Earlier this month, the Treasury released its analysis of the costs of opposition policy, including the effect of a landfill ban for food waste on government expenditure. It’s important to understand the costs of green policy, but these Treasury calculations have missed the big picture.
The analysis, as far as it goes, is correct: it forecasts that keeping food waste out of landfill will cost £477 million in 2015. This figure is comprised of £2 million in communication and enforcement costs, and £475 million in reduced revenue from the landfill tax. But this is so narrow as to be misleading.
More important is what isn’t calculated. At least three other factors give a wider and more useful sense of a landfill ban’s impact on the economy:
The net effect on public spending
Approximately £280 million (about 60 per cent) of the £475 million in lost landfill tax is currently paid by councils, which are taxed when they dispose of household waste. They, in turn, raise revenue to cover this from council tax and central government grants.
Reduced landfill tax revenue for the Treasury would therefore be offset by lower council expenditure. To limit central government borrowing, central government grants to councils could be cut by the amount of landfill tax councils previously paid; or council tax could come down; or councils could reinvest the savings in providing services. This means the net public spending position of a landfill ban could be less than half the number quoted by the Treasury.
Better use of wasted food could raise revenues
Our research shows that banning food waste from landfill and diverting it to anaerobic digestion (AD) would have positive economic impacts:
- The total value of food waste to the AD industry would be £693 million per year.
- The value of the additional biogas produced would be worth at least £140 million each year. This could be set against the cost of energy subsidy currently paid to AD
- The private sector might invest £1.2 billion in anaerobic digestion plants. This would raise the total number of AD plants from 135 to around 500 and potentially provide 12,100 jobs.
These economic impacts could translate into higher corporation tax receipts and VAT revenue from the AD businesses stimulated by a landfill ban, and decreased unemployment benefit payments and greater income tax revenue from the additional jobs created.
Avoided carbon costs
There are also wider costs: methane emissions from landfill in 2011 were 14.1 MtCO2e. As approximately 60 per cent of biodegradable material thrown into landfill is food waste, removing it from landfill and sending it to anaerobic digestion would cut emissions by 8.5 MtCO2e. This is worth £152 million per year at UK carbon prices (based on the UK’s £18 per tonne carbon floor price).
This is a complicated assessment, and some of these numbers won’t be directly comparable. However, the Treasury is more than capable of understanding the wider economic effects of resource policies, rather than just accounting for lost receipts from one line of its budget.
A Treasury blind spot
Resource economics falls into one of the Treasury’s blind spots. After all, it killed off a proposed government study to determine the UK economy’s exposure to resource risks in 2013, allegedly because it was considered to be a speculative, ‘next parliament’ problem. It has also been very reticent about exploring the economic opportunities of a circular economy, despite widespread business interest.
Making the economy more resource resilient will involve an industrial transition, creating economic winners and losers. Good governance of such a transition needs rigorous and comprehensive analysis of the implications of policy, not just an account of how it will affect one source of government revenue.