Examination of Witnesses (Questions 230
- 239)
THURSDAY 22 NOVEMBER 2001
MR PAUL
BOATENG, MP AND
MR ANDREW
FIELD
Chairman
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.
Chairman
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
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