Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)




  20. Mr Robinson's question was: how many producers are there beyond the 25 miles? What percentage of the industry is beyond 25 miles?
  (Mr Murphy) I could not give you an answer here and now.

Mr Robinson

  21. You are assuming that it is probably going to lose 60-odd per cent of the jobs.
  (Mr Murphy) We have calculated approximately that are subject to threat. The threat is more immediate for some products than for others.

  22. Can you provide us through your Association with some figures in terms of the number of quarries which exist in Northern Ireland and the number which would be impacted by this tax and also the percentage that would affect in terms of the number of jobs within the quarrying and concrete products industry? Quite a bit of what we have been talking about so far has impact in jobs.
  (Mr Murphy) We could certainly do that. We have that information but we just do not have it with us today.

Mr Tynan

  23. You said earlier that the three choices would either be closure, you would move your business or you would increase extraction. Are there quarries at the present time in the southern part of Ireland? Would you see a growth in the output from them or would you continue to take your stone from Northern Ireland and ship it down?
  (Mr Murphy) As regards action that any individual company is going to take should the tax go ahead, I suppose each company can only speak for themselves. In all probability what we would do is seek to establish what is called a satellite plant and transport material from our quarry to it and manufacture asphalt there. Is that an answer to your question?

  24. Yes. If you did not relocate in southern Ireland, would they have to get a supply of the material from Northern Ireland in order to be able to put it back into Northern Ireland?
  (Mr Murphy) No, no; there are numerous quarries. I think they are actually shown as white dots on that map of Ireland also. Those are existing tarmac and concrete plants. It is not an exhaustive list, there are others that we do not have exact details on, but those are most of them as they are currently located in the Republic. None of those will be running at full capacity and most of them will be able with some capital outlay greatly to increase production. Is that an answer to your question?

  25. Yes. April 2002 is when the tax would start to operate. How much of a feasibility study have you done and what are the conclusions of that feasibility study as regards whether you could continue to act as a profitable company, whether you would need to close or whether you would increase extraction?
  (Mr Murphy) Back to our company. Our company sells into a market where the market price for asphalt or tarmac is £25 to £30 per tonne. If you take our annual production and divide our profit by our annual production you come up with a typical profit in the industry of somewhere around £2 per tonne. When you put those sums together, you have a net profit of £2 per tonne, you have tax of £1.60, which unless you are more than 25 miles from the border you cannot pass on to your client. That is the major sum we have done.

The Reverend Martin Smyth

  26. In an earlier response to Mr Bellingham you said not much was exported to Great Britain. Is there some export to somewhere else? I was approached a year or two ago about a steady export of aggregates from Belfast harbour. I am wondering what impact the new tax would have on that because there was concern about other issues at that time as well. Or is this something beyond your knowledge because you have been dealing primarily with quarry products?
  (Mr Duffy) Our company exports stone and we would have a little bit of insight into it. We export approximately 100,000 tonnes of stone to London and probably a similar amount would leave Belfast by boat. You are talking about 200,000 tonnes out of about 22 million tonnes going to the UK. You are talking about a little bit of pre-cast going to the UK, a minimal amount because that is a fairly competitive market and you have to carry trailer loads of concrete product in 22-tonne articulated trucks across the Irish Sea and that makes it very expensive. If you take it at £500 or £600 per load, you can see that is not economical where £100 per load will travel a large distance inside Ireland.

  27. So it would have a knock-on effect, or is that a market which must be sustained anyway?
  (Mr Duffy) If you consider 200,000 tonnes of stone in the context of the whole of the UK it is very, very minimal.

  28. I am thinking about the impact upon the Northern Ireland workforce.
  (Mr Murphy) The level of employment generated by that production would be minimal. We are talking about export of virgin aggregate from large quarries where in our industry the ratio of production in tonnes per employees would be highest, or ratio of employees per production in tonnes would be lowest.
  (Mr Best) Most of the export of aggregates does go from quarries quite close to Belfast, like North Down and South Antrim.

