Memorandum submitted by the Quarry Products
Association, Northern Ireland
BACKGROUND
The Northern Ireland branch of the Quarry Products
Association was formed in 1998 and its membership now accounts
for 75 per cent of aggregate production in the province. Member
companies operations include the processing of recycled and secondary
materials, the production of downstream value added products,
such as Asphalt, Ready Mixed Concrete, Sand and Gravel, Pre-cast
Concrete and Concrete Blocks. QPA membership also includes a range
of associated companies with interests in the industry.
The Aggregates Tax divides the industry's products
into two groups. The first is primary aggregates (crushed rock,
sand, gravel etc) and the second is aggregate products (products
made from aggregates like concrete, tarmac, concrete blocks, etc).
Primary aggregates extracted and sold in Northern Ireland will
be taxed, as will aggregates which are imported. Primary aggregates
which are exported will not be taxed. Aggregate products manufactured
in Northern Ireland will be taxed whether they are sold locally
or exported into Southern Ireland. Incredible, imported aggregate
based products will not be taxed.
Quarry Products Association (QPN) Northern Ireland
has been lobbying, and in correspondence with, relevant United
Kingdom Government departments and individuals for some considerable
time without adequate or definite response to date.
There have been questions in the House from
Northern Ireland Members and debates within the Northern Ireland
Assembly but all this has resulted more in a fact finding exercise
by Customs and Excise and Treasury than the addressing of the
matters peculiar to Northern Ireland and how these might be resolved
or alleviated.
The opposition to the introduction of the proposed
Aggregate Tax and its adverse effect upon Northern Ireland is
probably the most important matter which has gained unequivocal
cross party support in the Northern Assembly. The QPA is disappointed
that to date it has received no formal constructive response or
feedback from Treasury as to its intentions with regard to the
introduction of the levy in Northern Ireland.
London Economics (LE) was commissioned by the
DETR in September 1997 to "derive and present estimates for
the economic value of the environmental impact of the supply of
aggregates". The LE report was completed in January 1998,
and concluded that average environmental costs of aggregates extraction
were £4.63 per tonne, including £2.62 per tonne for
rock quarries and £9.00 per tonne for sand and gravel quarries.
The results were calculated through contingent valuation (CV),
a process by which a representative sample of people living within
a five mile radius of seven quarries were asked how much money
they would accept as compensation for continuing quarrying.
Due to doubts strongly expressed by the QPA,
and also apparent within Government, a peer review of the report
was commissioned from Professors David Pearce and Susanna Mourato
of University College, London. This peer review concluded that
contingent valuation was an appropriate methodology, but criticised
the London Economics report, particularly relating to the survey
questionnaire, and said further research was necessary. The DETR
then commissioned London Economics to carry out further research.
The cost to Government of both London Economics reports is in
excess of £500,000. The second London Economics report was
published in May 1999.
In the second LE report 9,361 people were interviewed
within a five mile radius of 21 aggregate production sites (16
quarries, three recycling sites and two wharves). A hypothetical
scenario was described to each person: under a Government scheme,
the local quarry would be closed down. The site would be restored
in an acceptable way, the employees would be found alternative
employment and no quarry would open within five miles. Interviewees
were asked how much they would be prepared to contribute to the
cost of the closure. Environmental impacts were deemed to be eliminated
and there would be no disbenefits. As a result of the survey the
environmental costs were estimated as £0.34 per tonne for
rock quarries and £1.96 per tonne for sand and gravel quarries.
The closure scenario may not be real, but the
CV survey to produce credible results, the scenario must be believable.
Much of Northern Ireland depends so heavily on quarrying that
the labour market could never absorb all redundant quarry workers.
The "no new quarry within five miles", is also unrealistic
given the greater number of smaller quarries in Northern Ireland.
Northern Ireland accounts for 10 per cent of UK aggregate production
but was not included in the survey. This exclusion from consideration
became all the more regrettable when Customs and Excise recently
stated that even small changes to the legislation are very difficult
to make at this late stage.
COMMENTS ON
VALIDITY AND
EFFECTS OF
THE TAX
Our concerns are outlined below.
1. Northern Ireland relies more heavily
on the quarrying industry than any other region in the UK. It
will clearly be more adversely affected by the Tax than any other
region. Yet it has received the least investigation, during the
important early stages are we to accept the wholesale loss of
jobs because of uncorrected mistakes?
2. The logic of the Tax is based on the
assumption that the UK does not witness significant imports/exports
within our industry. Therefore, if a levy is imposed on domestically
produced aggregate products, the cost can be passed on to the
end user. In Northern Ireland, the end user can source untaxed
imports from south of the border. How is an Industry which is
taxed expected to survive alongside one that is not?
3. The permutations embodied in the legislation
allow the export of virgin aggregate from North to South, where
it can be turned into value added product and then transported
back into Northern Ireland, Tax free. In this case there would
be no decrease in extraction, more lorry movements and processing
jobs would transfer South. What an appalling achievement?
4. The possible introduction of a levy on
imported value added products only shifts attention to another
perverse affect. Those companies who export virgin aggregate as
well as value added products will only be competitive in the sale
of virgin aggregate if the Tax is implemented. Consequently, they
will have to increase the extraction and sale of virgin aggregate
in order to maintain their level of business.
5. Both scenarios in 2 and 3 above involve,
at best, no decrease in extraction and an actual increase in lorry
movements. Lorry movements cause a bigger environmental impact
than any other activity within our industry. The objectives of
the Aggregates Tax will patently not be met in Northern Ireland.
