Welsh Government consults on raising lower-rate of landfill tax

The Welsh Government has launched a consultation on potential changes to the Landfill Disposals Tax (LDT) in Wales, focusing on three options for adjusting the lower rate. The government is seeking views on removing the lower rate, significantly increasing it, or altering the materials that qualify for the lower rate of the Welsh Landfill Disposals Tax.

In doing this, the Senedd Government is seeking to gather views about the potential impacts of these changes on businesses, waste management practices, and the environment.

Currently, similar to elsewhere in the UK, the LDT system in Wales operates with a two-tier rate structure. Qualifying materials are taxed at a lower rate of £3.30 per tonne, while other waste is subject to the standard rate of £103.70 per tonne. Since the introduction of LDT in 2018, collected by the Welsh Revenue Authority, there has been a notable 49 per cent decrease in standard-rated landfill waste. However, the volume of lower-rated waste has increased by nine per cent during the same period.

The materials that currently qualify for the lower rate of landfill tax in Wales include rocks and soil, ceramic or concrete materials, minerals, furnace slags, ash, low activity inorganic compounds, calcium sulphate, and calcium hydroxide and brine. These materials are considered to be less environmentally harmful when landfilled, but many could potentially be reused or recycled.

The Welsh Government has identified a potential issue with the current system. The significant gap between the lower and standard landfill tax rates in Wales may be inadvertently encouraging the landfilling of materials that could be managed more sustainably.

Additionally, there are concerns that this disparity could incentivise the misdescription of waste to avoid higher tax rates. Earlier this year, HMRC highlighted this as a factor in an estimated £100M gap in landfill tax revenues for the UK.

Landfill Disposals Tax (LDT) is a devolved tax in Wales, which means the Welsh Government has the authority to set and adjust the rates. This power was transferred from the UK government to the Welsh Government as part of the Wales Act 2014, eventually replacing the UK-wide Landfill Tax in Wales on 1 April 2018.
These proposed changes align with the Welsh Government's long-term aim to achieve zero waste by 2050, with an interim target of reducing landfill waste to near zero by 2025.

The Welsh Government has outlined several ways the proposed changes to Landfill Disposals Tax (LDT) rates could affect businesses and the economy. Companies that produce waste or run landfill sites might need to change how they work and what they charge, noting the disruption to existing business models. Also, if it becomes more expensive to dispose of certain materials, the cost of products made using these materials might go up, having a direct knock-on effect to the industries reliant on them.

Shifts in waste management practices are likely as well, with the adjustments possibly driving increased demand for recycling and waste treatment services as alternatives to landfill become more economically attractive. The LDT consultation recognises the potential for cross-border waste movement, particularly to England or Scotland, if the lower rate of LDT in Wales is not aligned with landfill tax rates in these countries. This could result in 'waste tourism', where companies seek to dispose of waste in the jurisdiction with the lowest tax rate.

There are concerns that significantly higher landfill tax rates in Wales could lead to an increase in illegal dumping or unauthorised waste disposal as some operators attempt to avoid the higher costs. While the primary goal is to reduce landfill use, the consultation invites views on the potential unintended environmental consequences of the proposed changes to the Welsh Landfill Disposals Tax.

The Welsh Government is seeking stakeholder input on these potential impacts to ensure a comprehensive understanding of the implications before making any decisions on LDT rate adjustments.

Stakeholders and interested parties are encouraged to participate in the LDT consultation, which runs for an 8-week period from 19 July to 15 September 2024.