House of Commons - Environmental Audit

Select Committee on Environmental Audit Fourth Report

THE PRE-BUDGET REPORT 1999: PESTICIDES, AGGREGATES AND THE CLIMATE CHANGE LEVY

PROPOSED AGGREGATES TAX

34. The following table sets out the history of proposals on aggregates taxation.

Budget 1997	Research announced on the environmental costs of quarrying and supply of aggregates.
Pre-Budget Report 1997	Research commissioned, covering tax, planning consents and regulations.
Budget 1998	Conclusion that there are significant environmental costs not already covered by regulation. HM Customs & Excise to issue consultation document on how a tax might work.
April 1998	DETR report "The Environmental Costs and Benefits of the Supply of Aggregates", carried out by London Economics. This later became known as the Phase 1 report.
September 1998	DETR report "The Environmental Costs and Benefits of the Supply of Aggregates— A review of the London Economics Report", carried out by Susana Mourato and David Pearce. This identified weaknesses in the research methodology of the phase 1 report.
Pre-Budget Report 1998	In the light of criticism, further research by London Economics undertaken to remedy the shortcomings in the first exercise. HM Customs & Excise are analysing response to consultation. Ministers are also reviewing alternative proposals offered by industry.
November 1998	The Quarry Products Association submits its "New Deal"—voluntary proposals as an alternative to a tax. During 1998 QPA also commissioned a report which argued that demand for aggregates was very inelastic and would be little affected by a tax. ("Environmental Effectiveness of a tax on the Supply of Aggregates", Ecotec 1998)
Budget 1999	Government would introduce an aggregates tax if industry could not commit to an improved package of voluntary measures. HM Customs and Excise publishes draft clauses for a tax.
July 1999	QPA submit revised "New Deal"proposals to Government.
July 1999	DETR report "The Environmental Costs and Benefits of the Supply of Aggregates—Phase 2", by London Economics. This superseded the original Phase 1 research and estimated that the total cost externalities associated with aggregates extraction were about £380 million.

35. The 1999 Pre-Budget Report welcomed the revised package of voluntary proposals from the Quarry Products Association (QPA) but considered that it still fell short of what was necessary to match the overall environmental and economic effects of a tax on primary aggregates; and stated that the Government would introduce a tax in the next Budget unless the industry could further improve on this package.[72]

Trends and monitoring

36. Almost all aggregates are sourced from within the UK: the level of imports is estimated to be less than one per cent of production. Demand for aggregates has traditionally been linked closely to overall growth in the economy (GDP) and the level of construction. This is reflected in current mineral planning guidance dating from 1994 which predicted an overall steady increase in demand rising from about 270 million tonnes a year to 426 million tonnes by 2010.[73] During the 1990s, however, extraction of primary aggregates has not increased in line with GDP but has fallen to about 220 million tonnes a year.[74] The QPA told the Committee that forecast demand over the next five years was broadly flat and that any overall increase in total volumes of aggregates was due to increases in recycled and secondary materials.[75]

37. We welcome the fact that the QPA agreed the first option should be to maximise the use of secondary and recycled materials in order to reduce demand for primary aggregates.[76] However, we found that it was difficult to establish reliable data on UK performance in this area. This was partly because of possible confusion between the different types of waste—in particular, the distinction between Construction and Demolition (C&D) waste and other secondary waste, and within C&D waste between "core" waste and other C&D waste such as road plannings. Indeed, the summary of responses to the consultation on aggregates taxation stated that "there were many differing views on where the line between primary and secondary aggregates is drawn, if indeed it can be drawn at all. No consensus was reached on a distinction between the two terms."[77]

38. Total construction and demolition (C&D) waste arisings are thought to be around 70 million tonnes a year,[78] while other secondary waste from mining and fly ash may amount to some 100 million tonnes a year with up to 3 billion tonnes in stockpiles.[79] Evidence from a recent EC commissioned report showed that the UK currently recycles about 13.5 million tonnes of "core" C&D waste. This represents some 45 per cent of the available core waste (about 30 million tonnes) and is substantially lower than the 80 to 90 per cent achieved by the top three countries.[80] However, the Quarry Products Association pointed out that the UK currently recycles some 40 to 45 million tonnes of material in total, and that—if expressed as a percentage of total demand—the UK is doing better than even Holland.[81]

