the public and to residents living around it. For those reasons, it makes sense to have a fiscal incentive that ensures that the costs to the local community and to commercial waste firms are addressed. We have tabled the amendment because the tax, as presently worked out, does not take proper account of those implications.

There is an absence in the Finance Bill generally of complementary incentives from the other side of the waste industry to accompany the landfill levy. In the Environment Select Committee report on recycling, published on 6 July 1994, we concluded that we did not believe that there was a case for the imposition of a landfill levy at that time. Where a levy was to be imposed, however, we believed that it should be imposed in order to encourage alternative forms of waste management. In order to encourage alternative forms of waste management, more effort needs to be taken to complement a landfill levy; to encourage other—

The Chairman

Order. The hon. Lady knows that she is drifting far from the amendment, and we are possibly having a clause stand part debate. I hope that she can return to the amendment.

Mrs. Jackson

Mr. Morris, I think that you will accept that my argument returns directly to the implications of the amendment.

I am arguing that, unless there are alternative incentives for big waste disposal authorities and unless the costs of the landfill levy are counterbalanced immediately by an offset in employers' national insurance contributions, the costs will fall especially on local authorities, which have the overall duty of waste disposal in their areas, in such a way as to constrain their initiatives to promote or put resources into complementary types of waste disposal.

The local authority in Sheffield in whose area I live has a magnificent reputation for incineration combined with heat recovery. It will be unable to continue developing such initiatives if that element of local authority spending 156 is constrained. The authority estimates that the landfill tax will take £900,000 of its budget in the first year and £1.8 million in the second year. The authority is worried because, to this day, it has received no assurances from the Department of Social Security of the amount or scale of the compensation that will come back to it in the employers' national insurance offset.

Far from the landfill levy being part of an environmental policy that will help to redress the negative side of the waste hierarchy in Sheffield, the good schemes that the authority wants to promote may be constrained by the way in which the tax is levied. A great deal of material that goes into landfill could be used, with a small amount of research and development investment, for anaerobic composting, which could benefit Sheffield's large municipal parks. That is the type of complementary waste operation that may be difficult to cope with as a result of the landfill tax as it is presented at the moment.

The steel industry will be affected. We received a document from the British Iron and Steel Producers Association saying that its initial calculations show that the annual direct gross cost of the landfill levy will be about £18 million and that the national insurance offset will only marginally reduce that. Steel is probably the industry best suited to recycling. I am very proud of the company Stocksbridge Engineering Steel in my constituency, and I am always amazed that its works transforms 10,000 tonnes of messy scrap metal into 12,500 tonnes of engineering steel for use in the aerospace and other specialised industries. That is accomplished in one week, and all the company's products are recycled from scrap metal.

Stocksbridge Engineering Steel, as a major steel producer, simply cannot afford the landfill tax. According to its calculations, it will mean on-costs of 36p for every tonne of steel produced—which will amount to almost £200,000 a year. The firm wants certain elements of the levy to be reconsidered in view of the extra costs that will be imposed.

For example, it requires the definition of waste to be clarified further. The firm wants to know which of its waste will be declared inert waste and which waste will be charged at £7 per tonne. Until it is clear about which of its waste will be charged at £2 per tonne and which will be charged at £7 per tonne, it will find it very difficult to plan and to finance its forward projections on the extra cost to the business. That is of particular concern when, as the amendment points out, firms are still unsure about the benefits that will accrue from national insurance contributions.

There is a further cost and a further complication for the steel industry in areas such as South Yorkshire. Anyone who is familiar with that area will know that there is much derelict steel industry land and many empty factories in South Yorkshire. The technology has changed and, although the industry is not producing less special steel, it is producing it in very different ways in a much smaller area.

The steel industry has been left with large areas of land which can be reclaimed only through landfill operations and it must dispose of its waste, while facing the added costs imposed by the landfill tax. The industry must also pay for the waste that is used to reclaim and redevelop many derelict sites, such as those in Rotherham at Templeborough which are owned by the firm that controls 157 Stocksbridge Engineering Steel in my constituency. The landfill tax would impose that second cost on the British steel industry, on top of the £200,000 that I have mentioned already.

In addition, it is also unclear whether the disposal of material that is used in reclamation will be subject to landfill tax. I am sure that we will return to many of the issues when we discuss other clauses in Committee, but I think that it is important to raise the matters now in the Chamber. The firm is the largest employer by far in my constituency. Any issue that will cause the firm such financial concern—36p on-costs on every tonne of engineering steel that it produces—is serious. The firm supplies about 60 per cent. of the manufacturing sector with steel, so it will be a problem for manufacturing production nationwide.

I am aware that there are other matters, such as the dredging issue, on which we will have further discussions. I have given the reasons that lead me to believe that the amendment should be considered seriously and supported. The Government have not thought through how the balance of the extra costs of the landfill levy will be complemented by the cuts in national insurance contributions.

Mr. Paddy Tipping (Sherwood)

I am pleased to speak to the amendment. I had the opportunity to talk about the landfill tax during the Budget debate, and I welcomed it. I still welcome the landfill tax, and I have now had the opportunity to consider it further. My support for it is still substantial, although I have some reservations about one or two issues.

The importance of the landfill tax in the Budget is that it moves taxation from labour to environmental issues, such as pollution. That must be right, and I look forward to future Budgets pursuing that approach. I am, however, concerned that the landfill tax will come into effect on October 1996, but the discount on national insurance contributions will not come into effect until April 1997. That is the issue that amendment No. 5 addresses.

I strongly believe that those two issues should be closely linked, and that there should be no gap between them. If the Government believe that we should switch taxation from labour to pollution, a clear manifestation of their support would be a timetable that coincided. At the moment, there is a clear six-month gap, and that is not acceptable.

