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 for active waste (substances that either decay or contaminate land – which includes household waste); and a lower rate for inert materials. The rates for 2012 are £64 per tonne for active waste and £2.50 per tonne for inactive waste.
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 and disposals from mines and quarries.
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 – now the Landfill Communities Fund (LCF) – was introduced to counteract the effects of the tax on site operators. Under the Scheme, Landfill Operators (LOs) are encouraged to support local environmental projects by the provision of a 90 per cent tax credit against their donations to Environmental Bodies registered with the Scheme's regulator, Entrust. These donations are capped at 5.6 per cent of the LO's landfill tax liability.
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.
Landfill tax was then increased by £3 per tonne for the next three years, with a proposed medium to long term rate of £35 per tonne. However, the Chancellor announced in the 2007 Budget that the tax would now increase more quickly and to a higher rate than previously planned. Increases of £8 per tonne for active waste were introduced from 2008-9 to continue until at least 2013.
There will also be a floor under the standard rate, so that the rate will not fall below £80 per tonne from 2014-15 to 2019-20. The Coalition government has committed to continue with these rates and has also legislated for new qualifying criteria for lower rated wastes.
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.
Also 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 attributed to business diverting commercial and industrial waste into the household waste stream. The ETRA Committee's report also warned that the tax had been a "substantial and additional burden" on local authorities. It had been claimed that the increased cost had actually diverted money away from other local authority environmental projects.
The Landfill Tax Credit Scheme was also criticised for its complexity and concerns about the quality of some of the projects it funded.
Landfill Tax rates:
01.04.11 – standard rate £56 per tonne; lower rate £2.50 per tonne
01.04.12 – standard rate £64 per tonne; lower rate £2.50 per tonne
01.04.13 – standard rate £72 per tonne; lower rate £2.50 per tonne
01.04.14 – standard rate £80 per tonne; lower rate – to be announced
Budget 2010 announced that the standard rate of landfill tax would increase by £8 per tonne each year from 1 April 2011 until at least 2014. There will be a floor under the standard rate, so that the rate will not fall below £80 per tonne from 2014-15 to 2019-20.
Source: HMRC – 2012
"The Landfill Directive has changed the way we manage waste in this country. It has helped us apply consistent high standards of design, construction, operation and aftercare."
Environment Agency – 2012