I beg to move,
That this House has considered the matter of landfill tax fraud.
I want to say how pleased I am that the Backbench Business Committee agreed to this debate and thank hon. Members from across the House for their support in securing it.
After I secured the debate, a journalist asked me, “What’s landfill tax fraud?” I said, “Yes, I do accept it’s quite a niche subject.” It might be seen as an anorak subject, but it is something that I have been involved with, along with the right hon. Member for Haltemprice and Howden (Mr Davis), for nearly 10 years now. I think he would agree that we are both proud anorak wearers when it comes to this matter, because it is a serious issue for the UK.
I have dug into the issue. There are solutions to it, but blind eyes have been turned by various Government agencies. There is no political will to really grasp the issue and the devastating effect it is having on our revenue collection, but also in various communities.
Have we made progress? Slightly, but there have been missed opportunities over the years. The right hon. Gentleman, who has been involved in this for as long as I have, and I cannot understand why the problem has not been grasped when there are clear solutions, some provided by the industry and some by me, the right hon. Gentleman and other Members.
Landfill tax was introduced in 1996, with the quite honourable aim of reducing the amount of domestic and other waste going into landfill and of pushing recycling—no one could disagree with that. It could be argued that it has worked in reducing the amount of waste going to landfill, but its effectiveness is questionable, because we do not know what is going into landfill.
The industry is worth some £9 billion a year—not a small part of our economy. Like anything generating large amounts of revenue, it attracts criminals and others who want to exploit the system. I suggest that the way in which the Government have dealt with this area, with a lack of regulation and oversight, has allowed criminals and others to benefit. As the Public Accounts Committee report recently said, waste crime in this country has basically been decriminalised because of the lack of action.
People may ask, “Why is this important?” Well, there is a cost to the public purse through uncollected tax revenue that could support all the things that our constituents want. However, it also funds serious and organised crime gangs, which undercut the legitimate businesses that pay their taxes and follow the regulations. The other factor is the future environmental cost. We do not know what is being disposed of at some sites, so there will be a cost relating to their future degradation, with some requiring remediation. Who will pick up that cost? It will be the taxpayer.
I commend the right hon. Gentleman for securing this debate, because such problems also affect Northern Ireland. I am ever mindful of what he is saying, and I think others will reinforce his points, so is it his intention to ask the Minister to look at legislative change to ensure that the criminal gangs who break the law face punitive fines and imprisonment at a level commensurate with the activity? In other words, do the punishments need to be increased?
I am grateful to the hon. Gentleman for this intervention. The frustration is that we do not need new legislation; we just need Government action to fund and implement the existing powers.
My next point, which will also affect the hon. Gentleman’s part of the United Kingdom, is about the effect on local communities. I know that my hon. Friend the Member for Blaydon (Liz Twist), the hon. Member for Newcastle-under-Lyme (Aaron Bell) and the right hon. Member for Haltemprice and Howden will mention specific examples from their constituencies of where local communities feel powerless to stop the huge environmental damage being done to the area. However, this is not down to any lack of trying by those right hon. and hon. Members, who have campaigned for change for many years.
The PAC report estimates that the cost of landfill tax fraud and waste crime is about £1 billion a year. However, that figure is just like me sticking my finger in the air, because basically no one knows. That is a conservative estimate, and the reason for that, as the report says, is that we have basically given up trying to monitor what is happening.
How does landfill tax fraud work in practice? There are strands to it. The first is the way in which the tax was implemented. There are two rates, and those rates went up between 2008 and 2014. The rate for inert or inactive waste is currently £3.15 a tonne, and the standard for ordinary waste is £98.60 a tonne. The first element of criminality involves saying that waste is inert when it is not. There is no monitoring at all, so people are instantly making a fortune by avoiding taxation. The incentive for misdescription of waste is the huge gap between the two rates. The Environment Agency does not really enforce this, and I am sure that boreholes would reveal that inert-waste only sites will contain other waste. The problem is that we do not know what is in such sites, which is a future environmental problem.
The second strand is illegal sites without a licence, for which there are no real sanctions. People can buy a field or an old quarry and keep filling it, and they do not pay any landfill tax.
The next method is far more sophisticated, whereby criminal elements buy or set themselves up as legitimate waste operators. Is that easy? It is, because there are no restrictions on who can become a waste operator. If someone buys an existing business or a quarry, they can label it and say they are going to collect waste, but who is checking? People can run two scams. They can declare active waste as inert, and they can just declare half of what they are putting in.
I thank the right hon. Gentleman for securing this debate. He is absolutely right that someone with no qualifications can set up or, indeed, take over a site, and there will be no checks as to whether they are fit and proper. They could have a criminal record within the waste sector itself, as was the case at Walleys Quarry in my constituency. The Environment Agency appears powerless to do anything to stop such people operating landfills.
Yes, and I will come on to such an example in a minute. We only have to look at a company’s directors to question the situation, and I know that the right hon. Member for Haltemprice and Howden is aware of such individuals. It would not take a great Google search, or an officer could have a look on the police computer to discover that these people have no interest in waste crime until they understand how lucrative it is.
Waste crime has become a very profitable business. The PAC report of last April, which came off the back of pressure from me, the right hon. Member for Haltemprice and Howden and others, outlines that of the 60 main organised crime groups in landfill tax fraud, 70% are involved in money laundering and 63% in other illegal activities. Waste crime is a way of washing or hiding drugs money, for example, and generating huge sums of cash—it is a licence to print money if people are not declaring what is going into a site.
People may ask, “Surely someone has noticed this?” People have been screaming about it for years. Are the police on it? Is His Majesty’s Revenue and Customs on it? Is the Environment Agency on it? They are not. I offer the House one simple fact: how many successful prosecutions for landfill tax fraud have there been since 1996? Not one.
The example I now come on to is the interestingly named Operation Nosedive—I would love to know why they named it that. Operation Nosedive was focused on the activities of a company called Niramax in Hartlepool in the north-east of England. At least, it operated in the north-east, but also elsewhere, as I am sure the right hon. Gentleman will allude to later on.
His Majesty’s Revenue and Customs instigated Operation Nosedive to look into illegal tax fraud. I have been told by individuals in the north-east about this company and what it did. It was set up, bought into the waste management business, had various sites around the north-east and other parts of the country, and I think it was running both scams: not only was it running the inert and active waste scam, but there is a question as to how much landfill tax was actually being paid on stuff it was dumping.
Someone explained it to me this way: looking at what Niramax was charging companies for taking away their waste. There is no way it could have charged that rate if it was paying the full landfill tax charge. Likewise, how could it be economically viable to transport waste from a council in south Wales to the north-east? It was quite a big operation, and certain local companies went out of business because they were being undercut by Niramax.
Three regional police forces, Durham, Cleveland and Northumbria, had contracts with Niramax, which shows how big the business got. If anyone had looked at the directors of the company and seen their backgrounds, I would have thought it would have rung a few alarm bells with those three police authorities and made them ask why on earth they were giving a contract to that company.
After a few years of badgering, HMRC took action and Nosedive was launched, with a great deal of publicity, in 2014 with a raid of Niramax’s headquarters in Hartlepool. £250,000 in cash was found under somebody’s desk and a lot of documents were taken. To quote the Teesside Live newspaper at the time:
“Simon York, Fraud Investigation Service director at HMRC, said: ‘This is the culmination of 18 months’ painstaking investigation into the suspected systematic abuse of the landfill tax system. We believe that over £78m revenue may be involved, money which could be used to fund some of the UK’s most vital public services.’”
That is £78 million for one operator. I thought, “Great!” when that happened, and so did people I know in the industry, but six years down the line a journalist rang me and said, “Do you know they’ve actually dropped the Operation Nosedive prosecution?”. Nothing happened, but HMRC spent £3.5 million of public money on the investigation.
I tried to find out how much that investigation cost; I know my hon. Friend the Member for Blaydon tried too, but HMRC would not tell us. We only found out because the right hon. Member for Haltemprice and Howden and I got the National Audit Office to do an investigation into it. There is a fundamental question of accountability here. Before the Minister tells me that we cannot have control over HMRC, I agree with him, but there is a lack of accountability in this situation if I or Parliament cannot ask why public money is being spent in that way.
Operation Nosedive was a complete failure and Niramax got away with the fraud—and that £78 million is just one organisation. The other point is that Niramax was not the only operator using that landfill site or the other sites it owned. Other operators were using them too, which raises the question who else was in on the scam and who else was not paying full landfill tax, because I suspect others were at it as well.
