Written response from the British Glass
Manufacturers Confederation to the Government's "Consultation
on a Potential Aggregates Tax"
INTRODUCTION
The British Glass Manufacturers Confederation
would like to take the opportunity to reply to some of the points
raised in the "Consultation on a Potential Aggregates Tax"
document issued by HM Customs and Excise.
The British Glass Manufacturers Confederation
has over 100 members comprising glass manufacturers and supply
and user companies. It maintains strong links with the UK Government
and within the EU to represent the views of the industry in discussions
leading to legislation which may affect the industry or its products.
It also undertakes activities of common interest on behalf of
the industry.
COMMENTS ON
THE CONSULTATION
DOCUMENT
Chapter 1, Scope of the Consultation and of the
Potential Tax
Q1.2.1 Should industrial sand be exempted
from an aggregates tax?
Under the Government's Policy on Environmental
Taxation, a statement of intent announced, in July 1997, that
the central objectives were to promote "high and sustainable
levels of growth and high levels of employment" (growth,
it said, must be stable and environmentally sustainable). The
Government also stated that it intends to use "the tax system
to deliver environmental objectives" and that it will "aim
to reform the tax system to increase incentives to reduce environmental
damage".
This response will show that the environmental
objectives which this aggregates tax would address have already
been addressed within the glass industry by other legislative
and economic instruments. Furthermore, with the advent of Integrated
Pollution Prevention and Control, there will be a consolidation
of approach to materials and energy use, waste minimisation and
recycling which should not be carried out piecemeal by supplementary
tax burdens which could well instead serve to destabilise the
industry.
Limestone and sands of high purity are used
in the glass industry in the preparation of glass batches. Typical
glass batch formulations may contain 70 per cent sand, 15-20 per
cent limestone and 5-10 per cent soda ash (from mined salt). There
are no alternative sources for these commodities except combined
in the form of recycled glass (cullet). For some applications
even this is not of sufficient quality and only raw materials
may be used.
The industry is already fully committed to sourcing
and using cullet, as this significantly reduces the energy requirements
of the melting process. Furthermore existing and proposed legislative
instruments such as the Packaging Waste Regulations and those
that will stem from the Integrated Pollution Prevention and Control
Directive ensure that recycling is encouraged. On top of this
the Government's consultation paper on Economic Instruments and
the Business Use of Energy suggests ways of discouraging energy
consumption through the use of voluntary agreements, taxation
or trading permits.
Thus the glass industry is not only "encouraged"
but driven by tighter and tighter economic and environmental constraints.
It may potentially find itself penalised not once but several
times by different legislation or instruments when it is already
dedicated to meeting those criteria which will not only ensure
its own economic viability but coincidentally achieve the policy
of sustainable development desired by the Government.
A further tax on aggregates themselves cannot
in any way increase the glass industry's motivation or incentive
to source other materials or recycle those materials already in
the system. The container section of the glass industry has a
long history of recycling and the glass industry actively seeks
to use recycled materials wherever possible because it is to its
advantage to do so. In fact the increasing use of recycled materials
is already an essential component of the industry's forward planning.
There are, however, secondary arguments to be
considered. Certain glass products have a direct role to play
in reducing environmental impacts. For instance, insulating flat
glass, double-glazing and fibreglass use in buildings and industrial
applications reduce energy losses and conserve fuels. Their production
and use should not be discouraged.
Minerals used within the glass as industry as
opposed to the construction or food industry enter into a value-added
material which lends itself to recycling. Materials used in construction
and civil engineering may be mixed with metals, bitumen, organic
wastes and so on with costly procurement and recycling problems.
Until the advent of stricter waste regulations
there was little incentive to recycle construction wastes. Glass
cullet has always traditionally been recycled within the production
factory and is now more and more recycled nationally and internationally.
The recycling infrastructure already exists and improvements in
percent recuperation and quality are continually sought. (Because
of the high quality of raw materials and cullet required the question
of primary versus secondary aggregates, Sections 19-22, does not
arise in the glass industry.)
Minerals within the glass sector therefore do
not necessarily have a finite life but epitomise the ultimate
reusable resource and whilst raw materials will always be needed
their percentage input relative to market demands will continue
to decrease without an Aggregates Tax. It is felt that voluntary
agreements and, only where absolutely necessary, regulation provide
more effective measures than taxes.
With regard to the question "should industrial
sands be exempted?" One must ask;
1. Is it feasible to use a recycled material?
2. Is the source mineral devalued by its
use?