39. The only targets for recycling, set in minerals planning guidance (MPG6) in 1994, are an interim target of recycling 40 million tonnes by 2001 and a final target of 55 million tonnes by 2006.[82] These targets are for the recycling of all material, not just C&D waste. We noted that on the basis of QPA's figures the UK has already achieved the interim target and the Government has already committed itself to reviewing targets for use of secondary and recycled aggregates.[83] In view of the general consensus that it might be possible to recycle some 60 million tonnes of C&D waste alone,[84] we consider that there is a great deal of scope for the UK to improve in this area and that the Government should set clearly defined and challenging targets for each category of waste stream as part of its review of MPG6.

40. We were also very surprised that the Minister was only able to quote 1990 data on recycling. In this respect we noted that government has entirely failed to implement the monitoring arrangements which MPG6 was meant to put in place.[85] While we welcome the fact that a new survey is shortly to commence, we find it extraordinary that the Minister did not have any more recent information available in view of the stress which he placed on recycling as the primary objective of the tax.[86]

41. The scope for recycling much larger amounts of secondary aggregates is currently limited for a variety of reasons. In particular, there has been a tendency arguably to overspecify material requirements. We noted, for example, that statutory regulations prevent the use of secondary aggregates in certain situations—for example the reinstatement of roads.[87] Moreover, we consider that there needs to be far more development of potential uses for secondary aggregates and more general incentives, whether fiscal or regulatory, to encourage the construction industry and its clients to radically change their attitudes in favour of re-use and recycling. The development of European standards or specifications for secondary materials is an important first step in this direction;[88] while at least one progressive firm (Tarmac plc) is investing substantially in a more comprehensive recycling infrastructure.[89] Demonstration projects such as the Government's millennium village at Greenwich aim to reduce construction costs substantially and set examples for developers to follow.[90] We also noted that 40 per cent of aggregates are used in public sector projects,[91] and that the Government therefore has a major role to play in helping the country move towards a sustainable aggregates policy through the procurement policies and specifications it adopts. This is particularly important in view of the growth of Public Private Partnership (PPP) and Private Finance Initiative (PFI) projects where the Government must build in effective criteria on sustainability for the appraisal of tenders.

Environmental impacts and costs of aggregates extraction

42. Aggregates extraction gives rise to various environmental impacts including noise, dust, visual intrusion, increases in heavy lorry transportation, loss of amenity and damage to biodiversity and landscapes. Research carried out by London Economics for the DETR used contingent valuation techniques to quantify the financial value of these various impacts and assess the total cost externalities as £380 million.[92] Mr Timms considered that this represented as good an estimate as one could hope for, and that the quality of research supporting it was impressive.[93] However, the study itself noted that its measurement of externalities were consistently designed to be on the conservative, or low, side;[94] and a number of the environmental organisations strongly endorsed this.[95] Notwithstanding such arguments, we agree entirely with the CPRE's comment that the figure forms a baseline which is still significantly higher than that which current regulation is addressing.[96]

