Welsh plans risk disputes and ‘waste tourism’, says expert

Steven Porter of Pinsent Masons was commenting after the Welsh government proposed to adjust the lower rate of landfill disposals tax (LDT).

LDT applies to the disposal of waste in landfill in Wales. Powers relating to the tax were devolved to Wales with effect from 1 April 2018, but its broad structure and the rates of LDT currently mirror those for the sister landfill tax in England and Northern Ireland and the Scottish landfill tax too.

Across the UK, a much lower rate of the tax – currently £3.30 per tonne – applies to the least polluting material, such as rocks and soil, while the standard rate – currently £103.70 per tonne – applies to all other types of material. In Wales, there is also a penal rate of £155.55 per tonne for waste disposed of illegally.

However, an independent review of the LDT commissioned by the Welsh government, published in July 2023, found that it was likely there is intentional misdescription of waste by some businesses in order that their disposals of that waste qualify for the lower rate of LDT. To address the problem, the Welsh government has now opened a consultation on proposals for adjusting the lower rate.

The Welsh government said: “The high standard rate of LDT is effective at reducing landfill while the lower rate makes landfilling qualifying material cheaper than reducing, reusing, recycling or using more sustainable alternatives to dispose of it. The lower rate also creates a strong incentive to misdescribe waste as qualifying material to avoid paying the standard rate. This creates a tax risk and leads to poor environmental outcomes as incorrect disposal of standard-rated material can lead to air, ground, and surface water pollution.”

Three options for adjusting the lower rate of LDT have been put forward by the Welsh government.

The first option, it said, is to remove the lower rate of LDT altogether, so that all disposals are taxed at the standard rate – with potential to introduce that change either gradually or in a single step.

Pursuing the second option would involve substantially increasing the lower rate. Under that option, there would remain a differential between the lower and standard rates, but that differential would be reduced.

The third option under consideration is to change what materials the lower rate of LDT would apply to. That would entail removing some categories of materials that currently qualify for the lower rate from being able to benefit from the lower rate in future. Disposal of those materials would instead be subject to the standard rate. The Welsh government did not indicate which qualifying materials could be removed from being eligible for the lower rate, other than to say that it would remain available only for waste that is not suitable for reduction in use, for reuse, for recycling, or for disposal via more sustainable methods. It has suggested, though, that the option could be pursued alongside the second option, which would see the lower rate increased at the same time as its scope reduced.

The consultation is open to responses until 15 September.

Steven Porter of Pinsent Masons said: “The stated aims of this consultation are to support Wales’ commitment to achieving as close to zero landfill as possible by 2025 and becoming a zero waste nation by 2050, as well as reducing the risk of waste being misdescribed to pay less tax. The proposals are therefore well-intentioned, but they could have unintended consequences.”

“One outcome from making drastic changes to the LDT regime in Wales might be an increase in the number of formal disputes that arise from enforcement of the tax. To date, there have been very few such disputes,” he said.

According to Porter, changes to the LDT regime in Wales could also have wider implications across the UK.

Porter said: “This reform will not impact only on those that are disposing of waste or operating waste disposal sites in Wales – until now, there has been broad unity in the approach to rates and categorisation of landfill taxes across the UK, in spite of devolution. Significant discrepancy between nation states is likely to lead to changes in behaviour, including potentially waste tourism, and possible further changes to landfill tax and Scottish landfill tax.”