The strange thing is that one of the main directors of Niramax is currently in prison—it has nothing to do with this situation, but rather with a very nasty murder case in Hartlepool. Were people surprised when he was found to have been involved in that situation or found guilty? No, they were not, but why are people with criminal records allowed to run those industries? Because they are making money. That is just one case.
I am finding my right hon. Friend’s speech very educational. Does he share my concern about the prevalence of modern slavery and trafficking in this sector? I think in 2018 it was found that two thirds of modern slavery victims ended up in the waste sector at some point during their period of exploitation. That is part of the model he is talking about, whereby cowboy or even criminal elements are running the business, cutting costs at every corner and not caring about the cost of human life while they do so.
I am not suggesting that happened in the Niramax case, but my hon. Friend is right that the individuals involved in these businesses are involved in everything from drugs to prostitution and, no doubt, modern slavery practices. That is why I cannot get my head around the fact that the Government, whether individual Departments or as a whole, just turn a blind eye to this problem, when it is causing so much damage.
There are now promises that the new joint unit for waste crime that has been set up will look at those things, but I ask the question again: it has been up and running for three years now, and has it prosecuted anybody yet? No, it has not. There is a sense of frustration at Nosedive and at the fact that HMRC does not seem to think these crimes are important. I hate to think how many billions—and it is billions—of taxpayers’ money has been lost over the years because of this process.
HMRC does not seem to be bothered. I remember when I first contacted HMRC about this situation, and they said, “If it’s not worth more than £20 million a year, we’re not really bothered.” Well, it reckons Nosedive was worth £78 million, and when I asked in a parliamentary question whether the individual quoted was giving his private estimate or HMRC’s, I got no answer, because HMRC hides behind a wall of secrecy. There is a serious issue with holding these organisations to account.
The other side to this issue is the environmental cost. We have lost revenue, we have funded organised crime and modern slavery and other things, but there will also be a cost to the environmental clean-up, and I am sure the three other Members who want to speak in this debate will highlight cases in their constituency. Not only will this activity be harmful for those various sites, but the cost will fall on the taxpayer.
My other point is about what communities can do when they have an illegal landfill site or someone who is operating a so-called legal site but is completely ignoring the regulations. It is very frustrating; people feel powerless, and I am sure we will have some good examples of that later in the debate. I know the hon. Member for Newcastle-under-Lyme has some good examples of where, even as a parliamentarian, he feels powerless when raising these issues. If he feels powerless, certainly his constituents do too, living next door to piles of rotting waste and quite rightly worrying about the environmental effect that will have on their community. I think that the PAC has done fantastic work to highlight the lack of regulation. The main thing is whether that has got any better since I have been involved, and I would argue that it has got worse. There are a lot of good and sound words, but there is not a great deal of action.
One issue is enforcement. The Environment Agency—another arm’s length quango—does not have the enforcement culture that it needs. It mainly issues guidance notes or warning letters. Frankly, giving guidance notes and sending warning letters to the types of people we are dealing with is a complete waste of time. I mentioned the joint unit for waste crime, which I have met. To their credit, the individuals in that unit are well meaning—they certainly come from an enforcement scope—but unless we see prosecutions taking down some of the big operators soon, this will just carry on. I am quite sceptical, frankly, about whether there is a will, certainly in HMRC, to grasp this. The Environment Agency has had its budget cut, and I accept that it does not have an enforcement culture—one of my hon. Friends refers to that agency as “newt lovers”, which they possibly are—but we need a certain culture to tackle what is a bigger problem.
I come back to a point that I cannot get my head around. We need a political lead from the Government to grasp the matter and ensure that the regulations are enforced and targets operated on. I, the hon. Member for Newcastle-under-Lyme and the right hon. Member for Haltemprice and Howden met the National Crime Agency a few months ago to talk about that, because, as my hon. Friend the Member for Bristol East (Kerry McCarthy) said, the money generated from such activity goes into a host of things that cost our society dearly.
The new joint unit for waste crime is a step in the right direction, but unless it starts delivering, a lot of us will be sceptical. The Minister needs to grasp this through HMRC, and there needs to be a politically led focus in Government, with someone who can say, “Right, where are you up to with this? What are you doing? What is needed?” Personally—others may think differently —I do not think we need more legislation. What we need is enforcement of the existing legislation, not just to ensure proper waste management to prevent environmental devastation, but to support the existing waste management industry, which is playing by the rules. That is an important point.
I raise this in the debate, as I am sure other hon. Members will, in the hope that someone will grasp the matter and take it forward. If they do not, we hon. Members present will not go away.
As we have come to expect, the right hon. Member for North Durham (Mr Jones) made a wise, insightful and pretty comprehensive speech. He is right to say that we have both struggled, over more than a decade, to get the Government and their agencies to take this issue seriously. He has covered ground thoroughly, but let me see if I can reinforce his points without too much repetition.
The right hon. Gentleman spoke of the Public Accounts Committee’s estimate of the near billion-pound cost to the Exchequer each year—he quite rightly referred to it as a finger-in-the-ear exercise. I have been a PAC Chairman, and I know how that sometimes happens. That is an under-estimate. We have signals all over the place of how big this really is. Last weekend’s Sunday Express said that £200 million in landfill tax had gone uncollected in 2019-20 alone—that is, again, an under-estimate, even in HMRC’s own figures.
The right hon. Gentleman said pretty plainly—and I agree—that HMRC does not want to big up this issue and make a big thing out of it, but it admits that at least £850 million has not been collected in five years. It has gone straight into the pockets of some of our most dangerous criminals. If £1 billion was not collected from, let us say, the bankers, legal people or some other such group, there would be uproar. But here, it is not being collected from criminals, and the matter just goes by.
The right hon. Gentleman made the point about the money being funnelled into criminal enterprises, and he was quite measured in his language. He referred to the type of criminals we are talking about—the Niramax directors and associate directors, one of whom, as he said, was jailed for 15 years for manslaughter. Frankly, I was quite surprised that the charge was not murder, because it was a man behaving in a random way over a personal argument and deciding to kill the other person who was involved. That is the sort of character we are talking about. An associate director went to prison first for a machete attack and then later on for drugs. That reinforces the point that the right hon. Gentleman made about drugs, prostitution and all the nasty underbelly of society—all the nasty criminal activity—being funded and supported by the problem we are talking about. We need to bear in mind more generally when we discuss waste crime that these are not just small-time wheelers and dealers. They are not the Harold Steptoes of today; they are very big wheels, in criminal terms, and very nasty people indeed.
Waste crime has blighted many of our constituencies—it has certainly blighted Haltemprice and Howden—for many years. That is where the concern first came from in my case, as I think it did in most others. Some time ago, in the middle of battles over the Gilberdyke site in my constituency, one of the sites that Niramax has an interest in, someone from south-west England involved in legitimate waste disposal asked to see me. Since it was such a big and recurrent issue, I said, “Yes, okay, come to see me.” He came to my home and, in essence, told me that the north-east of England was rife with waste crime and was known for it. That was what he argued to me. He did not know whether it was an accident of history or whether it was because the Environment Agency was somehow corrupt or involved, or for whatever reason not doing its job.
That was five years or more ago. To be frank, the story was so extraordinary that I thought it was an exaggeration. I am sorry to say that I was wrong. That person was describing pretty accurately what we have discovered in our joint endeavours over time. For too long, the Environment Agency has not been meeting its legal and community obligations, and HMRC has not been enforcing its. I must be clear that not all operators in the waste industry are criminal enterprises—that is anything but the case—but the clear inaction of our agencies has emboldened the dangerous individuals that do run such criminal enterprises.
I agree with the right hon. Gentleman that not all operators involved in the sector are criminals, but there is evidence that in some cases—that of Niramax and others—contracts were procured by using threats and intimidation after people had signed up to contracts to freeze out legitimate operators and lock in people who were perpetrating waste crime.
The right hon. Gentleman is right, and I will come back to the incentives—both criminal and legal—that are built in against legal operators.
