Examination of Witnesses (Questions 20-39)
RT HON
PAUL BOATENG,
MP AND MR
ANDREW FIELD
WEDNESDAY 20 MARCH 2002
20. You would take a decision not to bring that—
(Mr Field) That could be one option.
Chairman: That, again, is very encouraging because
it is relatively simple.
Mr Barnes
21. The Committee recently visited Customs &
Excise in Northern Ireland. Given its increased resources recently,
we were impressed with the efforts it was engaged in, especially
in areas like trying to tackle the fuel smuggling position. The
considerable problem that Customs & Excise faces is that there
is 300 miles of land border. Some of us on this Committee were
on the Committee in the previous parliament and visited there
three years ago. Certainly, the work of the Customs & Excise
in these areas seems to have extended considerably, but is account
taken, in relation to aggregates, of this very serious situation?
(Mr Boateng) Since April 2000, as you have rightly
perceived on the ground, Mr Barnes, we have considerably increased
staffing in Northern Ireland; it has gone up from 25 to 160. As
you also rightly surmised, most of them—not all—are
engaged in relation to particular border fraud, which is of particular
interest to your Committee, and the scale is such as to dwarf
any likely fraud in relation to the aggregate levy. We do have
to be clear about where our priorities have properly lain in this
particular field. Resources are not yet finalised, but there is
likely to be an additional five man-years for Customs in Northern
Ireland to enforce the environmental taxes from implementation.
Obviously, the aggregates level will feature there. Mr Field and
his colleagues have done an assessment of the likely impact on
smuggling in this area of aggregates, and their view is that,
because of the bulk and the margins, this is unlikely to be a
major feature. They do not envisage the running of aggregates
on any large scale, certainly not on a scale comparable to other
areas where the margins are much higher and where the temptation
is that much greater therefore.
Chairman
22. That is an interesting comment because it
is not so much what you might call the regular smugglers who are
in it for the money; it is the regular aggregate quarry owners
who see a good profit to be made from driving their aggregates
twenty miles, and with very little chance of being caught. No-one
is suggesting that an organised crime syndicate will take this
thing over, but the fear that has been expressed to us, which
seems to be real, is that because it will be profitable for regular
quarry owners to sell it to the north, then more of them will
do so, thus putting the Northern Ireland quarries out of business.
We were told quite bluntly and frankly by Customs that this was
very, very small, and they were concentrating, quite rightly,
on the much greater revenue loss caused by other forms of smuggling
in Northern Ireland.
(Mr Boateng) As you know, Mr Mates, from your own
experience, and as other members of the Committee know from their
considerable experience in Northern Ireland, compliance is an
issue in relation to Inland Revenue, and in relation to Customs
& Excise. One of the things one hopes for in these times—and
this is certainly an issue that Jane Kennedy and I are very much
exercised by—is how to create and contribute towards the
creation of an environment in Northern Ireland in which legitimate
business people feel that it is important to operate within the
law. The law is clear: this is a levy that is due. It is being
phased in. Consideration is being given to the specific circumstances;
but, as I have said to business in Northern Ireland, this is a
legitimate and lawful tax, which legitimate and lawful businesses
are expected to pay. One will want to work closely with the industry
and the communities to encourage compliance. I hope they will
feel that in terms of the way in which we have handled this issue,
the way in which their representations have been heard, the care
and attention which the Committee and we ourselves have given
to this issue, and the way that we have arrived at a solution,
with the flexibilities that we have outlined in the course of
this session, they will have good reason to be compliant, because
it is in everybody's interests that the law is upheld.
Mr Barnes
23. There is one option that would draw Customs
& Excise into the situation more: if the only way that could
be seen to handle the problem was for the tax to be extended to
imported processed aggregates, that would give an extra kick,
in those circumstances, for the Customs & Excise. Could that
be contemplated?
(Mr Field) Extending the tax to include imports of
processed products is an interesting idea. It is something we
have thought about and will look at further as a possible solution
to the particular problem that we have discussed with regard to
processed products in Northern Ireland.
Chairman
24. That is a very interesting comment. Would
it not have been better to have done it while you were bringing
in this tax?