In essence, the aim of the policy is to tax pollution. I wish to examine that aim in relation to domestic waste producers—all of us who put our waste in dustbins. The policy as it stands does not provide the necessary linkage. Although it is a green policy, it is one of which no one will be aware. The ordinary householder will not be aware of the landfill tax, and that is a real weakness.

Local authorities will face some difficulties, as some of my colleagues have already mentioned. It is clear that the landfill tax will cost local authorities more. The final figures have yet to be worked out, but the provisional figures seem to show that the additional cost for local authorities, which collect about 22 million tonnes of domestic household waste a year, will be about £154 million. There will be a reduction in national 158 insurance contributions of 0.2 per cent. Perhaps the Minister will tell us the level of wages that that national insurance discount will affect. I suspect that it will be about £10,000, so full-time employees will get the discount but part-timers will not.

Nationally, the additional cost to local authorities will be £154 million, but the rebate on national insurance costs might be about £30 million. In other words, local authorities will face a net additional cost of something like £124 million. It is plain as a pikestaff that someone will have to pick up these costs; it seems to me that that "someone" will be the poor council tax payer.

I am particularly concerned about my local authority in Nottinghamshire. Judging by the figures that it gave me just this morning, it seems that the county council disposes of 500,000 tonnes a year of household waste. I should like to praise local authorities, which sometimes do not get the praise that they deserve. Many years ago, there was a move in Nottinghamshire towards incineration. The Eastcroft incinerator disposes of an average 125,000 tonnes of domestic waste a year, leaving a substantial amount—375,000 tonnes—to go into landfill.

I should like to ask the Minister whether the ash from the incinerator will be classified as inert material—an important point. The difference between a disposal cost of £7 a tonne and £2 a tonne—for inert material—can make a great deal of difference to council tax payers. Certain bodies such as the CBI have questioned how the categories into which waste is divided for the purposes of the £7 band and the £2 band are defined. I know that consultations are going on, but the guidelines eventually issued will have to be clearly understood by everyone. This, I am afraid, is yet another example of legislation being passed without the ground rules being clear, and that is not good practice.

As I said, 375,000 tonnes of domestic waste go into landfill sites in Nottinghamshire.

Mr. Tim Smith

Does that mean that no recycling at all is going on in Nottinghamshire? Would not the councils there be well advised to consider changing their behaviour, instead of just passing on all the extra tax to council tax payers?

Mr. Tipping

Of course. Had he been listening, the hon. Gentleman would have heard me talk about the early construction of an incinerator in Nottinghamshire; it heats domestic and industrial properties throughout the city of Nottingham. The hon. Gentleman will also know of the work done by local authorities to recycle paper, glass, and so on. Obviously we should support all such work, but there remains the problem that not all domestic waste can be recycled in that way. A large amount will still go into landfill sites, as it does in Nottinghamshire.

The cost to the local authority next year—a part year—will be £1.3 million, and in 1997–98 it will be £2.6 million. We may set the national insurance discount against that, but it amounts to a mere £130,000. There is clearly a large gap which has to be met by someone. I do not believe that local authorities will meet it; rather, it will be passed on to council tax payers.

I know that local authority associations have taken up the matter recently with Ministers, particularly Ministers from the Department of the Environment, and I expect 159 that there will soon be a discussion in the House about the financial settlement for local authorities next year. I hope that the Minister will talk to his colleagues in other Departments about this issue, because there is a strong case for examining the capping levels that have been put on local authorities, particularly those that are also waste disposal authorities—usually, county councils.

I look forward to Ministers from the Department of the Environment coming to the House and explaining to us, perhaps next week—

The Chairman

Order. Not this afternoon, when we are discussing the Finance Bill.

Mr. Tipping

I am grateful for your advice, Mr. Morris.

Perhaps Ministers will come to the House shortly—next week or perhaps the week after—to say how the gap between the extra costs to local authorities and the discounts on national insurance contributions, which is what the amendment is about, will be met. I very much hope that the Government will listen to the voice of local authorities on that issue and consider relaxing the cap.

The landfill tax is a potential tax on coal. Electricity generators burn coal. I do not believe that they burn enough. I would like them to burn more and to keep the pits in Nottinghamshire and throughout the country going. The consequence of burning coal is that waste—fly ash—is collected at the end. My hon. Friend the Member for Sheffield, Hillsborough (Mrs. Jackson) spoke about reclamation. Fly ash has been used for many years to reclaim sites. There are areas of dereliction all over the industrial midlands and the north. I would be keen for us to examine ways to discount some element of the taxation on fly ash. It is an issue not just for coal mining areas but, for example, for Bedfordshire, where clay has been extracted from the ground to produce bricks, and, gradually, the pits are being filled. If there is an environmental benefit from that, it deserves careful consideration during the passage of the Bill.

I ask the Minister to confirm that fly ash will be classed as inert waste and taxed at the rate of £2 per tonne rather than £7 per tonne. That is an important issue, as it is eventually a tax on consumers. Although there will be some discount for the generators—for example, PowerGen and National Power—through national insurance, that will not go any way towards meeting the cost for disposing of fly ash. I have figures from both generators. I shall not discuss them this afternoon, but I know that they have written to Ministers on that point.

It is clear that the disposal of fly ash will cost the generators tens of thousands of pounds. My real fear is that, in a competitive energy market, the coal industry, which has declined rapidly over recent years, will once again be put under a very real threat. It is a serious issue, at which the Minister should look. It is linked to the discounting of national insurance charges, and it is not sufficient to make up the extra cost.

There are many other issues that I would like to pursue on the landfill tax, but the appropriate place to do, that is upstairs in Standing Committee. I am concerned about fly tipping. We need to look at that. We need to look at best disposal practice in landfill sites. The landfill tax—I shall not over-egg the case—could lead to difficulties in that regard.

160 I ask the Minister to consider having a de minimis rule for small operators. As the Bill stands, all operators will have to comply with the legislation.