The right hon. Gentleman also spoke about the powerlessness of communities. Again, I can exemplify that point. We thought we had scored a victory by taking the Niramax associate Transwaste to court over the Gilberdyke site and winning our case that it had breached a whole load of conditions. We won the case, but did my constituents see any improvements? No. Were the problems addressed in court fixed or enforced by the agencies? No. Did the behaviour of the operators improve? No. The courts proved powerless and so the community certainly felt powerless, again because there was no proper enforcement. That goes back to the point that the right hon. Gentleman made in response to the hon. Member for Bristol East (Kerry McCarthy) that this is not primarily about changing the regulations or the law, but about changing the mode of operation of the agencies involved.
Precisely because they cheat and evade payment of landfill tax, criminal companies can undercut other businesses, picking up waste and charging a pittance for it, knowing they will make up for it in illegal returns. In the case of Gilberdyke, locals reported that lorries were flooding the area from Wembley, south Wales, south-west Scotland and Manchester. It is expensive to transport this stuff. Why would it be transported that far unless there were some enormous unfair—not to mention illegal—advantage for the operators? That is what is going on there.
Some of my constituents who are very qualified people monitored that site and estimated that between £50 million and £60 million in landfill tax was being evaded while those lorries were flooding the area. That is at one site alone. This activity involves the destruction of my constituents’ quality of life and the destruction of the local environment, all in pursuit of illegal profits, yet so little action is being taken.
The right hon. Member for North Durham quoted the Public Accounts Committee saying about the Department for Environment, Food and Rural Affairs in October last year that
“the approach to large parts of waste crime is closer to decriminalisation.”
I make the point, as a past Chairman of the PAC, that the PAC is careful about what it says about Government operations. It is careful that it is factually based, and it bases everything on the National Audit Office reports and so on. For the PAC to accuse an agency or Department of effectively decriminalising something as serious as this is in itself an enormously powerful and worrying statement. That quote will strike a chord with those of us who have had to observe the appalling weak record of enforcement of the Environment Agency, even with legal operators, frankly. We are not talking about legal operators today, but even with legal operators, the Environment Agency is weak, let alone those who need to be cracked down on. That fact, again, is reinforced by the data. The number of prosecutions for waste crime generally—not tax evasion, but waste crime generally—have fallen by more than 90% since 2007-08. As the right hon. Gentleman said, there have been no prosecutions whatever for landfill tax fraud.
With Operation Nosedive—like the right hon. Gentleman, I wondered about the name, where it came from, and whether it was making a prediction about its own success—I have to say that its failure was written in from the beginning. It was a failure from the start. HMRC, the Environment Agency and the Crown Prosecution Service were simply not working together properly to investigate and prosecute the gangsters. They simply were not doing the job as a coherent group of people. The NAO told me that HMRC and the CPS admitted as much, and that is why no prosecutions were taken forward. The problem is that this failure and the ongoing increases in the rate of landfill tax mean that illegal profits are only increasing. Given how landfill tax is structured, if evasion is not stopped, then every time landfill tax goes up to improve the environment, the criminal is actually incentivised more by a bigger comparative advantage against the legitimate operators.
The story of Niramax seems to foreshadow much of my experience in Newcastle. The Minister will appreciate, as an economist, that Gresham’s law says that bad money drives out good, and is that not exactly what is happening in the waste sector? Legitimate firms are being driven out of the sector, with the result that more and more criminals are acting in the sector, making it harder for people to dispose of their waste legitimately, even if they want to.
That is absolutely correct. I am sure Gresham did not have in mind blackmail and threats as well, which also come into it when the operation becomes criminal rather than legal. The joint failure of HMRC and the Environment Agency led to theft from the public purse—it is as simple as that—the devastation of public spaces, and the undermining of public confidence in this whole policy area. Ostensibly, the issue is that HMRC is focused on the collection of tax, while the Environment Agency is following a remit to manage waste. That is the excuse given, if you like. Frankly, it is extraordinary that the Environment Agency would not collect data on a tax designed to incentivise good waste operation. That is its purpose, so why on earth is the Environment Agency not monitoring that carefully? If it is not working, it is a failure of its own remit.
I am finding what the right hon. Gentleman has to say very interesting. In the past, I have asked questions about the Environment Agency’s role. It is meant to have a role in enforcing the waste hierarchy, in which things going to landfill should be at the bottom. The Environment Agency should be incentivising recycling, reuse or not creating waste in the first place. Does he agree that we need a fundamental overhaul so that the Environment Agency is properly resourced and there are incentives and disincentives so that the waste hierarchy is proper observed?
I agree with the aims the hon. Lady describes, but I am not sure whether this is a resource issue for the Environment Agency—I think there is a resource issue in other areas. If the Environment Agency does its job right first time, that is it dealt with. To bring it down to the microcosm of a single waste tip, if it does not enforce the first, second or third complaint, it will have hundreds and thousands of complaints, and its time will be sucked into dealing with them. To some extent there may be a resource issue, but a bigger issue is, straightforwardly, to do with management and the determination to make the industry obey the rules and to spot such things as tax evasion. If tax evasion takes place, the whole structure she describes disappears. The cheap operator who is not paying taxes gets all the business, and therefore nothing is pushed to a better waste outcome. I take her point, but in many ways management is more important.
On that point, does the right hon. Gentleman agree that the big disconnect is between the policy that everyone wants to support—more recycling—and not only how it is enforced but how it is monitored? The best example is Scotland’s zero waste strategy. It sounds great, but waste is being shipped across the border to the north-east of England and other sites in the UK, and there is no monitoring of that. Exporting waste from Scotland to landfill sites in the rest of the UK will not meet the environmental standards that the policy aims to achieve.
I agree. Exporting from Scotland to England will not help at all, so the right hon. Gentleman is exactly right.
We have a ridiculous co-ordination problem in the midst of all this. The NAO told me that Operation Nosedive failed for a variety of reasons, but ultimately it was felt that defence lawyers for the criminals would be able to exploit all the weaknesses of co-ordination and data in the system. Frankly, it is galling that criminal charges could have been held back by the bureaucracy and box-ticking approach of Government Departments effectively, which were stepping on each other’s toes rather than working together.
Waste crime and landfill tax fraud are cheating the taxpayer out of hundreds of millions of pounds a year, and it is time we got serious about that. Thanks to the NAO, we know that every single year, waste crime in general costs £900 million—the PAC said £1 billion—which is a very, very large number. We should not lose track of the fact that that is an annual cost. And that is without, as it turns out, the costs in Scotland, Wales and Northern Ireland. We do not have the hon. Member for Strangford (Jim Shannon) in his place to raise a point about Northern Ireland, but there are costs there, too. In the current climate, I can only imagine the uproar if that occurred in any other situation.
The right hon. Member for North Durham touched on the importance of HMRC’s joint unit for waste crime. The Government would like to claim it has been a success—indeed, after the first year they said it was a success—but I have to tell Members that I cannot see a single sign of success. It is shameful, frankly. This is where I agree with the hon. Member for Bristol East (Kerry McCarthy) that this is a resource issue. We absolutely need to ensure that, unlike at HMRC before, there is the right legal advice at every stage, the right data at every stage and the right investigative capability at every stage, so that, rather than saving £10,000 here and £10,000 there only to lose £3.5 million on a failed case or £1 billion a year on the system as it is, we actually deal with the issue. The current strategy is penny wise and pound foolish, and in that respect she and I agree.
The right hon. Gentleman is making an excellent speech. Does he agree that the same principle applies—on a much smaller scale, admittedly—to local authorities, which are often inundated with nuisance fly-tipping? I realise that that is on a different scale to the issues he is describing, but it can nevertheless be very distressing for residents and small businesses across many parts of England.
The hon. Gentleman is right. There is almost a generic problem with local authorities. They very often face problems that look intimidatingly large to them, and the temptation always is to penny-pinch—to spend just a little money to see if they can stop it. They fail, and the problem invariably grows. We see that time and again, particularly in this area. This is a separate issue really, but concerns about fly-tipping among the public are as great as they are about waste crime in general. The hon. Gentleman is dead right. My advice to local authorities is always to try and nip it in the bud, because if they are seen as a weak responder, the crime will come to them. That is what will happen.
I was not seeking to be overly critical of local authorities. I was trying to illustrate the wider point about the Government’s funding of them and some of their powers. We have had an issue with waste on many plots of land in the areas that I represent. Some of that is deposited by people just passing through. The powers seem to be a real challenge for local authorities. Perhaps he will say something about that.
The hon. Gentleman is reaching beyond my level of expertise, frankly. My view is that this clearly is a systemic problem. There is either a funding shortage or a power or capability shortage. One or the other needs to be corrected, because the current system is not working. Anyone who lives in a rural area will see that we are dealing with a permanent nightmare—a running sore. I agree with the hon. Gentleman about its being systemic.
