House of Commons - Environmental Audit

Select Committee on Environmental Audit Written Evidence

APPENDIX 2

Memorandum from the British Aggregates Association

THE ENVIRONMENTAL IMPACT OF THE AGGREGATES LEVY

1. INTRODUCTION AND SUMMARY

1.1 The British Aggregates Association (BAA) was formed to represent and protect the interests of the UK's independent aggregates producers, and now represents over sixty independent and privately owned quarry companies. The association is recognised by all the appropriate government departments and is an essential part of their consultation process.

1.2 BAA members have expressed increasing concern that the aggregates levy is proving unable to deliver the environmental improvements promised; indeed compelling evidence has emerged since its implementation in April 2002 that the levy is instead causing environmental damage.

1.3 The aggregates levy has not delivered real environmental improvements:

— Prior to the introduction of the levy, the quarrying industry already minimised its environmental impact by conforming to extremely demanding environmental regulation.

— There is very limited scope to replace virgin primary aggregate with either recycled construction and demolition waste or alternative materials. In any case, more sophisticated and effective tools existed before the introduction of the levy to promote the use of alternative materials (including recycled wastes), where viable.

— The Aggregates Levy Sustainability Fund has failed to fulfil its remit.

1.4 The aggregates levy is causing environmental damage:

— It has created new, environmentally intrusive spoil heaps by distorting localised aggregates markets.

— It has caused a surge in the level of unlicensed and highly environmentally damaging quarrying in Northern Ireland, and elsewhere in the UK, by creating a significant additional incentive for tax evasion.

1.5 The aggregates levy should be revoked before further environmental damage is caused.

2. THE AGGREGATES LEVY AND NORTHERN IRELAND'S ENVIRONMENT: WHY HM TREASURY HAD TO RE-THINK THE LEVY

2.1 The aggregates levy has had an enormous and highly damaging impact in Northern Ireland.

2.2 Official aggregates sales figures in Northern Ireland have declined, despite an increase in construction activity (and therefore demand for aggregates)[1]. The gap is being filled by aggregate smuggled from the Republic of Ireland, and by aggregate from unlicensed, unregistered quarries. This is a direct result of incentives created by the aggregates levy.

2.3 The current market for "black market" aggregates is estimated at up to 5 million tonnes per annum, based on Department of Enterprise, Trade and Investment (DETINI) figures[2]. This is equivalent to 20% of official aggregates sales. The "black market" is projected to increase still further since official aggregates sales are continuing to decline.

2.4 Customs and Excise are unable to properly enforce the levy. They lack the resources to tackle this problem, and are inevitably focused on high priority, higher value goods such as fuel, alcohol and tobacco. The penalties faced for tax evasion, in the unlikely event of being found out, are small compared to the gains to be made. To the BAA's knowledge, there have been no prosecutions for aggregates smuggling or unauthorised quarrying in Northern Ireland since the introduction of the levy. It may ultimately prove impossible for Customs and Excise to enforce the aggregates levy.

2.5 Increase in Unlicensed Quarrying

The levy is also acting as the incentive for a massive increase in quarrying at small, unauthorised sites, and in "black market" aggregates. This is the most environmentally damaging form of aggregates extraction.

2.6 The 22% fall in sales in Antrim, at some distance from the border, can only be explained by a dramatic increase in "black market" aggregates from unlicensed quarries. At least 38 illegal quarries have appeared in Northern Ireland since the introduction of the levy[3].

2.7 It is particularly regrettable that the border areas, where most of the region's quarrying is concentrated, are worst affected by the loss of legitimate aggregates markets - many are severely disadvantaged, and have been designated "Targeting Social Need"" areas by the Government; jobs lost there are extremely difficult to recover and the impact is being felt acutely.

2.8 Unauthorised, unlicensed quarries are not controlled through the planning system. They do not observe the stringent environmental regulations applied to the industry. Neither are they likely to observe employment legislation, health and safety procedures, or hold adequate insurance.

2.9 The increase in "black market" aggregates attributable to the levy is not unique to Northern Ireland—examples of unauthorised, unregistered aggregates extraction can also be found in many parts of rural Scotland in particular.