43. The Committee noted some confusion about the use of this figure as a criterion against which to measure a voluntary package. The Government's 1998 Pre-Budget Report, for example, included the statement that such voluntary proposals "would have to amount to a deliverable package of measures which would permanently secure equivalent or greater benefits than a tax";[97] while Mr Richard Caborn, MP, the former Minister for the Regions, Regeneration and Planning, had specified as one of the four criteria for assessing voluntary proposals that they should be "proportionate to what a tax might yield".[98] We asked the Financial Secretary what this meant but he was unable to clarify how such a criterion should be interpreted.[99] In supplementary evidence Treasury wrote that "the use of the term 'proportionate' indicated that an assessment would need to be made of the effects of the package in reducing and mitigating the environmental impacts of aggregates quarrying, taking into account the fact that the effects of a voluntary package could be quite different to those arising from a tax."[100] Professor David Pearce commented in his work for the QPA that the most intelligible way of understanding the Government's position was that a voluntary package should reduce cost externalities by at least as much as a tax. He went on to argue that a tax would only reduce cost externalities by between £9 million and £32 million even though it would raise £380 in revenue. This compares with QPA's own calculations that their revised New Deal proposals would bring about reductions in cost externalities of £159 million.[101] Alternatively, one might argue that the criterion should refer to the total revenue to be raised, or the total extra costs which should be borne by the industry. Responding to this the Government said that there are 'a number of factors' to be taken into account.[102] The Committee was amazed that the Government has consistently failed to clarify matters.

44. On Sites of Special Scientific Interest (SSSIs), the QPA and English Nature assured us that the number of SSSIs affected by aggregates extraction where there were any problems or contentious issues in the way they were being managed was small—only a handful according to the QPA, or maybe three handfuls (including non-aggregate sites) according to English Nature.[103] We did note, however, English Nature's acknowledgement that these were the really serious cases and that there were about 180 mining sites where there was some sort of a problem. Interestingly, both the QPA and English Nature also reminded us of the extent to which the English landscape is largely the result of centuries of management, and that a considerable number of existing SSSIs were former quarries abandoned in some cases hundreds of years ago.[104]

45. The Wildlife and Countryside Link considered that English Nature were being slightly over optimistic in terms of its estimation of the damage being inflicted on SSSIs.[105] It also pointed out that National Parks are sharing just as much of a burden in terms of aggregate extraction as other areas;[106] while the work carried out by Professor Pearce for the QPA suggested that phasing out an estimated 7 of the quarries located in National Parks would reduce the cost externalities of quarrying as much as a tax levied on output by all 1443 quarries.[107]

46. We are concerned at the apparent lack of information on the impacts of mining in SSSIs and would fully endorse the Wildlife and Countryside Link's call for more research to be done.[108] The QPA are proposing to undertake such research in conjunction with English Nature as part of the voluntary agreement they have put forward.[109] But it seems likely to us that such research may take years to yield results in terms of the impact on biodiversity.

47. Increased recycling can itself result in adverse environmental impacts and cost externalities. Recycling facilities may be located in or near urban areas, for example, or may involve transportation of material by road over considerable distances. English Nature told us that environmental issues of recycling in urban areas might limit increases in total recycling capacity to a maximum of 20 to 25 per cent.[110] In driving forward initiatives to promote more recycling as part of the review of MPG6, the Government will therefore need to consider ways of minimising such adverse impacts and should conduct a comprehensive environmental policy appraisal of all the options.

48. One way of doing so, in view of the overall mismatch in geographical location between the supply of aggregates and demand for them, is by maximising rail transportation. The QPA told us that currently 13 million tonnes of aggregates were transported by rail compared with 9 million tonnes three years ago, and that there was a potential target of 20 million tonnes.[111] They explained that they would like to put more on rail and that the main problem was the availability of access to the rail infrastructure and the availability of depots.[112] The Committee welcomed the commitment from QPA to work with English Welsh and Scottish Railways Ltd (EWS) to maximise opportunities in this area, and would appreciate more detailed information on specific schemes which would yield the greatest benefit.

Contribution of a tax

49. One of the key issues we considered was whether a national tax on aggregate extraction is appropriate given that environmental impacts of quarrying may vary hugely from site to site; or whether a combination of better regulation and voluntary agreements can achieve more. There was a consensus among witnesses that quarrying has immediate local as opposed to national impacts, stemming from habitat destruction, noise, dirt, and heavy lorries which are associated with each site. Some operators may manage their sites to take more account of biodiversity and environmental impacts than others—even though the nature of the quarries may be very similar.[113]

