Examination of Witnesses (Questions 1
WEDNESDAY 31 OCTOBER 2001
1. Good afternoon: thank you very much for coming.
This is the first public session we are holding and taking evidence
on the question of the aggregates levy. What is the current state
of the market as far as the aggregates industry in Northern Ireland
is concerned and how would this change if the levy were introduced
in Northern Ireland next spring?
(Mr Murphy) My name is Matthew Murphy
from a small company in County Fermanagh called James Balfour
and Sons. We are also a member of the Quarry Products Association.
In broad terms the current state of the market is that we have
a quarrying and associated industry in Northern Ireland which
is fairly highly developed, employs in the region of 6,000 people
directly, services all the construction needs, by and large, of
Northern Ireland and the greater part of the construction needs
of very many northerly counties in the Republic of Ireland. The
quarrying and associated industry is probably more highly developed
than our counterparts in the south of Ireland but in the last
ten years due to various factors which have been changing they
have begun to catch up. In broad terms now we would feel that
in terms of competitiveness, the playing field is reasonably level.
There are two areas in which they are more competitive than we;
equally there are two areas in which we are more competitive than
they. By and large we feel that the playing field is broadly level;
we have good days and we have bad days. That is currently the
state of play.
2. What is the state of the market as opposed
to the comparison between the two? Is it good times for your industry?
(Mr Duffy) My name is Jack Duffy. I am Chairman of
the Quarry Products Association Northern Ireland. I am also a
director of Lagan Holdings. We are a family company and we operate
in the Republic of Ireland as well as Northern Ireland. Over the
past few years a substantial amount of quarry products such as
concrete pipes, flags, kerbs, asphalt, have been exported into
the south of Ireland. The companies along the border which would
produce asphalt tender for contracts along the border counties:
Louth, Cavan, Leitrim, Monaghan, Donegal, Sligo, Meath and West
Meath. That relates just to asphalt. It is economical to draw
asphalt that distance and they submit tenders to the county council
for those contracts. The problem our members face at the moment
is whether to put the £1.60 per tonne onto the aggregate
and leave themselves in a non-competitive situation. Some of them
are thinking at this stage, and we ourselves are thinking this
way because we have a plant situated at Markethill which supplies
asphalt to a number of these border countiesabout 90 per
cent of our production from that plant would go south of the border
3. When you say you operate both sides of the
border, does that mean you are operating in the north but exporting
into the Republic? Or do you have plants and quarries in the Republic
(Mr Duffy) We have plants and quarries in the Republic
4. Which would not be affected by the levy?
(Mr Duffy) Which would not be affected by the levy,
but we have two plants in the north of Ireland which would be
affected by the levy, so much so that we have to look at alternative
sites. If we relocate the two asphalt plants south of the border
and haul the aggregate across the border, the aggregate is tax
free, it is exempt. We can bring that into our coating plant and
make it into asphalt and send it back into Northern Ireland again
without paying tax.
5. In my question I was not really asking about
the impact of the levy but how the industry is. Are you on an
(Mr Murphy) We are a fairly mature industry. The establishment
costs in our industry, unfortunately for those who are in it,
are quite high. As long as we do not have any measures which put
a spanner in the works we would be confident that our industry
should continue long into the future to be a major employer in
Northern Ireland. In direct answer to your question, if the current
situation continues, we have no reason to see why there should
be any risk to employment or the competitiveness that our industry
6. In the original letter which came to the
Committee it was indicated that the levy if introduced might endanger
4,000 jobs. We now have an update that up to 3,600 jobs would
be affected. Can you quantify precisely the impact you expect
the levy to have on the organisations you represent?