(Mr Boateng) It is an option that is available to
us, as Mr Field said, and which we will explore.
25. It then cuts the ground from under the Northern
Ireland lobby's feet, does it not, because it takes away that
element of unfairness?
(Mr Field) If it was a practicable solution, it looks
as though it could be very a helpful way forward; but it is not
something that we have made a great deal of progress with to date.
It is not straightforward to assess the quantity of aggregate
in different types of processed product. At the moment, the tax
will come in as we planned, and imports of processed products
will not be subject to the tax. However, if it proved possible
to tax the aggregate content of imported processed products, we
would be interested in pursuing that.
(Mr Boateng) I do not think that one should underestimate
the technical challenges. If it were easy, frankly, Mr Mates,
we would have done it.
The Reverend Martin Smyth
26. It would not be as great a challenge, maybe,
as the Treasury faces at other levels to explain what it is doing.
The language here is that the tax "internalises the negative environmental
externalities associated with extracting virgin aggregates". In
other words, it is dealing with the environment. Is it fair to
say that the purpose of the levy is not to raise revenue but to
reflect the environmental costs of aggregate production, which
are not currently being met?
(Mr Boateng) That is absolutely fair to say. Our intention
is that this should be seen as across-the-piece and revenue-neutral.
It is an environmental tax that the operation of the Sustainability
Fund should, in terms of the way it works and delivers to local
communities, bring real benefits to them. It should reflect the
fact that this is an environmental tax; it is not a revenue-raising
wheeze.
27. It was suggested that it might be a help
to change the alternatives to glass and tyres in aggregate mixes.
It is open to debate how far that would be of benefit in Northern
Ireland, as a small community. Can I therefore press you, since
you have said that it is not revenue-raising: will the Government
therefore reduce the cost of the levy when the environmental costs
associated with aggregate production are reduced by other means
such as regulation, because we understand attention has been given
to regulation; so rather than a 10 per cent increase each year,
will there be a reduction because of the regulations cutting down
what might be looked upon as environmental pollution?
(Mr Boateng) As you know, Reverend Smyth, the calculation
of the environmental costs of aggregate extraction is contained
in the LE report. They conservatively estimated the cost of aggregate
extraction to be £1.80 per tonne. The levy was set, therefore,
at the more cautious rate of £1.60. So we have already gone some
way to taking an approach that is cautious and that does seek
to err, if it errs at all, in a way that reduces the costs. Certainly,
if you look to the future, you will have to bear in mind what
the impact of the tax was in terms of the externalities that we
are seeking to internalise, as you described. However, as it stands,
the dust, the noise, the environmental degredation, are reflected
in the figures we have arrived at, although it is to be hoped
that good practice and the impact of the levy and regulation will
ultimately reduce the environmental impact of the process.
28. One appreciates that it is done by independent
research, but the Treasury decided to reduce it. In the long term,
the Treasury can recoup that, once the tax is there, by increasing
it as the years go by. How far is the independent research completely
independent since they have got to earn their bread; they have
to show figures to justify what they are doing; and therefore
recommend something to you that may not necessarily be accurate?
(Mr Boateng) The research was certainly independent
of the Treasury. It was managed by the DETR. We certainly did
not have a hand in it, but of course it was independent of Government,
and the DETR too, because it was an expert group drawn from academia
and from the stakeholders in the particular processes. We would
maintain that it was thoroughly independent and reliable, subject
of course to the weakness that the Committee has reflected in
its earlier deliberations, and which one understands because whilst
we were satisfied that the research would be representative of
Northern Ireland, it did not actually take place in Northern Ireland
itself. Future research will take place in Northern Ireland.
Mark Tami
29. When we met the Quarry Products Association,
they raised their concerns with us, but they also stated that
they first raised their concerns with you back in September 1999.
Why did it take so long for the Treasury to send people over to
Northern Ireland to really get to grips with the problem?
