Landfill Tax Fraud

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.

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.

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.

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.

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 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.