Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



  200. One final point. If this inquiry had not been taking place, would you have submitted fresh evidence or do you feel that this is an avenue that is more beneficial for achieving your aims?
  (Mr Smyth) I certainly welcome this. I probably would not have prepared a submission and done further research unless the Committee had embarked upon it.

  201. This is a welcome opportunity to talk to people with a Northern Ireland interest. But at this time our commitment is with the local assembly and now with the Deputy First Minister's statement that he has asked the Treasury not to implement the tax. The last paragraph of his press release of 24 October states: "For these reasons we are asking the Treasury not to introduce the tax in Northern Ireland at the very least to delay it, giving the industry time to prepare for the tax and give the industry time to prepare for the tax and the opportunity to explore other practical and viable approaches that would deliver the designed environmental objectives." So that is how he left Mr Boateng at the meeting on 23 October.

Mr Tami

  202. What do you estimate to be the costs for organisations in complying with the levy?
  (Mr Clarke) The main cost is obviously the actual tax of £1.60, which is being taken at—

  203. I was thinking of the administration cost.
  (Mr Clarke) The administration cost would be modest in comparison to the levy in terms of having to change a few computer programmes. There would also be a credit problem. I am in the value added products side. We will get the bill from the aggregate supplier. He will add £1.60; we have to pay him in 30 days. Our customers don't pay us in 30 days so we will have extended cash flow difficulties. So that will be a cost.

  204. You don't see that aspect being a major problem?
  (Mr Clarke) The aspect of—

  205. The aspect of administering it.
  (Mr Clarke) It will take people but we shall get round it.

  206. What about smaller producers?
  (Mr Clarke) For smaller companies anything that adds to the admin will obviously add to costs. If you are a one-man band there is a limit to what you can do.
  (Mr Fidgett) There is a broader administrative issue in terms of distinguishing between products that should have a tax applied to them and products that should not. This is not unique to Northern Ireland but it applies there equally. Certain products are exempt if they are by-products of other mineral extraction and there is a series of exemption clauses that are dealt with slightly differently in regulations. Distinguishing between what is a primary mineral and what is a secondary mineral is going to involve someone in the public sector—perhaps from Customs and Excise or the local authorities—and the companies who will want to justify their claims, that it is either an exempt product or it is not. That would be additional work but is not an issue that is specific to Northern Ireland. It is across the board.
  (Mr Smyth) Another issue related to that is enforcement, particularly of aggregates that may be imported from the Republic of Ireland. We know of a difficulty with fuel, which the Committee has already considered. How on earth they will monitor loads of aggregate coming across the border I know not.

  207. Do you see a role for Government in helping companies with this administrative process?
  (Mr Smyth) Our message is that that is a small part of a much bigger problem out there. But if people are producing or importing aggregates that are not enforced, the market will be further distorted and there will be yet further distortion and potential job losses on the back of that.
  (Mr Fidgett) There is certainly an urgency in terms of making the tax clear and simple in terms of its operation for individual companies that will pay it—and, indeed, for customs officials in the field. One particular issue in Northern Ireland which Ralph Clarke may comment on is, "Who actually pays the tax and at what point?" When one is dealing with lorry loads sold at or near a border that can be sold in Northern Ireland with the purpose of being taken to southern Ireland, and therefore being potentially exempt but actually going somewhere else. Such issues are supposedly hidden in the administration but will encourage certain difficulty for sure.
  (Mr Clarke) I asked Customs and Excise when they were over how they would collect the tax from imports from the Republic. I asked, "Are you going to tax the producer in the Republic?" They said, "Of course, no. He is not within our jurisdiction." I asked, "Will you tax the merchant or the haulage contractor?" "No, we will tax the end user" was the reply. I asked, "How will you know who the end user is?" "He will have to register", he said. That, to me, creates great difficulties. If one is a ready-mixed producer buying 10,000 tonnes a month, one will be caught, so you register, but if you are buying 20 loads to make a lane into your field you will not register. That just won't happen. I then asked what happens if a Republic of Ireland producer comes into a Northern Ireland quarry and says, "I am taking this material to the Republic of Ireland, therefore I don't pay tax?" He said, "That's fine." What if he drives it down the road and takes it somewhere else in Northern Ireland? "Oh, that is evasion." I asked how he would catch that. He said, "We will rely on the producer to determine the destination. As long as he makes an honest effort to determine the destination we will accept that." But it is wide open for exploitation.

  Chairman: We are coming onto the policing of the tax later, but that is a very interesting comment.

Mr Clarke

  208. When questioning members of the QPA and the British Aggregates Association, I tried to get from them their view on why there is such a wide differential between the price of aggregates, not only in respect of the Republic and Northern Ireland but in respect of Northern Ireland and the UK. I noticed from the CBI evidence that you suggest that the value of aggregates in Northern Ireland is £2.60 per tonne compared to £6.50 elsewhere. Can you comment on the huge price differential for the same products between Northern Ireland and the Republic and Northern Ireland and the UK?
  (Mr Smyth) I will comment briefly and then ask Ralph Clarke to speak. First, there is very favourable geology, considerable amounts of sand, gravel and quarry aggregates. There are many suppliers, which leads to high competition. Part of the reasons for tight margins is the fairly intense competition in Northern Ireland. We have about 170 sites, which reflects that problem.
  (Mr Clarke) Those two points are very valid. Another point is that the profit margins in the industry in Ireland these days are quite modest. Another point—this goes back a few years—is that the number of suppliers relates to a period in time when there was a 40 per cent grant for the erection of quarry plant, ready-mixed plants, pre-cast concrete factories—any plant. That was availed of tremendously in the North of Ireland. Everyone who had a little bit of aggregate thought he should have a block plant; if he had a block plant he thought he should have a ready-mixed plant. The industry is therefore grossly over-subscribed and that was largely stimulated by 40 per cent capital grant.