I am still a supporter of the landfill tax. I am an ardent supporter of green taxation. The points that I make are meant to be helpful to the Minister. I look forward to pursuing them during the next few weeks.

Mr. Ian Pearson (Dudley, West)

I confess that I am relatively new to the concept of landfill taxes. Almost two years ago, before I was elected to the House, I was a member of a team that visited Slovakia with the president of the Institute of Wastes Management and a person who had a doctorate in composting. We discussed landfill taxes, and the conclusion that the experts reached was that, in the majority of cases, burying rubbish, rather than other methods higher up in the waste disposal hierarchy, was the best solution for the United Kingdom.

I shall make a general observation about the detail behind clause 36. As with many other clauses, much of its effect is hidden in secondary legislation, which will appear later and might get less scrutiny than it deserves. There are three Treasury orders, one Customs and Excise order and 15 sets of Customs and Excise regulations on landfill tax to come.

A press release at the time of the Budget stated that there would be consultation on the secondary legislation in the spring of 1996, and that the instruments would be laid during the summer. It is not clear to me whether that process will include exposure of draft regulations—the provisions of the Finance Bill were not released in draft—so I would appreciate clarification from the Minister on that, and on whether there will be draft regulations for businesses to comment on.

Like other Opposition Members, I do not object in principle to the concept of a landfill tax—a number of us have supported green taxes for a considerable time—and I do not object to the method by which the tax has been raised. I pay tribute to the Government for listening to the voice of industry and moving away from an ad valorem basis of taxation towards cost per tonne. By doing that, we are falling into line with landfill tax regimes in Europe.

At the moment, as I understand it—the Minister will correct me if I am wrong—five European countries have landfill taxes, and all of them have weight-based regimes. Denmark is the most expensive, with a tax of £20.67 per tonne. In France, depending on whether waste is municipal or hazardous industrial, there is a charge of £2.50 or between £5 and £8. The proposed regime seems to be in accordance with that. In Germany, the charge can vary from £10 to £41 for hazardous industrial waste. Whether there should be a higher band for hazardous waste is a potential issue. In Belgium—

The Chairman

Order. What the hon. Gentleman is saying is most interesting, but he must relate his comments to the rebate on employers' national insurance contributions. That might be in order, but just recounting the facts is not.

Mr. Pearson

Thank you, Mr. Morris.

When considering the burdens on business—the Government have made great play of the fact that there is a matching national insurance contributions rebate to 161 ensure that there is no burden on business—we must ensure that there is a level playing field. Other European countries do not have, and never have had, a matching rebate. What is more, a number of European countries do not force businesses to pay landfill tax. The Government should consider establishing a level playing field across Europe for landfill taxation. I hope that the Minister and his colleagues will press for a common European standard on landfill tax.

The Environmental Services Association, formerly the National Association of Waste Disposal Companies, represents companies that provide waste management and related environmental services. It is the lead body and it shares some of my concerns. It says that it fully supports the development of a sustainable waste management policy, but is concerned that isolated fiscal instruments may not be the best method of attaining such a policy in accord with the best available technology not entailing excessive cost … principles. The tax appears to be a one-off, with a matching cut in contributions, as the amendment says. Environmental taxation is not seen in the round. Partly as a result of that—I hope that I am not misquoting him—Peter Neill, the chairman of the ESA, said: Waste producers—both domestic and commercial—must be aware that this is a tax which will ultimately be paid by themselves. That is a salient point of which we should be aware.

The views of businesses that emerged from the consultation exercise that began in March 1995 are interesting, and I am surprised that the Government have not supported some of them. According to the official summary of responses to the consultation paper that was published on 1 September, of the 249 responses expressing a view on the Government's landfill tax and their plan to cut employers' national insurance contributions, only 25 were in favour and 173 were against. The Government argue that that imbalance arises because, generally, the businesses that responded were more likely to be net losers than net gainers.

There are clearly winners and losers, but the real reason for that overwhelming opposition is that many employers in the industry recognise that there is no real link between national insurance contributions rebates and reductions, which are basically to do with industrial policy, and an environmental policy, of which landfill tax is one small, isolated, example. It is difficult not to come to the conclusion that the landfill tax proposal and its matching national insurance contributions reduction is a con trick, and that the Government have simply found a new wheeze for raising additional taxation, which has been adopted by five other European countries.

Mr. Tim Smith

That is nonsense. The whole point is that, although the tax is new, it will not raise any extra revenue. The money is being handed back to industry and commerce. One of the greatest tax burdens on industry and commerce is national insurance contributions, because they constitute a levy on jobs. Why does not the hon. Gentleman welcome the reduction?

Mr. Pearson

I welcome the reduction in employers' national insurance contributions, but I am saying that that reduction is a sensible measure that the Government should and would have wanted anyway. I see no 162 compelling reason for a link between the two. If something is worth doing, it is worth doing for its own sake, and that applies both to environmental taxes and to reductions in national insurance charges.

In addition, there is no guarantee that the 0.2 per cent. reduction will hold in the medium term. If, as seems likely, employers modify their behaviour and, as a result, make less use of landfill, the revenue raised from the landfill tax will decline. The Red Book projections show a surplus yield to the Exchequer through to 1998–99. They say that, in 1996–97, landfill tax will produce a net £110,000 above national insurance contributions reductions. In 1997–98, landfill tax is forecast to bring in £450 million, and employers' national insurance contributions reductions are forecast to cost the Exchequer some £495,000. It is only in 1998–99 that there will be a cumulative surplus yield to the Exchequer. I therefore remain to be convinced of the importance of the link between national insurance contributions and the landfill tax.

Contaminated land is an issue of great importance to my constituency, Dudley, West, in the black country. I have had representations from the Building Employers Confederation and a number of other organisations which are concerned about the effect of the landfill tax on them. Much redevelopment of contaminated land—I have some major developers in my constituency—is undertaken through Government grant regimes.