(Mr Field) The initial phase of the development of
the levy was very much about assessing the environmental costs
of aggregate extraction. As the Committee has previously discussed,
the research that was carried out did not specifically include
any quarries in Northern Ireland, although DETR advised us that
the quarries chosen were representative of aggregate extraction
across the UK as a whole. The process then led on to the development
of the levy itself, and, as we discussed on the previous occasion
when we attended before you, there was not a great deal of discussion
on specific issues related to Northern Ireland in the early stages
of development of the levy. It was really only around the beginning
of last year that the particular concerns of Northern Ireland
featured strongly in discussions which the Treasury and Customs
& Excise were having with the industry. I am afraid that I
cannot say specifically what was the outcome of the meeting that
was held with the Quarry Products Association in 1999, but the
fact is that it was only from early 2001 onwards that the specific
discussion of Northern Ireland issues featured strongly in discussions
that were held.
30. There is a major impact, clearly, on Northern
Ireland that is not relevant anywhere else; and surely that is
something that should have been picked up a lot sooner than it
was?
(Mr Field) We all recognised at the previous discussion
that it would have helped all round if those specific issues on
Northern Ireland had been picked up earlier. The industry in Northern
Ireland did not make the case particularly strongly, and it is
fair to say that the Treasury and Customs & Excise equally
did not have these issues strongly focused in our discussions.
Mr Clarke
31. Returning to questions of research, during
the Committee's inquiry we uncovered contradictory research in respect of the environmental impact
of production of recycled aggregates. In fact, the research that
was put before the Committee suggested that when measured in the
same terms as quarrying, aggregates recycling could have higher
local environmental costs than virgin aggregate extraction. That
was quite a startling introduction of evidence because it
meant the basis on which the tax was introduced could be challenged
by the research that suggested its replacement, recycled aggregate,
would be more damaging to the environment than the quarrying of
virgin aggregate. Can you outline to us, Minister, if you have
looked at that research since the Committee's inquiry, whether
or not there is any basis for that contradictory view?
(Mr Boateng) I am very interested in that view, and
I would like to know more of it. The findings of the LE study
on the costs associated with recycling were based on a very small
number of recycling plants. My understanding is that these were
not particularly representative of how recycling usually takes
place because they were centred on three centres that happened
to be in heavily populated areas, as they were stand-alone sites.
They were not recycling sites, which is often the case, which
were sites located on sites that were already, for instance, demolition
sites. Therefore, they were not particularly typical. We would
challenge the notion that the environmental costs of recycling
were greater than the costs of aggregate extraction. We are satisfied
that there is a real environmental benefit to be gained from recycling.
32. Is that a view that you have taken since
that research was introduced, or is that something you were looking
at before the Committee reported?
(Mr Boateng) My own attention to it followed on from
the Committee's findings. So far as the Treasury is concerned,
they have obviously a longer institutional memory and process—in
fact a memory like an elephant—and this is a factor that
they no doubt had in mind from the outset.
(Mr Field) I think it was felt that this part of the
London Economic study was not at all robust, and for reasons the
Minister has stated, it was felt that the figures that were produced
in this part of the study were not at all reliable. We were confident
that the basis for establishing the costs of aggregate extraction
was reasonable, but that this part of it is not.
(Mr Boateng) It is an important issue, and in terms
of future research and vis-a-vis Northern Ireland, it is
one that we are clearly going to have to watch.
Mr Clarke: That is very helpful, thank you.
Mr Bailey
33. Can I move on to the sustainability question.
When you appeared before us last time, you said you would be interested
in looking at a new theoretical model which would redistribute
money in proportion to the contributions made. Have you done that?
(Mr Boateng) I am not quite sure I put it in precisely
that way, Mr Bailey. I think what I would say—and I have
a note of it—is that we were happy to build on the Barnett
formula, which had been the preferred option of the devolved administration,
which the Treasury had accepted; and that we would be open to
consider proposals for a shared fund as between Northern Ireland
and England. That remains the case. I have been actively pursuing
that, not least with the Secretary of State. I have not yet myself
had a feedback in terms of the approach of the devolved administration.
It is something that we are obviously taking soundings on, because
it will be necessary that they feel it to be a desirable way forward.
