Item 2 is to take evidence from the Scottish Government bill team as part of our stage 1 scrutiny of the Landfill Tax (Scotland) Bill. I welcome to the meeting Alistair Brown, David Kerrouchi, John St Clair and Stuart Greig, and invite one of the witnesses to give a short opening statement.
I will make an opening statement on the taxation elements of the bill. If it is all right with the committee, I will then invite Stuart Greig to say a few words about the environmental context.
Good morning. Actually, I will set the economic context for the bill.
May I continue for another two minutes, convener? Is that acceptable?
Seeing as it is you.
I thought that it might be helpful for the committee to compare and contrast the landfill tax provisions with the provisions on land and buildings transaction tax, which the committee is more familiar with. There are many similarities. This bill defines the taxable event or taxable transaction—in this case, it is disposal to landfill—and specifies the point in time when the tax becomes due, which is when the disposal is made. It makes provision for who is liable to pay the tax—the landfill site operator—and it sets out how the tax due is to be calculated. In each case, you will find parallel provisions in land and buildings transaction tax.
Yes, thank you very much, Alistair. As always, I will start off with some questions—I will try not to steal all the juicy ones right at the start so that my colleagues around the table will have a few to follow on with. You said that one of the points of the tax is that it is harder to avoid, but the Scottish Environment Protection Agency said:
The policy intention in the bill, which differs quite markedly from the policy of the UK landfill tax that is already in place, is that illegal disposals to landfill should be subject to tax. That is provided for in the bill by allowing the tax authority to deem an area that has been used for disposals as an authorised landfill site for tax purposes. The legislation is drafted with a view to taxing the situation that SEPA had in mind. Stuart Greig and John St Clair can add some more details.
I will be brief. The bill is introducing a unique policy that does not exist at a UK level at the moment. It is intended to be another strong tool in the armoury to tackle illegal waste dumping. That is a criminal offence and it should be a taxable offence. To be frank, we need to clamp down on the people who are getting away with it at the moment. The bill is a critical action to allow us to do that.
Will the financial penalties that will be imposed through the bill ensure that we eliminate or significantly reduce illegal dumping?
They will be another significant deterrent. I will put the measure in context and then we can talk about specific cases. We are talking not about small-scale fly tipping but about large-scale organised crime and the illegal dumping of materials that is evading tax of the order of £5 million plus. They are isolated activities, but they are not small scale at times. The financial penalties will help us to start to tackle that.
You asked about the effect on the illegal dumper, convener. He will be subject to a range of sanctions. Currently, he is subject to criminal sanctions but, once we decide to tax the activity, he will also be liable for tax evasion and liable for the cost of dumping his waste properly. Therefore, he will be taxed for the illegal dumping and there will be another penalty when he has to take the waste to a proper site because, in effect, there will be two disposals. We think of that as quite a powerful battery of sanctions against illegal dumping and hope that even the message about that going out might help to reduce such activity.
A number of respondents have raised the issue of waste tourism. For example, Scottish Borders Council warns that, if there is a change in the list of materials that are exempted, it may lead to an influx from elsewhere in the United Kingdom. Funnily enough, North Ayrshire Council, which covers my area, seemed concerned about waste tourism, although I think that there would have to be a pretty massive differential for people to drive all the way to North Ayrshire to dump any waste.
Again, I will begin the answer and then ask Stuart Greig to come in, particularly on our understanding of what the differential in tax rates must be before people begin to incur the cost of moving waste north or south of the border.
In the eyes of waste legislation, the border with England is not a border. There is no legal issue with waste movement across the country, but we are an island and it is a genuine concern, so we have focused in on the matter.
The bill has to be consistent with the four principles that have been established, which are certainty, convenience, efficiency and a tax being proportionate to the ability to pay. The Scottish Environmental Services Association states in its submission:
I will begin to answer that, and I will then invite Stuart Greig to comment further on certainty about which materials are taxed at which rates.
We are well aware of the concern. It is not just about the rates but applies across the board to the administrative system, the qualifying materials and so on. It is vital that the industry has as much certainty as we can provide. It is appropriate to reserve a number of policy matters to subordinate legislation, as that will allow the Parliament to adjust critical aspects of the tax to bring it into line with shifts in policy and external circumstances, which is essential.