Government grant is allocated only on the basis that the projects would not proceed unless such money was forthcoming. The landfill tax makes no exemption for contaminated land, so the Government will have to pay out more in grant in order to redevelop the land, or developers will decide that they do not want to proceed with much needed urban regeneration. Exempting waste taken from contaminated land from landfill tax is worth considering.

The tax will also affect my local metropolitan borough council, which currently disposes of 120,000 tonnes of waste per annum. It does not take a mathematician to calculate that, at a rate of £7 per tonne, the cost to the authority will be £840,000 a year. Estimates suggest that the reduction in national insurance contributions will benefit the authority to the tune of about £300,000 but, as a result of the landfill tax, it will be about £500,000 out of pocket, and the cost will almost inevitably be passed to the consumer.

5 pm

The authority is currently engaged in discussions with a number of, companies in connection with an incineration contract that it wants to let. I suspect that there will be a strong trend among authorities that are major users of landfill sites towards incineration. No one would object to that if the incinerators conformed to European standards—environmental benefits would result—but it is feared that they will not.

At present, my local authority makes considerable use of recycling. In the event of a long-term contract with an incineration company, it will try to deliver the best possible deal to council tax payers, but it will lose money. The Government should act, perhaps by means of the "other services" part of the standard spending assessment.

On the one hand, small businesses will be subject to the landfill tax; on the other, they will benefit from national insurance contribution rebates. The tax will, however, be 163 subject to VAT, which will be charged in accordance with section 19 of the Value Added Tax Act 1994: landfill tax will be deductible in the computation of profits or income for direct tax purposes. The Government should consider exempting small businesses that will have to wade through all the regulations and Treasury orders—and pay extra VAT on their landfill tax.

I think that landfill tax should be aligned with VAT as far as possible. I understand that the Law Society recommended that, and that operators who are not registrable for VAT should be exempt from the landfill tax.

One of the penalties of the tax is the imposition of a separate interest charge on tax shown on returns but not paid by the due date. I have often spoken in the House about the effect of late payment on small businesses, but the House should note that the Bill proposes a complete departure from previous tax arrangements. We are replacing the default surcharge regime with a penalty interest rate. The compounded interest rate of 10 per cent. over the standard rate could rapidly add up to a large sum: with an interest rate of 7 per cent., after three years, the penalty interest could amount to some 66 per cent. of the tax. If it is good enough for the Government to introduce legislation on late payment to raise money for themselves, surely it should be good enough for them to do the same for businesses.

Mr. Austin Mitchell (Great Grimsby)

I support the amendment, as it would delay the onset of the tax, but it would be more sensible to levy a zero rate for inert materials on land disposal sites, because they do not cause the environmental problems that might justify a landfill tax. A zero rate would allow our chemical industries to compete with those elsewhere in Europe.

The Government have introduced the tax as an opportunistic way of raising more money, and they have done so in their usual fashion. Admittedly there has been consultation, but they have ignored the arguments for zero rating for inert materials, thus cutting across long-standing contracts and investments made years before and damaging the competitive position of the firms that made those investments. It is extraordinary that a so-called business man's Government should make no allowance for investment decisions made some time ago, and should suddenly slap on a tax that will penalise British firms that are in competition with European firms that do not have to pay such a penalty.

I raise the issue because the tax will have a serious effect on Tioxide, a Grimsby firm which produces titanium dioxide.

The Chairman

Order. Is the hon. Gentleman going to relate his remarks to—

Mr. Mitchell

rose—

The Chairman

Order. "Order" means "sit down". I hope that the hon. Gentleman will relate his remarks to employers' national insurance contributions. Perhaps he did not hear the hon. Member for Bristol, South (Ms Primarolo) move the amendment, and therefore missed the significance of that issue, which he has not yet mentioned.

Mr. Mitchell

I mentioned it in my introduction, Mr. Morris. Tioxide is a major contributor to Grimsby's 164 economy, but it will not benefit massively from a reduction in employers' national insurance contributions because it is a capital-intensive, rather than an employment-intensive, industry. The reduction is one way of palliating the blow, but I think that we should do that in other ways.

I was about to cite the decisions that Tioxide made. The main waste product in the production of titanium dioxide is sulphuric acid. Disposal is a problem. There are two possible treatments of the waste: it can be concentrated and recycled, or neutralised to form gypsum. Tioxide decided to comply with the European directive on waste disposal, and opt for the neutralisation treatment. That commercial decision was taken on the ground that gypsum, an inert material, could be disposed of in two ways—first, as an ingredient in plasterboard manufacturing further along the Humber bank and, secondly, in an ex-British Steel ironstone quarry at Roxby, close to the Grimsby site. It planned to fill in the quarry there with the inert material, and the site was to have been made available for various leisure uses once it had been filled in—a sensible procedure.

As a result of that commercial decision, which was taken some time ago, when there were no proposals for a landfill tax in exchange for a compensating reduction in employers' national insurance contributions, Tioxide went in for a two-stage neutralisation system at the Grimsby site. Its substantial investment was tailored to produce gypsum, partly for plasterboard manufacture and partly for disposal in the quarry. The Roxby quarry landfill site was set up with a licence to take only gypsum or similar waste. Tioxide negotiated a direct rail link to the site to minimise disamenity and an agreement to convert the site into a nature park once it had been filled in.

Tioxide took a commercial decision in a competitive titanium dioxide market. Its competitive position will not necessarily be improved substantially by a reduction in employers' national insurance contributions, but it will be changed by the impact of the tax on landfill, the method by which it decided to dispose of the material.

