Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 31 OCTOBER 2001
MR JACK
DUFFY, MR
MATTHEW MURPHY,
MR GORDON
BEST, MR
JEREMY ACHESON
AND MR
JOHN BAXTER
Chairman
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.
Chairman
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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