Landfill Tax

What is Landfill Tax?

Landfill Tax is an environmental tax paid on top of normal landfill rates by any company, local authority or other organisation that wishes to dispose of waste in landfill. It is intended to encourage alternative means of waste disposal, such as recycling, by reflecting the environmental costs of landfill use more accurately in its price.

Landfills are solid waste disposal sites, where both active and inert waste is deposited and compacted, and then periodically covered over with a layer of soil. Their purpose is to minimise the volume of non-recyclable solid waste material and store it with minimal danger to the public. Landfill sites must be licensed by the Government.

It is landfill operators who are liable for the tax - the costs are passed on to users as higher prices. Landfill Tax is collected from operators by HM Customs and Excise.

Landfill Tax operates at two rates: a standard rate of £24 per tonne for active waste (substances that either decay or contaminate land - which includes household waste); and a lower rate of £2 per tonne for inert materials.

From April 2008, the standard rate will increase by £8 per tonne per year until 2010-11. For the lower rate, there will be an increase from £2 to £2.50.

Materials qualifying for the lower rate are listed in the Schedule to the Landfill Tax (Qualifying Material) Order 1996. They are rocks and soils, ceramics and concrete, unused minerals, furnace slags, ash and low-activity inorganic compounds and water. Calcium sulphate, calcium hydroxide and brine qualify only if they are disposed of in specific containers.

A number of substances are also exempt from Landfill Tax. They include dredgings, disposals from mines and quarries, and waste from contaminated land clearance.

Background

Landfill as a means of waste disposal goes back to the dawn of civilisation, with archaeologists having discovered sites in the vicinity of the Minoan capital of Knossos on Crete dating back to 3,000 BC. What to do about waste then has long been a problem for governments.

In 1996, the Conservative government published a strategy entitled "Making Waste Work", setting out plans for sustainable waste management and promising to achieve a 25 per cent recycling rate for household waste. As a part of this strategy, Landfill Tax was brought into being by the Finance Act 1996, and it came into force on October 1 that year. Originally, Landfill Tax was charged at a rate of £7 per tonne at the standard rate and £2 per tonne at the reduced rate. The Government hailed it as "the UK's first tax with an explicit environmental purpose", but cut employers' National Insurance contributions rate at the same time in order to soften the impact on business.

At the same time, a Landfill Tax Credit Scheme was introduced to counteract the effects of the tax on site operators. Under the Scheme, operators are encouraged to support local environmental projects by the provision of a 90 per cent tax credit against donations to Environmental Bodies registered with the Scheme's regulator, Entrust. This credit is capped at 20 per cent of the operator's Landfill Tax liability, meaning that up to 20 per cent of the receipts from the Tax are available for environmental investment.

In 1999, the Labour government published a new draft waste strategy, "A Way with Waste", which updated the 1996 plan. As part of this, the 1999 Budget saw the standard rate of Landfill Tax increased to £10 per tonne and the introduction of a "Landfill Tax Accelerator", under which the standard rate would rise by £1 per tonne each year until 2004. This was followed by the publication of the final strategy, "Waste Strategy 2000", in 2000. This reaffirmed recycling targets for household waste of 25 per cent by 2005, 30 per cent by 2010, and 33 per cent by 2015.

Moreover, in the 2002 Pre-Budget Report, the Chancellor announced that, pending consultations, the Government intended to introduce an annual increase in the standard rate of at least £3 per tonne from 2005, with the medium- to long-term objective of reaching a rate of £35 per tonne.

Controversies

Waste disposal remains a significant problem for government. In 1999, the Environment, Transport and Regional Affairs Committee warned that the Landfill Tax had had hardly any effect on the disposal of active waste, but improvement in recycling technology and a rising tax rate has addressed this at least in part.

Nonetheless, landfill is a cheap method of waste disposal, and despite some of the problems it has encountered - such as concerns about the leaching of contaminants into local water supplies - it remains more acceptable to the public than alternatives such as incineration.

It has been alleged that the tax has led to an increase in fly-tipping and the use of unlicensed waste disposal sites.

And in the 12 months following the introduction of the Landfill Tax, household waste managed by local authorities grew by 5.25 per cent, which was widely put down to business diverting commercial and industrial waste into the household waste stream. The ETRA Committee's report also warned that the tax has been a "substantial and additional burden" on local authorities. It has been claimed that the increased cost has actually diverted money away from other local authority environmental projects.

The Landfill Tax Credit Scheme has also been criticised for its complexity and concerns about the quality of some of the projects it funds.

Statistics

Estimated revenue from landfill tax receipts for 2007/8 is £0.9 billion. Projected revenue for 2008/9 is £1.1 billion

Source: Treasury – Budget 2008

For 2007-08, landfill operators are able to receive a tax credit for contributions to environmental bodies under the Landfill Communities Fund worth up to 6.6 per cent. of their gross landfill tax liabilities. Budget 2008 announced that the percentage cap for 2008-09 will be 6.0 per cent.

Source: Commons Hansard – March 2008

Municipal waste statistics for the period from October to December 2007 show that:
Household waste has gone down - from 25.8m to 25.6m tonnes; less waste has gone to landfill - down from 16.9 to 15.8m tonnes; recycled household waste is up - now at 33.9%; and municipal waste is down overall - from 29.1m to 28.8m tonnes.

Source: Defra - August 2008


Quotes

"Raising the tax by £8 per tonne per year to £48 by 2010 for 'active' waste will make a whole range of waste treatment technologies financially viable - for all wastes, not just municipal. The three-year plan for the escalator is good, too. Businesses need time to change and even the anticipation of a £48 per tonne tax - plus steadily increasing landfill gate fees - will be enough to influence many waste and resource management decisions."

Steve Lee, chief executive at the Chartered Institution of Wastes Management (letsrecycle.com)

"Any increase in the Landfill Tax as far as the wood recycling sector is concerned has to be a good thing. A lot of wood is going to landfill and it needs to be diverted to feed growing demand from board mills, biomass, animal bedding and potential demand for woodchip from overseas."

Rick Wilcox, Secretary of the Wood Recyclers' Association (letsrecycle.com)