Memorandum submitted by the British Aggregates
Association
1. INTRODUCTION
1.1 The British Aggregates Association (BAA)
was formed to represent and protect the interests of the United
Kingdom's independent aggregates producers:
— the association is recognised by
all the appropriate government departments and is an essential
part of their consultation process;
— owing to industry consolidation,
the five major companies now claim 80 per cent of output, and
control 90 per cent of the downstream markets of ready mix concrete
and asphalt within the United Kingdom;
— small, independent aggregates producers
face far greater difficulties than the majors, in dealing with
new regulatory and fiscal measures;
— Northern Ireland has a particularly
large proportion of small, independently owned quarries; and
— the level of aggregates produced
in Northern Ireland per head of population is much larger, at
around 11 tonnes per person, than across the United Kingdom as
a whole, at around four tonnes per person.
2. THE AGGREGATES
TAX AND
THE ENVIRONMENT
2.1 The Government has decided to introduce
an Aggregates Levy, at a rate of £1.60 per tonne, from April
2002. This has been justified as an "environmental tax",
which will increase the use of recycled and alternative materials,
and provide for environmental improvements. The BAA believes the
levy will fail to deliver major environmental improvements, and
may worsen some environmental problems. The levy will also irreparably
damage international competitiveness in the industry, and drive
many smaller producers out of business.
2.2 A key issue with any environmental tax
is whether it will deliver environmental objectives:
— aggregates recycling is unlikely
to increase significantly: almost all available hard waste is
already recycled, mainly as a result of the landfill tax. A British
Geological Survey seminar in February this year concluded that
the hard waste available for recycling is minimal and only amounts
to some 1 per cent, rising eventually to 2 per cent of total primary
aggregates use;
— recycling and alternative materials
are not environmentally "cost free" yet are treated
as such. Evidence from the London Economics study suggests the
environmental impact of recycling plants is 28 times that of some
quarries;
— small, independent quarries, with
the lowest environmental impact, will be hardest hit (see below),
and many will close;
— aggregates will be forced to travel
further: to and from recycling plants. In addition, as smaller
quarries close, aggregates will be supplied from further afield
(80 per cent of aggregates are currently used within 30 miles
of extraction);
— the Sustainability Fund produced
by the tax will consist of less than 10 per cent of revenues from
the levy; and
— the levy has been described as "a
blunt tool", containing no incentive to make environmental
improvements and treating all quarries the same, irrespective
of their actual impact. Although the Government is considering
the introduction of a differential rate for quarries meeting higher
environmental standards, this will simply magnify the problem
for Northern Ireland. European Union tax law suggests that imports
would have to be charged at the lowest rate, regardless of environmental
factors in the country of origin.
2.3 Justification for the levy is flawed:
— research commissioned by the former
Department of the Environment, Transport and the Regions used
contingent valuation—asking residents how much they would
pay to have their local quarry shut down;
— responses varied significantly with
different types of quarry and region—the levy treats all
the same;
— only one in 10 respondents were prepared
to pay anything to shut their local quarry, meaning the levy is
based on the views of a vocal minority;
— the study was asked to take into
account the environmental benefit of aggregates extraction, but
did not consider this;
— no account was taken of mitigation
measures undertaken, for example restored sites have become award
winning nature sites and even Sites of Special Scientific Interest
(SSSIs); and
— since the Treasury decided in 1999
that the tax could be justified on environmental grounds, several
important changes have occurred. Under EU law, new sites are now
subject to an Environmental Impact Assessment. SSSIs have been
given extra protection.
3. THE AGGREGATES
TAX AND
THE ECONOMY
3.1 Secondary Aggregates and Cross Subsidisation:
— secondary (low grade) aggregates
are an unavoidable product of the extraction process. They must
be sold, to free up space within quarries, and to avoid unsightly
spoil heaps;
— secondary aggregates often sell at
less than £1 per tonne. With alternative materials available,
clearly the market will disappear overnight if tax of £1.60
per tonne is added to the price of these;
— much of the tax from secondary aggregates
will therefore need to be loaded onto other products. The price
of industrial grade aggregates will have to rise by far more than
the tax.