To come back to the waste crime issue, there is not just lack of funding or joined-up Government, but a lack of understanding of the problem. The NAO found that DEFRA and the Environment Agency are simply not collecting the data. They need to fully realise the extent of waste crime across the board. The NAO said:
“the waste crime data they currently collect do not give an accurate picture of actual incidence of waste crime because of under-reporting”.
That comes back to the finger-in-the-air guess of £1 billion. It is obviously bigger than that because the issues are being undermeasured. I cannot see how our agencies can get a grip of the problem if they do not even measure the size of it.
When I told one of my constituents about this debate, he told me how little faith he has in the Environment Agency. Frankly, I share his concerns. Before I came into the Chamber, I was sitting outside talking to colleagues. Four colleagues in a row said, “Yes, we have the same problem.” They are not here now, as they are off back to their constituencies, but they all have the same systemic problem that comes back time and again.
For too long, waste crime has gone unnoticed by Environment Agency officers. That begs the question, what is going on? Are they indolent? Are they incompetent? Are they involved? Are they being bribed? No. The simple truth is that they do not have the tools they need to do the job. We have created a system where our agencies are prevented from acting for fear of that action making the problem worse. If they want to take action on a company, they are terrified that they will bankrupt it and suddenly the taxpayer will be left funding the clean-up. There will either not be a clean-up or they will have to find millions upon millions of pounds. None of that needs to happen.
In summary, what we need is for the warrants, or the reserves required on the balance sheets of new waste operators, to be big enough to cover the cost of a clean- up in the event that they go bankrupt. Whether that is an insurance system, a reserve system or a warranty system, I do not know, but it has to be something like 10 times as big as what we currently have. The new joint waste crime unit needs dedicated funding from central Government of sufficient size.
We have a perfect environment. We have had the failure of Nosedive. We can see all the points of failure: unusually for HMRC, they are identified in the public domain, so we can design what is required for the joint unit. We need the Environment Agency to get out on the ground and collect the data it needs to help HMRC prosecute these gangsters. We need to ensure that they all get proper legal advice. One of the reasons Nosedive failed was that, if I remember correctly, three different lawyers were given to them by the Crown Prosecution Service over time. Eventually, when they hired a private lawyer, they got proper advice and decided they could not pursue it. That is saving tens of thousands to lose £3.5 million and to lose billions—it is penny wise and pound foolish. If the Government think this costs too much, they should just think of the consequences of failure.
I appreciate that the Minister will not be able to give instant answers today, but I ask him to go back to his Department and simply ask, why not? The right hon. Member for North Durham and I have proposed a variety of measures that will pay for themselves 1,000 times over, so why not take the action necessary? Why not save the taxpayer money and, most importantly of all, save our constituents from the disasters these people visit on us?
I congratulate my right hon. Friend the Member for North Durham (Mr Jones) and the right hon. Member for Haltemprice and Howden (Mr Davis) on securing the debate and on their commitment to exposing this issue over the last decade.
Let us start by stating the obvious: living near a landfill site is not pleasant. In fact, it is very unpleasant, and no one wants to do it. Our ultimate aim through the waste hierarchy must be to ensure that we do away with landfill sites, but the mismanagement of existing landfill sites is an issue that has affected my constituents a great deal over many years.
In 2019, I secured an Adjournment debate to raise the issue of the Blaydon Quarry landfill site, which was then located in the village of Greenside and surrounded by the communities of Winlaton, Barlow, Stargate, Ryton and Blaydon Burn. The site was, thankfully, closed to waste deposits in September 2021, but not before these proud former mining communities had endured years of foul odours, and litter and dust from the site scattered over our fields and trees. It would be a challenge to overstate the sheer amount of correspondence that I and my predecessor received about the site and the persistent upset caused to communities who were unable to enjoy and take pride in the beautiful environment surrounding the site.
Before the site’s closure, multiple enforcement notices concerning management of the site had been given, following repeated breaches of regulations on planning and environmental grounds. A particularly nasty breach in 2015 involved a huge escape of litter from the site during a period of high winds, which amounted to nothing less than environmental vandalism. Despite the scale of the devastation, the Environment Agency legal team told us that it would not be possible to make a prosecution, and we saw that pattern several times over the years. I can only thank the Environment Agency officers who worked on the site in my constituency for the great efforts they made, pushed continually by the community and by ourselves, but there were still no prosecutions.
The site has had a number of operators, all with different problems. The most recent was Octagon Green Solutions; previously it was Niramax, and before that it was Premier Waste.
In 2015, there was huge coverage in our local newspapers and broadcast media of the HMRC-instigated co-ordinated raids on a number of sites across the north-east, including the Blaydon landfill site, as part of the ill-fated Operation Nosedive. The raid involved 180 HMRC officers and many others, and it was widely publicised—trumpeted, even—across the region, with HMRC estimating an alleged fraud of £78 million. I reviewed some of the media reporting on it as I prepared for this debate. Everyone was there in full gear, and there were photos from the site and television reports, all because of HMRC trumpeting this great investigation. Although different from the environmental issues, it was welcomed by people in the community, who were fed up with the operation of these sites.
Given the damage that these companies inflicted on our local communities, my constituents took great interest in Operation Nosedive and did not forget about it over the years. They took great interest in the alleged potential landfill tax fraud, and they continued to write to me throughout the period to inquire about the outcome of the investigation, until HMRC quietly—very quietly—slipped out the news that Operation Nosedive had not resulted in any prosecutions after six and a half years and what we now know was £3.5 million of public costs.
These families invested faith in HMRC to bring about justice. Having worked fastidiously with our local landfill liaison committee, Gateshead Council and the Environment Agency to hold the companies to account on waste management issues, we hoped that HMRC’s lengthy criminal investigation would deliver on the issue of alleged financial crime, if it was found. But we have heard that six and a half years produced nothing, at a huge cost.
When HMRC revealed that no prosecutions would be brought after that time, I wrote to the chief executive—twice—asking for an explanation. I was told that this could not be given and nor would there be any clarification on whether civil action would be taken. I wrote first in April 2021 and the response was:
“Unfortunately, I am…unable to provide details of the costs incurred in this specific operation as HMRC does not report the costs of individual cases.”
I wrote back on that and a number of other issues about the failed action, and again the response was:
“As per my response dated 30 April 2021, I am unable to provide details of the costs incurred in this specific operation as HMRC does not report the costs of individual cases.
I hope this helps you to respond to your constituent’s enquiries and explain why we are unable to provide more details.”
Well, frankly, no, it did not—it did not help me at all.
So I really congratulate my right hon. Friend the Member for North Durham and the right hon. Member for Haltemprice and Howden on proceeding with their efforts to get this issue investigated and to reveal the true costs. This is public money—it is taxpayers’ money—and people are entitled to know what has happened to it and why this six-and-a-half-year operation has failed. I think we are now clearer, as we have heard about what happened with the lack of co-ordination and the lack of joint work, but, frankly, it just is not good enough for my constituents.
I am pleased that the National Audit Office and the Public Accounts Committee have looked at this and reported on the financial aspect of Operation Nosedive, but it remains absolutely vital that the Government take decisive action to address the issues it raises. We have to take the necessary steps to tackle the ongoing abuse of the landfill tax system—and other waste crime—which is estimated by the Environmental Services Association to have cost the taxpayer about £120 million in 2021.
I am grateful to my hon. Friend, who has been pursuing this for many years and we have had lots of discussion as parliamentary neighbours. Would she say that her communities are worried about the future? Although the site she refers to—I know it well—is now closed and possibly the initial blowing of rubbish and so on has stopped, because we do not actually know what is in that site, there could be a ticking timebomb of environmental damage. Ultimately, if it has to get cleaned up, it will come back to the taxpayer to do it.
I most certainly agree with my right hon. Friend. Of course, we have had a history of such sites in previous years; we have no idea what is in them. It is vital that we do know what is in those sites, and it is vital that efforts are made and action is taken to ensure that landfill operators behave responsibly. I hesitated before saying “responsibly”: they need to behave in accordance with the law, treat waste properly and respect the local communities and our environment.
As I was saying, I am pleased that the Public Accounts Committee published its report on waste crime in October 2022. In their response, the Government acknowledged the slow progress on the wider issues of waste crime. I believe we are now awaiting the outcome of the landfill tax call for evidence, which we have not yet seen.
