Submission of evidence from the Quarry
Products Association
1. The Quarry Products Association (QPA)
is the major trade association representing the UK aggregates
industry.
2. QPA members include major national and
international quarry companies, and many small and medium sized
businesses significant in regional and local markets. QPA members
account for 90% of the output of aggregates in the UK. The scope
of QPA membership includes supply of crushed rock and sand and
gravel aggregates—both land won and marine dredged—recycled
aggregates, asphalt, ready-mixed concrete, lime, mortar and silica
sand.
3. The Committee considered the issue of
the aggregates levy in some detail before the levy decision was
announced in the 2000 Budget, and the issues we have raised in
this submission are closely related to those discussions. In particular,
concerns raised by the Committee about the criteria for assessing
the environmental merit of the (then proposed) levy have yet to
be addressed by Government. We have focussed particularly on two
of the key inquiry issues identified by the Committee.
— The impact of specific environmental
tax measures (or their absence).
— The adequacy and effectiveness with
which the impacts of existing fiscal instruments are monitored
and appraised.
THE IMPACT
OF SPECIFIC
ENVIRONMENTAL TAX
MEASURES (OR
THEIR ABSENCE)
4. The QPA evidence will focus on the aggregates
levy, and issues associated with the development and implementation
of the levy. The prospect of an aggregates tax or levy was introduced
in the July 1997 Budget, the levy was announced in the March 2000
Budget and implemented in April 2002, therefore providing an appropriate
case history to test the policies and principles set out in the
2003 Pre-Budget Report, previous Budgets and Pre Budget Reports,
and the review associated with the 2002 Pre Budget Report, "Tax
and the environment: using economic instruments".
5. The 2003 Pre Budget Report lists the
environmental impacts of the aggregates levy (table 7.2) as "Reductions
in noise and vibrations, dust and other emissions to air, visual
intrusion, loss of amenity and damage to wildlife habitats".
6. It should be noted that the development
and implementation of the aggregates levy was accompanied by no
detailed environmental objectives, targets, or measurement criteria,
other than the very general assertions set out in successive Budgets
and Pre Budget Reports.
7. It has been apparent for some time that
the aggregates levy is likely to be shown to be a weak environmental
measure. Prior to the introduction of the levy, the QPA had commissioned
independent research on the (prospective) levy from two eminent
environmental economic consultancies, Ecotec Research and Consulting
Ltd, and Professor David Pearce/EFTEC.
8. The two reports concluded:
"In conclusion, the positive environmental
effects associated with an aggregates tax seem to be rather limited.
The tax would offer no incentive to producers to reduce the environmental
impact of their operations. The only impact of the tax would be
to reduce demand (which seems relatively price inelastic), and
yet the linkage between output and the external costs associated
with aggregates supply may be rather weak. Furthermore, the environmental
impact of a change in demand depends both on the way in which
the (more or less) marginal reduction in output occurs, and on
the way in which these changes are reflected in changes in external
costs.
In terms of its potential for encouraging recycling
of construction wastes, the effect is unlikely to be strong unless
the differential between a tax on primary sources and recycled
materials is set at a very high level. It would be better to address
(though administratively difficult since this would require valuable
Parliamentary time) the primary legislation which allows those
handling construction wastes to employ them for somewhat superfluous
purposes which are exempt from waste management licensing.
There would appear to be alternative ways of
addressing, within the planning system, both the issue of demand
and the environmental impacts of aggregates supply. As mentioned
above, there are also better ways of encouraging re-use of construction
wastes. The case for an aggregates tax is therefore highly questionable."[66]
"We conclude that an aggregates tax is an
extremely inefficient way to try and secure an environmental target:
(a) because the demand is inelastic and (b) because the tax is
a products tax rather than an externality tax. This suggests that
a package of measures directly targeted at the environmental impacts
will be more effective than an aggregates tax."[67]
9. The key point, that the levy is inherently
inefficient because it is a crude volume tax, is highlighted by
EFTEC/Pearce:
10. "But the fact that the `product'
is taxed rather than the externality, has formidable implications
for the effectiveness of the tax. For it means that the industry
has no incentive to reduce the environmental impact of each tonne
of aggregates. Were it to do so, it would reduce the environmental
impact, but it would not reduce its tax burdens. The only way
a product tax helps is by reducing the quantity of the product
and, as we have seen above, this will not happen on any significant
scale because of the inelasticity of demand for aggregates. This
feature of product taxes for environmental control is well known.
