Select Committee on Northern Ireland Affairs First Report



The levy's environmental credentials - a final test

81. As we noted at the very beginning of our Report, the Government in 1997 set out a statement of intent for environmental taxation which noted:

82. Similarly, the Government set itself objectives for sustainable development:

    "Social progress which meets the needs of everyone; effective protection of the environment; prudent use of natural resources; and maintenance of high and stable levels of economic growth and employment".[140]

83. On the basis of the evidence we have heard the proposed levy in Northern Ireland will fail on almost every count:

  • it will have undesirable side-effects, in increasing the environmental costs associated with road haulage of aggregates;
  • it will impact very severely on some communities in real need;
  • it has potentially very damaging implications for Northern Ireland's ability to compete with the Republic of Ireland;
  • it may delay regeneration and social progress; and
  • it will singularly fail to encourage more prudent use of resources.

Even the most committed supporters of the levy, the Friends of the Earth Northern Ireland, accepted that the displacement effect likely to be incurred by the levy in Northern Ireland would, in environmental terms, "be futile, so we do not want it to happen". [141] When even Friends of the Earth are worried about an environmental tax the Government has really got a problem.

Alternative solutions

84. The CBI and the quarrying industry in Northern Ireland believed that the levy was fundamentally unnecessary. They pointed out that there are existing taxes - primarily the landfill tax - which provide incentives to more sustainable behaviour and recycling of waste aggregate.[142] They also suggested that the industry in Northern Ireland has a very good record on environmental self-regulation, with "the highest uptake of ISO 1400 environmental management system[s] of any industry within Northern Ireland".[143] John Baxter of the British Aggregates Association also informed us that in the UK as a whole the industry is already subject to a "very powerful legislative control framework", within which the controls on dust emissions are about to be tightened even further.[144]

85. Our witnesses, however, were not very optimistic about the prospect of the levy being abandoned now that the framework legislation has been enacted. They therefore called for an exemption from the levy within Northern Ireland, in recognition of the extra difficulties imposed by the border. They emphasised that their concern was with the internal economy of Northern Ireland rather than the levy in principle, and suggested that exports of aggregates from Northern Ireland to Great Britain should be taxed in order to be "fair" to producers in Great Britain who might otherwise be similarly undermined.[145]

86. Doubts were, however, expressed as to the feasibility of such an exemption on a regional basis. Friends of the Earth Northern Ireland were against an exemption in principle, on the basis that it would make it "very difficult" to implement the levy in other parts of the UK.[146] The QPANI told us that they had been informed that "any differential treatment for Northern Ireland would be contrary to state aid laws".[147] The CBI Northern Ireland, rather more optimistically, said that, while a derogation from the law would need approval from the EU, "if there was a commitment to that it could be done".[148]

87. We sought clarification from the Financial Secretary on this question of a possible derogation. He told us that there was a "very big question of principle" about a derogation because "it strikes at the notion of a unitary state".[149] We pointed out to the Minister the precedent raised by the CBI Northern Ireland, of 100 per cent capital allowances for small businesses in Northern Ireland: his response was that that exception was "focussed specifically... towards regeneration and as part of a wider regeneration package".[150] We were subsequently informed by the Northern Ireland Executive of other recent derogations, exempting flights departing from the Scottish Highlands and Islands from Air Passenger Duty and, in Northern Ireland, exempting natural gas from the Climate Change Levy.[151] We see no reason why a derogation in respect of the aggregates levy should not be similarly specifically focussed.

The Pre-Budget Report

88. Following our discussion with the Financial Secretary we were delighted to receive a letter from him on 27th November, the day on which the Chancellor made his Pre-Budget Report. In this letter, the Financial Secretary told us:

89. We are very grateful to the Financial Secretary, both for the care with which he has evidently reflected upon our concerns, and for his courtesy in notifying us of the Government's change of policy at the earliest possible opportunity. We are sure that the various interests in Northern Ireland will be equally pleased at this preliminary indication of the Government's intent.

90. However this announcement, while very welcome, would only reduce the impact of the levy on the value-added sector, temporarily, and has no effect on the concerns of the Northern Ireland Executive, the wider industry and community. It does not therefore affect the tenor of our conclusions and recommendations, which we set out in detail below.

Conclusions and recommendations

91. We believe that the Government cannot justify introducing the aggregates levy in Northern Ireland as an environmental tax, when it will not reliably "deliver a more dynamic economy and a cleaner environment",[153] but may well have entirely the opposite effect there. The theory may be right, but the development and the implementation are wrong.

92. The Government's rationale in introducing this tax into Northern Ireland is compromised: its research does not withstand scrutiny either as a rationale for discouraging aggregates extraction and encouraging recycling or within the wider Northern Ireland context which was somehow totally overlooked.

93. We continue to maintain open minds as to whether the aggregates industry will prove environmentally sustainable in the long term. In Northern Ireland today, however, it provides essential support to communities and to the wider project of regeneration which is so important to the success of the peace process. The arguments offered to us about the likely migration of the industry and the consequent loss to communities close to the border are compelling: this cannot be the end which the Government set out to achieve.

94. We therefore recommend that the Government postpone any introduction of the levy into Northern Ireland, until a fully-informed decision has been reached as to its effects.

95. We further recommend that the formula for allocating the Sustainability Fund be re-examined and the case for regional fiscal neutrality be considered.

96. It would be wrong to introduce the levy into Northern Ireland until these steps have been taken: if this means deferral beyond 1 April 2002 — and we believe a proper process of consultation and research requires that it must — then so be it.

97. Given the clear failure by those developing the tax to tackle the consequences for Northern Ireland at the appropriate time we do not believe such special treatment to be unreasonable. The development of a new, credible, package must be better than implementation of a policy flawed with regard to Northern Ireland and with the potential to undermine the Government's environmental credentials and the current and future economy there.

98. The threat of implementation is already having an impact upon Northern Ireland as contracts for work after April 2002 are already being negotiated; we urge the Government to give serious consideration to these arguments, and to make a full statement of its plans at the earliest opportunity to end the current uncertainty.

139  Environmental taxation - statement of intent, H M Treasury press release 2 July 1997 Back

140  The Government's principles are set out by the Sustainable Development Commission on its website, Back

141  Q116 Back

142  Q186 Back

143  Q48 Back

144  Q50 Back

145  Q45 Back

146  Ev p36 Back

147  Q44 Back

148  Q199 Back

149  QQ243-244 Back

150  Q245 Back

151  Ev p83 Back

152  Ev p67 Back

153  Environmental taxation - statement of intent, H M Treasury press release 2 July 1997 Back

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Prepared 11 December 2001