Of particular concern are reports of serious and organised crime in the waste sector. The establishment of the Joint Unit for Waste Crime in 2020 suggests progress on that issue, and we have heard reassurances that the unit will promote co-ordination between HMRC, the Environment Agency and other bodies. I am glad that Members have been able to speak to and meet that body. I will certainly be keeping an eye on its progress. That is a positive move. That co-ordination would go some way to remedy the difficulties in discharging responsibilities between different bodies that have been held responsible for the failure of Operation Nosedive.
However, the National Audit Office reported in April 2022 that the unit does not receive any dedicated funding from Government, and that the Environment Agency’s previously ring-fenced funding for waste crime will be incorporated into its core funding from 2022-23. Furthermore, the report highlights the need for improved data on waste crime, as we have heard, so that resources can be targeted more effectively and progress more accurately assessed. It is vital that resources are available to make that co-ordinating work effective and to protect communities.
If we are to learn lessons from the failure of Operation Nosedive—I cannot imagine who thought up that name, which in itself has caused a lot of issues—and make a difference, the Government must establish a more stable footing for the investigations. Our environment is precious to local communities and waste management is a vital part of its preservation. It must not be placed in the hands of criminals or fraudsters. It must be managed to the highest standards.
It is a pleasure to follow the hon. Member for Blaydon (Liz Twist), whose constituents experienced many of the same problems mine have, albeit a few years before, and to follow two excellent contributions from my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) and the right hon. Member for North Durham (Mr Jones). I was pleased to go with them to the National Crime Agency last year to try to get these issues taken more seriously. I pay tribute to all the work the three Members who have spoken today have done over the years, before I was a Member of this place, to try to get this issue taken more seriously.
It is a serious issue. It is not just the cost to the public purse—that has been spoken about many times already—but the cost to our constituents, and to their lives and physical and mental health. That is what people in Newcastle-under-Lyme have been suffering, as I have repeatedly brought to the House’s attention over many years.
The failure of the investigations and of the ill-named Operation Nosedive only emboldens the people in this space. The firm that operates Walleys Quarry, Red Industries Ltd, had a failed prosecution against them, regarding a separate site of theirs, by the Environment Agency over an incident in which cyanide leaked into the River Trent in October 2009. After many years, the Environment Agency conceded the flaws in its case, which were probably caused by insufficiently advanced legal advice, to which the right hon. Member for North Durham referred. That only emboldened the firm—we can see that if we look at the press releases crowing over the failure of the EA’s prosecution—to think that it can get away with things and that it will not be held to account by those who should hold it to account.
We need to learn all the lessons of Operation Nosedive, the incident in the Trent, and all the other occasions where we have failed to prosecute landfill tax fraud, or other forms of waste crime. The fact that there has never been a successful conviction for landfill tax fraud is astounding when we consider the depth of criminality that we have exposed in the waste industry. I exposed some of it in the Westminster Hall debate that I led on 1 February last year—the right hon. Member for North Durham and my right hon. Friend the Member for Haltemprice and Howden both spoke in that debate and referred to it in their speeches.
Perhaps I can briefly update the House on where we are with Walleys Quarry, because it is germane to the debate—I will not repeat the full history, Mr Deputy Speaker, having already secured Adjournment debates, multiple Westminster Hall debates, a ten-minute rule Bill and all the rest of it. What my right hon. Friend said about the Environment Agency’s fear that action might make the problem worse is well founded. It did monitoring and said, “Nothing to see here.” It was reluctant to do further monitoring until eventually it was forced into it by a combination of me and the council leader, Simon Tagg. Once it conceded there was a problem, the idea that we might take the permit away from these people, who continually fail, was barely even discussed, because it wanted to ensure that the company managed the site. I understand that as a strategy, but it sticks in the craw of all the local residents, who can see what is happening. They can see the trucks coming from hundreds of miles away—from Scotland and the Lake district—to bring waste to Walleys Quarry. They are monitoring trucks going in at the wrong times of the day, dumping before they are supposed to. There are so many little breaches along the way that stick in the craw of people. They know that the site is under investigation, yet the company is continuing to make money from its operations. I know how painful that is for my constituents, who have suffered with living with the odour. Walleys Quarry is particularly notorious for its odour. We have had by far the single worst odour problem in recorded history—I believe that the previous record belonged to a site in Chorley, Mr Speaker’s constituency. Our site has broken all records. We have had four Environment Agency monitoring stations ringed around the site for the last couple of years.
I am pleased to report that the odour is diminishing. That is because of the work that the Environment Agency has compelled the operator to do. As far as it goes, that strategy is fine. However, the second part of the strategy needs to be to throw the book at the operator. It has been issued with multiple breaches in the last few years, all of which have required it to do work and said, “We reserve the right to take further punishment action later.” We are waiting for that punishment action to happen.
In fact, in Newcastle-under-Lyme, we have two investigations going on into Walleys Quarry. There is the criminal investigation, which was announced in December 2021. I understand that that will take a long time because it is complex and many counterparties are involved. It is all about misdescription of waste, which is a much wider problem and investigation for the EA. There is also the regulatory investigation announced in September, which I raised with the Secretary of State at Environment, Food and Rural Affairs questions shortly before Christmas. We need to get some results on that more quickly because regulation should be the EA’s bread and butter. It needs to start holding the company to account for the failures.
The odour problem has been getting better. We are catching more than twice as much gas as we were—we have the figures—and the EA has mandated capping in additional wells. That is not to say that it never smells. It did smell a bit in December, particularly when the temperature fell below zero; those are the conditions where the odour gets a lot worse.
I congratulate Newcastle-under-Lyme Borough Council, under the leadership of Councillor Tagg and chief executive Martin Hamilton, who took the bold step—it was almost unprecedented for a local authority—of pursuing an abatement notice against the operator. It is difficult to do that because prosecuting an abatement notice needs the consent of the Secretary of State; it is a regulated site and it has the permit with the EA. However, the impact on our residents in Newcastle was so severe that the council felt it had to do that. It was able to bring that to a successful conclusion with the operator, who initially appealed but ultimately accepted the decision, following consultation and discussion. I think that was the first proper concession that Walleys Quarry Ltd and its parent company Red Industries has made that its site has been responsible for the unacceptable odour.
We need to get those investigations pursued with all deliberate speed. I am grateful to the EA for giving me a briefing on them on Monday. I appreciate that the Minister is from the Treasury and not from DEFRA, but we do need to see all pressure put on the Environment Agency to get those investigations brought to a conclusion as soon as possible so that my constituents can start to see some justice, some accountability and potentially some compensation, whether through Government or through the class action lawsuit that a number of them are considering, because of the impact on people’s quality of life and health, exacerbating pre-existing conditions such as chronic obstructive pulmonary disease and asthma and exacerbating pre-existing mental health conditions of anxiety and depression. It has been phenomenal. I laid all that out in the Adjournment debate, so I will do not so again today. However, even in the most recent month, there have been more breaches of the permit.
Does the hon. Gentleman want to say a little about the disruption and concern caused by heavy vehicle movements near the site? That is of huge concern around the country. In my area, we recently had planning permission granted for an incinerator in West Berkshire. The road access is likely to be through Reading town centre. Many of my residents are concerned about that. I would be interested to learn how his colleagues have helped to tackle the problem in Staffordshire.
I thank the hon. Gentleman for his intervention. That has been a significant problem in Newcastle. There have been accidents on the road outside the landfill caused by lorries backing up along the road. Firms opposite have complained that people have had problems accessing their businesses. An arrangement has been recently made through a variation to the planning permission to allow vehicles on to the site before the 7 am opening time so that they can at least queue on the site rather than on the road. There is also state of the road and the mud that some vehicles have left on it. There is a wheel wash that vehicles are supposed to go through when they leave. It is clear that it has not always been working. The county council has had to write on more than one occasion to the operator demanding that it cleans up the local roads as well. Traffic and the state of the roads are significant issues, and I wish the hon. Gentleman well with his efforts to represent the people of Reading in the situation with the incinerator to which he refers. The impact is not just about odour; it is about the whole operation and its interference with people’s quality of life in the surrounding villages.
As I was saying, there have been far too many breaches and they are still ongoing. Even under intense scrutiny, with four monitoring stations and regular Environment Agency visits—including unannounced visits, which I welcome—the operator is still being found responsible for more and more breaches. I pay particular tribute to Stop the Stink campaigner Dr Mick Salt, who has brought several such breaches to the public’s attention via freedom of information requests.