Environmental taxes should, as far as possible, always be targeted
at the externality itself, not the product embodying the externality".
11. So in practice the levy can only produce
significant environmental benefits if either:
— it generates a significant reduction
in the total volume of extraction of aggregates, particularly
if that reduction is focussed on sites with poor environmental
performance; and/or
— it incentivises operators to improve
environmental standards and further reduce environmental impacts.
12. In reality the aggregates market has
shown the following characteristics since the introduction of
the levy.
13. Total primary aggregates demand has
generally declined over the past 21 months, due to both the impact
of the levy and other market factors.
However, the key levy impact in the primary
aggregates market has been reduced demand for low quality crushed
rock, a "by-product" of the production of premium rock,
for which demand has not changed significantly.
As a result stockpiling of low grade rock in
quarries has increased significantly.
So, while overall rock sales across the weighbridge
have declined due to the levy, the volume of total extraction
has been less affected—the balancing item being increased
stockpiling of low grade aggregates.
Sales of recycled materials such as construction
and demolition waste have continued to increase, but the trend
growth remains similar to the pre-tax growth rate (in practice,
new "waste" definitions now being implemented by Government
are in danger of reducing the existing level of sales from recycled
sector).
14. The key tax impact has been the substitution
of low grade (now stockpiled) primary aggregates by other non-taxed
extracted materials. These include the use of tax exempt minerals
such as shales and clay in low quality aggregates markets.
15. The market has seen no significant change
in the overall level of quarrying of crushed rock and sand and
gravel aggregates and china clay and slate (although some substitution
of china clay waste and slate waste for crushed rock waste), but
an increase in the quarrying of other non taxed minerals such
as shale for use in aggregates markets.
16. The net impact of this market substitution
of lower quality crushed rock is likely to have been an overall
increase in the total volume of quarrying and extraction of minerals
for the supply of aggregates markets by some 2/3 million tonnes
in Great Britain, including both taxed and untaxed minerals (conversely,
it is difficult to see how this changing supply pattern could
have led to any net reduction in total extraction).
17. Anecdotal evidence would suggest that
the marginal transfer of supply of lower quality materials from
crushed rock quarries to some other, less well regulated, sources
of supply is likely to have generated overall environmental disbenefits.
18. The overall conclusion is that, while
the levy has reduced demand for low quality crushed rock, the
levy has generated a less efficient use of total mineral resources,
an overall increase in mineral extraction, hence the use of total
production as a proxy for reducing environmental impacts has failed.
19. This overall pattern of market changes
is unlikely to have generated overall environmental improvements—indeed,
the most likely net environmental outcome is perverse.
20. The environmental impact of the aggregates
levy can also be examined in more detail by assessing the impact
of the levy on the specific outcomes listed by the Treasury, most
recently in the 2003 Pre Budget Report. ("Reductions in noise
and vibration, dust and other emissions to air, visual intrusion,
loss of amenity and damage to wildlife habitats.")
IMPACT ON
"NOISE AND
VIBRATION, DUST
AND OTHER
EMISSION TO
AIR"
21. The earlier listing of the market impacts
summarises operational consequences of the levy, notably:
— The increased stockpiling of lower
quality materials in aggregates quarries.
— The transfer of supply from taxed
aggregates operators to other non-taxed suppliers of extracted
minerals.
— The likely net increase in total
extraction of materials to supply aggregates markets.