You mentioned the adjustment to the block grant. I know that discussions are continuing on that. SEPA states:
I have a great deal of sympathy with SEPA’s comment, but the policy of the UK Government is that the costs of administering devolved taxes—and devolved anything else—should fall on the Scottish Government’s budget. That is more than an expectation; it is an explicit policy of the UK Government. The block grant adjustment would not, therefore, include an allowance for the costs of administering landfill tax or land and buildings transaction tax in Scotland. It is similar to the situation with the Scottish rate of income tax. The Scottish Government is being invoiced for the costs of establishing that tax, and from 2016 onwards we expect to have to pay the cost of running it.
I know that you have said that to the Finance Committee on several occasions, but it is important to get that kind of thing on the record.
I invite Stuart Greig to respond to that.
Those are good and valid points, but we need to be careful that we work through all the potential ramifications. For instance, if we reduce the rate for asbestos, will a lot more of that material be moved to Scotland from England? We need to understand the full implications of that proposal.
Thank you. I open it up to questions from the committee.
You have gone through the differences between landfill tax and LBTT. When I thought about it beforehand, one of the differences that struck me was the Government’s clear commitment to achieving revenue neutrality on LBTT. I presume that that is not relevant in this context, as the landfill tax is one of those strange taxes for which we want the yield to be as low as possible, although that might create some problems when it comes to the block grant adjustment. What is the Scottish Government’s thinking on the landfill tax? The estimate that we have been given is that it will generate £107 million in 2015-16—although you emphasise that that is only an estimate—falling to £40.5 million in 2025. What is the Scottish Government’s attitude to the block grant adjustment if those are the guiding figures that we have?
There are two points to make in response to Mr Chisholm’s question. First, tax revenues are normally broadly pegged to economic activity and, as the economy grows or stagnates, tax revenues behave similarly. However, an environmental tax whose policy intention is measured by a reduction in revenues is quite unlike any other tax that we have to deal with. For the UK Government, looking at a very broad basket of 30-odd taxes, a reduction in the income stream from one of those taxes is something to be balanced against the income streams from many others. However, because the landfill tax is one of only two devolved taxes—three if you include the Scottish rate of income tax—the reduction is of particular concern for the Scottish Government. How it deals with that forecast reduction in the context of agreeing a block grant adjustment method with the UK Government, and with the Treasury in particular, is a significant issue that we have been discussing at official level. It is in Mr Swinney’s mind too, given his position in all this. It is a real issue, but we do not yet have an answer to it. However, I can safely say that Mr Swinney expects us to define an answer that he can bring to the Parliament in due course.
Is the expectation that there will be a one-off block grant adjustment for landfill tax as for LBTT? Obviously, the Scottish Government will argue for as high an adjustment as possible, so I presume that it will start by arguing for £107 million. I suppose that, in principle, there is almost an argument for having a running adjustment that would vary with the overall UK take over a period of years. Otherwise, the Scottish Government will presumably need to try and argue for the £107 million, but the OBR projections obviously offer a strong counterargument to that.
That is very much the substance of our discussions with the Treasury. The UK Government’s policy on the issue was originally set out in the November 2010 command paper, which put together the two devolved taxes that we now call land and buildings transaction tax and Scottish landfill tax. In discussing the block grant adjustment, the UK Government has not differentiated between the two taxes.
Malcolm Chisholm said that the Scottish Government would argue for as high a block grant adjustment as possible. Would it not argue for as low an adjustment as possible?
Yes. In our discussions with the Treasury, we want to achieve a block grant adjustment that is as low as possible, so that we minimise the risk of the Scottish budget losing when the devolved taxes start up in April 2015.
I thank the convener for that. I was thinking that we would gain £107 million, but obviously we would lose £107 million. As ever, the convener is right—I bow to him on that.