The neutralisation system produced an investment at Grimsby of £27 million. That major decision and investment is now called into question by the sudden imposition of a landfill tax, against which Tioxide has protested. The employers' national insurance contribution reduction is minimal, and inadequate compensation, because competitors in Europe operate on the basis of zero-rating for landfill disposal of such material.

Tioxide was complying with the industry-specific European Community directive that aims to harmonise competition by applying similar environmental constraints to every producer in the sector. The idea of that directive was to reduce liquid effluents and increase solid waste effluents. It therefore encourages firms to use landfill. When European competitors do that, they have the benefit of no landfill tax or of zero-rating for the inert gypsum material that they produce, but Tioxide is suddenly faced with a decision to tax the product in this country.

Tioxide has done its best to meet European requirements, but the Government have come in, with little consideration for the realities, the scale of the investment or the competitive position of the firm, and slapped on a tax, proposing compensation by way of a reduction in employers' national insurance contributions. That compensation is not sufficient, because this industry is not labour-intensive.

165 Not much can be done with the material except place it in a landfill site. Tioxide has made a long-standing arrangement that will result in a nature park. It is in intense competition with Europe. It has complied with the EC directives and now, suddenly, the Government have blundered in and decided to tax in this fashion. It is typical of the Government's lack of concern for the competitive position of British industry that they can suddenly slap on such requirements—thinking that they are giving some compensation when they are not—and not take the competitive position into account.

The Government should approach this matter by asking: what are the damaging consequences of this material? Is there methane gas? No, there is not. Is it inert? Yes, it is. The problems that would justify the taxation do not arise in relation to this material. It should, therefore, be zero-rated. The national insurance contribution concession is not enough. I ask the Minister to tell me what concessions can be made to compensate a firm such as Tioxide—which has headed into long-standing contracts and commitments and which has invested £27 million in the treatment of waste—for this sudden blow and sudden change in its competitive position vis-a-vis European competitors.

The Paymaster General (Mr. David Heathcoat-Amory)

The amendment has given opportunities for a fairly general debate on the landfill tax. May I respond to some of the points raised and correct some of the misapprehensions that exist, especially among Opposition Members?

The landfill tax will essentially do two things—encourage good environmental practice and raise money that will be used to cut the main rate of employers' national insurance contributions. It will therefore help employment and the environment at the same time. The hon. Member for Dudley, West (Mr. Pearson) is right: we are not alone in introducing such a tax. It already exists in Denmark, the Netherlands, France and parts of Belgium and I understand that the Italians are proposing to introduce such a tax. In general, the rates of those taxes are above what we are proposing.

Mr. Austin Mitchell

Is it not a fact that there is zero rating for the disposal of inert materials such as the gypsum that I referred to?

Mr. Heathcoat-Amory

I understand that that is not true. There are a number of specific reliefs and exemptions in some countries, but they do not, as I understand it, cover entirely the point that the hon. Gentleman raised, but I will touch on the case that he instanced.

This is not an environmental European tax. We have no desire to harmonise such tax rates throughout the European Community. We are introducing it in this country because it suits British conditions and it is good for our environment. Also, we can relieve taxation on employment in the way that I have mentioned.

It is not the first time that the British Government have used taxes to encourage better environmental practice, but this is the first tax that will be introduced specifically for environmental purposes. We are using an economic instrument to achieve an environmental goal.

166 The objects of the tax are to ensure that landfill waste is properly priced and that the charges that are borne by waste producers reflect the environmental harm that is caused. Landfill operators will bear the tax and will have to account for it to Customs, but they will pass on additional costs to those who produce the waste. It is important that the disposal costs that those producers face reflect the full environmental impact of landfill.

That environmental impact can take a number of different forms—the production of methane, which, as the Committee knows, is a greenhouse gas that contributes to global warming; or pollution of groundwater. It may not have a direct environmental effect—it could be in the category of nuisance to local residents. Committee members who have landfill sites in their constituencies will know that landfill operations frequently cause problems of dust, dirt, noise, litter, seagulls and traffic movements. It is important that all those 'external costs are captured and attributed to the waste producer.

Ms Primarolo

The right hon. Gentleman said that the site operators would pay the tax—which we know—and that they would pass that on to the waste producers, presumably through increased charges. We will look at the mechanisms for that in Standing Committee. Local authorities have a responsibility to dispose of other people's waste and industrial waste, and they collect waste within their boundaries. What mechanism does he envisage to ensure that, in those circumstances, the waste producers bear the increased charge? Local authorities have the responsibility to collect but they may be capped or restricted on spending—and they have not yet been told by the Government how they are expected to cope with the loss of revenue resulting from the extra charges that they will have to pay.

Mr. Heathcoat-Amory

The landfill operator will bear the costs and then pass them on to waste producers. I shall deal with local authorities later in my remarks. However, the local authority—a district council, for example—will be in the best position to influence the amount of waste that is landfilled and the amount diverted to recycling or other waste streams. It will be in the best position to take the necessary corrective action.

Sir Roger Moate (Faversham)

Waste disposal diverted into recycling or incineration is more expensive than landfill—even more expensive than landfill plus the landfill tax. Come what may, local authorities will face an extra cost for disposal, which must be paid for by somebody—by the local authority, the national taxpayer or the council tax payer. If we impose a green tax, someone has to pay it. That charge will have to be met in the coming year by some local authorities. Can my right hon. Friend give an estimate of the total revenue that will come from local authorities this year and next year, which will have to be collected from local council tax payers?

Mr. Heathcoat-Amory

My hon. Friend is not entirely correct in saying that alternative waste disposal such as recycling is necessarily more expensive than landfill. For example, with aluminium cans the industry will melt them down to make new aluminium products. That waste stream is, in some cases, cheaper than landfilling that metal. Indeed, there are already a number of good and self-sustaining recycling schemes, even without the 167 incentive of a landfill tax for material dumped into holes in the ground. The tax will give a further impetus to what is already happening with recycling.

