Finance Bill

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John Healey: I understand the hon. Gentleman's point, but the difference between us is that he does not want to see the aggregates levy in place and in operation. We believe that there is a strong case for it, with strong environmental objectives. That is why we have legislated for it.

On the point made by the hon. Member for Christchurch about Scotland, the argument that large areas of the UK, which produce the bulk of aggregate, will suffer disproportionately from the introduction of the levy because the tax bill outweighs the national insurance contributions cut from which they will benefit, is simply not accurate. The levy is an indirect tax and, as such, the cost will ultimately be borne by the consumer. Given that the cost of the levy will largely be passed on in price increases to the consumers of aggregates, the tax burden is much more evenly spread across the country than his argument suggests. London and the south-east, where companies will benefit from the 0.1 per cent. cut in national insurance contributions, are the very areas that are the most intensive users of aggregates for construction purposes.

I turn to the three new clauses. Let me be clear at the outset that I do not accept any of them, but I shall deal with them in reverse order. The hon. Gentleman was good enough to tell the Committee that the purpose of new clause 28 was to have a debate on the principle of the levy. Let me take the Committee back to the starting point. The levy is based on the work that we did—independent research and analysis—which concluded that significant environmental costs are associated with the extraction of aggregates. Before the levy, those costs were not covered by regulations and included noise, dust, visual intrusion,

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loss of amenity and damage to biodiversity. The former Department of the Environment, Transport and the Regions, which was largely responsible for that research, concluded conservatively that the environmental damage attributable to extraction of aggregates could be costed at around £1.80 per tonne. The Treasury, as is its wont, took a prudent and cautious view and set the rate at £1.60.

11.30 am

Mr. Chope: It is £1.60 per tonne plus VAT, is it not?

John Healey: It is £1.60 per tonne. That is the aggregates levy. The cost that the environmental research suggested for the environmental damage is more than that.

The levy is already bringing environmental benefits—that was the principal purpose of introducing the provision—by making the price of aggregates better reflect their true environmental costs and encouraging the use of alternative materials, thereby reducing the amount of virgin aggregate extraction.

Mr. John Bercow (Buckingham): I am extremely grateful to the Economic Secretary for giving way. Will he answer a straightforward question: is or is not the levy subject to VAT? Yes or no?

John Healey: Very simply, as with a range of other services and goods, the levy is subject to VAT. It is set at £1.60 per tonne. The cost of the environmental impact is greater than that.

On the principle or purpose of the tax, which is where the hon. Member for Christchurch wanted to take the Committee, reports from Alfred McAlpine cited the strong impetus that it is providing for sourcing alternatives to virgin aggregates. Encore Environmental Aggregates, Northern Tyre Disposals, Alcan Smelting and Power UK have all reported recently that they are making moves in a similar direction. A tax rate for the aggregates levy of 50p per tonne plus VAT, as proposed in new clause 28, would not reflect the true environmental cost of aggregates extraction and would not provide sufficient incentive to encourage the efficient use of virgin aggregates and the use of recycled aggregates or other alternatives to virgin aggregates. Not only would the aggregates industry be affected, but the hon. Gentleman's new clause would entail a significant loss to the Exchequer of more than £200 million as the 0.1 per cent. reduction in employer's national insurance contributions that accompanied the introduction of the levy is already in place.

Chris Grayling: I should be grateful if the Economic Secretary would answer two questions. First, are imported aggregates subject to the levy? Secondly, what change has there been in the trade balance in aggregate materials since the introduction of the levy?

John Healey: The answer to the hon. Gentleman's first question is yes. The answer to his second question is that the levy has been in place only since 1 April this year and it is too early to give a definitive answer.

Turning to new clause 27, the first amendment covered by it would extend the adjustment of contracts provision to contracts for the supply of processed

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products. To extend any of the provisions of the levy to processed products would be far from straightforward. When aggregates have been used to manufacture processed products they have already passed the tax point and are no longer aggregates for the purposes of the levy. The commercial arrangements for onward supply of aggregates beyond that are intentionally outside the scope of Customs legislation, and it is certainly not something that could be done simply by bolting a new clause on to existing legislation, as Conservative Members seem to think.

The second change that the new clause would make concerns the provisions for adjusting rent or royalty payments as a result of the levy. I confirm for the hon. Member for Christchurch that the Government have already examined the area carefully. We have benefited considerably from our extensive consultation with the industry and other interests. The results of the consultation have produced a suitable measure that renders the amendment unnecessary and, I hope, settles the hon. Gentleman's concerns.