3.2 International Competitiveness:
— unlike the UK's aggregates producers,
foreign producers (including those in the Republic of Ireland)
will not have to bear the cost of cross subsidising tax on secondary
aggregates. They will therefore be able to undercut UK producers;
— the significance of this issue can
be illustrated through the example of limestone, which needs up
to six tonnes of throughput to achieve one tonne of industrial
grade limestone. A similar problem can be seen with dimension
stone;
— concrete products will be imported
tax free, whereas UK producers must pay the tax on the aggregates
incorporated in these products;
— it would be impossible to tax concrete
products equitably, since the precise aggregates content of such
products is variable. It would require an enormously complex audit
trail, which it would be unrealistic to expect anyone, particularly
importers, to provide. This aspect of the tax cannot be made to
work fairly in Northern Ireland, or indeed the rest of the UK;
— this loss of competitiveness will
also impact on the export market for UK producers. Northern Irish
producers also supply mainland Britain; as they will now be undercut
by producers in the Republic. They are therefore likely to lose
this market too;
— it is cost effective to transport
aggregates by sea to most places in the UK, as all major aggregates
markets, except Birmingham, have easy access to ports; and
— it is even easier to transport aggregates
across the border between Northern Ireland and the Republic.
3.3 Small Producers:
— most of Northern Ireland's quarries
are relatively small, independently owned concerns;
— they have a smaller production base
across which to spread the costs of compliance—this means
costs will be greater, per tonne, for small quarries. We have
estimated the compliance cost of the tax to be as great as 30
pence per tonne for an average sized quarry; and
— the inevitable reduction in demand
will cause more severe problems for smaller businesses forcing
many to close.
— With a broader production base, larger
producers have more flexibility to cross subsidise the tax on
secondary aggregates. Due to vertical integration they will also
have the option of loading more of the price onto processed products
downstream.
— This will prove an extremely effective
method of forcing smaller producers out and decreasing competition.
— These smaller quarries return a great
deal to the communities they serve by way of much needed local
employment and with a relatively small environmental impact. Each
quarry has developed its own markets for the disposal of secondary
aggregates, which will be undermined by the tax.
— If smaller quarries close, aggregates
will need to be transported further, and any environmental impacts
of quarrying, such as the problem of secondary aggregate production,
will be amplified in larger plants.
3.4 Construction and Infrastructure
— Prices of industrial aggregates will
rise by far more than £1.60 per tonne, due to compliance
costs, greater travelling costs once some smaller quarries shut,
and the need to cross subsidise secondary aggregates.
— 40 per cent of aggregates are used
by the public sector; these price rises will have an obvious impact
on investment in infrastructure projects. Assuming a quarrying
output of 20 million tonnes in Northern Ireland, taxation at £1.60
per tonne will cost the public sector £12.8 million extra.
Infrastructure projects will suffer, or taxes will have to rise,
as a result.
— The spending power of Northern Ireland's
Department for Regional Development's Roads Service will be reduced
by an estimated 10-15 per cent.
— High quality, low cost aggregates
have a vital role to play in rebuilding Northern Ireland's infrastructure
after years of neglect and troubles.
4. SPECIFIC ISSUES
IN NORTHERN
IRELAND
4.1 The Border
— Northern Ireland will be at a great
competitive disadvantage.
— The long border with the Republic
makes transporting cheaper industrial aggregates and concrete
products from the Republic into Northern Ireland very easy. Taxation
at £1.60 per tonne would outweigh the extra transport costs
of supplying customers from 20-25 miles further away—this
means much of Northern Ireland could in future be more cheaply
supplied by imported aggregates from the Republic. This effect
will be magnified as the actual costs of the tax will be greater
owing to compliance costs and the need to cross subsidise secondary
aggregates.
— The nature of the border makes evasion
relatively easy. During a recent visit to the province, customs
and Excise acknowledged that the implications of smuggling were
alarming, and that it would be difficult to police. In addition,
evasion will be relatively easy by supplying aggregates within
Northern Ireland but invoicing to an address in the Republic.
— The problems created when tax rates
are significantly different between the Republic and Northern
Ireland has already been amply demonstrated by the introduction
of fuel duty. Many rural petrol stations in the border area of
Northern Ireland are now abandoned, as drivers legitimately cross
the border to buy fuel. In addition, there is much evidence of
fuel being smuggled into Northern Ireland.
