Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 230 - 239)




  230. Thank you very much for coming to see us. We are few today. For reasons we fully understand you could not be with us yesterday. I am afraid other members of the Committee had Thursday engagements they could not change. It is very good of you to come, we know you are away next week and are having one or two problems on the floor downstairs with legislation, which we, fortunately, do not have any cause to question you about. Can I start off by saying that the reason the Committee is carrying out this inquiry is that there has been an outcry from Northern Ireland about the effect the proposed aggregates levy will have there. The fact that, certainly through no fault of yours, somewhere in government before the levy was announced it became clear that the Northern Ireland problem, if I can put it that way, had not been addressed or acknowledged within the grand affairs of Her Majesty's Treasury. It is a very, very small item and there are many other things to think about—and because of the unique situation of Northern Ireland, with the land border of a foreign country, there are effects, we have already felt in other areas, which would distort what you are trying to do here. We have taken evidence from a number of bodies, many of whom you would expect to have said what they have said because they are lobbying groups. Nevertheless the overwhelming evidence and the unanimous opinion of all of the parties in Northern Ireland, which is not that common, is that, the probability is that if the aggregate tax levy is introduced in Northern Ireland as it is in the rest of the United Kingdom, it will not have the environmental impact that you hope it will have. Secondly, it is not going to raise the revenues you hope it is going to raise. If these targets are right and we can persuade you of this then it would seem to me that this is not the way to go. This is not to prejudge what are you going to say to us but all of the evidence that we have received up until now is to that end. You said in your letter to us when we arranged this meeting that you would be somewhat constrained in what you might says because the Chancellor's statement has not yet appeared. So you may be restrained but you will have time to listen and respond. It is not until next week that he is going to set this in concrete. That is the basis on which we wanted to ask you questions. I hope that we can continue the dialogue in that way. We want to, (a) show you what we have heard and (b) hear what your response is about that. Is there anything that you want to say to us before we ask you the questions?
  (Mr Boateng) Can I introduce my Treasury colleague, the senior official with responsibility for this particular levy, Andrew Field, who has an unparalleled technical knowledge on the subject that benefited both myself and my predecessor as Financial Secretary. If I can just make some opening observations in terms of the rationale for the levy. Our concern, obviously, is to reduce the environmental costs associated with aggregate extraction and to encourage the use and development of recycled and alternatives materials in place of virgin aggregate and to encourage a more efficient use of materials by the construction industry. I would expect all those benefits to accrue in Northern Ireland, as indeed they would accrue elsewhere in the United Kingdom. The environmental costs associated with quarrying were established by independent, economic research, which was carried out by the former DETR. The work was subject to independent review by a panel of academic experts and not found wanting in any respect. The study concluded that quarrying does give rise to significant environmental costs, as the Committee would expect, noise, dust, loss of visual amenity, impact on wildlife and habitat. They estimated the cost of that at £1.80 per tonne, and that was a conservative estimate. We were still more cautious to set the rate at £1.60 per tonne. Having myself visited Northern Ireland and having talked there to Mark Durkan and others in the Northern Ireland business and industrial community there is a concern that the particular issues around Northern Ireland were not addressed early on in the process. I think what I would say to that is that so far as the DETR's research was concerned that was specifically focussed on issues of environmental cost. They took the view that with the sample of quarries that they had from across the United Kingdom, although not from Northern Ireland, they could form a view as to the environmental costs in Northern Ireland because, Chairman, they were not concerned specifically with issues around competitiveness, which is obviously at the heart of the concerns that exist in Northern Ireland. That was the basis of the research. That was carried out in July 1997, that is when it was announced. Between August 1997 and April 1998 the first phase took place. There was consultation between June and September 1998. The QPA in Northern Ireland responded then only in general terms. There was a consultation with the industry, chairman, no Northern Ireland representative attended, that was in November 1998. The second phase of research took place between 1998 and 1999. That second phase could have, if it had been raised with the DETR by any industry representative, included Northern Ireland, it did not, no concerns had been raised at that time. Then in March 1999 the proposals were announced. So far as that proposal was concerned it was subject to the Budget 2000 through the usual regulatory impact assessment, but there was no specific mention of Northern Ireland in that. In fact it was not until the beginning of 2001 that the CBI raised the possibility of a Northern Ireland exemption. What I would say is that these issues around Northern Ireland did come into play pretty late in the day, as you indicated, Chairman, but I do not believe that that can be laid simply at the door of the DETR or, indeed, the Treasury, because the industry and its representatives did not actually raise the issue until fairly late in the day. Before answering your questions I would not want you to think for one moment that this was not something that has not exercised the mind considerably of my predecessor and of myself and of our officials. We do regard it as very important, for obvious reasons, Chairman. There are issues around jobs and we are concerned about that, we are concerned about anything that might impact adversely on the economy of Northern Ireland. I do regard it as significant the degree of consensus and concern that there is on this issue, which has been made clear in correspondence and which has been made clear in a number of meetings which my predecessor and I have had with the relevant parties and was made very clear to me when I visited Northern Ireland in October.