Some rent or royalty payments are adjusted according to indices of aggregates prices published by the Office for National Statistics. The Quarry Products Association proposed earlier this year to make the necessary arrangements with the ONS to produce both levy-inclusive and levy-exclusive indices, so that the levy-exclusive index could be used to adjust rents and to ease industry concerns about the matter. That solution will not require a change to the primary legislation, as section 43 is already wide enough to allow for such adjustments. Therefore, the suggested change to the law covered by the second part of new clause 27 is not necessary.

Finally, let me turn to new clause 26 and the concerns of the hon. Members for Christchurch and for Epsom and Ewell about competitiveness. There is no case for the new clause. The aggregates levy does not significantly affect international competitiveness. Frankly, the scare stories about the potential flight of firms from the UK are just that, because there is limited international trade in processed products. Exports represent only about 3 per cent. of total precast concrete industry sales, and that low level of exports is mainly in high-value products. The prices for such products may range up to £120 or £130 per tonne and are not significantly affected by the levy. Where there is a risk of international competition in processed products—in particular, in Northern Ireland—we have already taken steps to help the industry adjust to the aggregates levy. Apart from that special case, the aggregates levy should not have an impact on the competitiveness of exports of processed products, but we shall carefully monitor that.

Finally, the measure is unlikely to receive the necessary European Union state aid approval, as it is not consistent with the declared nature and logic of the aggregates levy. On that basis, I urge my hon. Friends to reject all three new clauses proposed by the Opposition.

Mr. Chope: The Economic Secretary has made a valiant attempt to defend the indefensible. Let us just remind the Committee of the effect of the levy. We are

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coming up to the Commonwealth games. Lawn sand that is put on the green grass areas of the sports stadium is exempt from the levy, but sand put in the long-jump pit is subject to it. Is not that absurd? The absurdity is repeated a thousandfold across other parts of the economy, and all the time it is being policed by expensive Customs and Excise officials.

On exports, surely it would be reasonable to allow the new clause to be part of the legislation, if the cost is so low. The information that I have—the Economic Secretary pooh-poohs it, but I have not divulged it for commercial and confidential reasons—is that the levy is having an effect on people who are seeking to export products. Therefore, I hope that the Committee will support new clause 26 when we put it to a vote.

Chris Grayling: Does my hon. Friend agree that time and again, in this Committee and in similar proceedings, we see a total lack of understanding on the Government Benches of the impact of even relatively small changes on the profitability of a business. They seem to believe that an additional 1 or 2 per cent. makes no difference, but cumulatively, in industries with tight margins, it can make a huge difference to the viability of businesses.

Mr. Chope: My hon. Friend is absolutely right. One only has to look at today's financial news to realise that all those little bits and pieces are catching up with the Government because they are damaging our economy. Contrary to what the Prime Minister said at Question Time last week, the stock market is now lower than it was when the Government came to office, which is in no small measure because of their taxation policies.

The Economic Secretary has said that there is an environmental justification for the tax. That has certainly been the argument advanced. It is a pity that the Government did not listen to the arguments expressed by bodies such as Friends of the Earth Northern Ireland, which suggested that there were alternative ways of addressing in the planning system the issue of demand and the environmental impact of aggregate supply, and encouraging the reuse of construction wastes.

I put down this challenge to the Government. The levy purportedly deals with some environmental costs: the noise, the dust and the damage that comes from hard rock quarrying, and sand and gravel pits. However, what happens when a slate quarry is reopened? Is there no environmental impact? What is the environmental cost of reopening that quarry and transporting the slate and slate waste across hundreds of miles? The Government have been very partial in the legislation, and I return to the state aid issue. Perhaps the Economic Secretary has not yet seen the press release issued by the British Aggregates Association this morning, but it says:

    ''The BAA applied to the high court for a judicial review of the aggregates levy. At that review the Government successfully argued that the levy as a whole was not state aid.

    The Government had previously applied to the European Commission, under State Aid rules, for permission to grant a temporary partial exemption in Northern Ireland. The Commission approved this special treatment''—

I emphasise this—

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    ''but, in an unexpected move, then went on to approve the levy as a whole, even though the Government claims that it had not asked it to do so.

    However, the Commission decision of the 24th April, passed privately to the UK Government just three days after judgment was given in the High Court, accepts that the levy is indeed state aid—and approves it on that basis.''

Sadly, that is why the issue will run and run in the courts, if the Government will not accept the arguments put forward against this ludicrous tax.

Question put and agreed to.

Clause 129 ordered to stand part of the Bill.

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