  209. To pick up on that, the industry is over-subscribed so there is room for contraction, and the price is artificially kept low by competition.
  (Mr Clarke) That is correct. I would not, though, say it is artificial. What is artificial about it?

  210. I accept that it is not artificial.
  (Mr Clarke) It is the real world. That is the price.

  211. Do you accept that the cost to the end user is probably lower than would be expected either in the Republic of Ireland and/or in the UK?
  (Mr Clarke) I fully agree with that. They have been enjoying low-price building materials for many years.

  212. You understand the question. I think that we have differentials when we take into account the impact of the levy.
  (Mr Fidgett) I believe that is correct. Obviously the price will differ within mainland UK as well and prices in the London area are probably significantly greater than they would be at more remote parts of the UK. That is the function of supply and demand. Effectively in Northern Ireland the tax would make capital investment more expensive by a much greater degree than anywhere else. Whilst the demand for aggregates is not greatly influenced by price because, as I have said, if we need a road or a building we need the aggregate to build it. If there is a fixed budget, as many public sector projects have, then you will be able to afford relatively less construction. All construction costs will increase proportionately, so it will have a much greater effect in Northern Ireland compared to southern Ireland where capital investment will be relatively cheaper.

  213. One final small question. You would agree, then, that the QPA and the BAA assumption that if the levy were imposed there would be an increase in aggregates being imported from the mainland and the Republic is not necessarily so, because the cost differential would still not make that attractive?
  (Mr Smyth) No. I don't think that there is any potential in bringing it in from Great Britain. At the moment I believe we are in a relatively level playing field because the market has created that over the past 10 to 15 years. The capital allowances that Ralph Clarke talked about finished in the late 1980s. So there has been a relatively level playing field and the market has sorted itself out. That is very healthy.

Mr McCabe

  214. The CBI claimed that quarrying is not really suited to a uniform tax rate. Could you briefly takes us through your alternative?
  (Mr Fidgett) The principal alternative to achieve an environmental enhancement over the current situation is direct regulation and in effect we are getting both direct regulation and a tax. The objective of using environmental economic instruments is to change behaviour in some way and in that sense the aggregates tax itself cannot possibly influence the amount of dust, noise, traffic or other externalities associated with a quarrying activity. What has a direct bearing on those are the conditions attached to the planning permission for the site which will specify noise limits, dust limits, routing of vehicles and so on. If there is an issue there with an impact that is unacceptable then conditions ought to be tighter, as ought the policies that apply to it. It is a far more targeted and therefore far more effective way of achieving the improvement that is sought. Taxation in this case is a very blunt instrument and cannot alter that sort of behaviour.

  215. You would prefer regulation rather than taxation. What did you have in mind when you proposed the notion of a value-based tax?
  (Mr Smyth) One of the options—this was raised during our meeting with the First Minister in February- was that because of the lower value, having a set rate would have a much more significant impact at 60 per cent of the raw material cost on average, compared with less than half that in the UK. So if we went to a percentage-type tax it might come out at 70p or 60p which would be much less of a burden and an impact.


  216. But that would create other problems if you had a differential set of taxes?
  (Mr Smyth) Yes, there are issues around that, which is why we concluded that the simplest way, as we see it, is some form of derogation.

Mr McCabe

  217. So the position at the moment is that you would prefer not to have a tax at all. You would prefer direct regulation and if there is to be a tax you would prefer a value-based tax, and you think that the rate being thought about for Northern Ireland is around 60-70 per cent of the rate for the rest of the UK?
  (Mr Smyth) In terms of the average price for aggregates it would be—these are Government figures—£2.60 against £6.50. I was thinking of just under half, so it would come out at 60p if we are looking at £1.60. That is a simple assessment.

  218. One last thing. You say that you have now moved to the position where you prefer an exemption. Would not the case be, if there were an extension for a number of years, that the rest of the aggregates industry in the UK would regard that as anti-competitive, and how would you reconcile that difficulty?
  (Mr Smyth) Instead of taking the UK as a land boundary we would take Great Britain, so that imports into GB—a couple of hundred thousand tonnes of very specialised aggregates go into GB—should be taxed. We have accepted that. We have given sympathetic understanding to that issue. That was not what we are getting at; that can easily be addressed.

Mr Bellingham

  219. Mr Smyth, you have already mentioned policing—and a moment ago you spoke about the Government would police the tax. What expectation do you have that they will be able to police it, especially in the light of illegitimate operators in the black economy? What level of resources do you think Customs and Excise would need to enforce the tax effectively?
  (Mr Smyth) That is certainly a question for Customs and Excise. I think that it would be with great difficulty. Part of the problem is that there would be little incentive to do it. A lorry has a tax value of £30 to £40 and we know that they cannot address the issue in terms of fuel smuggling when thousands of pounds are involved. We would be very sceptical.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 11 December 2001