— The increased activity of poorly
regulated operators at the margin of the industry exploiting materials
without tax liability.
— The structure of the levy, providing
no incentives for the aggregates industry to reduce its tax burden
by further maximising/reducing environmental impacts.
Hence the operational environmental impacts
of the levy are likely to have been perverse.
22. In this context it can be noted that
the latest recording of serious pollution incidents affecting
all media (air, land, and water) by the Environment Agency indicates
a relatively low level of such impacts by the aggregates industry.
EA SECTOR ANALYSIS OF SERIOUS POLLUTION INCIDENTS
|
| 2001
| 2002 | % change
|
|
| Mining and quarrying | 9
| 7 | -22
|
| Other Sectors | 1,845
| 1,459 | -21
|
| Total | 1,854
| 1,468 | -21
|
|
Of the seven incidents recorded for the mining and quarrying
sector for 2002, two were related to (taxed) primary aggregates
extraction, accounting for 0.13% of the total.
IMPACT ON
"LOSS OF
AMENITY AND
DAMAGE TO
WILDLIFE HABITATS."
23. There is no evidence that the levy has led to an
improvement in the impacts above. Indeed, based upon the market
impacts and marginal transfer of supply to non-mainstream aggregates
suppliers described earlier, it is difficult to see how improvements
could have been achieved.
24. In reality the aggregates industry has an impressive
record of restoration and aftercare of sites to enhance wildlife
habitats and biodiversity. English Nature has identified over
700 sites of Special Scientific Interest which have origins in
aggregates and other mineral operations. The Quarry Products Association
and predecessor association have been running an annual restoration
award scheme for 35 years, with over 300 awards made, and the
industry has worked closely with organisations such as English
Nature, the RSPB and the Wildlife Trusts to promote and implement
conservation/biodiversity best practice at operational and restored
sites.
25. The latest English Nature assessment of the condition
of SSSIs in England ("England's best wildlife and geological
sites—the condition of Sites of Special Scientific Interest
in England in 2003—December 2003) identifies that 42% of
SSSI land by area is in unfavourable condition. Of the reasons
identified for generating such unfavourable conditions, the category
of "planning permission—other mineral and waste"
has the lowest recorded adverse impact.
RECYCLING
26. The associated purpose of the aggregates levy is
to encourage recycling. To quote the 2003 Pre Budget Report (Para
7.64), the levy "also promotes greater efficiency in the
use of virgin aggregates and the development of alternative materials
such as waste tyres".
27. The development of the recycling sector has been
as follows:
THE GROWTH OF SUPPLY OF RECYCLED AND SECONDARY AGGREGATES
|
| Volume Summaries million tonnes pa (GB)
| |
| Recycled/Secondary Source | 1989-90*
| 2001** |
|
| Construction/Demolition waste | 11
| 42 |
| Road planning's | 6
| 6 |
| Slags | 4.4
| 2.3 |
| Colliery spoil | 2.8
| 0.8 |
| China clay waste | 1.5
| 2.3 |
| Slate waste | 0.5
| 0.6 |
| Other | 5.8
| 6.0 |
| Total | 32.0
| 60.0 |
|
* From "The occurrence and utilisation of mineral and construction
wastes" ARUP Economics for the DoE 1991.
** Survey of Arisings and Use of Construction and Demolition Waste
in England & Wales in 2001: ODPM/Nov 2002 Table 5.9.
** Survey of Arisings and Use of Secondary Materials as Aggregates
in England & Wales in 2001: ODPM/Nov 2002 Page 11, with QPA
estimate for Scotland to produce GB total.
MARKET SHARES OF PRIMARY & RECYCLED/SECONDARY AGGREGATES
COMPARISON WITH PRIMARY AGGREGATES SUPPLY MILLION TONNES
PA (GB)
|
| Aggregates Source | 1989
| 2001 | 2002
| 2003* | % Change
|
|
| Primary | 300
| 222 | 214
| 205 | -32
|
| Recycled/Secondary | 32
| 60 | 62
| 65 | +103
|
| Total | 332 |
282 | 276
| 270 | -19
|
Recycled/Secondary
Market share | 9.6%
| 21.3% | 22.5%
| 24.1% | |
|
*QPA estimate for 2003.
