Select Committee on Northern Ireland Affairs Minutes of Evidence

Memorandum submitted by the British Aggregates Association


  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.


  2.1  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.


  3.1  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.


4.1  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.


  5.1  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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