Good morning, gentlemen. As director of protective services for Highland Council many years ago, one of my responsibilities was waste disposal so I wonder whether the following situation that used to arise is considered in the bill. Where someone was developing a piece of land that had perfectly good topsoil or general spoil that was not contaminated in any way, it was sometimes useful to allow that material into our site to help us to create bunds that could line the site. The legislation was structured in such a way that we were prevented from using the dilute and dispersal method that we had used successfully for a long time, so we did not get a lot of material. We could not even arrange to purchase the material because, as the developer’s intention was to dispose of the material as a by-product from developing land for housing, it could not be sold—I cannot quite remember all the details. I think that we need a mechanism that allows the developer to give away at low cost material whose disposal would incur landfill tax, or which would be kept on site through the creation of artificial bunds around the housing estate, which might not be desirable. Has any thought been given to how we might help developers and landfill operators to find a mutually beneficial way of dealing with such material?
I am not sure how long ago you were involved in the area.
It was about 15 to 20 years ago, right enough.
The legislation has probably changed fairly substantially since then. At present, there are a number of exemptions that allow developers to move material around and use it in certain ways on site. You have entered a fairly controversial area, as that is one of those classic ways in which people can hide some of the more illegal aspects of waste activity. Something might be sold as good-quality soil but, under the top layer, there is a host of sins. We need to strike a balance between allowing flexibility to get good use of the topsoil and so on, and not creating an open avenue for people to abuse the system and avoid the landfill tax by disposing of things that they should not dispose of in such areas.
I just wanted to tease out the issue. You are obviously thinking about the issues and what could be mutually beneficial. I understand the points about people perhaps abusing or misusing the situation. I apologise for my out-of-date information.
I ask Dave Kerrouchi to respond to Mr Thompson.
We are listening to the landfill communities fund forum and environmental bodies about how to do that. The guidance has a 10-mile radius rule and there is the objective of environmental improvement, although that does not always happen within 10 miles of a landfill site. Further down the road, when we come to producing the guidelines under subordinate legislation, we will listen to community and environmental groups about how best we can apply the depreciating returns to the funds.
It would be unfortunate if areas that got rid of their landfill sites did not benefit while those that kept sites benefited. There is a case for ensuring that the whole of Scotland can access the fund, rather than just communities that are close to landfill sites. It might be useful to have a two-tier system so that communities that are close to sites get an additional benefit but other communities can benefit, too.
It might be worth saying, in addition to Dave Kerrouchi’s response to Mr Thompson, that there is a regulation-making power in section 18 to deal with what are called tax credits—the landfill communities fund to which Mr Thompson refers is funded by payments from landfill operators who then achieve a credit on the tax that is due. The bill does not bind the regulations to deal only with uses for environmental purposes within a certain radius of a landfill site. The regulations can make broader provision than that. As Dave Kerrouchi said, in making the regulations, the Scottish Government will consult closely those who are affected, including the environmental bodies, which are pretty effective at getting their points across.
Yes.
The submission from Comhairle nan Eilean Siar—or Western Isles Council—raises an issue about the cost of transporting stuff for recycling. That is of course relevant to any island or island group. Although we encourage people to recycle as much as possible and we have a zero waste policy, clearly councils in such areas are at a disadvantage, given the transportation cost.
Yes, absolutely. There are lots of really good examples of how the island communities and more remote areas rise to the challenge of trying to close the loop with those materials. They have a different set of circumstances, some of which are similar to those of Scotland as a whole, in that Scotland is off the coast of mainland Europe.
I have a supplementary question. You talked about the penalties that would apply to illegal dumping. Apart from tax avoidance, there is the fact that that such dumping constitutes a criminal offence—indeed, we can throw the book at the perpetrators. How will we know who they are? They should rightly be charged; that sounds like a practical solution. How successful are we in bringing criminal proceedings against people who do illegal dumping? How do we resolve such situations? How will we get the tax?
We are quite successful. SEPA has a number of initiatives in its environmental crime task force work. There have been a number of recent high-profile prosecutions for some quite large-scale activities. The proposed tax will give us another tool to use in that context. SEPA will be able to play a joint role: it can use the information from its environmental enforcement work to inform the tax administration side of things as well, which will bring real strength. Although there is more to be done, adding the tax is another thing that will help. Once the tax is in place, we will look to SEPA and others to focus in on the issue with the new tool at their disposal.