28. The tables above demonstrate a very significant growth
in the supply of recycled/secondary/alternative aggregates in
recent years. This growth has occurred over the last 12/15 years,
without an aggregates levy, for reasons including:
— The increasing cost of landfill, including the
impact of the landfill tax.
— The increasing willingness of clients to use such
materials, implying greater technical awareness and confidence
in these materials.
— More effective and "professional" marketing
of recycling and secondary materials.
CONSTRUCTION AND
DEMOLITION WASTE,
ROAD PLANNINGS,
AND RAILWAY
BALLAST
29. The supply of these recycled materials is mature
and well established. The results of the ODPM research carried
out in 2001, indicates that the potential additional supply from
these sources is relatively restricted. The August 2002 ODPM consultation
(Consultation Paper—Draft National and Regional Guidelines
for Aggregates Provision in England 2001-16 (Paragraph A15)) includes
the following assessment:
"The available evidence suggests that there has been
a rapid increase in the use of C and D waste (construction and
demolition waste) since 1990. This means that most of the C and
D waste that is easy to recycle is now being recycled and therefore
it is likely to become progressively more difficult to increase
the use of C and D waste further. While there is potential for
increased supply from some mineral wastes, a number of other sources
of alternatives to primary aggregates are decreasing as a result
of industrial changes."
SECONDARY MATERIALS
30. As with C and D waste, some secondary materials such
as iron and steel slags are well-established elements of aggregates
market supply. In such cases the aggregates levy has had little
impact on supply from domestic sources.
31. The most significant noted change in the pattern
of supply has been the expansion of untaxed quarrying, encompassing
both legal and illegal activities.
32. Illegal activities refer to the supply of untaxed
rock and sand and gravel into aggregates markets by suppliers
who have not registered for aggregates levy or falsified returns
to Customs and Excise. While such illegal activities account for
a low proportion of the aggregates market, and evidence of such
activities in Great Britain has been limited, it has proved a
very significant problem in Northern Ireland.
33. More significant than these illegal activities in
the expansion in supply of extracted minerals outside the scope
of the aggregates levy. The growing significance of these non-taxed
minerals is due to the structure and detail of the levy, which
includes a wide range of materials which are not subject to the
levy or exempt from the levy. Such exceptions include:
"Anything consisting entirely of the following substances:
— Spoil from the processing after extraction of
industrial minerals.
— Aggregates necessarily arising from the laying
of foundations or of pipes and cables on building sites.
— Aggregates necessarily arising from navigation
dredging.
— Aggregates necessarily arising from highway construction.
Any material, more than half of which consists of the following
substances:
— Clay, soil, vegetable or other organic matter.
— Processing waste resulting from the separation
of coal, lignite, slate or shale from other aggregates after extraction.
— Drill cutting from oil exploration in UK waters
or from land drilling.
— Materials arising from utility works.
Any overburden arising from the extraction of these materials
or from the extraction of any industrial minerals is taxable unless
it is a specifically exempt material. Interburden from china clay
and ball clay extraction is not taxable."[68]
34. The fact that the legislation allows materials comprising
of more than 50% of the listed minerals and other materials, and
under 50% of (otherwise tax liable) rock and/or sand and gravel,
to be sold without tax has stimulated new mineral workings of
these "mixed" materials, and other re-activation of
old workings of poor quality materials. While we do not have quantified
evidence, we believe it likely that in general the environmental
impacts of such opportunistic extraction and workings would be
greater than equivalent supply from an established and fully regulated
crushed rock or sand and gravel quarry, wharf, or depot.