The operator’s continual failure to comply with the conditions of its permit, even under such intense scrutiny, is staggering. It surely only strengthens the case for stripping it of the permit altogether when the investigation concludes. I will continue to fight for my constituents and fight to ensure that the operator and the EA are both fully held to account and that we get some appropriate action in response to the misery that the landfill has visited on Newcastle-under-Lyme residents, particularly those who live closest.
Let me turn more specifically to the subject of today’s debate: landfill tax fraud, to which I referred in the Westminster Hall last February. The problem, as I said in my intervention on my right hon. Friend the Member for Haltemprice and Howden, is that bad firms are driving good ones out of the industry. I have spoken to legitimate operators in Stoke-on-Trent who are upset that they are trying to do an honest job but cannot compete with the firms undercutting them.
Fundamentally, most people will take assurances from firms that say, “Of course we’ll handle your waste legitimately, don’t worry about that—and here’s a nice price for you.” A lot of people will be guided by that, so the regulator needs to step in. People need confidence that a regulated firm will be regulated. They should not need incentives to go to one firm or another because of ethical considerations; they should be able to trust that any firm in a regulated space is operating honestly and ethically.
As we heard from the right hon. Member for North Durham, the landfill tax differential has gone up to more than £95 per tonne. When the charge was first introduced in 1996, there was only a £5 differential; the rates were £2 and £7. I welcome the fact that landfill tax has reduced the overall amount of waste going to landfill, but it has obviously created strong incentives for misdescription.
Not only is standard waste being misdescribed as inert, but waste is going to landfill that should not be there at all. In the debate last February, we heard examples from a journalist’s research that included cavity wax, arsenic, zinc and even rat poison going into Walleys Quarry. I know that those allegations have been put to the Environment Agency and I am sure that they will be part of the criminal investigation, so I do not want to comment further on them today, but the problem is that charging £100 a tonne for waste is increasingly incentivising misdescription.
It never ceases to amaze me that these things happen even when the Environment Agency understands the problem. I referred earlier—I was racking my brains for the figures—to fires at waste transfer stations and landfill sites, which are another way in which operators get round the regulations. Burning waste to get rid of it is a common practice, but the Environment Agency just seems to turn a blind eye. Not only is there an effect on the environment when operators burn what they should not be burning, but they avoid landfill tax.
The right hon. Gentleman is absolutely right. With illegal landfill sites in particular, we can almost rely on there being a suspicious arson attack. Getting the fire services involved is often the quickest way to get these problems resolved, because operators know that they and not the Environment Agency will ultimately be the ones involved in cleaning up. My constituency also has a notorious illegal waste dump at Doddlespool farm; I do not want to detain the House for too long, but we have seen all these things going on, with all sorts of impacts on the environment from vermin and all the rest of it.
Fly-tipping is forecast to have probably the greatest overall financial impact, although it is very difficult to get the numbers. The national tax gap for HMRC overall is estimated at 5.1%, but the landfill tax gap was 17.1% in 2020-21 and in previous years it has been more than 20%. That is equivalent to £125 million, which is only a part of the overall billion-pound estimate of the cost of waste crime. That does not even really take into account the cost of fly-tipping; it is about tax that should have been collected but has not. Things that are completely illegal fall somewhat outside the tax gap calculations, as I understand it.
My hon. Friend has talked of perverse incentives. As far as I am aware—and, as I have said, I served as Chairman of the Public Accounts Committee for five years—this is the clearest example of a strong incentive for good policy turning into a strong perverse incentive against that good policy, off the back of enforcement. When the Treasury assesses how much it puts into enforcement, ought it not to take that full spectrum of effect into account?
I could not agree more. I cannot remember who it was who mentioned the Environment Agency earlier, but there has been a cultural problem with enforcement, and I should like to see HMRC step up and assist. There is a long tradition of the taxman being the man who catches perpetrators of organised and serious crime in the end, but it is not happening with waste crime. I shall say more about that later.
In a statement to the House on the 18th report of the Public Accounts Committee, my hon. Friend the Member for The Cotswolds (Sir Geoffrey Clifton-Brown) said that Jim Harra had assured the Committee that the tax gap was so large because the scope of landfill tax had been widened to include illegal waste sites. However, if fly-tipping were taken into account, it might be even larger. The summary of the report stated:
“Waste crime is known to be greatly under-reported, so the true scale and impact of the problem are even larger than official data suggest.”
As my right hon. Friend the Member for Haltemprice and Howden just pointed out, that is just the financial cost; we are not remotely taking into account the cost in terms of the impact on people’s quality of life. Perhaps if we do get a class action lawsuit, some financial numbers will be attributed to that in Newcastle-under-Lyme.
Another area in which some action is belatedly being taken is the export of waste, which not only avoids tax but causes environmental disasters in some developing countries.
The right hon. Gentleman is entirely correct. Indeed, as I mentioned last February in connection with Walleys Quarry, there was a suggestion that waste that should have been exported for treatment in, I believe, the Netherlands was actually going straight into landfill. Export adds an extra layer of complexity for the Environment Agency and HMRC to get on top of, but get on top of it they must, because these operators are using all the tricks in the book to get their waste dealt with as cheaply as possible and maximise their profits.
When it comes to social cost, misclassified waste is, according to the EA, the most likely result of the smell at Walleys Quarry landfill, driven primarily by hydrogen sulphide created by the biodegradation of gypsum. The awful impact of that has been experienced by my constituents time and again. It was exacerbated during lockdown, when the smell was at its worst, but when we opened up again, people did not want to come into the town centre and use our pubs, bars and cafes, or even just do their shopping, because of the awful odour.
I have mentioned the health impacts, but there is also the long-term environmental unknown risk of waste going into landfill. We do not know exactly what is in Walleys Quarry; if the reports from journalists are to be believed, there could be all sorts of things in there. I have been given assurances that it is unlikely to cause any risk, given that it is all capped off, but not knowing what is in the ground is not a great state of affairs. The site should have been properly regulated ever since the permission was granted by John Prescott back in 1998.
I am conscious that I have been speaking for a while, so I will end my speech shortly. We need to look at what is being done, but also at what more needs to be done. The Public Accounts Committee report stated that action was being taken, but I believe it is taking place too slowly. We have seen the establishment of the joint waste crime unit, but we have not seen enough activity on the back of it. We have also seen helpful reports from the National Audit Office highlighting the severity of the problem. I understand that the Government accepted all the recommendations of the PAC report and will implement them, but we need to see a response to the HMRC landfill tax call for evidence. We do not know yet what will happen with that, but it needs to be structured in such a way that it achieves its legitimate aim of reducing the amount of waste going to landfill without incentivising people to take shortcuts.
The Department for Environment, Food and Rural Affairs, the EA and HMRC clearly need to work with relevant bodies within the criminal justice system to develop a plan for making enforcement more effective across the full spectrum of waste crime. That must include speeding the process up and—this is very important—consideration of whether the sentencing guidance needs to be strengthened. The inadequacy of the fines issued to companies and individuals is all too apparent. People who are doing tens or hundreds of pounds’ worth of damage—and that does not even allow for the social cost—are being hit with only hundreds of thousands of pounds-worth of fines, and there are very few cases in which people go to prison.
On top of that, we need to consider whether the bonds put up by operators are sufficient. The Environment Agency is worried about operators walking away precisely because it knows that the money put up in bonds is not sufficient for a local authority to ameliorate a site. We have had that exact discussion in Staffordshire about what would happen if the operator walked away from Walleys Quarry. Who would be on the hook for it, and how would we manage it? I pay tribute to the work done by councils to prepare for that potential eventuality, but it should not have to be like that. There should be enough money in the bond to fund the amelioration, if necessary.
It is clear from my many discussions with the Environment Agency that many of its officers agree there is a fundamental lack of deterrence. I am critical of the Environmental Agency’s culture, and I think it was far too slow to react when the problem got worse, but there is a feeling that people are getting away with it because they do not feel deterred by the sanctions. We need to look at that, too.
We need much tougher fines and the prospect of lengthy prison terms, and there needs to be a fit and proper person test for people seeking to operate landfills, whether they are setting one up or taking over a licence. All the agencies need to work together to deter waste crime and landfill tax fraud. I have often spoken to DEFRA Ministers about this, and I appreciate that a Treasury Minister is here because this debate is an HMRC issue, but I look forward to what he has to say about tackling landfill tax fraud, and waste crime more generally.