2.10 Minimal Scope for Alternatives to Aggregate

There is very limited availability of unrecycled "hard" construction and demolition waste (C&DW) that could be recycled and substituted for aggregate in Northern Ireland. Furthermore, any increase in recycling of C&DW in Northern Ireland will be dependent on improvements in waste management, in particular enforcement action against unauthorised waste disposal sites and changes to specifications for construction materials to allow the use of recycled C&DW.

2.11 This assessment is supported by the Symonds Report, which found that even if conditions both encouraged and facilitated the maximum use of non-traditional materials, the contribution which they could make to overall aggregate supply in Northern Ireland is quite modest[4].

2.12 Creation of Intrusive New Spoil Heaps

Where alternatives are available, they have replaced low priced aggregates by-products (also referred to as "secondary" or "low grade" aggregates) for which the levy represents a high proportion of the selling price. These low grade aggregates are unavoidably produced when extracting higher grade materials. Reducing demand for low grade aggregates whilst high grade aggregates must continue to be produced, since there are no viable alternatives, has had the perverse effect of turning low grade aggregate into "waste" (see section 6 below).

2.13 Many BAA members are already reporting large new stockpiles of these lower-grade products, and the Symonds Report confirms that this is a problem in Northern Ireland[5]. These spoil heaps are highly visually intrusive. This problem will become steadily worse, unless addressed.

2.14 Nailure of Aggregates Levy to Achieve Aims

As the Minister noted, "the Symond's evidence confirms that the specific circumstances in Northern Ireland mean that we are unlikely to meet the environmental aims of the Levy,- to increase the use of recycled or alternative materials to primary aggregate and also to reduce the environmental impact of quarrying" [6].

3. THE TREASURY'S PROPOSED AMENDMENTS TO THE LEVY IN NORTHERN IRELAND

3.1 The Treasury has stated its intention to introduce a revised relief scheme for the aggregates levy in Northern Ireland, from April 2004, subject to State Aids clearance. This follows the failure of the Treasury's original relief scheme in Northern Ireland, introduced alongside the aggregates levy in April 2002, to address the damaging impacts of the tax.

3.2 As the committee will be aware, the details of the new relief scheme are, in outline:

— The relief will be 80% of the full rate of levy, which will apply for the duration of the new scheme, until 31 March 2012. The aggregates levy will therefore be applied at a rate of 32 pence per tonne in Northern Ireland, (based on the current full level of £1.60 per tonne).

— Eligibility will be conditional upon claimants entering into and complying with the terms of a Negotiated Agreement. These agreements will set targets for improvement in environmental performance of quarrying operations; each agreement will be individually tailored to the circumstances of the quarry, taking into account, for example, current standards and scope for improvement. The detail of the form and content of Negotiated Agreements is still being discussed by the Department of Environment Northern Ireland (DoENI) and industry representatives in Northern Ireland.

— Aggregate or products made from aggregate sent from Northern Ireland to Great Britain will not be eligible for the relief

3.3 The BAA broadly supports the Treasury's proposed new relief scheme, and believes it may mitigate some of the most damaging elements of the aggregates levy. However, we are concerned that Negotiated Agreements could require expenditure by SMEs that is far greater, proportionately, than that required of larger companies[7].

3.4 A large proportion of Northern Ireland's aggregates businesses are SMEs. If the new scheme did not significantly reduce costs to them, the current incentives to source aggregate from outside the scope of the levy would continue to exist, as would the consequent environmental impacts. The BAA therefore believes that SMEs should be able to claim additional relief on the basis of the significant additional upfront costs incurred in complying with Negotiated Agreements.

4. THE AGGREGATES LEVY: FAILING THE ENVIRONMENT ACROSS THE UK

4.1 The environmental damage attributable to the aggregates levy in Northern Ireland can also be seen across the rest of the UK. The environmental impact of the aggregates levy is explored in more detail below.

4.2 No study of whether the aggregates levy is meeting its ascribed environmental aims has yet been published. Given the evidence of environmental damage attributable to the levy, outlined below, there is a strong case for an urgent public review of the environmental impact of the aggregates levy across the UK.

