Examination of Witnesses (Questions 160
- 179)
WEDNESDAY 14 NOVEMBER 2001
MR NIGEL
SMYTH, MR
RALPH CLARKE
AND MR
STEVE FIDGETT
160. What I wanted to establish is that your
focus is not merely Northern Ireland.
(Mr Fidgett) No. Nor is my focus purely aggregates;
it covers all minerals across the UK.
Mr McGrady
161. You've almost convinced me that it is beneficial
to the environment to have a proliferation of quarries but not
quite, yet. A global question: can you very succinctly give us
your assessment of the aggregates industry's value to the Northern
Ireland economy in terms of its costs and benefits?
(Mr Smyth) There is obviously a direct benefit in
terms of the employment it creates, much of it largely in rural
areas, many of which are areas of high unemployment. Obviously
it is an essential industry in the development of Northern Ireland's
economy in terms of construction, housing, roads and so on as
well. Obviously there are disbenefits in terms of environmental
costs. We certainly believe that most of those environmental costs
have local externalities, being controlled by the existing planning
and environment regime, be it noise, dust, transport movement,
planning and land restoration, land amenity and so on.
162. Mr. Smyth is looking at you, Mr. Clarke.
I am not.
(Mr Clarke) Great play was made about moving on and
recycling materials. I want to know where we get these recycled
materials from because they just do not exist in Northern Ireland.
Basically we have a rural community; there is one major city where
a little recycling goes on. It does happen. A contractor will
bring his mobile crusher onto a site and use the waste product
if it is there. A landfill tax motivates him to do that. In addition,
he does not have to buy his aggregates: there is enough motivation
there promoting him to do so. Anything that can be recycled is
being recycled. But there are vast areas of the Province—probably
75 per cent of it—where there is nothing to recycle. These
are basic commodities that are essential requirements if we are
to continue to maintain and improve our infrastructure.
(Mr Fidgett) There was much talk earlier about the
role of recycling, which is something that the industry generally
supports. Primary aggregate producers are also secondary aggregate
recyclers in terms of construction and demolition waste. Ultimately,
however, those can only contribute to overall supply and there
will always be a need for primary production. That production
is not an end in itself; it is required in the need for investment
in capital infrastructure whatever that may be—roads, houses,
schools, factories. Those needs drive the need for the materials
to construct those projects, whether recycled or primary materials.
That is, so to speak, a hidden benefit to aggregate production.
It is not something that we can do without.
(Mr Smyth) May I add a final supplement to that?
Chairman
163. Yes; you have the plane to catch, not us.
(Mr Smyth) In addition, the export industry is often
important, especially from the added value aspect. We know of
companies in County Antrim, County Tyrone and County Londonderry
34-40 per cent of whose higher added value product is actually
sold in the Republic of Ireland. So jobs are always being created
on the back of the export market.
Mr Barnes
164. You said that there is a significant movement
of quarry products between the two jurisdictions, the Republic
of Ireland and Northern Ireland. Can you tell us how much of aggregates
and value added products are currently moving between Northern
Ireland and the Republic and the Republic and Northern Ireland?
(Mr Smyth) We do not have the actual figures. All
I can say based on evidence from our members that there are considerable
quantities. An example is one company that produces paving materials:
37 per cent relies on the Republic of Ireland.
(Mr Clarke) A lot of quarry products—not the
raw virgin materials but the added value products such as blocks
and concrete, especially cross border and perhaps three million
roof tiles—go south from the north. There are vast quantities
of pre-cast flooring products from at least half a dozen manufacturers
of which I personally know. This is extensive; in fact, the IDB
has promoted it. Its report of only last week stated that it had
given a concrete pipe manufacture £½m to promote the
production of his product in order to sell it in the south of
Ireland. It is common practice. For example, I have a plant in
Strabane, 50 per cent of whose production goes into Donegal. That
is quite common along that whole border area. I am familiar with
concrete and blocks but I know that asphalt black top is also
going from Coleraine to Donegal. It is going from various producers
around the border areas. The tiger economy of the Republic has
sucked in vast quantities of imports and the Northern Ireland
producers have become very dependent on them.
165. So, do you have information from both directions?
(Mr Clarke) Very little comes from the South to the
North at present. There has been a slight movement lately, basically
because of the currency. Sterling has become so much more attractive
and there would be a modest return of product from south to north,
but it is infinitesimal by comparison with what is going in the
other direction.
Chairman
166. That is because of the relative value of
the pound, is it not?
(Mr Clarke) That is correct.
167. And because of the competitiveness and
efficiency of the industry in the north?
(Mr Clarke) Indeed.
