Annex 3
Letter from Quarry Products Association
to the Chairman, Environmental Audit Committee
HoC ENVIRONMENTAL AUDIT COMMITTEE INQUIRY
INTO THE 2000 BUDGET
Following the evidence session with Financial
Secretary Stephen Timms on 4 April, there are a number of issues
the QPA wishes to bring to your attention.
Context:
Throughout the Government's consideration of
aggregates taxation the QPA has acted in a constructive manner.
We have set out as clearly as possible our objections and concerns
about the taxation proposals and proposed, as an alternative,
a voluntary/regulatory partnership with Government, the QPA's
New Deal. Our aim has been to produce the best environmental option.
This process has been made significantly more difficult by the
inability of Government to define consistently the aims of the
tax and the basis upon which the QPA proposals were being considered.
This lack of clarity is perhaps best illustrated by the fact that,
following the 1999 Pre-Budget report, the QPA wrote directly to
the Chancellor and to the Deputy Prime Minister asking for a statement
of the Government's position on these issues. To date we have
received neither a reply to, nor even an acknowledgement of these
requests.
The evidence we have supplied to the Committee
immediately following the Budget is indicative of our deep concern
and frustration at the negotiating process followed by Government,
the apparent basis for the aggregates tax decision and the post
Budget justification for the decision.
I would emphasise, however, the QPA members
are committed to minimising the adverse impacts of their operations,
continuing to improve relationships with local communities, and
maximising the opportunities to improve wildlife habitats and
biodiversity through quarry restoration.
The tax decision will not change their positive
intent, although we are extremely disappointed the Government
has chosen not to support the further progression set out in our
New Deal.
KEY OUTSTANDING
ISSUES
Green Purchasing
The QPA had proposed Government support for
a preferential purchasing scheme for aggregates from quarry operators
meeting certain environmental criteria. These criteria would form
the basis of an independently assessed Q Mark system, open to
all quarry operators.
In his evidence Mr Timms claimed that such an
approach was clearly illegal under European law. This claim raises
some fundamental questions.
Questions:
1. If the principal and practice of green
purchasing was clearly illegal, why was the QPA not advised when
our detailed "New Deal" proposals were submitted to
Government in July 1999, or soon after?
2. Why has the Treasury refused to provide
any detail of this apparent legal opinion against a preferential
green purchasing scheme for aggregates?
3. Why has the Treasury not been prepared
to discuss it's legal opinion with the QPA, or QPA lawyers, to
determine why the two sets of legal advice on the legality of
green purchasing are conflicting, or indeed if the lawyers concerned
are providing legal opinion on the same questions? In any form
of genuine negotiations, surely the Treasury should have been
prepared to share legal opinions in a constructive attempt to
find an acceptable green purchasing solution? The QPA in providing
its own legal opinion to Treasury, has been entirely open in this
respect, the Treasury has not.
4. Why has the Financial Secretary refused
to provide his legal opinion to the Committee as requested?
5. If the Treasury/DETR had such concerns
about the legality of green purchasing of aggregates, why have
they not been prepared to consider or discuss any other method
by which a differentiation between good and bad operators could
be established?
6. How can the absolute refusal of the Financial
Secretary on 4 April to consider implementing a green purchasing
mechanism for aggregates be reconciled with the following commitments
set out in the DETR's publication "Building a Better Quality
of Life—a Strategy for more Sustainable Construction",
also published on 4 April?
"2.12 About 40 per cent of the Construction
Industry's output by value (some £24 billion per year) is
purchased by the public sector. The Government recognises it's
responsibility, as the industry's leading client, to set an example
in the sustainable procurement, maintenance and operation of it's
built assets."
"2.14 All central Government construction
clients are expected to endorse during 2000 a programme for more
sustainable construction procurement."
Deliverability of the QPA Proposals
In his evidence to the Committee on 4 April, the
Financial Secretary claimed that a split in the industry indicated
that the QPA's New Deal could not be delivered. He supported this
assertion by claiming that another trade association (The British
Aggregates Association) representing"40 or 50" quarries
had indicated their opposition to the "New Deal".
This rationale again raises serious questions:
1. Why did the Government invite the QPA
to propose an alternative to aggregates tax when it was fully
aware that the QPA represented "only" 90 per cent of
the industry output.