THE ADEQUACY
AND EFFECTIVENESS
WITH WHICH
THE IMPACTS
OF EXISTING
FISCAL INSTRUMENTS
ARE MONITORED
AND APPRAISED
35. The lack of clear criteria for monitoring and assessing
the potential and actual impacts of the aggregates levy has been
a long standing problem.
36. This submission has already identified that the aggregates
levy was introduced with no detailed environmental objectives,
targets, benchmarks or measurement criteria, other than very generalised
statements.
37. This failure follows a similar lack of clarity leading
up to the implementation of the aggregates levy. In 1999 the QPA
submitted a detailed package of regulatory and voluntary proposals
to Government as the basis for a more environmentally effective
alternative than an aggregates levy. During the course of the
subsequent negotiations between the QPA and Government, Government's
failure to identify policy objectives created real problems for
the industry during the negotiations. The QPA proposal was eventually
rejected by Government as inadequate, but in over 12 months of
negotiations the QPA was never advised as to what would constitute
an "adequate" proposal. This issue was reflected in
earlier Committee inquiries, and was compounded by the willingness
of the Government to implement a negotiated agreement with the
pesticides industry—as an alternative to a pesticides tax—when
the proposals put forward by that industry were notably less significant
(both in terms of cost and likely environmental effectiveness)
than the proposals for a negotiated agreement put forward by the
quarrying industry.
"But we entirely endorse the view that the Government
has failed to clarify what the objectives of the tax should be,
and to specify a clear criterion by which to judge any further
revision of the voluntary industry package. We found it interesting,
for example, that the Minster placed so much emphasis on increasing
recycling as a primary objective of the tax—as opposed to
ameliorating the environmental impacts which quarrying gives rise
to. We were also surprised that the Minister and the Treasury
in both oral and written evidence were unable to throw more light
on how they would assess voluntary proposals against the benefits
brought about by a tax. We asked the Treasury for written clarification,
but their response pointed only to the different effects each
option would have."[69]
38. There is a history of a lack of transparency and
openness in the appraisal of environmental taxation which is still
apparent in respect of the aggregates levy.
39. Since the implementation of the aggregates levy there
have been two specific assessment exercises by Government.
40. First, in early 2003 HM Customs and Excise carried
out a survey on the issues of quarry waste and the impact of the
aggregates levy.
The industry assumed that this survey was in response to
clearly identifiable concerns that, due to the structure of the
levy, low quality aggregates (sometimes referred to as quarry
waste) were accumulating in rock quarries due to substitution
in lower quality aggregates markets by other extracted materials
not liable to the levy (as described earlier in this evidence).
In reality the survey was not concerned about this accumulation
of stockpiles as a result of tax generated substitution, but only
materials identified by Customs and Excise as:
"Characterised by their extremely limited use as an aggregate
and, consequently, have little or no commercial value".[70]
41. As a consequence of the very limited definition of
waste or low quality aggregates covered by the survey, the survey
process and results were of minimal value in terms of providing
useful assessment information for the levy. The terms of reference
of the survey were drawn far too tightly to enable a proper assessment
of the key substitution issues associated with the levy.
42. Second, due to the increasingly well documented economic
and environmental problems arising in Northern Ireland following
the implementation of the levy, Government commissioned a report,
"The Assessment of the State of the Construction Aggregates
Sector in Northern Ireland" (the Symonds Report). This report
validated the issues highlighted by QPA Northern Ireland, and
has resulted in an acknowledgement from the Treasury that the
levy has not met its objectives in Northern Ireland, and the movement
towards a reduced levy rate/environmental agreement scheme for
Northern Ireland confirmed in the 2003 Pre Budget Report. The
industry and authorities in Northern Ireland are relieved at the
Treasury's change of policy with regard to the levy, but there
is also a frustration that the damaging impacts of the levy were
accurately predicted before the levy implementation, but were
not given adequate consideration by Government at that stage.