5. THE FAILURE OF THE SUSTAINABILITY FUND

5.1 Fresh evidence has emerged that the Aggregates Levy Sustainability Fund (ALSF), set up to address the environmental impacts attributed by the Government to aggregates quarrying and funded by the aggregates levy, has failed properly to fulfil its remit. This is particularly significant since the ALSF formed a crucial part of the Government's justification of the aggregates levy.

5.2 When the Fund was announced in April 2002, resources were allocated to three broad objectives: to minimise demand for primary aggregates; to promote environmentally friendly extraction and transport; and to reduce the local effects of aggregate extraction.

5.3 An interim review of the ALSF's operation, undertaken by DEFRA[8], found that:

"A number of concerns were raised by stakeholders about the relevance of research undertaken with ALSF monies. There was a view that some of the funding was duplicating existing research and that it might not always be justified"

— a significant proportion of the ALSF, which was to deliver on the second objective (promoting environmentally friendly extraction and transport), has not been allocated due to problems with State Aid clearance

"there was general agreement that the Fund has lacked strategic focus and coordination, the involvement of local communities directly affected by quarrying activities has been constrained and there has been no overarching mechanism in place to measure programme impacts in terms of desired outcomes"

5.4 The BAA is very concerned that the ALSF is not achieving the environmental benefits intended. In particular, many of the projects supported are not focused on aggregates, contrary to the Fund's intentions. The inability of the ALSF to identify potential environmental improvements at quarries results from the industry taking all possible steps to minimise its impact.

5.5 Defra have admitted that, "as neither the structure nor the resources required to monitor and evaluate its performance against stated objectives were identified at the time of the Fund's design, the scope of the evaluation has been constrained" [9]. The operation of the ALSF should be subject to a comprehensive public review as soon as possible.

6. A BLOT ON THE LANDSCAPE

6.1 Across the UK, new spoil heaps of unsold aggregates by-products are becoming a serious environmental blight, a problem which will continue unless and until the market distortions caused by the levy are addressed. The £1.60 per tonne levy has made aggregates by-products commercially unattractive and unsaleable in many areas. Localised markets for `low grade' by-product aggregates have been distorted by the levy, which are increasingly being substituted by the by-products of other industries, such as slate and china clay[10]. This raises obvious questions about the environmental benefit of substituting spoil heaps in one extractive industry for spoil heaps in another.

6.2 Aggregates by-products are unavoidably produced when extracting and processing virgin aggregate to produce a quarry's primary product. This has never been treated as "waste", since it could be sold cheaply, for use in products such as concrete blocks, or for use as a cheap "fill" material, for around £1 per tonne, or in some cases even given away. Since there are no viable alternatives to high grade primary products, the levy has mainly affected demand for by-product aggregates instead of significantly reducing extraction it has simply turned some aggregates into "waste".

6.3 BAA members report that large new spoil heaps of unsold by-products have been piling up since April 2002, with clear detrimental effects on the local environment[11]. The size of this problem will become more obvious over the longer term as the management in larger companies become aware of the problems on the ground.

6.4 Turning by-products into waste clearly contradicts the spirit of the Government's own Waste Strategy 2000. Waste problems in other industries are being solved, at the expense of creating a waste problem for the aggregates industry. The products replacing aggregate in this way are invariably extracted in almost exactly the same way as aggregates. The levy may even be creating a perverse incentive for industries with by-products suitable for substitution for use as low-grade aggregate to continue producing high levels of by-product rather than developing alternative uses[12]. The aggregates levy has created, rather than solved, a waste problem.

6.5 Despite the efforts of both HM Treasury and the aggregates industry, it has not been possible to identify a workable solution to this problem. This is largely because of the impossibility of constructing robust definitions of the difference between the low-grade aggregates turned into "waste" by the levy, and the low-grade extractive products that are not subject to the levy (such as slate). Further new aggregates spoil heaps will only be avoided through abolition of the aggregates levy.

6.6 Furthermore, since the levy created a significant new incentive for tax avoidance, unauthorised, unregistered aggregates extraction have emerged in many parts of rural Scotland in particular numerous examples have been reported to HM Customs and Excise. These operations do not comply with the stringent environmental regulations that minimise the environmental impact of the rest of the aggregates industry. They frequently have a very damaging impact on the landscape.