3. Does the final product lend itself to
recycling?
4. Is the final product currently recycled?
Unless an industry is actually able to source
alternative materials the tax will not meet the stated Government
objectives and will in fact act as a disincentive to growth of
any kind.
Q1.2.2 If so, how could this be done?
As discussed above the ability of an industry
to source alternative and/or recycled materials must be taken
into account.
The potential for increased recycling must be
taken into account. It should be noted that the subject industry
may not have control over the recycling process or the recycled
product and that any tax may indirectly benefit a third party
at the expense of the subject industry. This cannot be right.
The existing infrastructure for recycling must
be considered.
The fitness-for-purpose of recycled materials
must be considered ie with the best will in the world cullet may
contain contaminants which make its incorporation into new products
impossible or at best limited. As stated above secondary (recuperated)
aggregates are totally unsuitable for glass production, for instance,
in the production of flat glass, optical and production considerations
prohibit its use whilst in the container industry contact with
food rules out its use.
There is a danger that where an economic ceiling
has been reached for recycling materials, the only way that government
can be seen to increase recycling is to make the raw materials
yet more expensive. The environmental and economic costs required
to increase recycling beyond this point may then outweigh the
environmental benefits. Such taxation should not be done where
there is no alternative to virgin materials. Information on recycling
in the glass industry is available and the container industry
has already made clear to the Government the technical limits
to recycling when responding to and complying with the Packaging
Waste Regulations.
Other industries such as the foundry and ceramics
industry may also justify exemption on similar grounds ie significant
recycling, no alternative sources.
With regard to ring fencing exempt industries
or products, it should, fortunately, be relatively straightforward
to define glasses with a view to exempting from the tax those
minerals used in their manufacture. For instance one may exempt
those minerals "used in the production or associated with
the production of glass or vitrified products". Furthermore
there should be no difficulty in separating exempt and non-exempt
materials from the information already available in quarry records.
Chapter 2, Tax Structure and Chapter 4, Blending
and Processing of Products
Amongst other difficulties facing the Government
setting a tax on aggregates must be the actual quantifying of
materials leaving the quarry. Where reprocessing or "benefication"
of minerals occurs outside the quarry, only a percentage of the
initial load may be reflected in the final product. Thus taxation
rates may effectively be higher for different applications.
Similarly water is added to or removed from
aggregate in different quantities depending on the intended application.
In some cases water is added to reduce losses of dust to atmosphere
for environmental purposes.
If the water content is not taken into account
a situation may arise where environmental controls are jeopardised
or there are inequitable increases in costs to the consumer.
The question of taxing foreign imports and relieving
goods of tax on export is considered in sections 32 and 60. This
poses severe problems of fairness, accounting and sectoral competitiveness;
problems which no doubt exist in other industries such as cement
production.
Glass manufacturers in some cases import a percentage
of the minerals used. The final article may however be sold within
the UK or exported by the manufacturer or the manufacturer's customer.
It may, for instance in the case of containers, be sold on to
a filler, who then exports a product such as whiskey. So-called
flat glass may be exported as glass in vehicles or television
screens. The glass manufacturer may buy back his own, other UK
or foreign cullet for introduction into his furnace. In some cases
cullet itself is exported by the waste management industry. The
active life cycle of minerals within the glass industry is potentially
very long term and complicated.
If it is proposed to tax imported minerals and
relieve goods from tax on export or despatch, how should this
tax be calculated? Given the experience of the Packaging Recovery
Note (PRN) system, which has been introduced following the Packaging
Waste Regulations, any system is likely to be complex and contentious.
It appears that the structure needed to actually
monitor and fairly administer such a tax within the glass industry
would place too high a burden on both regulators and the industry.
It is felt that this would more than offset any gains to be made,
for example, complicating the yet untried system of PRNs which
is still in its infancy.
A tax on aggregates simply "at the point
of first sale, use or transfer of materials away from the site
of extraction" whilst appearing clear cut does not in any
way take into account the use and the efficiency of use to which
those materials are put.
Chapter 5, Section 60, Effects of International
Competitiveness
It is not true to say that the shift in the
relative cost of taxed products for domestic as against EU or
foreign producers would be small in the case of glass.
The raw materials subject to tax may make up
some 80 per cent of the article and a £1 tax would increase
the average cost of those materials by perhaps 6 per cent; a tax
of £4.50 to £5.00 per tonne would increase raw materials
costs by at least 30 per cent.
