Landfill Tax Fraud

Daniel Zeichner Excerpts

Thursday 12th January 2023 Commons Chamber

[Daniel Zeichner (Cambridge) (Lab)]

I congratulate my right hon. Friend the Member for North Durham (Mr Jones) and the right hon. Member for Haltemprice and Howden (Mr Davis). They make a formidable partnership, and I suspect they have been talking about this subject for quite a long time. My right hon. Friend described himself as an anorak, but I would say he is very persistent and determined. He should keep on going.

We have had well-informed and passionate contributions from everyone who has spoken in the debate. My hon. Friend the Member for Blaydon (Liz Twist) outlined the problems that her constituents have faced over many years through the unfortunately named Operation Nosedive, and I say to the hon. Member for Newcastle-under-Lyme (Aaron Bell) that the shadow DEFRA team is well aware of the dismal saga of Walleys Quarry.

I suspect there is considerable agreement on both sides of the Chamber on these issues, and I am sure all Members will be disappointed to hear that I am duty bound to reprise some of the arguments that have already been made. I gently say to Conservative Members that, although it is not in my remit to defend the Environment Agency, there will inevitably be consequences to cutting the agency’s funding by half over a decade. Although it is not just a question of resource, that might have played a part.

Landfill tax fraud is a blight on communities across the country. It causes lasting damage to the environment and, of course, deprives the Exchequer of revenue. Back in 1996, when I was a councillor, landfill tax was much talked about as an innovative policy instrument that aimed to divert waste away from landfill and towards more environmentally friendly management options, including recycling, reuse and recovery, but specific issues of concern were identified right from the beginning, including the potential cost to local authorities, the tax’s impact on fly-tipping and the whole issue of perverse unintended consequences.

Over my seven years in the House, I have been struck by our complete failure to follow through with enforcement on the legislation we pass, which is a source of endless frustration to us and, more importantly, to our constituents.

Clearly, the issues we are discussing today are not a new phenomenon. According to the Office for National Statistics, although this tax has had a positive effect of a 65% reduction in recorded waste reaching landfill sites—I emphasise “recorded”—between 1997 and 2014, it is clear that the regulatory framework needed to protect those positive environmental objectives has been piecemeal, slow and unable to react to the changing circumstances.

In October 2021, the Environment Agency estimated that waste crime costs the English economy more than £900 million a year alone, with its 2021 national waste crime survey describing waste crime in England as endemic. As we have heard, this crime is also associated with other criminal acts, including offences against persons. I want briefly to quote a traumatic account referred to by the Environment Agency’s chief executive last year from an anonymous victim:

“Last Wednesday, they invaded our home. A peaceful night shattered by the roar of engines and the glare of headlights. I opened the front door and was confronted by a large group of men who declared they now lived here. We were harassed. Our safe was smashed. Our keys were stolen, and a new lock was put on the gate, trapping us. They dumped piles of waste and trash. We were threatened: ‘I’ll smash your face in.’ By midday they were gone, leaving behind tonnes of rubbish, boasting it would cost £50,000 to remove.”

That shocking account from a victim demonstrates not only how unpleasant these people are, but the lengths that some criminals will resort to. Illegal methods of evasion include the misdescription of waste; the operation of illegal waste sites; the burning and burying of waste; fly-tipping; illegal exports; offences relating to producer responsibility obligations; and abuse of exemptions to the requirements for waste permits, to name just a few.

In response to a Treasury call for evidence last year, the misclassification of waste was described by the Chartered Institution of Wastes Management as

“an environmental catastrophe waiting to happen.”

As we have heard, it also said that the differential between the lower and standard rate of tax was a “massive incentive to misclassify” waste. According to HMRC’s most recent annual estimate of the tax gap, the gap between landfill tax due in the tax year 2020-2021 and the revenue collected in that same year is a staggering £125 million; that is a gap of 17.1%; which is much higher than the overall tax gap for this year. According to HMRC’s own report, the uncertainty rating for the landfill tax gap estimate is “high”. Again, as has been said, it is therefore reasonable to conclude that the actual tax gap is even greater; other things could have been included, for example, fly tipping. That is reported by local authorities to have risen year on year to more than 1.13 million incidents reported in 2020-21, which is an increase of 16% from the 2019-20 figure, according to the ONS. So to give us a sense of the real scale of the problem, will the Minister indicate whether the Government have any plans to include other categories of tax fraud into future estimations of the landfill tax gap? On that £125 million tax gap identified in 2020-21, will the Minister tell the House exactly how much of the due tax has been recovered by HMRC and what resources have been allocated specifically for its recovery?

We heard earlier about the joint unit for waste crime, which brings together law enforcement agencies, environmental regulators, HMRC and the National Crime Agency to tackle waste crime, but the National Audit Office has suggested that the Government still do not have the data they require to assess the true scale of waste crime. The NAO reported that 60 organised crime groups monitored by the JUWC have extensive involvement in other types of crime, with 70% involved in specialist money laundering. We have heard that issue raised here, particularly by my right hon. Friend the Member for North Durham. Given the scale of the tax evasion, it would be helpful if the Government could tell us about the actions being taken to address the prevalence of money laundering, and publish specific revenue recovery figures and detail the number of investigations being undertaken. Frankly, the Government need to get a grip on this. Last year, as my right hon. Friend quoted, a Public Accounts Committee report concluded that the regulatory regime for waste crime is considered to be close to decriminalisation, with fines seen as a mere business expense for waste criminals. The Committee’s report went on to outline that, over recent years, the landfill tax regime has

“increased the incentive to commit waste crime”—

that is a strong charge—

“with HMRC being too slow to prosecute offenders.”

That highlights the lack of a deterrence posed by the current sanctions regime and rate of prosecution.

As confirmed by the Committee and in response to written questions to my right hon. Friend the Member for North Durham, it is extraordinary that there has still not been a single successful prosecution into landfill tax fraud. We have heard about the huge, staggering cost to the public purse of Operation Nosedive. We have heard also about the fact that sanctions are not nearly punitive enough to be a real deterrent against future offending.

According to findings from the National Audit Office in 2022, the most common action taken is to issue advice and guidance. I rather share my right hon. Friend’s view about how likely that would be to be effective. There was advice and guidance in 52% of cases, and warning letters to 37%—that is hardly likely to be a major deterrent to some of the criminal operations that we have been hearing about. It is important that all relevant Government agencies work together to develop a proper plan for making enforcement more effective.

The Committee recommended that DEFRA work with the Treasury and HMRC to ensure that the ongoing review of landfill tax

“takes account of the incentives that the tax as currently designed creates to commit waste crime.”

We heard a number of Members, including my hon. Friend the Member for Blaydon (Liz Twist), refer to Treasury minutes from December 2022 confirming that the Government largely agree with that recommendation and highlighting that, as part of their review into landfill tax, the structure of the tax will be considered. I would be grateful if the Minister confirmed that this is the case.

To conclude, the Government need to do much more to get a grip on waste crime, which is endemic, and ensure that the tax system does not lose revenue to criminality and deception. At a time when working people are facing the highest tax burden in 70 years, the Government need urgently to close the tax gap and reclaim the missing revenues owed to the Exchequer by those engaged in landfill tax fraud. Waste crime lays waste to the environment and damages people’s lives. It makes it much more difficult for legitimate operators working in the waste sector, and, at the same time, undermines investment, jobs and growth. As on so many other issues, it is time for DEFRA in particular, and the Government in general, to get a grip.