Given HMRC’s case load, it might look like there is more to be gained by working elsewhere, but we are losing out on hundreds of millions of pounds of tax, and on millions or billions of pounds of additional social cost. It is an incalculable loss that ordinary people who want to dispose of their waste cannot trust the sector, because they do not know whether their waste will be disposed of legally or illegally.
Some blue chip names deposed of their waste at Walleys Quarry. They were appalled to be identified as having done so by the reporting of journalists, and they stopped sending their waste there. No blame necessarily attaches to them, but it shows that, overall, the sector cannot be trusted.
There is a tradition, going back to Al Capone, of the taxman being the one who finally holds serious organised criminals to account. HMRC must step up and give the Environment Agency a helping hand, because the crimes with which HMRC can charge people carry much more serious financial consequences and, potentially, jail time. If HMRC learned the lessons of Operation Nosedive and looked to prosecute people for waste crime, it would be greatly appreciated by me, by my constituents and, I am sure, by the constituents of all hon. Members here today.
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.
It is a real privilege to respond to today’s Backbench Business debate. I congratulate the right hon. Member for North Durham (Mr Jones) and my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) on calling this debate. I have only responded to one of these Backbench Business debates before, and it was when I was a Justice Minister, and, sure enough, one of the proponents was my right hon. Friend. It was on the subject of strategic lawsuits against public participation, so he does cover a diverse range of issues, but that is a credit to him.
The shadow Minister, my regional neighbour, referred to the fact that the right hon. Member for North Durham had called himself an anorak on this subject. I agree with the shadow Minister that, what the right hon. Gentleman has shown—as have the hon. Member for Blaydon (Liz Twist) and my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell)—was a clear passion for this subject. He raised some very serious and important constituency matters.
I want to assure all hon. and right hon. Members that we do agree that landfill tax fraud and wider waste crime is an important concern in itself, but it also has a distortive effect on legitimate waste management businesses and the waste management sector, causes significant environmental damage and seriously impacts on local communities. Every single Member who has spoken today—with an emphasis, it should be said, on quality rather than quantity of colleagues participating—has clearly emphasised, above all else, the impact on their communities. I totally understand and sympathise with that point.
I will just canter through the history, as the shadow Minister did, because it is very important. We had a long established habit of landfilling our waste. As recently as the 1990s, more than 90% of household waste went to landfill, with only 5% of household waste being recycled. As he said, a landfill tax was introduced in October 1996 to help remedy that. The idea was to encourage the diversion of waste away from landfill and towards more environmentally friendly waste management options, such as recycling, reuse and recovery.
Having introduced the tax, it is also true, as the right hon. Member for North Durham pointed out, that successive Governments have applied escalators to that standard rate. These escalators increased the rate but also provided lead-in time and certainty that was welcomed by the sector, which was looking to invest in more sustainable waste management options. The tax has been widely recognised as being successful in contributing to the fall in landfill waste.
Where are we now? Since 2000, local authority waste sent to landfill in England has fallen by 90% and household recycling rates are now at around 45%. The tax collected in the last financial year was £667 million, which is in many ways a successful tax. Obviously, I am speaking primarily from the Exchequer’s point of view, but we have achieved a substantial policy goal there. We should think of a parallel universe in which we did not achieve that reduction in landfill—imagine how many square miles of our wonderful countryside would now be taken up by landfill. It is a striking thought.
I do not want to intrude too much on this debate, but the Minister is right when he talks about the importance of moving more towards recycling and less to landfill. Will he join me in calling on Glasgow City Council to reject the planning application from Patersons of Greenoakhill, a landfill site that blights communities in Mount Vernon, Carmyle, Baillieston and Broomhouse?
It is fair to say that the hon. Gentleman has got that on the record, but he will appreciate that I am not going to comment—it is devolved, but beyond that it is a planning matter and not a matter for the Exchequer. He has got it on the record, though.
It is true that landfill tax has inevitably been relatively difficult to enforce, and non-compliance is high. The right hon. Member for North Durham is absolutely right that this is partly due to increases in the standard rate but, obviously, as the tax has increased, it has become more effective at incentivising disposal other than landfill. In parallel, there has inevitably been an increase in abuse and non-compliance.
Listen, as I said in my contribution, I have no problem with the actual policy. It has been effective. I question the figures because, frankly, nobody knows what they are. The Environment Agency does not know what they are. What I cannot get my head around is this: the Minister says the tax has been difficult to enforce. Talk to people in the industry—they have known that for years. They have known every scam that has been going on for the past 27 years, and nothing has been done. That is what I just do not understand.
I was just being frank with the right hon. Gentleman. It is a relatively difficult tax to enforce, compared with others, but that does not mean we are not determined to do everything possible to deal with non-compliance. Let me turn to some of the specific points that he and other colleagues raised.
Will the Minister give way?
I will make a bit of progress first and turn to Operation Nosedive, which I think every single colleague raised. First of all, I have no information whatsoever on the etymology—it is fair to say it is striking. As right hon. and hon. Members know, the legal obligations in relation to taxpayer confidentiality mean that it would be inappropriate for me to discuss the specific details of Operation Nosedive. However, the Public Accounts Committee acknowledged in its report that HMRC had been frank about the challenges associated with investigating these types of cases and that a high standard must be met for any criminal investigation to reach the prosecution stage.
The right hon. Gentleman for North Durham mentioned the operational independence of HMRC, to which I would just add—perhaps referring back to my previous role as Justice Minister—that perhaps the most fundamentally independent institutions under our constitution are the judiciary and, of course, the Crown Prosecution Service as independent prosecutors. It is ultimately its decision whether to prosecute, based on the evidential threshold.
Of course I will ask why it happened and ask for details, and of course I got the reply about confidentiality. But does the Minister not accept that after this period of time—six and a half years that we know about, and time before that—it is just not reasonable to say, “We can’t tell you how much it costs”, because that is a matter of public interest.
As I understand it, the figure is public—[Hon. Members: “It is now!”]—following robust campaigning by colleagues present in the Chamber.
Turning to the linked point about decriminalisation, I emphasise that most of HMRC’s work to tackle fraud makes use of civil powers. HMRC does use criminal powers selectively to focus on criminal investigations at the top end of the highest harm and the most complex organised crime and serious fraud. Just to underline that, in 2021 HMRC closed 700 illegal waste sites, including 200 high-risk sites—I say HMRC, but it might have involved the Environment Agency as well. Significant action was taken, but it was primarily civil in nature.
My hon. Friend the Member for Newcastle-under-Lyme continues to raise Walleys Quarry—
Will the Minister give way before he moves on?
I am now on Walleys Quarry, so I will stick with that. My hon. Friend the Member for Newcastle-under-Lyme will have anticipated that I cannot comment on ongoing investigations, but I can confirm that, as I understand it, the Environment Agency continues to regulate the operator closely and to consider appropriate action, in accordance with its enforcement and sanctions policy. While it sounds like there has been some progress, my hon. Friend is being a stalwart constituency MP and is a credit to his constituents. It is difficult for Ministers to go into the data at the Dispatch Box. He made points about the mental health impact and so on, and I sympathise with those who have experienced the impact at first hand.
I will now give way to my right hon. Friend.
In a way, the Minister’s comments on Walleys Quarry reinforce the point. He says it is a difficult area to enforce in tax terms. I do not actually agree. I think a great deal more could have been done on the ground with Operation Nosedive in terms of physical investigation. Such things would not normally be undertaken, but that should have happened for something as big as this.
I reiterate the point I made earlier to my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell). The costs of the failure to enforce are financially enormous and socially disastrous, and serve to completely invert the purpose of the policy. The hon. Member for Cambridge (Daniel Zeichner) quoted the industry association and talked about an environmental catastrophe waiting to happen. No, it is an environmental catastrophe waiting to be discovered, because much of it lies underground in our constituencies. This is an area where a huge amount of resource is at play, and a huge amount of effort should be put into dealing with it.
I understand where my right hon. Friend is coming from. Speaking generally about all these cases and issues—I will go through all the points that have been raised as best I can, because he also talked about joint working and co-ordination—there is point of principle that we have to accept. We have a tax with a rate that incentivises a behaviour that is a positive policy goal, and that has been achieved to an extraordinary degree in the substantial reduction in waste going to landfill. Precisely because of that mechanism of a financial disincentive, there are some rogue actors—there will always be some—who want to take advantage.