  Chairman: Let us move on now to the working of the levy, the financial consequences and Mr Robinson's question.

Mr Robinson

  29. May I take you to the Chancellor's balance sheet on this? The Chancellor, if he were giving evidence to this Committee would probably say that the aggregates tax is going to bring us something like £35 million from Northern Ireland. What would our answer be to him in terms of what he might lose as a result?
  (Mr Best) Take Northern Ireland's 22 million tonnes and £1.60, that will raise £35 million. The cost of what we get back? For example, on the Sustainability Fund of which I am sure you are aware, doing that through the Barnett formula, if you take Norther Ireland's aggregate percentage as a percentage of the UK market at just over ten per cent, we should be getting £3.5 million back. We are actually getting just over £1 million back. If you take the knock-on effect of the potential job losses and the loss of tax and money paid to Treasury by companies relocating, etcetera, we have worked out—and we can forward the figures to you—that the net loss to Treasury from the Northern Ireland point of view would be somewhere in the region of £50 million.

  30. It would be useful if you did pass that on to us. The £35 million is based on the present use of aggregates in Northern Ireland.
  (Mr Best) Yes.

  31. What do you assume that might fall to, given the competitiveness or the advantage that the Republic would have?
  (Mr Murphy) We would see that progressing year on year. If the Government think they are going to collect £35 million, that is obviously assuming there are going to be no imports. As you very rightly suggest, there will be a growing level of imports from year nought. We can foresee in the medium term that £35 million decreasing at least to somewhere in the region of £25 or £27 million.

  32. Plus the additional cost to government departments which the Chancellor ultimately has to fund.
  (Mr Murphy) Yes.

  33. When it came to fuel, there were some unscrupulous people who moved in fairly swiftly when there was a differential on both sides of the border. Is this as easy for racketeers, whether they are organised or otherwise?
  (Mr Murphy) One of the unfortunate things is that it has legalised smuggling. You may have noticed that our discussion has evolved mostly around value-added process industry because that is where most of the employment is. That is the sector of our industry which will concern us most. We will have no need for smugglers when the Chancellor is zero rating imported-value-added products.

Mr McGrady

  34. Welcome, gentlemen and thank you for very clear submissions from both organisations. The Quarry Products Association did mention on 17 August to me that you met Customs & Excise and gave them a grand tour of the intricacies of the border between Northern Ireland and the Republic of Ireland. You were hopeful from their "taken-aback" position that they would be making a submission to the Treasury in that respect. Have you had any comeback in terms of their submission? You will also recall that as recently as 17 October Paul Boateng insinuated that the Government were still not committed to any review or further consultation on this tax and its implication for Northern Ireland. Have you had any further contact with Customs & Excise?
  (Mr Best) The discussion we had after their visit to Northern Ireland was that they told us they had put two proposals to Treasury and that was it. That is all the information we got. Certainly we took them round Fermanagh, we took them down to Jeremy's quarry in Caledon, we took them over the border and from ten minute to ten minutes, they did not have a clue where they were, whether they were on the north side or the south side. The point has to be made here that Customs & Excise work with finite resources and resources are directed towards the greatest risk. The lost revenue on a tanker load of oil smuggled from the Republic of Ireland is somewhere in the region of £12,000. The lost revenue on a lorry load of stone is £35 per load. With all due respect, it does not take a genius to work out where the resources are going to be directed.

  35. So you do not see many lorries with tonnes of aggregate on being impounded.
  (Mr Best) The other point we would make is that this will encourage the black market, not only smuggling, but actual operations along the border. A typical scenario would be a farmer for example who has a rock face. Many of you are aware of the type of terrain along the border and the logistics of placing that is difficult. If he wants to set up a small operation there he can go to Powerscreens yard in Dungannon where they have quite a lot of second-hand portable screening equipment and crushers. He can clear a bit of ground in a field and be up and going with a small crushing operation in about two weeks. The state of the planning service in Northern Ireland at present means that it will take the planning service about six months to move him on. What will happen is that he will move on somewhere else.