It might be worth mentioning that two parties can be involved in illegal dumping if there is a fly-by-night incident. One is the illegal dumper, and the second is the landowner—if they are complicit. That is why section 16(3) says that where there is unauthorised dumping, it is not only the person who makes the disposal who is liable, but anybody who knowingly was in on it. That would catch cases where the landlord must have known that a truck was dumping stuff.
The Chartered Institute of Taxation stated in its written evidence that the current rates structure does not really
I will start with a brief response and then invite Stuart Greig to come in.
To be honest, I do not have too much more to add. As with anything, we could make the system far more sophisticated than it is at present by adding extra rates and so forth, but every time we did so we would introduce another potential loophole and another complexity in administering the tax.
That is helpful.
I will begin and then invite Stuart Greig to come in.
It is just a minor point. We are working on the issue with SEPA, which is already looking at the opportunities that it can seize off the back of taking responsibility in this area. For example, it is looking at some of the environmental crime task force work and at the Regulatory Reform (Scotland) Bill. I think that we will undoubtedly see a push by SEPA on this front as we move towards 2015 and in subsequent years.
My next question was going to be about how much of revenue Scotland’s costs could be attributed to landfill tax, but Alistair Brown has pre-empted it.
I will begin and then ask Dave Kerrouchi to come in. Our starting point is that there is already a landfill communities fund at the UK level. As I recollect, the amount of tax credit that operators can get back from contributions to the landfill communities fund is 5.6 per cent of their contribution.
It is 6.8 per cent.
Stuart?
It is 6.8 per cent.
It is 6.8 per cent—thank you, convener.
I have not much more to add, except that the credit scheme has a high take-up rate and is quite successful. On the tax due to Government, I imagine that, on implementation of the bill, over 90 per cent of it will be diverted away from Scottish Government coffers to environmental bodies.
Just to give the committee a feel for that, the most recent figures, which are from 2011, show that about £4.5 million has been distributed through the landfill communities fund. That figure will diminish, which is why the minister said that he would increase the fund by around 10 per cent. However, it is valid to ask how we make best use of a diminishing pot of money—money that has been really valuable for organisations such as the RSPB in funding its work and in helping to mitigate the impacts of landfill sites. That is a real challenge for us in the years ahead.
I will probably touch on issues that have already been addressed. Waste tourism has been mentioned, particularly with reference to England. The point was made that it can be sometimes worth while to take waste a long way away, but there are stories of western companies dumping stuff in Africa. How do we prevent that from happening?
Your question rather goes beyond my knowledge, so I ask Stuart Greig to answer it.
There are international agreements and Europe-wide legislation on waste. We are not allowed to export traditional waste—the stuff in our black bins. There is a transfrontier shipment regime, so that waste does not get exported, other than in some very illegal circumstances. A number of materials are not now considered to be waste—for example, the recyclate in our recycling bins—some of which go to China, Indonesia and other places, and some of which stay here and are turned into plastics for use in food-grade containers and so forth. There is also a grey area in the middle on which SEPA is very focused at the moment—it is clamping down on the movement of waste through abuse of transfrontier shipment.
We do not need to worry too much that, if the tax rate increases, that will push waste overseas, for example. That should not be a factor.
That is a genuine concern. Whatever we do to try to ensure that we drive waste out of the bin and into other avenues, there will always be people who will try to see that as an opportunity to circumvent the system and make some money out of it. Whatever is done with the tax, it is essential that we ensure that the legislation and its enforcement are as tight as possible. We have a good regime in place, and we will add what we can to it through the bill.
Okay. Thanks.
As we said earlier, Mr Swinney has said—this is not in the bill—that he intends to invite Parliament to agree rates for the Scottish landfill tax that are no lower than the rates that are applied in the rest of the UK from 2015 onwards. In that respect, I think that he was concerned about providing as much certainty as possible to the industry. He was not fettering his discretion to propose higher rates than those that might apply in the UK in future.
Are you saying that the industry really does not need any more certainty other than a floor?
The industry might feel that it would like to have certainty about the ceiling as well as the floor, but at this stage we are offering certainty about the floor, which we believe is important. It is particularly important for the investment plans that companies that are active in the sector have made, which depend on the cost of landfilling.
In that case, am I right to say that it is the minimum cost that matters, because that makes it worth while to invest, and that if the rate of tax was higher, that would be even more of a bonus, in a sense?