50. A number of witnesses commented variously on the present extensive role of regulation and its ability to respond to local concerns. By contrast, there was a general consensus among all witnesses that a tax would be a particularly blunt instrument in this respect. English Nature point out for example, that a tax, even if banded by rock type, has little correlation to the impact on biodiversity; and that the latter is more influenced by the locality of the site and the way it is operationally managed. They would prefer some form of banding which takes account of these variances but they recognise the difficulties of doing this.[114] The QPA similarly argued that "regardless of whether some or all of the tax were hypothecated, the efficiency with which the real environmental impacts would be addressed will never match that achieved by the industry through voluntary action".[115] They also agreed that nothing in the tax would distinguish between good and bad practice, while the Minister accepted the attractions of a voluntary approach in this respect.[116] The CPRE and Wildlife and Countryside Link also accepted that a tax could not be made sensitive to local variations,[117] though the Minister reserved his position on this commenting only that there would be a range of issues to address in the design of any tax.[118]

51. There were also some concerns that a tax might be counter-productive. The Wildlife and Countryside Link were in favour of a tax but considered that if it was introduced without any change to existing regulations or policy, current voluntary agreements concerning operations in SSSs might be withdrawn by the industry. They went on to argue that SSSIs should be protected from the adverse effects of minerals development, both direct and indirect, through tougher regulation and planning policy.[119] From their experience of managing 32,000 SSSIs, English Nature considered that the most productive way of dealing with sites was in partnership rather than by a "big stick" relationship.[120]

52. The Minister stated quite categorically that the objective of the tax was to reduce overall demand and to encourage recycling.[121] However, a number of witnesses suggested that a tax would have minimal impact on demand unless an extremely high rate were imposed, and the Ecotec research conducted for QPA in 1998 even suggested anomalously that the long-term elasticity of demand was lower than the short term.[122] By contrast, the CPRE, Friends of the Earth and the Wildlife and Countryside Link felt that this research underestimated the potential future impact of a tax and in particular the expectation of regular increases in the rate; and that revenues could be used to increase future elasticity.[123] There was widespread agreement that hypothecation was important in order to provide a source of revenues which could then be used to address the environmental impacts of mining and provide additional incentives to promote recycling.[124] Most witnesses also agreed that if revenues were not hypothecated, a voluntary package together with improvements to the regulatory regime would be a better option.[125] The Minister refused to commit himself on this issue describing hypothecation as 'not inevitable' in this case.[126]

53. We also considered aspects of the voluntary proposals which the QPA had put forward. We noted that the QPA considered the package would reduce cost externalities by over £150 million, and that they had attempted to calculate this by assessing the impact of the various initiatives against the categorisation of costs used in the London Economics study.[127] We consider this figure may represent an over-optimistic guess, particularly in view of the fact that a considerable proportion of the cost externalities for some quarries may be fixed and irreducible.[128] Environmental organisations also argued that many aspects of the package simply represented the kind of good practice which one would expect of any modern, environmentally conscious industry, and that other sectors had moved much further and faster than the minerals industry had so far.[129] Some commitments— including the commitment to achieve ISO 14001 accreditation and the commitment to invest in recycling— represented initiatives which some of the major firms were already embarking on because of the likely economic advantage that would result.[130] There were also concerns about the absence of any clear commitments on SSSIs, the deliverability of a voluntary agreement, the effectiveness of arrangements for reinvesting money in initiatives, and the amount of real money on offer.[131] We share these concerns and would endorse the Government's view that there is scope for further improvement in the proposals put forward by the QPA. English Nature told us, however, that if QPA proposals were improved further in respect of SSSIs, a voluntary package might be the most effective of current options.[132]

54. The third element in this equation is the regulatory regime and the extent of improvements which may be needed there. We noted that the review of MPG6 has been successively delayed while the Government considers the possibility of taxation.[133] There was widespread agreement that improvements in the regulatory regime were required.[134] The CPRE referred to this element of local planning as a 'Cinderella' process and emphasised the need for more resources: "minerals planning is an under-resourced element of the local planning authorities, and enforcement and monitoring is an under-resourced element of minerals planning."[135] We endorse the view that the revision of MPG6 should provide an important raft of mechanisms for reducing some of the environmental impacts and for tackling some of the huge existing land banks which the minerals industry has across the countryside for future extraction.[136] We also noted that a recent EC commissioned report led by the Symonds Group concluded that relying solely on taxes on landfill or primary aggregates would not achieve high recycling rates; and that landfill bans or obligations on demolition contractors would be needed before recycled secondary aggregates displaced primary aggregates.[137] The Government now has a very real opportunity to improve the regulatory framework in carrying out the long-overdue revision of MPG6.