(Mr Murphy) The company I represent is a small family
company in Fermanagh. We have two product lines: one is asphalt
and the other is dry stone. In terms of the legislation dry stone
is categorised as virgin aggregate. If the tax goes ahead in its
present form, in day to day terms the asphalt we manufacture will
have a de facto tax on it in Fermanagh; whether it is sold
in Northern Ireland or sold in the south that material will be
taxed. Whether we are competing north or competing south we will
be competing against asphalt which is manufactured in the south
of Donegal, our nearest region in the Republic. Asphalt coming
from southern Donegal, whether it is laid in Donegal or laid in
Northern Ireland will not be taxed. We foresee that we will not
be competitive in the asphalt industry if the tax goes ahead in
its present form. We then will be faced with three choices: one
choice is to go out of business or to slowly run our business
down. We have two choices for survival: one is to pick up our
asphalt plant and move it south of the border and in that situation
we would continue to extract from the quarry we own in Fermanagh,
we would transport material south of the border, we would turn
it into asphalt there and we would bring it back again. That may
sound like a bizarre situation which has arisen whereby we have
increased our transport movements, we have transferred our jobs
associated with value-added processing south of the border and
we have not reduced our extraction at all. That is a very bizarre
situation which the tax could produce. Another option we would
have is to say we would stay where we are in our current location,
but close our asphalt plant and in order to maintain our current
level of activity, we would increase the rate at which we extract
and sell virgin aggregate. In order to maintain our current level
of business activity, we would have approximately to treble the
amount of aggregate we quarry per year. Hence in that situation
the tax will have forced us into greater extraction and through
processing greater volumes we will also be forcing more lorry
movements on the roads. The Committee should be aware that lorry
movements account for the single biggest source of pollution that
our industry is responsible for. I should just like to make that
point in answering you. Whichever option we are faced with, unless
it is closure, will actually provide environmental disbenefits
for Northern Ireland.
(Mr Best) May I just clarify for Mr Beggs where the
3,600 jobs come from? Gordon Best, Regional Development Manager
for the Quarry Products Association Northern Ireland. There are
5,600 people employed directly and indirectly in the quarry industry
in Northern Ireland.
7. What do you mean by indirectly?
(Mr Best) Lorry drivers, sub-contractors, that type
(Mr Duffy) It is approximately between 5,000 and 6,000
directly employed. When I say directly employed I mean on the
payroll of companies who would be members of our Association.
Companies who are not members of our Association would also be
included in that. Associated workers would be hauliers, could
be people supplying fuel to our industry, could be people supplying
consumables such as bitumen or other supplies. There are many,
many other employees in those kinds of support activities which
we have not counted into our 6,000. Six thousand people are directly
employed by companies like ourselves.
(Mr Best) If you take North Down, Armagh, East Londonderry
out of that, that is about 35 per cent and takes you down to 3,600.
We have said there is probably a knock-on effect on small engineering
companies which service many of the local quarries and many of
those are family run businesses themselves. That is where we got
the figure of 4,000 jobs which you have in your letter.
8. In addition to the information which Mr Murphy
has given us, do you have any further evidence that the imposition
of the levy will prompt users of aggregates to source them elsewhere
outside Northern Ireland?
(Mr Murphy) We do not actually have documentary evidence
with us, but customers of ours would have to like us very much
in order to pay us £1.60 per tonne more than for a product
they could obtain from elsewhere. At the risk of trivialising,
and I do not mean to trivialise the answer to the question at
all, we would feel that it would be a natural occurrence that
people automatically wish to purchase the cheaper material, as
they already do when they fill up their cars with petrol or diesel.
People vote with their feet, drive south and fill up. We have
no reason to think that when people are buying tarmac or buying
concrete blocks to build a house they would want to pay more for
those than they could pay for them if they come from south of
(Mr Best) The other point is that it could be not
just on the dry aggregates, what we would term the virgin aggregates,
to the layman that is just ordinary stone, but on the added-value
products. What we will see happen after 1 April for example with
government contracts around the border is southern companies awarded
contracts able to import their asphalt, their black top into Northern
Ireland tax free, whereas the producers in the north tendering
for those contracts have to pay the £1.60 per tonne tax.
(Mr Acheson) Douglas Acheson Limited. Our quarry is
in South Armagh. As regards the sourcing of material from elsewhere,
we have a customer who takes tens of thousands of tonnes throughout
the year from us. They deliver a lot of material down into the
south of Ireland and they are always coming up for a backload.
They return via our quarry where they get loaded up and return
to their own depot. If we had to pass the £1.60 per tonne
levy on to the customer we would lose that business over night.
9. What percentage of the final processed product
in Ulster is actually used in the south, exported south of the
(Mr Murphy) It would vary, is the simple answer. In
some industries we have had limited time and limited resources
with which to be able to establish what the market situation is.
We are talking about 18 months when we basically started from
scratch. We have established that approximately one third of asphalt
produced in Northern Ireland is exported; concrete blocks probably
slightly less than that; we think that the percentage for pre-cast
concrete is somewhere between 50 and 75 per cent.