Waste management companies are now quite diverse organisations. They will deal with recycling, but they might also deal with black-bag residual waste and electronics. If one thing is changed, that will disincentivise their involvement in one of area of work but create an opportunity in one of the other areas. The floor and ceiling will therefore be relevant to them.
Okay. Thanks.
If Mr Mason is content for me to do so, I will invite Stuart Greig to comment on the statement that
I will try, although I might be as confused as you are on this point. I am struggling to understand how the tax will protect land. The focus is on getting the stuff out of the sites. At the moment, we have 78 landfill sites but at some point there will be significantly fewer, and some may offer opportunities for redevelopment. The Scottish Government building is on a landfill site. I can see the value of the land in that sense.
The logic of the statement struck me as strange when I read it. I just wanted a bit of reassurance that I had not misunderstood it. By the chartered institute’s logic, if we dug a deep enough hole, that would not use up very much land and any amount of stuff could be put in. However, you said at the beginning that we are trying to save resources on a wider scale.
As the committee will know, the Chartered Institute of Taxation has been very helpful to us in our work on devolved taxes, particularly the land and buildings transaction tax. Through the contact that we have with the chartered institute, we can make sure that we fully understand the point that it is making. There is an opportunity for us to have a conversation with the chartered institute about the point that you have raised.
Thanks.
I will respond to that and invite Stuart Greig to come in if he wishes.
Glasgow City Council makes the point that, if there were two different tax regimes, that could add bureaucracy for companies that operate across the UK. Are we talking about companies that operate only in the UK, which would move from one tax regime to two, or are we talking about companies that operate internationally, which would be moving from, say, 20 tax regimes to 21?
We recognise that several companies in the waste management sector operate across the UK and that they will move from having to deal with one UK-level landfill tax regime to having to deal with two—one for Scotland and one for the rest of the UK. Stuart Greig can perhaps provide further information about the degree to which those companies operate internationally. In the financial memorandum, we make the point that we believe that the increased burden on companies that will move from operating within one tax regime to operating within two will be relatively small.
A couple of companies that operate landfill sites have an international dimension, and Mr Mason is right to say that it might be a case of adding one extra tax to 25 others that they are dealing with. We are doing everything that we can to simplify the system for Scotland and, with SEPA and revenue Scotland, we will seek to introduce an electronic returns system. We are trying to minimise the burden of administration on operators in Scotland and, by doing so, to make it as easy as possible for them to adapt to having two tax systems.
On the landfill communities fund, the 10-mile radius has been mentioned. In Dave Thompson’s constituency 10 miles is quite a short distance, but in my constituency 10 miles is absolutely mega-huge; it is far too great a radius. Has consideration been given to changing the measure? Could the landfill communities fund apply to the ward that the landfill site is in and the adjoining wards, which would be more compact in urban areas and much wider in rural areas?
Yes—we will probably need to look hard at the 10-mile radius rule. There are other ways to achieve the same thing.
From what I understand, Glasgow City Council dumps a lot of its rubbish in South Lanarkshire, but it argues in its written submission that much of the benefit should come back to Glasgow rather than staying in South Lanarkshire where, I presume, the people suffer from dumping of the waste. Has there been thinking on that, or is it still to be developed?
We want to ensure that the people who are affected by landfill sites are the first port of call for compensation for that damage. They will be either the people right beside a landfill site or people who are affected by transportation of the waste to the site. They are the number 1 priority. The priority after that is to consider the other environmental implications of landfill so that money can, perhaps, flow into things outside the closest and most-affected communities.
How specific should the fund be? One suggestion is that it should be for environmental projects or for preventing future waste. The Patersons Quarries Ltd landfill site is in my constituency, so we have had some of the fund. One of the funded projects built a tennis court, which is good: I am for tennis courts, but the link to waste is a bit limited. Another project was a church kitchen: I am also a fan of church kitchens but, again, the link to waste is limited. Do we need to make the fund more restricted to waste reduction?
There is potential for that to be done. When the fund was initiated, it covered a much broader range of projects; money was diverted into research on how to recycle more, for example. The challenge is that there are a number of vested interests in the fund around such research—waste management companies operate a number of the charities that distribute the fund and have vested interests in trying to increase recycling rates. That is what the regulator, Entrust, keeps an eye on.
