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Generating Productivity from Waste:
Proposals for a new Fiscal Framework

The July 2002 Spending Review deferred all final decisions on spending and fiscal measures in relation to waste policy until "the conclusions of the report by the Performance and Innovation Unit (PIU) into sustainable waste management are published in autumn 2002".

Decisions on the landfill tax and the future of the Landfill Tax Credit Scheme will be announced at the same time.

Success would see the creation of a new and radical fiscal framework capable of turning the UK’s huge twenty-first century waste problem into a resource productivity advantage.

Failure could condemn the UK to bottom place in the European waste league tables and cement our status as one of the world’s most profligate and wasteful societies.

The UK generates around 29m tonnes of solid municipal waste every year, of which approximately 11% is composted or recycled, 8% incinerated and 81% sent to landfill.

DEFRA estimate that this is growing at 3% per annum – more than the UK’s underlying GDP growth rate and enough to double our waste by 2024.

In addition, the UK generates 75m tonnes of commercial & industrial waste, 39% of which is recycled and 51% sent to landfill.

These trends are not sustainable and must be reversed. They should also not be used as justification for extra incineration contracts.

Moreover, the EU Landfill Directive commits the UK to very challenging targets for the reduction of waste to landfill. In fact, by 2020, no more than 35% of biodegradable municipal waste produced in 1995 may be sent to landfill.

The Government faces a choice if it is to meet the demands of the Landfill Directive.

It can "burn the problem" by constructing more waste incinerators. But these are deeply unpopular, have been linked to health problems and do nothing to improve the environmental productivity of the economy.

Indeed, using waste as fuel in this way can create perverse incentives away from waste minimisation and towards waste creation.

Moreover, by producing similar greenhouse gas emissions as gas-fired power stations, energy from waste incinerators contributes to climate change.

Alternatively, the Government can reduce the problem by decreasing the amount of waste produced in the economy, and find alternative solutions such as increased recycling and composting.

Managed correctly, this approach represents a political opportunity for the Government, avoiding widespread opposition to incineration and increasing connectivity between citizens and local government.

The Government’s objective must be to break the link between greater prosperity and waste generation.

SERA welcomes the Government’s use of the Landfill Tax and Climate Change Levy in addressing environmental issues and enhancing resource productivity.

We also welcomed the extra £140m allocated for local council recycling initiatives in the 2000 spending review and the £50m for kerbside recycling derived from the New Opportunities Fund.

But SERA believe that the Treasury must increase the momentum of these fiscal instruments and extra spending if we are to tackle our huge waste problem, meet the Landfill Directive and remain competitive.

In particular we put forward eight proposals:

1. Convert the Landfill Tax into a Waste Disposal Tax, with charges graduated according to the environmental impact of the disposal method. This would have the effect of extending waste taxation to incineration and incentivise waste reduction, re-use and recycling.

 
2. Double the cost for landfilling mixed waste to at least £28 / tonne by 2006.

 
3. Make available £500m over three years to support recycling (including kerbside) for every household in the UK. Providing reliable recycling facilities on a par with existing disposal services is an essential pre-condition for any variable-charging scheme.

   The government must bring to an end the perverse situation where waste disposal is simple, well-funded and comprehensive in coverage whilst recycling remains complex, under-resourced and patchy.

   It is also imperative that new facilities are capable of dividing waste into paper, cans, plastic and glass - when 'commingled', 40% of material becomes contaminated and sent to landfill or incineration, a common occurrence amongst current schemes.

4. Allow Local Authorities to introduce variable charging for domestic waste, such as volume-based charges. This would provide a fiscal incentive to reduce domestic waste and increase re-use, recycling and composting. It would make the public more aware of the true cost of its waste and encourage individuals to take greater environmental responsibility.

Any extra charges should be matched by credits available for recycling, making the overall package revenue neutral.

It could be envisaged, for example, that households are charged £1 for every "black sack" – but credited £1 for every full "green box".

5. Align existing environmental fiscal incentives by removing the Climate Change Levy exemption from energy from waste incineration and landfill.

 
6. Reform the Landfill Tax credit scheme to focus on waste reduction, re-use and recycling/composting. This should take the form of a fund using a given percentage of landfill tax receipts, and bid for by those wishing to undertake waste reduction projects.

For example, funding could cover the transitional costs of setting up kerbside recycling, composting schemes or community recycling. Bids should be assessed on the levels of waste reduction projected.

7. Encourage greater producer responsibility by incentivising manufacturers to reduce or recover their packaging, for example through rebates on corporation tax where an accredited scheme is operated.

 
8. Stimulate new markets for recyclates by reducing VAT on products made with recycled materials.

These fiscal incentives must be set within an ambitious waste strategy containing challenging objectives.

1. On recycling, the Government’s current target is to increase the amount of recycling and composting of household waste to 25% by 2005, 30% by 2010 and 33% by 2015.

SERA believes that these targets are simply too modest. Tougher targets are required both to tackle the magnitude of the problem and to send a clear signal to industry of the direction and scale of the transformation required.

Therefore, SERA is proposing that the Government increase these targets to 40%, 60% and 70% respectively.

2. On waste reduction, the Government should aim for annual reductions in both the domestic and industrial & commercial waste produced in the UK by 1% more than GDP growth. This target should be incorporated into the Government’s proposed Environmental Productivity Indicator.

The achievement of these targets would set the UK economy on a trajectory of greatly improved environmental productivity – one half of the broader productivity challenge and critical to the competitiveness of the UK economy in a sustainable world.

As environmental economists such as Robin Murray have argued, recycling boosts the economy and provides jobs. Indeed, in the USA the recycling industry has a bigger turnover than the automobile industry.

Waste solutions do require a lifestyle change – but to avoid the inevitability of our waste predicament will only serve to store up greater problems for future generations

Moreover, all available polling suggests that, given the right incentives, the public are ready to make this change.

For example, a recent Environment Agency survey of householders in England & Wales found almost 60% agreeing that people should be charged for unsorted waste if containers were provided for recyclable waste, dropping to 36% if containers for recyclable waste were not provided.

The Government must take a lead and seize this opportunity to encourage households to focus more attention on their consumption patterns and make a greater contribution to environmental improvement.