10. Is that all exported to the Republic? Do
you export any to Great Britain?
(Mr Murphy) A very small percentage would be exported
to Great Britain.
11. Give me the figure for the final processed
product produced in the south. What percentage of that comes into
(Mr Murphy) Insignificant. By virtue of the fact that
our industry is more mature in the north than it is in the south,
that status quo will not have any reason to change if the
seesaw is not tipped in anybody's favour. If the seesaw is tipped
in favour of southern producers, that situation is bound to change.
If a measure like the aggregates tax is introduced, in terms of
the thinking of business people it is more significant than currency
fluctuation. In currency fluctuations you can have good days and
bad days and nobody is going to move a major operation south of
the border on the back of a currency fluctuation one day, but
they will on the back of this legislation.
12. Out of the jobs which the Quarry Products
Association Northern Ireland would lose, how many do you think
would be exported to the south if this aggregates levy goes ahead?
Would you say half would go south or do you think it would be
less than that? Demand is presumably going to remain static throughout
(Mr Murphy) Assuming demand remains static I should
like to treat different sectors separately. Let us look at the
market for concrete blocks. It is a very low profit margin product.
The market price is £12 or £13 per tonne. Profit is
about £1 per tonne. If you impose a tax of £1.60 per
tonne on that, which you are not able to pass on to your client,
you will probably cease block production. You will withdraw from
the market altogether, in which case your counterpart in the south
will increase his production or you move your operation south
of the border. That is the situation with concrete blocks and
the situation is similar but slightly different for other products.
In terms of quantifying the percentage of employment which is
going to move south, in the short space of time that we have been
analysing the problemand I would emphasise to the Committee
that our resources and the time we have been able to spend investigating
this problem are a lot less than the problem demands but I suspect
that is a point we will move on to laterwe believe 3,500
to 4,000 jobs are at risk, varying degrees of risk. The concrete
block manufacturer will probably close down his operation overnight.
At the other end of the scale, the product within our industry
which has the highest profit margin would be the pre-cast concrete
sector. This sector manufactures products like large concrete
pipes or brick pavers, things like that. Northern Ireland is in
the fortunate situation that it supplies around 75 per cent, somewhere
in that area, of products throughout Ireland in that sector. You
may think that if it has a high profit margin, it may be able
to withstand the tax of £1.60 per tonne. I would make the
point that a producer I know in Fermanagh, a neighbour of ours,
produces high value concrete blocks, concrete pipes and other
value-added products, exports them all over Ireland, but he consumes
200,000 tonnes of virgin aggregate in his aggregate every year.
Multiply that by £1.60, that is £320,00 which will be
added on to his bottom line. He employs 100 people. That is not
a vast organisation but £320,000 year in, year out would
be more than enough to force him to move south. Whether he can
withstand the tax and still remain in business is one issue. Whether
he is willing to in a place which will result in him carrying
an overhead of £320,00 when he has an option to move south,
I would regretfully say the answer to that question is probably
13. On the question of employment and possible
relocation of either the actual extraction or processing aspects
of it, has any estimate been done of cross-border migration of
workers or commuting of workers to potentially relocated plant?
(Mr Murphy) By and large the employment trends we
are aware of are that the higher the salary, the further an employee
will travel to his or her place of work. Unfortunately for various
reasons the general salary prevailing in our industry is not the
highest and we would not be expecting employees to travel more
than ten miles. That is the current situation. If you wanted to
do an analysis of where our companies' employees live, 90 per
cent live within a 6-8 mile radius. Unless they were offered increased
wages, we have no reason to believe they would want to move 20
miles away; certainly the salaries on offer in the industry would
probably not be enough to compensate them for the additional journey.
The additional employees needed to service any relocation to the
south would probably come from the southern counties.
14. In effect you would say that most of the
existing employees in quarries or processing plants north of the
border would opt for unemployment or alternative employment rather
than go to the relocated plant.
(Mr Murphy) It is difficult for us to say here and
now what employees will do, but in terms of how far an employee
will journey each day to his or her place of work, the general
pattern in our industry is that it is not very far, owing to the
fact that the average salary in relation to the national average
salary is probably not very high.
15. Some might.
(Mr Murphy) Some might, indeed.