  231. You say that the greatest concern is the competitiveness issue and that is something that you would expect all of the lobbying groups to be arguing. I know I speak for the Committee when I say that what has emerged from the evidence that we have heard is not so much the competitiveness per se, it is the fact that because of the peculiar circumstances we are not going to get the environmental benefit in Northern Ireland that we may get in the rest of the United Kingdom. Rather than reducing the amount of environmental damage done by the extraction of aggregates it is actually liable to increase, because you are not going to reduce the quantity, you are going to increase the movement. In order to avoid your tax the virgin aggregate will be taken south of the border, made up into whatever it is made up into and the products will be brought back thus avoiding the tax. If you are not going to reduce the environmental impact you are not going to collect much of the tax. It seems to us that quite a large part of the point of raising the tax in this way is therefore going to be lost. Is that something that you have looked at and considered? May I say, if you want your expert to answer directly please feel free to let him.
  (Mr Boateng) I will ask Andrew Field to give you the technical response and I then I will give it my political response, if I may.

  232. Often officials are reluctant to speak.
  (Mr Field) Good morning, not withstanding the Minister's opening words I would not really claim to be an expert on aggregates, we have taken a lot of advice from the DETR and other departments in the development of the tax. The intention of the tax is to reduce the impact of aggregate extraction on the environment by encouraging users of aggregates to use alternative materials, recycled construction materials, and so on, and to look for other alternatives, such as possibly waste glass or tyres or other alternative materials. It is also to use aggregates efficiently in construction projects. The tax itself will internalise the environmental cost of aggregate extraction and will encourage the industry to be more efficient in its use in that way, thereby reducing the impacts that the minister has discussed, such as impacts on bio-diversity, noise, dust and so on. The tax has been designed so that imports of raw aggregates will be subject to the levy and exports will be relieved from the levy, this is obviously to address the concerns about competitiveness. By and large aggregates are not traded internationally across the United Kingdom as a whole but we recognise that Northern Ireland is a little different in that respect. Where aggregates in their raw form are traded internationally they will be subject to relief from tax. In this way the intention is that there should not be this adverse effect on competition and also there will be no perverse incentive to transport aggregates long distances, particularly in order to avoid paying the tax.

  233. If I can just come in on this question of long distances, of course totally relevant in a Great Britain context, would you be surprised to know that a person gave us evidence last week who lives in Strabane, two miles from the border, who owns a construction plant where he makes up aggregates and he said, "I shall simply move to the Republic. By moving five miles I am relieving myself of the tax. We will go on extracting the aggregates, I will break them down and bring them back into Northern Ireland". This, surely, is something which is unique, you cannot do it anywhere else. This is part of the problem, which is where your tax will be avoided?
  (Mr Boateng) Undoubtedly it is unique in the United Kingdom. There is no other conjunction of circumstances in terms of the length or the nature of the border or, indeed, the differentials in terms of fuel costs on either side. It is a unique and special situation. That is obviously something that we are taking into account in terms of considering, technically and in policy terms, how best to implement our intention in relation to the aggregates levy. I would like to correct one possible misapprehension, that is, this is not a revenue raising measure, it is something that we expect to be broadly neutral about across the United Kingdom. There will be very real benefits to be obtained from the sustainability fund, £35 million, and I would expect the Northern Ireland administration to want to apply it as they see fit in Northern Ireland and want to get the benefits from that. All of the revenues raised will be recycled back into business through the NICs, National Insurance Contributions, and again that will benefit employment in Northern Ireland. I would stress that on the criteria that we have set ourselves in relation to environmental taxation this is very much in conformity with those criteria and has that to commend it, whilst accepting there are particular circumstances in Northern Ireland which we obviously need and are taking into account as we develop policy implementation.

  Chairman: I am very glad there is a lot of common ground here because I do not think the Committee would be listening sympathetically to people saying "we do not want to be taxed". They would say that, would they not. Our concern has been, and remains, that you achieve your aim. All of the evidence that we have received so far indicates to us that in the Northern Ireland situation you are not going to achieve the aim of a fiscally neutral, environmentally friendly levy, if I can put it like that, which will do what you are setting out to do. A lot of that will come out in the questioning which will follow. If we can leave the business of the sustainability fund, we would like to come back to that.