2. Why have operators, apparently responsible
for 40/50 quarries and who have set their face against higher
environmental standards been allowed to veto a proposal of the
QPA, whose members operate 800 quarries and have track records
of implementing progressive environmental initiatives?
3. Why has Government refused to develop
any form of partnership to support a voluntary/negotiated approach
such as the QPA's New Deal, which would have helped to expand
such proposals across the whole sector?
4. Why did the Financial Secretary use the
language of "partnership" and "industry agreement"
in respect of pesticides tax and climate change levy issues, but
not with regard to aggregates tax issues?
5. Why has the Treasury been prepared to
encourage industrial sectors to negotiate 80 per cent climate
change levy discounts through sector trade associations (most
of which do not have 100 per cent sector membership), but apparently
regards the QPA as an unsuitable association with which to negotiate
an aggregates tax sector agreement because the QPA represents
"only" 90 per cent of the sector?
The Financing of the Government's proposed Sustainability
Fund
The environmental credibility of the planned
aggregates tax is related significantly to the Sustainability
Fund announced by Government "to deliver local environmental
improvements."
It is now apparent that Government has over
committed the likely revenue stream of aggregates tax revenue
to reducing employers national insurance charges by 0.1 per cent
from 2003.
In the Budget on 21 March, Government announced
an aggregates tax of £1.60 per tonne. It was proposed that
the tax revenues would pay for a 0.1 per cent cut in employers
national insurance charges and finance a new Sustainability Fund
"to deliver local environmental improvements."
In giving evidence on the Budget to the House
of Commons Environmental Audit Committee on 4 April, Financial
Secretary Stephen Timms MP and Treasury Officials confirmed that
the cost of cutting employers national insurance charges in 2002-03,
the first year of the aggregates tax, would be £350 million
pa.
Aggregates demand fell from 218 MT in 1998 to
208 MT in 1999. It is expected that demand for aggregates will
be relatively flat in the foreseeable future. Demand of 208 MT
and tax of £1.60 per tonne will generate around £330
million per annum from construction clients (40 per cent of whom
are in the public sector). This produces the following illustrative
revenue stream for the Government's new Sustainability Fund, compared
with the funding proposals for a sustainability foundation put
forward by the QPA and rejected by Government.
Government assumes that the aggregates tax will
reduce aggregates demand, and the table above illustrates the
impact on tax revenue of a 5 1 per cent reduction in demand as
a result of taxation (the actual impact of tax on aggregates demand
is uncertain). Given a consistent £350 million pa. requirement
to sustain the promised 0.1 per cent reduction in employers national
insurance charges, the Government's Sustainability Fund would
have a shortfall of £164 million over the five years before
being able to spend anything. In contrast, the QPA proposals would
have guaranteed funding of £125 for a sustainability foundation
over the same period.
Ironically, aggregates demand would have to
rise by 13 per cent following the introduction of tax for tax
revenue to match the sustainability funding proposed by the QPA,
assuming the employer's NIC reduction commitment remain constant.
Definitional problems in the application of aggregates
tax
In response to concerns expressed by Committee
members on the difficulties in defining which materials would
be subject to taxation, the Financial Secretary re-assured the
Committee that no such difficulties were likely.
The QPA has been involved in the consultation
carried out by Customs and Excise on implementation issues associated
with aggregates taxation. We would like to commend to the Committee
the openness of Customs and Excise officials in this process.
However, we are conscious that as the tax becomes
a more apparent reality, there remains a considerable amount of
work to be carried out to clarify definitions of taxable materials
and related issues.
The introduction of the landfill tax generated
significantly perverse and unexpected behavioural and environmental
impacts, and potential still remains for the introduction of aggregates
tax to do likewise.
London Economics research into the costs and benefits
of quarrying
The introduction of aggregates tax has drawn
heavily on the environmental costs calculated by the London Economics
research.
The Financial Secretary has greatly praised
the research work, but in practice there has been little public
debate about the value of the research and results.
We now wish to bring our concerns about the research
to the attention of the Committee. We have not done so before
because of our belief that negotiations over the QPA New Deal
had been progressing with good faith on both sides, and the detail
of the research may have been a diversion from this process.
The attached report summaries the research process
and identifies significant concerns about the survey process and
conclusions reached by the consultants. These have not been published
before and provide some balance to the virtually uncritical public
support for the research methodology and results given by Ministers.
We believe research work costing over £500,000 should be
subject to more rigorous assessment than has been exhibited by
Government to date.
April 2000
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