16. You made a point which I am not sure I followed
correctly. You implied that if this tax were levied some companies
would compensate by raising their production levels. I was a little
puzzled at that because I would have thought to a large extent
in effect production levels were demand-led and there would not
necessarily be an increase in demand. You might clarify that.
If that did happen and there were an increase
in production, you mentioned the transportation of the raw materials
to an asphalt plant south of the border, that in itself might
create some compensatory jobs.
(Mr Murphy) It depends where the jobs come from. Increasingly
hauliers in Northern Ireland are employed by Republic of Ireland
companies. I am sure the Committee is probably aware that haulage
rates, fuel rates and vehicle excise rates have for some years
now been cheaper in the south. If you ask me whether I expect
an increase in haulage operations to bring an increase in employment
in the haulage industry, possibly it will. Will those jobs be
northern based? I do not think so. You asked why it would be an
option for a company like ourselves to maintain a current level
of business by increasing production. The reason is that the aggregates
tax divides the products our industry produces into two sectors:
virgin aggregates and value-added products. For some reason the
legislation allows for the export of virgin aggregate tax free,
but it does not allow for the export of value-added products tax
free. At a stage where for many years government agencies have
been encouraging our industry to move as much possible into value-added
processes, that is a difficult situation to understand, but that
is the situation the legislation presents. We are faced with a
situation where we have two product lines: one is a value-added
product, asphalt. It will be taxed whether it is sold locally
or sold into southern Ireland. In each market, north or south,
it will be competing with our equivalent south of the border who
will be able to sell his product untaxed. If you can appreciate
that. We would expect the vast majority of tarmac and asphalt
laid on the roads of Fermanagh either to come from a tarmac plant
in southern Donegal owned by the Cement Roadstone Group or a tarmac
plant in north Cavan. That is the situation we would expect in
asphalt. In virgin aggregate, in terms of our company remaining
competitive, we would still be competitive on a level playing
field in exporting stone to the south of Ireland and in nominal
terms selling stone in the local market. In nominal termsand
I stress nominal termsvirgin aggregates are tax neutral,
that is those aggregates which are imported from southern Ireland
into Northern Ireland are taxable. How easy it is going to be
to collect that tax remains to be seen. The point I am making
is that our only competitive product which we will be able to
sell on a level footing with our competition south of the border
will be virgin aggregate. In order for us to maintain our level
of activity, we will have to decrease our profit margins slightly,
gain more market share, which we have worked out probably will
result in us trebling our extraction and sale of virgin aggregate
mostly into the southern Irish market. As a result of an environmental
tax, that is an appalling situation.
17. Yes, but I am looking at it from the perspective
of employment at this particular time. My last point is that judging
from what you have said, in effect the extraction industry would
be unlikely to move, but it would be the processing element of
that that would be likely to move. Is that fair?
(Mr Murphy) Yes, that is fair. Due to the fact that
exports of value-added products are not exempted in the same way
that exports of virgin aggregate are, it has created the bizarre
situation where you can export virgin aggregate to a plant in
the south and carry out your value-added process there. As in
every industry the vast majority of jobs are involved in the value-added
process, in some sectors you may have two, three, four people
involved in extraction and maybe 20 or 25 involved in the value-added
process, it is those jobs we are most concerned with.
18. So a much lower proportion of people involved
in extraction then than in processing.
(Mr Murphy) Yes.
19. I am required to register a new interest
since our last meeting, that of the Northern Ireland Minister
for the Department of Regional Development. That also requires
me to record a specific interest in this inquiry in that that
Department will have inescapable pressures of about £8 million
additional as a result of the aggregates tax. May I follow on
the issue of the impact of the tax? According to the 1999 census,
there were about 4,740 people who were employed in the quarrying
and concrete products industry in Northern Ireland. You are showing
figures of about 3,600 jobs at risk. On the basis of your argument,
the further you get away from the border, the less impact the
aggregates tax has. You have defined 20 to 25 miles as being the
area where it starts to have little or no impact in terms of the
competition from the Irish Republic. If that is the case, are
we saying that most of the quarries are within 20 to 25 miles
of the border? What percentage would be in that area?
(Mr Murphy) We have submitted a small visual which
shows a map of Northern Ireland. On it there is a grey shaded
area which shows the area of Northern Ireland which is within
20 miles of the border. That area covers approximately 50 per
cent of Northern Ireland. If that area were extended to cover
the area within 25 miles of the border, you would have approximately
two thirds of Northern Ireland covered.