Landfill Tax Fraud

Lord Beamish Excerpts

Thursday 12th January 2023 Commons Chamber

[Mr Kevan Jones (North Durham) (Lab)]

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.

[Jim Shannon (Strangford) (DUP)]

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?

[Mr Jones]

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.

[Aaron Bell (Newcastle-under-Lyme) (Con)]

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.

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[Mr Jones]

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.

[Kerry McCarthy (Bristol East) (Lab)]

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.

[Mr Jones]

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.

[Mr David Davis (Haltemprice and Howden) (Con)]

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.

[Mr Kevan Jones]

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.

[Mr David Davis]

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.

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[Mr Davis]

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.

[Mr Kevan Jones]

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.

[Mr Davis]

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.

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[Mr Kevan Jones]

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.

[Liz Twist]

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.

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[Aaron Bell]

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.

[Mr Kevan Jones]

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.

[Aaron Bell]

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.

[Aaron Bell]

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.

[Mr Kevan Jones]

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.

[Aaron Bell]

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.

--- Later in debate ---

[James Cartlidge]

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.

[Mr Jones]

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.

[James Cartlidge]

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.

[Mr Jones]

Will the Minister give way?

[James Cartlidge]

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.

--- Later in debate ---

[James Cartlidge]

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.

[Mr Kevan Jones]

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.

[James Cartlidge]

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.

[Mr Kevan Jones]

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.

Resolved,

That this House has considered the matter of landfill tax fraud.