There is a good reason for the dredging tax exemption, the Treasury risks a pasty tax fiasco for Britain’s ports

Before accepting such advice, it is always worth investing the time to understand why certain provisions were introduced in the first place.

Most Ministers have to learn this the hard way. George Osborne was badly damaged when his officials persuaded him that the absence of VAT on Cornish pasties was an “anomaly” and he had to beat a hasty retreat. More recently, the current Chancellor was persuaded by officials that inheritance tax relief on agricultural land and business assets was a “loophole” but after a year of trying to defend it, she finally had to admit that her officials were wrong.

In neither of these instances did officials volunteer the fact that their proposals had been considered by previous ministers on multiple occasions and rejected relentlessly. They just kept going until they got lucky. They would probably claim that the civil service code prevents them from doing so, and perhaps it does but Ministers must ask the right questions and block proposals that don’t add up.

The recent decision by the Exchequer Secretary to the Treasury, Dan Tomlinson, to remove the Landfill Tax exemption for stabilisers used to treat dredgings is another case in point. It has been described as a “loophole”, but was introduced with a very clear purpose as recently as 2007 by none other than Angela Eagle while she was a Treasury Minister in Gordon Borwn’s Government.

When the Landfill Tax was introduced through the Finance Act in 1996, there was a conscious decision to exempt contaminated dredgings material taken from water and this was given effect through Section 43 of the Act. The reasons for the exemption were clearly set out: namely to ensure that ports, harbours and navigation routes could be maintained. It was recognised that making such dredged material subject to the Landfill Tax would create a perverse incentive to abandon dredging to maintain navigation routes and ports and that would have severe consequences for the UK economy.

In 2007, there were growing concerns about the impact of liquid waste entering Landfill, and a ban on such liquids was introduced. That change in legislation required water to be removed from contaminated dredgings prior to being committed to landfill. It introduced an express requirement that water either be removed or that other material be added to dredgings to dehydrate them.

The last Labour Government recognised the impact this change might have on ports. In order to safeguard the original intention to protect ports and navigation routes and to maintain a valid exemption for contaminated dredgings, the Government introduced The Landfill Tax (Material Removed from Water) Order 2007. This added a new subsection to the Finance Act to make clear that material added to dredgings as a stabiliser (in order to render them not liquid waste) would also qualify for the Landfill Tax exemption.

In its most recent consultation on the exemption in April 2025, the Government set out its intention to effectively repeal the 2007 Order. It sought to portray the use of materials to dehydrate dredgings as a “loophole” as if it were a legislative oversight or a drafting error. This is not correct. The 2007 Order was consciously introduced as a stand-alone Order explicitly to permit the use of materials to de-hydrate dredgings. The very clear intention was to protect the original exemption for materials removed from water. This was decided with the very precise purpose of protecting ports and navigation routes, which are so essential to the UK economy.

I am working on a campaign to overturn this decision, because the consequences will damage the Government’s commitment to boosting growth and its mission-led focus on infrastructure. It places at risk industrial and development projects, particularly in ports, rivers and canals and undermines the objectives of the National Wealth Fund, which includes ports as a priority sector. It would also cost Local Authorities at least £20m per year with that additional cost likely to fall back on the Treasury under the new burdens doctrine.

Even if the policy was not so damaging, the timetable for removing the exemption is impractical. The Treasury wants the change to be in place by April next year. Industry has repeatedly told officials and warned the Minister that this is reckless. The reasons include long lead times to obtain planning permission, an environmental permit, commission and build new treatment facilities. Also, rushed, unclear guidance will deter investment in recycling infrastructure.

With any ill-judged decision in government, the best that any Minister can do is correct mistakes quickly and decisively.

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George Eustice is a former Secretary of State for Environment, Food and Rural Affairs

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