The key point is to see the benefit that could accrue to Northern
Ireland if there was a pot, as it were, that was shared according
to some transparent and objective criteria that would respond
to Northern Ireland's particular needs. If you are asking me what
my preference is, it is for some form of shared fund. Whether
or not that is something that will find favour with the devolved
administration and with the Secretary of State therefore—the
outcome I still await. As far as we are concerned, there is no
obstacle. We are quite happy with that, and I would urge it myself
as a way forward, because it is a way of responding to the particular
needs that the Committee has shared with us, and that you have
no doubt identified.
34. You started by saying you would build on
the Barnett formula. Given the fact that under that provision—they
would only get something like £1 million from the Sustainability
Fund, as opposed to potentially £3.5 million under direct proportionality.
Can you amplify what you mean by "building on the Barnett formula"?
(Mr Boateng) What I would mean by that is that what
we cannot do is to re-open this issue and have a UK-wide fund.
We cannot do that because Scotland and Wales are entitled to their
Barnett share. What I am able to say so far as England is concerned
is that we are happy to enter into an arrangement with Northern
Ireland that would enable us to pool our pot together, and to
have from that objective clear criteria that will enable needs
to be assessed and distribution of the fund accordingly. It will
be a judgment for the devolved administration, for the Secretary
of State, as to whether or not they believe they would benefit.
I believe that potentially Northern Ireland would, but it is a
matter ultimately for the devolved administration; it is not a
matter for us, for me.
35. Is that under active consideration?
(Mr Boateng) It is certainly under active consideration,
and I have spoken to the Secretary of State about it.
Mr McCabe
36. Is the difficulty for the devolved administration
that they cannot have this treated in isolation, and if they wanted
to pursue this route here, it would require a complete re-opening
of the Barnett formula elsewhere?
(Mr Boateng) They might be worried about that.
Chairman: We are now coming to another series
of questions. I do not mean this in a critical way, but governments
over the years have answered parts of reports and not always in
their entirety, and we have some questions on parts that have
not been mentioned in your response, which of course has not been
published.
Mr McCabe
37. Our report was absolutely clear in its findings
that the cost of the levy to each generation in Northern Ireland
could be as much as £22 million per year. There does not appear
to be any comment at all on that from the Government's response.
Does that mean I should assume that you broadly agree with our
findings?
(Mr Boateng) I do not feel I am in a position to produce
alternative figures, except to say that there are undoubtedly
additional costs as a result of this approach, because that is
what it was designed to do; the levy is designed to ensure that
all construction projects reflect the environmental costs of aggregate
used in the construction process. The desire is that the market
will drive the process and will therefore drive the most efficient
and economic and environmental outcome. I think that the Committee
has some solace in the comment by Mark Durkan, who said that the
Chancellor's decision to phase in the aggregates tax will lead
to a cost saving to the department. He went on to say that there
will be no attempt to move those benefits to another department;
and it should mean that for the same significant 14.8 per cent
increase, people will see more programme outcome. I do not think
that the decision that we have made in relation to the levy and
the way we are introducing it in Northern Ireland, has had an
impact, or will have an impact quite that is as severe as the
figure you have produced might indicate. I do not have an alternative
figure.
(Mr Field) We do not have the figure to hand, but
it sounds in the right ball-park.
38. If it is £22 million, in a place like Northern
Ireland, where regeneration is pretty important, it does seem
a pretty big figure to me. Do you have any idea how much the phasing-in
will reduce it by?
(Mr Field) I think it will reduce it by at least half
in the first year. My understanding is that at least half of the
aggregate produced in Northern Ireland is used in processed products.
I think that Mark Durkan, in his comments to the Northern Ireland
Assembly in December, reflected the fact that the reduction in
the levy as a result of this phasing-in would have quite a significant,
positive effect on the budget for the Department for Regional
Development in the year coming.[2]
Chairman
39. More accurately, it will reduce the negative
effect.
(Mr Boateng) You could say that—and I might,
if I were in opposition, Mr Mates.
2 Note by witness: "I said that I thought
the phasing in of the levy for use in processed products would
reduce liability for the levy in Northern Ireland by at least
half. In fact, it will reduce it by about 30%." Mr Andrew
Field, 22 March 2002.
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