RSPB Scotland said:
The critical thing is that the money will reduce, so we must put in place an administration system that is as cost effective as possible so that as much as possible of that money gets to worthy causes. We are considering options; the current distributive bodies have a strong view of what the system might look like. There are a couple of models on the table, and we will consider taking that forward in the subordinate legislation.
It might not relate directly to the bill, but I have a question on the fund, which will reduce, as you said. It might be useful if the fund could be bolstered or boosted by some kind of incentive for people who create recycling and other positive waste disposal facilities. If we are trying to encourage less landfill, more recycling and so on, it would be logical not just to reward communities for the damage that is caused by landfill sites, if I can put it that way, but to reward those who create positive recycling facilities and so on. That would help to maintain the fund going forward and would broaden it out around the country, as well. Do you have any views on that idea?
I like the idea; some such suggestions have been made. The challenge is to ensure that such a reward would not give a particular waste management company a competitive advantage because it handles specific recyclable materials as part of its business. It is a question of finding a way to do what Dave Thompson suggests without disrupting the competitive market.
We would have to take into account the wider issues of Government revenues and what can be afforded, and the fact that some Government expenditure goes into encouraging positive environmental practice.
That concludes questions from members, but I have a few questions to finish with. We have talked a lot about the landfill communities fund and I do not want to dwell on it, given that it represents a fairly small proportion of the bill, but I want to add my comments. SESA states:
I have a point on the landfill communities fund to make, which comes out of Stuart Greig’s earlier observations. The Scottish Government will be working with the industry, community groups and people with environmental interests to develop proposals that will then be reflected in subordinate legislation that will come to Parliament for approval.
Yes, it is.
Let me move on to a couple of other areas before we wind up. Will SEPA or revenue Scotland be responsible for enforcement of the tax?
That issue is still for discussion. Very broadly—this is an observation rather than an answer to the question—we have put the costs of enforcement or compliance into the revenue Scotland box for the purposes of the financial memorandum. However, we also register the point that the division between revenue Scotland’s responsibilities and those of SEPA—or of Registers of Scotland, in the case of land and buildings transaction tax—is not cast in stone. The division between those two sets of responsibilities is not legislated for, although we expect to address the issue in the tax management bill that we will introduce towards the end of this year.
Stuart Greig mentioned that there are 78 legal landfill sites in Scotland. Do you have any idea of the number of illegal sites? One might think, “Well, they’re illegal, so we can’t really know”, but it is not quite like estimating the number of illegal immigrants, which no one can know for sure. Illegal sites are geographical things that to some extent can be identified. What is the scale of illegal activity? How much of that will be brought into the tax regime if the proposed changes are made? Can you give a broad estimate of what the financial benefit will be?
I will make just one point and then invite Stuart Greig to respond. Obviously, illegal sites are a big environmental issue; SEPA exists partly to monitor and tackle environmental problems such as illegal dumping. The committee might want to ask SEPA about those issues when it gives evidence on, I think, 19 June. However, we will have some knowledge of the estimated scale of illegal activity. Stuart Greig will comment on that.
I do not want to say too much on illegal dumping. SEPA is best placed to give the committee a picture of how significant the problem is. We know that the problem is widely dispersed, but there are undoubtedly big pockets of illegal activity. As I said, there have been two or three high-profile large-scale cases in the past couple of years. One involved what was, in effect, an illegal landfill site—we are not talking about a few thousand tonnes of something in the corner of a field, but about a really significant operation. There was also a tyre situation recently. There are substantial cases, but such activity does not happen all over Scotland all the time. There are pockets of significant activity, some of which are around conurbations. A lot of work is being done to tackle the problem.
There being
A lot of work is going on to develop better intelligence on such issues, which is exactly the point that you raise. Investigations of such issues are nowadays treated in the same way as any criminal investigation is treated. A strong case has to be built and intelligence has to be used from all sorts of avenues, including industry and the public. With significant instances, all that information has to be pulled together and the police have to be brought in. They are major investigations.
I thank our witnesses and colleagues for their questions.