I repeat the point that capturing those external costs, whether they be pollution or a form of nuisance to residents and others, is an important consideration. It will encourage the waste producers, whoever they may be, to look for ways to produce less waste and to reuse and recycle more waste if they cannot avoid producing it. We know that there is substantial scope for businesses and others to adopt better waste management practices. The tax will give them a precise incentive to continue to do so.

In other words, what we are proposing will reinforce the existing policy of sustainable waste management, which was set out in considerable detail in the White Paper published by my right hon. Friend the Secretary of State for the Environment last month. The concept in the White Paper was of a waste hierarchy, headed by waste minimisation. The most desirable aim must be not to produce so much waste. Lower down the hierarchy is re-using waste.

Further down again comes the recovery of waste, which can include recycling, composting and energy recovery from incineration. The hon. Member for Sheffield, Hillsborough (Mrs. Jackson), who is no longer in her place, was under the misapprehension that the landfill tax would somehow act as a disincentive or inhibition on composting. In fact, the reverse is the case, as the hierarchy shows. If waste can be composted, it will avoid landfill tax. At the bottom of the waste hierarchy is disposal, which includes landfill.

The landfill tax will be an important means of moving waste up the hierarchy and away from landfill. The hon. Member for Bristol, South (Ms Primarolo) said, bafflingly, that the tax would send a signal that landfill was the most desirable means of disposal. That calls into question her understanding of the whole principle of the tax because the reverse is the case. By taxing landfill, we are providing an incentive to move to other, more environmentally benign means of dealing with waste.

Ms Primarolo

A study for the Department of the Environment undertaken by Coopers and Lybrand showed that, with a levy on landfill even as high as £20 per tonne, recycling would still remain a relatively unattractive financial option and that the use of the tax alone would not be enough to develop alternatives. Therefore, essentially the Government are saying that landfill is all right or that options that are worse than landfill but cheaper are also all right.

Mr. Heathcoat-Amory

The hon. Lady is now arguing for a much higher rate of tax, which can only double the anxiety expressed by some of my hon. Friends. If she is suggesting that the modest tax we are proposing will not boost recycling in the way that we wish, that is an argument for a higher charge. We do not accept that. Although the tax will not overnight create vast quantities of recycled waste, that might be a good thing. By flooding the market with recycled products, we might kill the very process that we are trying to promote. We believe that the tax rates of £2 and £7 will at least nudge the market towards a greater use of recycled materials and therefore move waste generally up the hierarchy that I described earlier.

Mr. Winston Churchill (Davyhulme)

Would not the penal rates of taxation on landfill favoured by the 168 Opposition—as, indeed, they favour penal rates of taxation in almost every area—encourage cowboy tipping?

Mr. Heathcoat-Amory

That is a serious point, which my hon. Friend was right to highlight. All that we have heard this afternoon is reaffirmation that the Labour party is a high taxer by nature. When it sees a tax, its instinct is to raise it.

When my right hon. and learned Friend the Chancellor proposed the landfill tax in his 1994 Budget, he made it clear that he wished to consult widely on the details. That will include secondary legislation—to answer the specific point raised by the hon. Member for Dudley, West. In fact, the details in the Bill are the fruits of the consultation exercise. We thought long and hard about the rates and we also consulted outside interests. The tax will be levied per tonne. The standard rate, which will apply to most waste, will be £7 per tonne.

Following the persuasive representations that were made during the consultation exercise, we decided that there will be a lower rate of £2 a tonne for inactive or inert waste. Examples of this are soil, sand, gravel, brick, concrete, glass and so on. These do not decay to any significant extent and have much less potential to pollute the atmosphere or groundwater with gas.

It remains important to provide an incentive to recycle materials such as aggregates in the construction industry, and these should be taxed in most cases at the lower £2 rate. Taxing such materials will encourage a reduction in the amount of aggregates that are extracted from the ground and will encourage people to seek ways of recycling them wherever feasible.

The differential between the £7 and the £2 rates reflects the different environmental impacts of different types of waste, as well as the arguments that were put to us during the consultation exercise. Customs and Excise is now consulting on the exact details and types of inert waste to be involved.

Mr. Tipping

rose—

Mr. Heathcoat-Amory

I shall anticipate the hon. Member for Sherwood (Mr. Tipping). The question of fly ash is being investigated, and I cannot give a definitive answer at the Dispatch Box as to whether fly ash is genuinely inert or whether it includes some form of pollutant that would put it into the £7 limit. I will make further inquiries about the matter.

Mr. Tipping

I am grateful for the Minister's assurance that the issue is at least being examined. Could he turn his mind to the issue of ash from incinerated domestic waste? Will that be classed as inert? Is there not a case for the classification of soil, for which there should be no charge at all? I make this point not because I am a high taxer, but because I want the tax to be practical and efficient.

Mr. Heathcoat-Amory

The residue from the incineration of domestic waste will bear the landfill tax, but as it has been reduced in volume considerably from the initial waste stream, the overall quantity of household waste will be taxed less if it has been through an incinerator. That, in turn, gives exactly the right signal 169 to those involved in the incineration of domestic waste, particularly if that includes energy recovery—as it does near the constituency of the hon. Member for Sherwood (Mr. Tipping).

My hon. Friend the Member for Beaconsfield (Mr. Smith) asked me about some specific cases that do not relate to the amendment. As a result, these cases will probably be better examined upstairs in the Committee, of which, I am happy to say, my hon. Friend will be a member.

I ought to make the general point that, even where alternatives to landfilling do not presently exist or where the alternatives are not economic at present, it is important to ensure that the environmental costs of landfilling are properly reflected in the charges paid. That will, in turn, encourage innovation and research into alternatives to landfilling that may not presently exist, and so promote in the future the environmental objectives of the tax to which I have referred.