All right hon. and hon. Members raised the point about data. I can confirm that the Government are committed to publishing an annual framework of indicators to track progress towards the objectives set out in the resource and waste strategy, including indicators of illegal waste sites, fly-tipping and littering.
The right hon. Member for North Durham and my hon. Friend the Member for Newcastle-under-Lyme both made points about what constitutes a fit and proper person. DEFRA recently consulted on reforms to the carrier, broker, dealer regime, and those transporting or making decisions about waste must demonstrate that they are competent to make those decisions. DEFRA anticipates phased implementation of the reforms from 2023-24.
It is good to hear that there will be some progress, but the issue lies with the operators and permit holders of landfill sites. Will there be any action on the fit and proper person test?
The hon. Lady will appreciate that that is a DEFRA consultation, but I strongly encourage her to engage with it. She is an assiduous campaigner and contributor to these debates—I think she has been at every debate I have attended—so I pay tribute to her for that. I am sure she will pursue that consultation with interest.
I will talk briefly about the tax gap. My hon. Friend the Member for Newcastle-under-Lyme made the point that there was a spike with the inclusion of unauthorised sites. The latest figures we have, which are for 2020-21, show a gap of 17.1%. That was a fall, but that was partly because the year before was impacted by covid and the year before that we had the spike because of the inclusion of unauthorised sites.
Of course we want to make progress on that, but I speak for the Treasury as a whole when I say that we should be judged as a Government on the totality of the tax gap, because it will vary between taxes; some taxes are fundamentally easier to collect and some are easier to evade. As my hon. Friend the Member for Newcastle-under-Lyme said, the total tax gap was 5.1% in the last year for which we have figures available—a fall from about 7.5% in 2005-06. That is one of the lowest published tax gaps in the world and it has been in decline, which is very positive and shows that overall we are making effective progress, although I agree that we need to make more progress specifically in relation to landfill tax.
Will the Minister write to me on the related matter of trying to quantify the scale of fly-tipping costs to local authorities, residents and businesses? I appreciate that it is not the subject under discussion, but it is of enormous concern to many people across the country. In my area of Reading, we have huge problems in the town centre and on other sites, often on private land, with enormous cost to neighbouring properties.
The hon. Gentleman is right that it is not within my bailiwick, but I am happy for my officials to get in touch with him and let him know who is the appropriate Minister.
On waste incinerators, we should acknowledge that energy-from-waste plants have made an enormous contribution: the biggest factor in the reduction in landfill is the use of energy-from-waste plants. In my county of Suffolk, we have a very successful operation. When what would have been landfill is burned, it is used to create energy for homes. That is a joined-up operation and it has made a massive difference.
On joint working, I think it was my right hon. Friend the Member for Haltemprice and Howden who made the point that there was a failure of co-ordination. As he knows, in 2020 we established the joint unit for waste crime in the Environment Agency, in partnership with HMRC, the National Crime Agency and others, to tackle organised waste crime. Through shared intelligence and enforcement, the joint unit is identifying, disrupting and deterring criminals, and I can confirm that between April 2020 and November 2022, the joint unit worked with more than 100 partner agencies and engaged in 175 multi-agency days of action, resulting in 51 arrests by other agencies.
I turn to the report by the Public Accounts Committee, which all colleagues have mentioned. As right hon. and hon. Members know, the National Audit Office and the Public Accounts Committee last year published reports on Government efforts to combat waste crime. Despite the work done to date, the Government are not complacent and recognise that more needs to be done. That is why we accepted and are implementing all the recommendations in the Public Accounts Committee report, “Government actions to combat waste crime”. Importantly, we are not going from a standing start; there are, as I have just demonstrated, a host of multi-agency efforts already under way.
The hon. Member for Blaydon mentioned the landfill tax review. I can confirm that we launched the landfill tax review in 2021 to explore how the tax’s design can continue to support environmental goals. The Government are considering responses to the review’s call for evidence, which closed in February 2022, and we hope to issue a response in due course. The Public Accounts Committee has recommended that DEFRA should work with HMT and HMRC to ensure that the review of landfill tax takes into account the incentives that the tax, as currently designated, creates to commit waste crime. We agree with that specific recommendation and we will look at that factor.
This question is within the Minister’s bailiwick: as colleagues have said, the higher rates have incentivised waste crime, so will he engage with the Environment Agency to look at the test for labelling waste as inert and the way it is enforced? Frankly, it is frankly a farce. Operators are allowed to do the test themselves and put it forward as a bulk of waste. There might be some inert waste on the top, but under it there will be active waste. This is about enforcement, but it is also about whether we should just abolish it altogether.
The right hon. Gentleman makes an important point. He will appreciate that I am not going to predetermine our review, but it is important that we look at those precise points. That is why we have established the review. As I say, we will respond in due course to the responses we have received to the call for evidence.
I turn finally to HMRC, which lots of colleagues have mentioned. A further recommendation from the PAC was for HMRC to respond on how it has improved its approach to landfill tax prosecutions. It did that in December. Briefly, HMRC’s approach to landfill tax compliance aims to collect the right amount of tax and support the Government’s aim to create a better environment. Most of its work to tackle tax fraud makes use of civil powers, as I said earlier, but it also uses criminal powers selectively.
HMRC has learned lessons from previous operational activity and is developing a number of criminal investigations into those involved in waste crime—[Interruption.] Yes, there are ongoing investigations to confirm that for the right hon. Member for North Durham, who is chuntering away in his invisible anorak on the Labour Back Bench. The investigations are at an early stage of development, and the House will understand that it is not appropriate to provide further detail at this point.
Lastly, colleagues on both sides of the House have raised the point about resourcing, including the hon. Member for Cambridge (Daniel Zeichner). HMRC has deployed more resources to increase the number of civil investigations of landfill tax non-compliance. Actions between 2018 and 2021 have already secured £110 million of additional tax revenue, and in future we expect at least £50 million of extra tax to be paid annually. HMRC increased the operational compliance resource dedicated to landfill tax in 2017 and 2018, doubling capacity to 50 people. It is deploying a further 10% more resource specifically to increase the number of civil investigations of landfill tax non-compliance. That was funded in the spring Budget of 2022.
To conclude, I thank the “Landfill Four” for their excellent contributions, and my right hon. Friend the Member for Haltemprice and Howden and the right hon. Member for North Durham for securing the debate. Landfill tax has helped to transform the approach to waste and resource management, with reductions in waste to landfill and increases in recycling rates. However, there is and will always be more work to tackle criminals looking to take advantage of the system. Finding that balance and achieving both those things is crucial, and I am determined that we will.
I thank my parliamentary neighbour, my hon. Friend the Member for Blaydon (Liz Twist); the right hon. Member for Haltemprice and Howden (Mr Davis; and the hon. Member for Newcastle-under-Lyme (Aaron Bell) for their contributions.
What outcome do we want from the debate? I have to say that the statement from HMRC that the Minister just read out did not fill me with a great deal of confidence. It was great, flowery civil service language, but there are some asks for the Minister to take away. The first is dedicated funding for the joint unit for waste crime, which I think we all agree is the way forward. The other is the use of existing powers, and not just for criminal enforcement of landfill tax fraud. With or without the National Crime Agency and others, the bodies involved could use legislation in the Proceeds of Crime Act 2002. Some people have become very wealthy from all this, and that raises questions about where the money has come from. That is possibly because, as the Minister said, this policy area has perhaps been successful, but it has also created a problem, not just in terms of lost revenue, but by funding criminality in this country. That is partly because it has fallen between two Departments in the Treasury and DEFRA, and two arm’s length organisations in HMRC and the Environment Agency.
I ask the Minister to take a personal interest in the matter and to have a meeting with his opposite number at DEFRA to co-ordinate and drive this agenda forward. My fear is that, despite all the good words we have heard today from officials about the joint crime unit and everything else, without political muscle behind it and somebody watching over it, things will not move forward. I warn the Minister that I and the right hon. Member for Haltemprice and Howden will not be looking the other way and we will be back on to this. That is one way to drive forward the agenda, which definitely needs a political lead. I accept that that would involve two Ministers, but if those two individual Ministers came together, it could make a difference.
Question put and agreed to.
That this House has considered the matter of landfill tax fraud.