Landfill tax credits scheme slow to take off

A scheme set up when the landfill tax was introduced last year to encourage landfill firms to make financial contributions for environmental purposes has attracted few takers - and has left the regulatory body for the landfill tax credits scheme, Entrust, facing a financial crisis.

Since the landfill tax came into force last October, landfill operators have been able to make contributions to "environmental bodies" and claim a 90% rebate on their tax liabilities. Such contributions, up to a maximum of 20% of their tax liability, must be spent on approved purposes such as land reclamation, research into sustainable waste management, or improving local amenities (ENDS Report 257, pp 33-34 ).

The tax is expected to raise £500 million in its first full year, but the Government had budgeted to lose £50 million of this in payments to environmental bodies.

More than 300 organisations have applied to Entrust to enroll as environmental bodies. However, in the scheme's first six months, landfill businesses have contributed only £1.5 million. "Landfill companies have made a significant number of pledges but they don't always translate into payments," said Dr Richard Sills, Entrust's Chief Executive.

Entrust, which has a £100,000 bank loan, has so far earned only £45,000. It had budgeted for an income of £185,000 in the first full year. The organisation is funded by a £100 enrolment fee paid by environmental bodies, plus a 1% administration charge on all payments made to them.

Dr Sills told ENDS that he has requested a meeting with Customs & Excise to seek its consent to increase the administration charge. "We have a cash flow challenge and a limited number of options," he said, adding that the need for independence made it undesirable to seek direct funding from landfill companies.

The disappointing take-up of the scheme may encourage the Government to review it. Options include abolishing tax credits altogether or creating a national commission to award funds to environmental projects rather than leaving it to landfill companies. Concern has also been raised about Entrust's independence, including comments made by Michael Meacher, now Environment Minister, when he was in opposition that it may be more appropriate for a public body to regulate the scheme.

Participation in the scheme may still improve. Some landfill operators are waiting to the end of their financial year before making payments. Others appear to be waiting to see how the scheme works in practice - and what "approved purposes" will be permitted - before committing resources. Operators must not gain direct benefit from a project funded by tax credits, but there remains something of a grey area between this and permitted indirect benefits, such as better relations with the local community.

Customs' powers to claw back tax credits paid under the scheme are continuing to make some landfill operators wary. The Tax Commissioners have powers to reclaim credits paid to landfill operators where they find that an environmental body has not spent funds on approved purposes.

Dr Sills believes that operators are taking the claw-back risks too seriously. "Customs and Excise have said that where a contribution is made in good faith to an enroled body and an approved project, then they will not enquire any further unless embezzlement or fraud are suspected," he said.

But many operators would feel more comfortable if Entrust had the resources to inspect proposals on-site and offer advice. Entrust employs just two staff, and decisions to approve projects are left to its board. Without greater income, Entrust's ability to promote and regulate the scheme will remain limited.

Up to the end of April, 28 landfill operators had contributed to environmental bodies. Nine were local authority-owned operations, including Wyvern Waste, Humberside Wastewise and East Waste. Three were chemical companies with in-house landfill sites - Zeneca, Harcros and Brunner Mond.

Of private sector waste businesses, the only large companies to have made significant contributions are UK Waste, Terry Adams, Cory Environmental and Leigh Interests. Others have pledged payments, including £1 million from Shanks & McEwan to a body in Bedfordshire.

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