55. In assessing these arguments the Committee acknowledges that a tax would be a blunt instrument in terms of addressing local environmental impacts. Indeed, QPA's own research suggests that it would only reduce cost externalities by between £8 million to £32 million. However, the Committee does not accept that a tax would only be a useful tool if reductions in cost externalities were more significant or the revenues were hypothecated. We entirely endorse the CPRE in its view that a tax would bring about a recognition that minerals are a valuable resource which is not being accounted for effectively in the current regulatory and economic framework.[138] Indeed, the theory of environmental taxation depends on altering price signals to reflect the full costs which activities impose. We have previously concluded that even a reduction in demand of 2.5 per cent for a 10 per cent tax would not be inconsiderable;[139] and we believe that a strong commitment to environmental taxation together with appropriate accompanying measures including research will increase the longer term elasticity of demand.[140] It would send a major signal not only to the aggregates industry itself but more widely to the entire construction industry and its clients, by, and would help to bring about a major change in expectations and behaviour by altering the relative attractions of new development and renovation.

56. We do acknowledge—as does the Minister and the CPRE, for example—the considerable effort which the QPA has put into developing its proposals. It represents an attempt to bring for the first time the whole of the industry together under a managed programme of environmental improvement.[141] And we accept that there might be great disappointment among QPA members if they did not achieve a partnership with Government on this.[142] But we strongly support the Government's view that further improvements are required, and we also agree with the CPRE that many aspects of the voluntary package and the tax can advance together. We were also interested in the fact that some other European states have moved away from voluntary approaches towards legally binding agreements with industry sectors—an approach which the Government has itself adopted in the Climate Change Levy.[143]

57. For these reasons, we would suggest to the Government that it should adopt a similar approach here. This would involve a framework contract agreed with the QPA and which incorporates further enhancements of their voluntary proposals. Individual companies would be parties to the contract and in return could be granted exemptions from the tax. Such an arrangement would, in our view, preserve the work carried out by the QPA and at the same time provide a strong incentive for those firms not members of the QPA to participate in the initiative. It would also emphasise that environmental taxes are a central pillar of the Government's strategy,[144] and provide a framework within which, over time, the environmental costs of aggregate extraction can be truly incorporated within the industry.

Government management and plans

58. The Government has now been considering an aggregates tax since it came into office, and we noted the concern of various witnesses about the manner in which the Government has handled this process. The Quarry Products Association thought that the Government had been unclear about the objectives of a tax. The Government's initial concern appeared to relate to mitigating the physical effects of quarrying. But there had been a number of confusing different signals and the QPA were uncertain to what extent this objective had now changed. They pointed to the fact that the entry for aggregates in table 6.1 of the Pre-Budget Report was not a terribly rigorous basis for an environmental policy measure. They also considered that there had not been a consultation that had drawn all this together, but only a series of statements in the Pre-Budget Reports and the Budgets, and a mechanical C&E consultation exercise on the structure of a possible tax. There had been no clear-cut assessment of what the issues were and what they needed to do to meet the concerns. By contrast there was a clearer definition of the objective of the tax in the case of landfill and the Climate Change Levy, and there was an inconsistency here.[145]