168. Do you judge it as being more efficient
and competitive than its southern counterparts?
(Mr Clarke) Generally, yes. There are so many producers
in the north. We have, disproportionately, 10 per cent of the
UK quarries production. We also have the highest per capita consumption
of cement in Europe.
169. On the island?
(Mr Clarke) In Northern Ireland.
170. Higher than in the Republic?
(Mr Clarke) Yes.
171. Is that per head or -
(Mr Clarke) Yes, per head of the population, we use
more cement than any part of Europe.
172. Well, I suppose you could argue that a
relatively small tax wouldn't have that great an effect.
(Mr Clarke) It is not a relatively small tax. May
I give you an example of the plant that we operate as a company
in Strabane, which will cover a fair number of other points that
you may wish to raise later. The plant is situated within one
mile of the border, on the northern side. We produce 45,000 metres
of concrete and two and a half million blocks. The turnover for
that is £2.3 million of which the Republic takes £1.2
million and the north £1.1 million. The employment at the
plant is 30 people. We will use 144,500 tonnes of aggregate. Quarry
tax will cost us £231,000. The profit for that unit this
year was estimated at £53,000, so that is a severe impact.
173. On a turnover of how much?
(Mr Clarke) On a turnover in that location of £2.3
million.
174. That is a profit of £53,000?
(Mr Clarke) The profit is 2.3 per cent and that would
not be unusual in our industry. We are in blocks and concrete
a very low-margin product. If one takes the tax in terms of concrete,
for the aggregate the increase is £3.36 over £8.06—which
is a 43 per cent increase in our aggregate costs. That will translate
into a 9 per cent increase on our average selling price, so we
will have to recover 9 per cent to stand still. In blocks it is
even worse because there are 20 tonnes of aggregate in 1,000 blocks
that will cost us £32. The current cost of the aggregates
in that unit is £66, so they will go up by 48 per cent. In
terms of the selling place, the cost rise of £32 over £268
is 12 per cent., so I need 12 per cent more from the market to
stand still. We are already maximising the price that we can get
in the market so we cannot go for a 12 per cent increase. So what
will I do? I have a simple solution: I will move my plant one
mile across the border, and then buy my aggregates without quarry
tax. I will then retain my market and sell them back into the
north of Ireland and shift 30 jobs out of the UK economy into
the Republic of Ireland economy.
175. I am glad that I taunted you into this
answer. Are you able to let us have the statistics that you have
read out?
(Mr Clarke) Yes, certainly.
176. Thank you very much, Mr. Clarke.
(Mr Fidgett) May I comment further? There was an earlier
reference to aggregates tax in other countries with a land border
and Sweden, Denmark and other countries were mentioned. The level
of tax in those countries is of a completely different order.
In Denmark, it is 3 kroner, which is equivalent to 25p. In Sweden—
177. But there is no land border between Denmark
and Sweden, is there? That is a rather bad example. The land border
is between Jutland and Germany, so mainland Denmark and Germany
is the comparison to make.
(Mr Fidgett) Sure. Well, it is between other European
countries with a land border with another European country.
178. But you began with rather a bad example.
(Mr Fidgett) Well, perhaps that is why they are the
only countries to have aggregates taxes, and they tend to be on
individual products, for example, sand and gravel, because there
is very little of these left and they want to a shift to another
material. Thirty-six pence per tonne in Sweden and 6p per tonne
in Holland. So the scale is completely different in terms of the
effects we are talking about today.
Chairman: Thank you very much.
Mr Barnes
179. You said that there was a growing export
market in the Republic of Ireland, especially for higher added
value products, and that you saw that also as being of great potential.
What information do you have on it, and is this growing export
market tied in with the point about the relationship between the
two currencies. Is the growth consistent with that?
(Mr Smyth) The growth is almost against the currency
trend because the companies in Northern Ireland are struggling
against the very strong pound and a weak euro. Perhaps part of
the reason is that companies' margins are under pressure. Part
of the reason for the growth is that we have a tiger economy in
the Republic of Ireland in recent years where there has been strong
growth, especially in construction. There are some signs this
year, especially in the housing market, that this is slowing down
rapidly. A survey released yesterday on the Northern Ireland housing
market by the Construction Employers Federation indicated a very
rapid slowdown in Northern Ireland. The evidence coming from our
members who have been giving us exports information. There are
also employment figures. I can quote from 1997 to 1998. Figures
have been quoted previously but these are SIC code 92 figures
on the manufacture of articles of concrete, plaster and cement.
The figures stated that employment has increased by more than
200, from 2,900 to a little over 3,200. Our view is of a general
trend in which export markets have been good although margins
have been tight because of the strong pound.
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