  36. The Association indicated in their submission that it would not be possible to apply the £1.60 tax across all the aggregates which are being produced. I think you meant primary and secondary products. What exactly did you mean by that and what effect would that have on the industry in terms of levy collection, levy payments and pricing?
  (Mr Baxter) John Baxter. I am the Executive Officer of the British Aggregates Association; I am the errant Scotsman who is present. I have come to try to deal with the technical issues which the BAA have raised. Quarrying is quite complicated. Most quarries will produce a primary product, to put it in its broadest phase, which is where it makes it money. As a byproduct to that production it will produce materials which are either sold very cheaply in the market to clear out the quarry or will effectively become dumped. We feel that the effect of the £1.60 on these low value products will remove them from the marketplace. An example, and there are so many different ones as each quarry tends to be unique in itself, is that many quarries produce surpluses of a very cheap scalping material and the quantities produced will vary depending where you work in the quarry. It can be typically between 25 and 35 per cent of the total production. This is a low value material which typically goes in as a fill. There are lots of alternatives for it in the marketplace and it is clear that the effect of the £1.60 on that material would be that it would be substituted for in the marketplace. It will then either accumulate in a stockpile in the quarry and become a waste, or the quarry producer will have to take a significant commercial risk, continue to sell that material at its current price, pay the levy on it to government, then seek to recover by pricing the primary product at a higher level. It is a complicated concept. It also applies in a more complicated fashion perhaps to certain rock quarries which are producing a product which is primarily for surface dressing chippings, a high value product for roads, good skid-resistance value. Typically, producing those materials you will produce a lot of 3mm material which it is difficult to find a market for. It is sold typically to make concrete blocks. Our contacts with people in the concrete block market suggest that the sort of level of increase of £1.60 will mean that the marketplace will find a substitute for the concrete blocks, used as claddings for buildings and things. That will have the roll-on effect back into the quarry and it will either become a waste, accumulate or you will have to have a differential pricing mechanism to cope with it.


  37. This is a general point, not a Northern Ireland point?
  (Mr Baxter) It is a general point, yes.

Mr McGrady

  38. It does not seem to me to be environmentally sound either, but that is another matter.
  (Mr Baxter) I would agree with that, certainly.

  39. The intention is to have a massive rebate on national insurance contributions to compensate you for the levy. To quote from the letter from the Financial Secretary to the Treasury of 26 October, just last week, "the 0.1 percentage point cut in national insurance contributions for employers, which is part of the aggregates levy package will also promote employment in Northern Ireland as elsewhere in the UK". Do you accept that statement that it will promote employment? If you do, can you quantify the level of additional employment that it would create?
  (Mr Murphy) Twelve pounds a year. I know salaries in our industry are not very good, I have said that, but they are better than £12 a year and that is what the 0.1 per cent equates to. May I wind it back slightly to an earlier question about the Customs & Excise visit to Northern Ireland and the comments they made? In addition to what Mr Best said about the comments they made after the visit, during the visit, coming towards the end of the visit, they were quite alarmed—and alarmed would be the word to use. Having seen at first hand the situation in Northern Ireland and having talked to producers and having driven around Northern Ireland and having visited the sites we were talking about, it is fair to say that they were alarmed at the situation which is going to evolve. They said the single biggest problem facing them was that the legislation train was so far down the line that it was going to be very difficult to change the legislation at this stage. True or otherwise that may be, but personally I find the situation reprehensible that Northern Ireland, a region that depends more on the quarrying industry than any other region in the UK, a region that quite obviously is going to be affected more by the tax in employment terms than any other region, has received less research than any other region and that was the first time any Customs & Excise or Treasury official visited Northern Ireland when the fundamentals and the details of the tax have all but been settled. I do find that very difficult to swallow.

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