Mr Barnes

  234. I would like to pursue the matter about the research, in conducting our enquiries we asked a series of questions to the DTLR and one of these was about the research arrangements that had been involved in it. In talking about expert groups and researchers they said that they were content with areas not being specifically studied, such as Northern Ireland, that were suitably dealt with by the general criteria and that they were adopting. That criteria was rock type, output, population density, et cetera. Do you think that was adequate, given the special position that Northern Ireland is in?
  (Mr Boateng) Insofar as I am qualified to have a view, it is obviously a matter which was subject to an independent expert analysis, I think it was adequate in relation to the issue of environmental costs, because there is no evidence, you would not have received any evidence to indicate that to you there is something different about the nature of the quarrying process in Northern Ireland than any other part of the United Kingdom. I think it was adequate so far as the issue of environmental costs were concerned. It was not directed at addressing those other issues around competitiveness and enforcement that are obviously of concern to the Committee, and have to be of concern to me and to the Treasury in forming our wider view.

  235. If the investigations were supposed to be centring more upon environmental considerations, because that is what the taxes are linked to, it had not taken into account environmental losses that might be involved in the border problem, border situation, the people moving into the Republic in order to do their quarrying, because then there is a great movement of aggregates from the Republic into Northern Ireland and that itself has environmental consequences?
  (Mr Boateng) Certainly, but then so does any degree of movement anywhere. There would be movement within the mainland, United Kingdom, potentially and the impact on Northern Ireland was what was being assessed rather than the impact on Ireland as a whole.
  (Mr Field) The research was about identifying and costing the externalities and aggregate extraction and that was then used as a basis for setting the rate of the tax and the design of the tax then follows from that. The research was not about informing what the design of the tax should be, it was simply about establishing what the environmental costs of aggregate extractions are.
  (Mr Boateng) There is no evidence to indicate, as I understand it, that the environmental cost, of extraction in Northern Ireland differ substantially from that that are elsewhere in the United Kingdom. There may be additional costs to the environment as such from the relocation of businesses from Northern Ireland to the Republic, and that is something, clearly, that we need to take into account in terms of implementation.

  Chairman: And the greater movement of aggregates in a relatively small land area. If you think about Northern Ireland, they do not carry them far because it costs them, but they will carry them much further if it saves them the tax and, therefore, you are getting environmental damage done by the increased line of transportation and a certain amount of avoidance as well.

  236. Many would say that as you are looking into these matters and taking them into account, is it also an indication that research failed to do that and failed to consider the border as being an extra problem that exists as far as this area is concerned? Is it not the case that this is general as far as the land border with Northern Ireland is concerned and with the Treasury's attitude and the research that it takes on. It is because there are a number of other problems as well about differential duty provisions and tax rates between the two administrations in connection with petrol, in connection with cigarettes? There is a great deal of smoking contraband. Would it not be useful if the Treasury had Northern Ireland on a check list when looking at taxation policy and it actually says, "yes, there is a land border, is that going to have any impact on this particular tax?" Some do, some do not, and "is it going to be of some significance?", as it seems to be in this case?
  (Mr Boateng) The last point is a very fair one. The earlier one I would be reluctant to accept because I would be reluctant to blame the researchers because they were not in fact asked the question. The research was managed by the DETR on a very narrow point of environmental cost. If they had been asked the questions that we are now asking in the Treasury and which you are asking as a Committee they would have produced a different piece of work and it may well be that a separate piece of work ought to have been commissioned, nevertheless it was not because we were focussing specifically on the narrow issue of environmental cost, rather than, as Mr Field said, the wider issue of the design.

  237. I take the point you raised earlier, it was not until late 2001 that CBI began to raise this as a difficulty, therefore your attention had not really being focussed on this matter considerably at that stage?
  (Mr Boateng) I would not go that far, it was not until 15th January 2001 that the CBI raised a possible Northern Ireland exemption. There had been in between June and September 1998 a Customs consultation on draft legislation and the QPA in Northern Ireland responded then in general terms. Subsequently the consultation exercise was carried out, the workshops did not have a Northern Ireland representation and the second phase of research did not include any Northern Ireland quarries either.

  Mr Barnes: You just answered the other question I was going to ask you. Thank you.


  238. There is another difference which I hope you are aware of, which is that there is much more public works in Northern Ireland, 40 per cent of aggregates that are extracted are used for the public sector. We had a very strange, rather surprising, submission saying that the imposition of an aggregates tax will not reduce the demand for primary aggregates in the public sector because there is a statutory code of practice which says that you have to use new virgin aggregate to replace all holes in the road. Did you happen to know that?
  (Mr Field) I am not an expert on construction practice but one of the things we will be focussing on with the sustainability fund, certainly as far as England is concerned, is on research into options for using alternatives to primary aggregate for construction. There are lots of codes and standards of practice which require particular grades of construction material for different projects.

  239. That is right.
  (Mr Field) One of the focuses of the research will be to identity where those standards and codes of practice can be changed to allow a greater use of recycled aggregate and other construction materials

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