Much the same argument applies to the point raised by the hon. Member for Great Grimsby (Mr. Mitchell), although I am not fully familiar with the industrial process that he described. I think that the hon. Gentleman said that the first waste product would be sulphuric acid, which would surely be a high-grade, dangerous product to dispose of and would incur in all circumstances a higher charge. The firm which he instanced had put in a process to render that waste inert in the form of gypsum and, in so doing, move it from a higher charge to a lower one and save itself an equivalent sum of money. I will have to investigate the point made by the hon. Gentleman, particularly as I may stray out of order if I continue on that subject.

Mr. Austin Mitchell

I am grateful for the Minister's promise of an investigation. To facilitate such an investigation, I should make clear the point that I was making. There are two methods of waste treatment, and Tioxide chose the second method—to neutralise it to produce gypsum—because of the availability of a British Steel quarry. The infill of gypsum would convert that quarry into a nature park.

That was a commercial decision affecting the company's competitive situation, but the company was not warned by the Government that there was to be a tax on inert material disposed of in this fashion. The company faces competition from other European countries, primarily Germany, where there is no such landfill tax, and France, where inert materials such as gypsum are zero-rated. The Bill will seriously and adversely affect the competitive situation of this firm. Why do the Government not zero-rate inert materials such as gypsum that are environmentally benign?

Mr. Heathcoat-Amory

I have commented on that matter, but I shall look again at the specific point that the hon. Gentleman has raised.

I had better get on more directly to the Opposition amendment, which affects the timings. The tax will come into effect in October of this year, and in a full year will yield about £450 million. That is an approximate calculation, but it is the best we have at present. Because revenue is collected quarterly in arrears, the yield in this financial year will be about £110 million.

170 The amendment leaves the implementation date in place, but seeks to bring forward the announced cut in national insurance contributions to the same date. This is another enormous uncosted commitment by the Labour party, and blows another hole in Labour's claims to be the party of fiscal rectitude. Labour has landed an enormous bill on to the desk of the hon. Member for Dunfermline, East (Mr. Brown), who is very anxious not to play the old game of giving money away with one hand while putting up taxes with the other to cover the difference.

While Labour has made a big and uncosted commitment, we nevertheless rejoice when it repents of its old high-tax policies. I remind the Committee that in 1979, employers paid 13.5 per cent. in national insurance contributions, including the infamous national insurance surcharge, which was a direct tax on jobs. We have brought the rate down to 10.2 per cent., and it is less than that for lower-paid employees. That is one of the important reasons why we have the lowest non-wage labour costs of any major European economy, and correspondingly low unemployment.

The revenue from the landfill tax will enable us to cut the rate further to 10 per cent. But if Labour really wants to emulate our policies on employment generation, it must adopt all of them—including our rejection of the damaging European social chapter with its possible consequences, and the minimum wage, which would deal a body blow to low earners. I welcome Labour's support for a cut in national insurance contributions, and we will do that as soon as practicable.

The mid-year changes would impose a very significant compliance burden on the businesses which pay it. We are not talking about the 1,400 or so businesses that will be paying the landfill tax, but of the millions of taxpayers who pay national insurance contributions. Those taxpayers would all be affected by any mid-year switch in the rate.

There is another—I think, better—reason for rejecting the amendment, which is that it requires a matching cut that would require us to match the revenue from the landfill tax, penny for penny, with cuts to national insurance contributions. That is considerably less generous than what we are proposing. The tax will raise about £450 million in a full year, but the national insurance contribution cut will cost £500 million in its first full year. The year after that, it will be more generous still and cost some £120 million more than the revenue from the landfill tax.

Sir Roger Moate

That is an important point, particularly in relation to the burden on local authorities. If my right hon. Friend is correct in saying that the national insurance rebate reduction will more than offset the additional costs to be borne by local authorities collecting or paying the landfill tax, does that therefore mean that there is no justification for local authorities—Labour local authorities in particular—suggesting that the tax is a reason for increasing the council tax this year?

Mr. Heathcoat-Amory

There are bound to be winners and losers. Not all businesses or types of business will unequivocally be winners, because they may incur landfill tax charges that are greater than any benefit that they receive in national insurance contributions. That is true for local authorities as a whole.

171 I should like to say another word about local authorities—particularly to attempt to answer some of the points that have been made by the right hon. Member for Lagan Valley (Sir J. Molyneaux). I am aware that the Environmental Protection Act 1990—which brought into effect a chain of waste management regulations in England, Wales and, subsequently, in Scotland—does not yet apply to Northern Ireland. As I understand it, starting this year, the Northern Ireland Office will introduce equivalent regulations and environmental requirements.

I can make a general point about Northern Ireland that is similar in England and Wales: local authorities are in a good position to influence the amount of landfill tax that they pay because they are the movers and shakers in the recycling, composting and incineration industries as they affect domestic waste. Many local authorities have already made investments in those industries, often with Government support. Indeed, the Government have given or have made available some £50 million-worth of grants to local authorities for investment in recycling.

Mr. Tipping

I accept two of the points that the Minister has made. First, resources have been made available to local authorities through credit approvals and the rest; but more needs to be done. Secondly, local authorities are actively making an attempt in this sphere. The bottom line is that landfill is substantially cheaper than recycling. How can we encourage more recycling when the cost difference between the two schemes is so wide?

Mr. Heathcoat-Amory

We can bridge that gap only by an enormous increase in the landfill tax, which we will not contemplate for many reasons—but the tax helps. The tax sends the right price signal and gives the right incentive to move more of the waste up the waste hierarchy, away from landfilling, towards other means of waste management, including recycling. Local authorities in all parts of the United Kingdom are in a good position to take advantage of that. On grounds of practicality, the cost of administration and because it is of benefit to the great majority of businesses, I urge the Committee to reject the amendment.