59. These concerns were echoed by some of the environmental organisations who commented that the problem has been that there has not been a point where they have been able to debate exactly what was on the table;[146] and that it was certainly a shame that the discussion of the use of revenues from a tax has not been part of a process of consultation and debate with Government.[147] We were surprised at the lack of any ongoing formal dialogue with the industry and the apparent unwillingness of the Government to try to build a consensus approach involving departments, the industry and environmental organisations. We were also interested that the Government should place such reliance on a contingent valuation study—in contrast to, for example, the case of pesticides. But we entirely endorse the view that the Government has failed to clarify what the objectives of the tax should be, and to specify a clear criterion by which to judge any further revision of the voluntary industry package. We found it interesting, for example, that the Minister placed so much emphasis on increasing recycling as a primary objective of the tax—as opposed to ameliorating the environmental impacts which quarrying gives rise to.[148] We were also surprised that the Minister and the Treasury in both oral and written evidence were unable to throw more light on how they would assess voluntary proposals against the benefits brought about by a tax.[149] We asked the Treasury for written clarification, but their response pointed only to the different effects each option would have.[150]

Conclusions and recommendations

60. All quarrying despoils the countryside, and any policy with sustainable development at its heart would minimise it. The current proposal for a tax on primary aggregates would, over a period of years, shift the balance towards the greater use of recycled secondary material and also towards refurbishment rather than new build. The evidence suggests that there is scope for both these aims to be realised, and thus for construction to become more environmentally sustainable.

61. We applaud the efforts of the Quarry Products Association to devise a satisfactory voluntary scheme of self-regulation. Like the Government, we believe that this could be improved further, and we would propose that companies participating in an approved scheme, and delivering satisfactorily, should be exempted totally from a tax. There should still be a tax, however, both to ensure adherence to the scheme and encourage recycling and refurbishment. Any revenues from the tax should be hypothecated to generate funds to address local environmental impacts.

62. The Government has shown a lack of clarity in the approach to an aggregates tax, both as regards the objectives of the tax and what it has demanded of the industry. We also think that it should make stronger efforts to build a consensus on the issues.

63. Our other detailed findings are as follows:

(a) Within finite limits there does appear to be considerable scope for increases in the recycling of core Construction and Demolition waste and other secondary waste. The Government should set more challenging targets for each category of waste as part of its current review of this area.

(b) The Government should promote more actively imaginative complementary proposals and initiatives to increase the use of recycled materials. These should include reviewing regulatory requirements which prevent the use of recycled materials, developing new quality standards with appropriate specifications and further research on their potential use.

(c) The revision of the Minerals Policy Guidance (MPG6) offers, in particular, a major opportunity to overhaul the policy and regulatory framework governing mining and it will be essential for the Government to place sustainable development at the heart of the new guidance.

(d) Insofar as the public sector is responsible for 40 per cent of all aggregate consumption, the Government has a major role to play in helping the country move towards a sustainable aggregates policy through the procurement policies and specifications it adopts. The Government's new procurement arrangements, in particular for Partnerships UK to improve PPP and PFI, should have objectives cast with this in mind.

(e) In view of the importance which the Minister placed on recycling as the primary objective of the tax, we found it extraordinary that he did not have any recent data on the use of aggregates and the extent of recycling and was only able to quote 1990 estimates. In this respect government has entirely failed to implement the monitoring arrangements which MPG6 was meant to put in place.

(f) We were concerned at the absence of better research information on the environmental impact of aggregates extraction on Sites of Special Scientific Interest.

72 PBR paragraph 6.95 Back

73 DETR MPG6: Guidelines for Aggregates Provision in England, DETR 1994 Back

74 Rocky Logic: the role of aggregates in the UK economy, CPRE 1999. Ev p78 Back

75 Q102 Back

76 Q104 Back

77 Consultation on a potential aggregates tax: summary of replies, HM Customs and Excise, April 1999 Back

78 Q112. Ev p64 Back

79 Rocky Logic, CPRE 1999, p17 Back

80 Construction and Demolition Waste Management Practices, and their Economic Impacts, Report to DGXI European Commission (Symonds in association with ARGUS, COWL and PRC Bouwcentrum) February 1999 Back

81 QQ111-112 Back

82 Op. cit. Back

83 A better Quality of Life, DETR May 1999, Cm 4345, paragraph 8.62. Ev p64-65 Back