7. INAPPROPRIATE PROMOTION OF ALTERNATIVES TO AGGREGATE

7.1 The aggregates levy's stated intention was to create market incentives to encourage greater use of construction and demolition waste, promote the use of alternative materials, and promote greater efficiency in the use of virgin aggregate. The aggregates levy has proven to be too blunt a tool to achieve these aims in a complex industry.

7.2 Recycling

Pre-existing cost incentives[13], together with the development of highly mobile, relatively cheap machinery to process hard wastes, led to a dramatic increase in the level of recycling before the aggregates levy was implemented. In addition, targets to recycle such materials are increasingly being used; for example under Agenda 21 local authorities have increased still further their recycling of hard waste. The aggregates levy is, by comparison to these measures, a relatively ineffective, not to say blunt, tool.

7.3 Recycling clearly has an environmental impact: research commissioned by the Government attempting to quantify the environmental impact of quarrying found that households living near the recycling site surveyed would be willing to pay £9.57 per tonne in a hypothetical situation in which the site were closed[14]. Substituting recycled for virgin aggregate does not significantly reduce the overall impact of construction on the environment.

7.4 Just 633,000 tonnes of hard waste per year, clean or contaminated, was landfilled in England and Wales prior to the introduction of the levy[15], equivalent to less than 0.6% of UK aggregate production. In this respect, the aggregates levy is a solution in search of a problem.

7.5 Promoting Alternatives to Aggregate

More powerful means of promoting the use of alternative materials already existed before the introduction of the aggregates levy. Tighter regulations on the disposal of waste had already necessitated finding alternative uses for many materials. For example, the EC Directive banning the landfill of whole tyres by 2003, and shredded tyres by 2006, means that waste tyres will be re-used and recycled whether or not there is an aggregates levy. The main restraint on the use of such alternative materials is the strict specification of materials for many uses, rather than their cost.

7.6 Where the aggregates levy has promoted alternatives to virgin aggregate, this has been by pricing aggregates by-products out of many of their local markets. This has prevented this virgin aggregate from being used efficiently and is thereby creating new spoil heaps (see paragraph 6.2 above). It is notable that most of the alternatives being substituted for aggregate, such as the by-products of china clay and slate, are extracted in a very similar way to aggregates - they have no less environmental impact than aggregates. In this respect, the aggregates levy is an inappropriate solution that has caused an additional problem.

7.7 IMPORTING AGGREGATE PRODUCTS

The British Pre-cast Concrete Federation advise us that imports of processed products containing aggregate are increasing[16]. This is because the aggregate in imported processed products such as pre-cast concrete cannot be taxed, whereas the aggregate in such products is taxed when they are manufactured in the UK. There is no environmental benefit in simply exporting aggregates extraction and processing.

8. Quarrying and the Environment

8.1 Aggregates are vital to provide the needs of society - schools, hospitals, roads, railways and housing. The aggregates industry provides employment for up to 70,000 people, mainly in rural communities, and contributes around £3 billion in primary products to GDP.

8.2 Aggregates producers are strongly committed to preserving the environment, and take their obligations seriously. Aggregates companies have invested large sums in complying with stringent environmental regulations, and have created numerous Sites of Special Scientific Interest (SSSIs) and RSPB sites through both the establishment and restoration of quarries. Very few complaints are ever received about aggregates producing sites.

8.3 The aggregates levy was intended to bring about additional environmental improvements to those already achieved by the industry. The Treasury argued that it would result in "reductions in noise and vibration, dust and other emissions to air, visual intrusion, loss of amenity and damage to wildlife habitats". Prior to the introduction of the levy, the quarrying industry had already invested large sums in conforming to extremely high environmental standards, such as the requirement to use the "best available technology" to reduce environmental impacts.

8.4 Since the levy was proposed in 1999 environmental regulation has been tightened, and the performance of quarries has improved still further. These changes include the EU requirement for all new aggregates sites to undergo Environmental Impact Assessments, and additional protection for SSSIs. Together with the responsible approach of the industry, such requirements have reduced the environmental impact of quarrying to the greatest extent possible.