A degree of complacency about Government's consideration of the
levy effect in Northern Ireland prior to the introduction of the
levy can be detected in Government statements.
"We have listened carefully to arguments about the implications
of the aggregates levy for Northern Ireland. The industry there
will be generally protected because imports of aggregate will
be subject to the levy and exports will be relieved. Opportunities
to smuggle aggregates into Northern Ireland will be pretty limited
because of the bulky nature of the products involved and their
low value. Customs operational staff have much experience of dealing
with such matters. I am confident that, combined with the legitimate
quarrying industry, Customs will combat the potential for smuggling
across the Northern Ireland land border."
Stephen Timms, Financial Secretary, Hansard, 23 April 2001
ENVIRONMENTAL ASSESSMENT
OF THE
AGGREGATES LEVY
43. The Government states in the 2003 Pre Budget Report
that:
"The Government continues to monitor the impact of the
levy to ensure that it is achieving its objectives." Paragraph
7.65.
44. In spite of this statement, however, we are concerned
that there has been no apparent general monitoring and assessment
process within Government which clarifies the objectives of the
levy, and the impact of the levy in meeting these objectives.
45. The reality of the position is that the aggregates
levy was formally raised as a policy option in the July 1997 Budget,
the levy was introduced in April 2002, and has now been operating
for nearly two years, but there are still no clear objectives
for the levy in terms of either environmental outcomes or recycling
volumes.
46. The QPA produced a detailed assessment of the impact
of the aggregates levy in October 2003, copies of which were submitted
to the Treasury and other Government departments with an interest
in the levy.
47. This assessment acknowledged that information on
the impact of the levy was inevitably incomplete, but there was
reasonable evidence that the market impact of the levy had been
to increase the total volume of extraction of minerals for use
in aggregates markets, including some substitution of lower quality
crushed rock by other extracted materials not liable to the levy.
Taking account of the distorting effect of the levy, which has:
— encouraged extraction and/or supply of minerals
not subject to the aggregates levy;
— increased the stockpiling of low quality material
within aggregates quarries, and reduced the resource efficiency
of such operations; and
— provided no incentive for good environmental performance.
there is a significant likelihood that the overall environmental
impact of the levy to date has been perverse, (as described earlier
in this submission).
48. Similarly, while the supply of recycled and secondary
aggregates has increased in recent years, there is little evidence
that the post-levy trend has significantly exceeded the pre-levy
trend of increase in the supply of recycled and secondary materials
into aggregates markets.
49. The 2003 Pre Budget Report makes the following assessment
of the levy.
"There are early indications that extraction of virgin
aggregate has decreased since the levy's introduction and that
construction companies are using more construction and demolition
waste rather than sending it to waste disposal sites."
PRE-BUDGET
REPORT—PARAGRAPH
7.65
50. The Report goes on to state "The Government
has examined with the aggregates industry and others a range of
issues relating to the scope of the levy in order to clarify the
liability of certain materials, protect revenue and ensure that
the levy continues to fulfil its environmental objectives."
2003 PRE BUDGET
REPORT—PARAGRAPH
7.65
51. These are very superficial assessments which takes
no account of the market consequences of the levy described earlier,
nor the environmental implications of these changes.
52. The assertion that "and ensure that the levy
continues to fulfil its environmental objectives" is made
without any supporting information or clarity on the environmental
objectives, or how the levy has impacted upon such environmental
objectives, or what criteria have been used to judge the claimed
environmental success.
53. There remains an outstanding need for Government
to commission and/or participate in a comprehensive and transparent
assessment of the environmental impacts of the aggregates levy.
In spite of carrying out such a process in Northern Ireland, there
is no evidence of a willingness within Government to review the
environmental impact of the levy in Great Britain. We believe
the available evidence is sufficient to identify the urgent need
for the implementation of such an assessment.
January 2004
66
Source: Environmental Effectiveness of a tax on the supply
of aggregates-Ecotec Research and Consulting Ltd 1998. