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The Spring budget and landfill tax

5th April 2013 Posted by

With the announcement in the Chancellor’s Spring budget that the landfill tax escalator will remain unchanged at £8 per year, landfill tax will reach the Government’s ceiling of £80 per tonne of waste in 2014/15. No surprise here, though the lack of an announcement on the future level of the tax after 2014/15 comes as a disappointment. The Local Government Association (LGA) has argued for a freeze at £80 per tonne on the grounds that continuation of the escalator would result in an additional local authority spend of £70 million in 2015/16 in these straitened economic times, though actual spend will depend on the speed with which alternative treatment infrastructure can be provided in order to ramp up the diversion of waste from landfill.

Landfill

There is another argument against the continuation of the escalator in its present form. Landfill tax is designed to make landfill the most expensive waste management option, so it is the differential cost that has to be carefully balanced. Too high a level of tax can be highly inflationary, because opening up too wide a gap between landfilling and an alternative viable management option could artificially raise the floor price of the latter, well beyond that merited by its true cost. Further, costs for alternative options are likely to fall in relative terms over the years – as they become more prevalent and the scale of treatment capacity increases – so the differential cost between landfilling and other options will in any event tend to widen. Given the present range of relative costs, there would appear to be no compelling reason why landfill tax should increase beyond £80 per tonne, and certainly not without a robust economic analysis.

Perhaps of greater concern is the ever-widening differential between the landfill tax rates for so-called “active” waste and for inert/inactive waste. Since 1996 the escalator has been applied to the higher tax rate, but the lower tax rate for inert/inactive waste has remained unchanged. By 2014/15, the UK will arguably have one of the highest differential landfill tax rates of the twenty EU Member States that apply the tax – £2.50 per tonne against £80 per tonne at the higher rate.

Exemptions to the landfill tax regime and clarification of waste types qualifying for the lower tax rate have been long-running issues that have yet to be satisfactorily resolved. Guidance issued by HMRC in May 2012 stating that fines and screenings from transfer stations should be classed as material liable for the standard rate of landfill tax was reversed after a strong reaction by some parts of the waste industry, while other operators have pointed to distortion of the landfill market because of mis-application of the landfill tax rules.

Defra and HMRC could consider freezing the higher rate of landfill tax at its 2014/15 level till say 2019/20, and deal with the iniquities of the lower rate as a matter of urgency. The Scottish Government has recently completed a consultation on its soon-to-be-devolved landfill tax. Perhaps it is time for England to do the same.

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