8.5 Once extraction has ceased at a site, it can be put to numerous socially and environmentally beneficial uses, including the creation of recreational amenity and sports facilities, the creation of wildlife habitats and geological exposures, the recovery of archaeological remains, and essential services such as waste disposal or water storage. Over 50% of sites of special scientific interest (SSSIs) have resulted from the restoration of old quarries.

8.6 The environmental justification for the levy is flawed. The research commissioned by the former Department of the Environment, Transport and the Regions (DETR) [17], upon which both the decision to introduce the aggregates levy and the level of the tax were based, used the controversial contingent valuation technique to measure the alleged environmental impacts. It is notable that only one in ten respondents were prepared to pay anything to shut their local quarry, which means the levy is based on the views of a vocal minority. It is also worth noting that the impact of aggregate recycling was valued more highly than that of the majority of quarries[18].

9. CONCLUSION

9.1 HM Treasury's Statement of Intent on Environmental Taxation states that environmental taxes "must be well designed to meet objectives without undesirable side-effects" [19].

9.2 The aggregates levy is a blunt and inappropriate tool applied to a complex industry. The levy is failing to meet its environmental objectives, and its undesirable side effects include numerous examples of environmental damage, as outlined above.

9.3 HM Treasury should recognise that this particular environmental tax has failed. There is ultimately no sensible and environmentally sustainable alternative to revoking the aggregates levy.

January 2004

1 The £1.60 fixed rate of the levy added 56% to the £2.85 per tonne average price (ex-works, before VAT) of aggregate in the region (data taken from the Geological Survey of Northern Ireland). Back

2 Annual Minerals Statement 2002, Department of Enterprise, Trade and Investment (Northern Ireland) Back

3 This figure is based on a survey of illicit quarrying activity conducted by the Quarry Products Association Northern Ireland, and presented to the Northern Ireland Affairs Committee on 16 September 2003. The Symonds Report confirms that unauthorised quarries can easily be seen, without any special effort (Assessment of the State of the Construction Aggregates Sector in Northern Ireland, Report by Symonds Group, in association with WRc, for HM Customs and Excise, October 2003, page iv). Back

4 (Assessment of the State of the Construction Aggregates Sector in Northern Ireland, Report by Symonds Group, in association with WRc, for HM Customs and Excise, October 2003, p vi). Back

5 The Symonds Report also confirms that unsold stockpiles of materials are building up (Assessment of the State of the Construction Aggregates Sector in Northern Ireland, Report by Symonds Group, in association with WRc, for HM Customs and Excise, October 2003, p 43). Back

6 John Healey MP, Economic Secretary, HM Treasury in Uncorrected Oral Evidence taken before the Northern Ireland Affairs Committee on Wednesday 5 November 2003/ Back

7 The initial costs of implementing a negotiated agreement are likely to be greater for a small quarry, as compared to a larger quarry, because of the need to employ environmental consultants (larger companies can use in-house resources at far lower cost). The impact of this additional spend will be proportionately greater, since the costs will of course be absorbed by a lower level of aggregates sales. Back

8 Mid Term Evaluation of the Aggregates Levy Sustainability Fund, DEFRA, published December 2003. Back

9 ibid, p ii. Back

10 For example, sales of aggregates by-products at Penmaenmawr Quarry near Conwy are in competition with locally produced slate by-products. Their sales have fallen by 60% since the introduction of the levy, a development that has led to the redundancies of 25% of the workforce. A similar situation is experienced by many quarry operators in Southwest England, where china clay by-products are readily available and have, since the introduction of the levy, made aggregates by-products commercially worthless. (Clay can be, and is, used as aggregate, for example in lining reservoirs or constructing motorway embankments.) In one case, a large aggregates producer based in Kent reports that slag is even being imported from the continent and used locally in place of low-grade aggregates, leading to the dumping of these aggregates as "waste". Back

11 British Aggregates Association Membership Survey "Aggregates Levy-The First Year", (June 2003). The survey found that 65% reported a problem with unsold by-products; the producers affected were only able to dispose of 33% of the material, half the level immediately prior to the levy's introduction. The BAA estimates that, even during the first year of the levy's operation, between ten and fifteen million extra tonnes of "waste" were created. Back