An example is given below of the effect of a
£5 tax on a container manufacturer.
|
| Effect of £5.00 per tonne tax on materials for a container glass manufacturer Material/turnover
| % increase |
|
| White sand | 28
|
| Brown sand | 46
|
| Limestone | 40
|
| Increase in expenditure on raw materials |
9.3 |
| Increase in raw material costs as a percentage of turnover
| 1.1 |
|
Similar calculations were prepared for a large tableware
manufacturer and showed that costs would be 0.3 per cent of turnover—still
far from inconsiderable.
It is unlikely that suppliers will absorb these costs which
will therefore be passed onto the glass industry. However, taking
the example above, with a reduced container demand caused by the
penetration of foreign glass into the UK market (due to the present
exchange rate) and competition from other forms of packaging,
there would be little prospect of passing this cost on to customers.
Attempts to do this would result in further losses of UK business
to imports, which is against the Government's Policy on taxation.
Any absorbtion of these costs by glass manufacturers would result
in a reduction of profitability with subsequent effects on future
investment and the long-term security of the industry.
It must also be remembered that as any increase in cost could
not be offset by sourcing alternative mineral supplies or increasing
recycling it would only act as a tax burden reducing international
competitiveness. If this cost were passed on, for instance to
a filler, this would then have the same effect on his product.
It is not clear in the Consultation Document whether the
"compliance costs" refer solely to the costs of a company's
administration of the scheme or include the tax itself. If it
is the latter then the above example shows quite clearly that
the increase in raw material costs, as a percentage of turnover,
is well in excess of the 0.2 per cent of turnover which Customs
and Excises expects a £1-20 million company to incur (clause
56).
SUMMARY
Where glass manufacture is concerned, the glass industry
believes that the proposed Aggregates Tax would not meet either
the environmental or the economic objectives set out by the Government.
The type and quality of raw materials required by the glass
industry should be classified as high quality industrial minerals
bearing no relationship to "aggregates" used in "building
or civil engineering structures". They should be exempted
on the grounds that they are being used directly or indirectly
in the production of a vitrified product.
There is no alternative or "secondary" raw material
available to glassmakers. Therefore taxation cannot encourage
the use of alternative or secondary sources.
The use and reuse of materials within the glass industry
is already strictly controlled not only by market forces but also
by existing and proposed legislation. Certain sectors of the industry
are already hard pressed by competition, for instance in the packaging
sector, producers of paper, plastic and aluminium containers would
not be significantly effected by this tax and yet by contrast
might be considered to be producing less environmentally friendly
products. This tax would therefore reduce competitiveness for
the glass industry both inside and outside the UK without delivering
any environmental benefits.
The figures for the recycling of glass in the UK are distorted
by the disproportionate quantity of green glass imported compared
with that produced. The demand for recycled "non-green"
cullet exceeds supply. The recycling figures may not therefore
truly reflect the situation, suggesting that less effort is being
made here than in other European countries. An Aggregates tax
will not resolve this situation.
Because of the quality required in certain glass applications
(ie flat, optical, crystal) even the use of recycled cullet is
prohibited. An aggregates tax will severely penalise those companies
involved.
Furthermore because of the complex and interdependent nature
of the issues involved (ie energy, recycling, emissions) upon
which materials usage has a bearing, a piecemeal approach will
only serve to destabilise the industry and the efforts presently
being made to minimise its environmental impacts. Rather it is
believed that only a holistic approach to materials sourcing,
manufacture and recycling, as envisioned in the EU legislation,
The Integrated Pollution, Prevention and Control Directive, can
fully address the Government's concerns about the environmental
impact of the glass industry and establish what is the best environmental
option.
In conclusion, firstly, a tax on the raw materials required
for glass making cannot lead to greater efficiency in their use.
Rather, such a tax will undermine the competitiveness of the industry
with respect to foreign imports and, in some sectors, with respect
to alternative, untaxed products within the UK. Secondly, in order
to administer such a tax fairly and make it environmentally sound
it would be necessary to take into account the life cycle of the
materials used (ie production, imports, exports, recycling, recovery
and re-melting). This would involve industry and HM Customs and
Excise in very substantial compliance costs.
Having duly considered the proposals, it is the firm belief
of the glass industry that such a tax cannot meet the Government's
"general tests of good taxation" as described in the
consultation document.
September 1999
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