6. The evident lack of understanding on
the part of Treasury officials on the subject is frightening.
In a letter (31 May 2001) to Mr Eddie McGrady MP Stephen Timms,
then First Secretary to the Treasury stated "There should
be no risk of increased imports from the Republic damaging the
Northern Ireland aggregates industry, as imports of aggregates
will be subject to the levy and exports will be exempt. Opportunities
to smuggle aggregates into Northern Ireland will be very limited
because of the nature of the product, ie bulky, low value materials
with high transport costs." He completely misses the point
that it is imported tax free aggregate based products that the
threat comes from.
7. Stephen Timms in an earlier letter to
Tom Levitt MP, stated that a Tax rate of £1.60 per tonne
corresponds to an economic haulage distance of 16 miles, implying
that the anti-competitive affects of the Tax will only be felt
16 miles into Northern Ireland.
Terrible as this may seem, far worse is the
real picture. Hauliers in Northern Ireland will actually haul
20-25 miles for this amount. Approximately half of Northern Ireland
is within 20 miles of the border. Within this zone, locally produced
product will be uncompetitive. Export business will be severely
hit.
8. The Government has recently issued a
consultative document outlining plans for a rebate system for
"Green Quarries". The number and range of questions
posed in the document is incredible considering that the Tax is
due to commence in five months. An excerpt from the document actually
highlights how the Tax legislation has failed to meet it's objectives
in Northern Ireland.
"Any proposals for a differential rate scheme
would need to be consistent with the government's general principles
for a fair and efficient tax system, and in particular with the
principles contained in the Statement of Intent on environmental
taxation. Polluters should face the true costs which their actions
impose on society, but taxes should deliver environmental gains
cost effectively. In addition, environmental taxes must be well
designed, to meet objectives without undesirable side-effects;
they must keep compliance costs to a minimum; distribution effects
must be acceptable; and care must be had for international competitiveness.
And the environmental objectives themselves must be based on sound
evidence, although uncertainty necessarily justify inaction".
9. "Internationally traded" is
a label which has earned some products within our industry exemption
from a Tax. How is trade between Northern Ireland and the Republic
of Ireland defined? Surely Northern Ireland deserves to have its
international competitiveness preserved too. Customs and Excise
states that, for example, all aggregates used in the manufacture
of cement are exempt because cement is internationally traded
and because the manufacture of cement is a chemical process. Do
they not realist that the formation of concrete is an irreversible
chemical reaction also.
10. The regions most disadvantaged by the
Tax, are designated by Government as areas requiring assistance
by way of Targeting Social Need. This is another instance in which
Treasury is working contrary to previous Government guidelines.
11. The Aggregates Tax is impacting on Northern
Ireland companies already. In the month of October, a great number
of annual contracts (2002) are tendered for. Should the Tax be
factored in or out? Our industry needs to know now.
12. The introduction of the Tax will, particularly
in border areas, greatly reduce the value of quarries. This level
of financial impact coupled with environmental disbenefits is
peculiar to Northern Ireland. There is a failure to address the
Human Rights issues under the Human Rights Act 1998 and the European
Convention on Human Rights in order to strike a fair balance between
government policy and the particular needs and rights of those
quarry operators in Northern Ireland whose livelihoods depend
on the aggregates industry.
13. This proposed legislation can only lead
to harmful tax competition and abuse to which in 1999 the then
EU Commissioner for the single market and taxation, Mario Monti,
appealed to member states "not to add further complaints
to their (the commissioners) burden. This would further compound
existing inequality where the southern manufactures enjoy not
only being relieved of the Levy but also preferential lower level
of corporation tax at 10 per cent even setting aside the favourable
currency differential.
14. The questionable inequality of the allocation
of the proposed Sustainability Fund as between Great Britain and
Northern Ireland. Northern Ireland produces 10 per cent of UK
aggregate production yet will only receive 2.4 per cent of the
Sustainability Fund.
15. The disproportionate impact upon prices
in Northern Ireland, an increase of up to 70 per cent, as distinct
to parts of England of 20 per cent.
Resolution
The situation which is peculiar to Northern
Ireland might be addressed by:
1. Excluding Northern Ireland from the application
of the Tax and leaving the matter for self-determination by the
Northern Ireland Assembly.
2. Excluding Northern Ireland from the application
of the Tax and leaving the matter for determination by North/South
bodies as the matter is relevant to both jurisdictions.
3. Applying the Tax to Northern Ireland but
subjecting trade within Northern Ireland and trade from Northern
Ireland to the Republic of Ireland to a Zero rating. This would
maintain equality and would reduce the disproportionate prejudice
to be suffered by the industry. All trade from Northern Ireland
to Great Britain could be subjected to the £1.60 Tax similarly
maintaining equality.
Conclusion
The following specific questions arise:
(i) Has the Treasury carried out an equality
impact assessment as required by Section 75 of the Northern Ireland
Act 1998 having regard to the issues already raised with them
by members of our Association?
(ii) Has the Treasury assessed critically,
whether directly or by independent research on its behalf, the
particular impact of the Aggregates Levy on the aggregates industry
in Northern Ireland in order to strike a fair balance between
government policy and the particular needs and rights of those
such as the QPA members whose livelihood depends on the aggregates
industry in Northern Ireland?
(iii) If the answer to questions (i) or (ii)
above is "yes" we would ask Treasury to forward to us
the relevant documentation.
(iv) If the answer to questions (i) or (ii)
is "no" we would respectfully ask in such case to explain
why?
October 2001
| 