Ms Primarolo

The Paymaster General has made some interesting criticisms of our amendment. He attacked it because he said that it was a spending commitment and it reflected our desire to increase the cost of landfill. That is not the case.

I wonder, and the Committee may wonder, whether the Paymaster General knows when the election will be because, even if what he said were true, for it to be a spending commitment we would have to be in power by April, when the mechanism comes into effect. At the moment, I do not think that we will be. The Paymaster General then stood on his head by saying that our amendment, if it goes through, will be less generous and that there will be less money available to assist in landfill. It might have been better had the Paymaster General stuck to the amendment rather than trying to make the rather dubious political points that he made.

Mr. Heathcoat-Amory

To avoid any misunderstanding, let me clearly spell out the fact that the hon. Lady's amendment would bring forward the date of 172 the national insurance cut to 1 October this year. In the current financial year, that would cost an extra £210 million. That is why I say that the Labour amendment is spendthrift and uncosted.

Our proposals are more generous in the round because—unlike an insistence that we match the cut, penny for penny, to what is raised in future by landfill tax—after the present year and in future financial years, we will give away more in national insurance contribution cuts than we will raise by landfill tax. That is all taken into account in the published Budget arithmetic.

Ms Primarolo

I am fascinated to hear the Paymaster General describe the words of the Chancellor of the Exchequer as spendthrift because the amendment reflects the Chancellor's commitment on matching finance from the employers' national insurance contribution that he made in his two Budget statements literally word-for-word. The Paymaster General is still trying to have it both ways: one minute he says that we are spending money and the next minute that we are not spending enough.

Let us return to the serious debate about the amendment. The Paymaster General has still not explained to the Committee why the original proposals and the statements made to the Chancellor said that matching cuts in the main rate of employers' national insurance contribution would be made. He has not explained why there is the delay, and he has not adequately explained how local authorities will be compensated for increased charges if they fall on the local authorities as a result of the imposition of this charge. In particular, he has not explained how that will affect local authorities that are in serious financial difficulties, regardless of whether they are Labour or Conservative-controlled, although I realise that there are not many Tory-controlled authorities left.

In relation to the national insurance contribution mechanism being used for matching finance, the Paymaster General did not give an undertaking that the mechanism would definitely be in operation in future years. In moving the amendment, I made it clear from the Dispatch Box that an annual decision is taken on national insurance contributions. There is no clear guarantee in the proposals that that mechanism will be permanent or will last for as long as the landfill tax.

Many of my hon. Friends have made it clear that we are concerned not only about the tax's impact on local authorities but about its impact on business and the possible effect of distorting waste management away from the laudable objectives that the Government initially put before us. It is incredible that the sugar beet industry, for instance, will have to pay to put topsoil that has been removed from sugar beet back on to the ground. [Interruption.] If hon. Members wish to intervene, I should be happy to let them. The Paymaster General gave a wide-ranging response to the debate and it seems reasonable that, as I stuck to the amendment in moving it, I should be able to reflect on some of the points that he made before we debate clause stand part.

The tax takes an inert material such as topsoil and charges an industry for putting it in a hole in the ground. The Paymaster General tells us that that is a sensible environment strategy. We do not accept that.

Our amendment seeks only to take a lead from the Chancellor of the Exchequer—something, admittedly, that we do not do very often. We sought to take him as a man 173 of his word in the two statements that he made, which were reinforced by one from the Secretary of State for the Environment, and put what he said into the Bill. That point has not been answered by the Paymaster General.

I am tempted to go beyond the amendment, but I shall withhold my remarks until the clause stand part debate. We will withdraw the amendment but because of our dissatisfaction, we intend to vote against the clause. I beg to ask leave to withdraw the amendment.

Mrs. Ann Winterton (Congleton)

I beg to move amendment No. 1, in page 24, line 35, at end add— (4) A disposal is not a taxable disposal if the material disposed of consists entirely of soil derived from the processing of agricultural produce.'.

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes)

With this, it will be convenient to discuss amendment No. 2, in page 24, line 35, at end add— '(4) A disposal is not a taxable disposal if the material disposed of consists entirely of dredgings. (5) For the purposes of subsection (4) "dredgings" means material forming part of or projecting from the bed of—

1. (a) any river, canal or other watercourse (whether natural or artificial), or
2. (b) any dock or harbour (whether natural or artificial) which is removed by whatever means.'.

Mrs. Winterton

The amendments raise important issues that should be considered by the Government. The landfill tax is designed to encourage the reduction of wastes. All hon. Members approve of that. However, there are some anomalies that need to be aired and that I hope my hon. Friend the Minister will consider.

The return of uncontaminated soil from agricultural produce, especially from the sugar beet industry, to landfill sites in the area whence it came—merely returning soil to soil—should not be taxable. That case is especially valid because one of the factors that causes the industry's inability to dispose of soil is the restrictions that have been agreed with officials to prevent the spread of rhizomania.

As many hon. Members know, when sugar beet is harvested, some soil adheres to it. In the harvest of, for example, 8 million or 9 million tonnes of sugar beet, approximately 500,000 to 1 million tonnes of soil will also be delivered to the processor, depending on the weather conditions of the season—whether the ground is wet and heavy. In general, the proportion of soil delivered with beet has declined in the British sugar beet industry as it has developed improved on-farm cleaning methods, which must be welcomed. They have resulted in some of the lowest proportions of topsoil delivered with beet in Europe. In France, for example, the proportion of topsoil delivered with beet can be as much as 30 per cent.

When sugar beet is processed, the topsoil is collected separately and conditioned before being sold on for a variety of uses, including horticultural and landscaping work, other recreational amenities, improvements to agricultural land, civil engineering projects and the 174 capping of landfills. The industry has worked hard to develop markets for the topsoil, and the long-term aim is for all sugar industry topsoil to go to such markets.

In the past, the topsoil delivered with sugar beet was returned to the growing regions wh