UK Budget deep-dive reveals steep future rise in landfill tax

Sam Wardleworth of Pinsent Masons said the degree of the future uplift in rates was overshadowed by news of the more immediate incremental rises in landfill tax and aggregates levy that were announced in UK chancellor Jeremy Hunt’s recent Budget. Those rises apply in England and Northern Ireland from 1 April 2024. The Welsh and Scottish governments applied the same incremental rise, so that the rates remain consistent across the UK. However, Wardleworth said that also included in the Budget paperwork is “a leap in future rates”, noting that the rate will rise by over 21% from 1 April 2025, which he described as “one of the biggest jumps since the inception of landfill tax”.

Landfill tax is a weight-based tax due on material disposed of at permitted landfill sites in England and Northern Ireland and those sites that should have a permit but do not. The tax is collected from operators or controllers of landfill sites who pass the cost on to waste producers and the waste industry, as well as local authorities disposing of municipal waste.

There are two rates of tax: a lower rate which is reserved for the least polluting material and a standard rate for everything else. The differential between the two rates is substantial – £100 per tonne – meaning that getting the allocation right between the types of waste is a commercially significant matter for those disposing of waste and for the waste industry.

Wardleworth said: “The proposed significant uplift in 2025 will make this differential even larger – to over £120 per tonne, making the risk of getting it wrong even more impactful for business.”

The government has stated that this change is “to better reflect actual RPI and ensure the tax continues to incentivise investment in more sustainable waste management infrastructure”, but it also estimated that it will raise an additional £50 million in its first year.

Previously, all changes in landfill tax (LFT) rates have been made on an ad hoc basis, following a fairly steady pattern of small increases, but with occasional larger ones. However, alongside the announcement of the substantial uplift for 2025 specifically, the government also intends to introduce an automatic annual uplift based on the RPI measure of inflation.

“While the 2024 changes are included in the Finance Bill currently moving through parliament, the future changes are not,” Wardleworth said. “This means that the dramatic increase in rates as well as the introduction of RPI rating is dependent on a future government accepting and implementing the changes after the general election. This means that the large rise in LFT rates proposed for 2025 is subject to political developments. It remains to be seen whether the next government will implement these changes. It is also uncertain whether Wales and Scotland will follow suit to increase their rates.”

The rate of aggregates levy – a tax on the commercial exploitation of rock, sand and gravel in the UK – also increased from 1 April 2024 to £2.03 per tonne from £2.00 per tonne. Wardleworth said this is significant, as the levy had not increased since 2009. A further proposed uplift is planned from 1 April 2025, although this will need to be confirmed by legislation, which Wardleworth said is unlikely to be prepared until after the UK general election expected later this year. Power to impose and set the rates for aggregates levy is not currently devolved to Scotland and Wales, so rates are the same across the UK, although the Scottish government has proposed to introduce a Scottish aggregates tax from 2026.