— The lost excise duty on a tanker
of fuel is in the region of £12,000, compared to £35
lost when a lorry load of stone is smuggled. It therefore seems
unlikely that customs will devote significant resources to combating
aggregates smuggling.
— The problem of the border is exacerbated
by the concentration of quarries in the border area, with at least
one quarry actually straddling the border. A large proportion
of Northern Ireland's quarries will become vulnerable to direct
competition from untaxed producers from the Republic of Ireland.
— This effect can already be seen,
as investment in Northern Ireland's quarries has been put on hold
until the outcome of the tax question is known. In addition, fixed
price contracts for the calendar year 2002 are currently subject
to tender, with Northern Ireland's producers unsure of the basis
on which they should tender, and increased interest attracted
from producers in the Republic.
— Any loss of industry and jobs will
be felt acutely in the disadvantaged border areas, many of which
have been designated by Government as areas requiring assistance
by way of Targeting Social Need.
4.2 The Aggregates Industry in Northern Ireland
— Northern Ireland's quarrying and
associated industry has an estimated annual turnover of £300
million, and an estimated annual output of some 20 million tonnes.
The industry provides between 5,000-6,000 jobs.
— The Chancellor of the Exchequer has
stated that the levy will be "revenue neutral" across
the UK. However Northern Ireland will bear a disproportionate
amount of the cost. Of an estimated £32 million raised by
the tax in Northern Ireland, only £14 million will be returned
to administer the tax and fund the 0.1 per cent reduction in employers'
National Insurance Contributions, and just £1 million will
be put into the Sustainability Fund in Northern Ireland.
— Northern Ireland has a large proportion
of smaller producers.
— Small quarries have correspondingly
smaller environmental impacts, yet are penalised on the same UK
wide level.
— Small quarries will also face far
greater compliance costs, pro rata.
— They also have smaller production
bases across which to spread the costs of cross subsidising secondary
aggregates.
— Northern Ireland's quarries already
face severe problems with far higher running costs than their
competitors in the Republic, owing to the high level of fuel duty.
— A large number of Northern Ireland's
quarries are in the particularly vulnerable border zone.
— A larger proportion of Northern Ireland's
workforce is involved in quarrying than the rest of the UK; the
economic and social impacts of closures would be felt more strongly.
It has been estimated that up to 80 per cent of the 5,000-6,000
jobs in quarrying could be lost.
— Northern Ireland's aggregates are
relatively cheap by comparison with the rest of the UK. The average
price of stone in Northern Ireland is £3 per tonne, whereas
the average in Great Britain is nearer £5 per tonne. This
means the tax would involve at least a 50 per cent increase in
the price of stone, a far greater increase, proportionately, than
in the rest of the UK, with a correspondingly greater impact on
jobs and infrastructure.
— Northern Ireland will therefore be
far more vulnerable to the negative impacts of this levy.
— Even if the levy were imposed in
the Republic, the general problems with the tax would mean that
it would still have serious consequences for Northern Ireland.
5. CONCLUSION
5.1 The aggregates levy will fail to produce
real environmental improvements. Recycling will not increase,
and little money will be available for environmental mitigation
measures. Imposition of the levy is based on unreliable evidence,
and took no account of the mitigation measures of the industry,
the environmental impacts of the alternatives it sought to promote,
or the economic impact of imposing a tax. The levy will be particularly
damaging to international competitiveness and small producers.
In addition, it will increase construction costs, with serious
effects on infrastructure projects. Inevitably, small independent
producers will suffer most, and vital rural jobs will be lost.
5.2 The economic impacts of the tax will
be far more severe in Northern Ireland, owing to its long land
border with the Republic. These impacts will occur throughout
the UK, but with particular severity in Northern Ireland. The
large proportion of quarries in the border area will all be vulnerable
to legitimate, and illegitimate, competition from quarries in
the Republic. The border areas can ill afford to lose local industries.
The effects on Northern Ireland's infrastructure projects will
be far greater than for the rest of the UK, as aggregates are
cheaper, so the cost increase will be proportionately greater.
The aggregates levy will be disastrous for large numbers of quarries
in Britain, but catastrophic for the entire industry in Northern
Ireland. We urge the Committee to do all it can be halt the imposition
of the levy.
October 2001
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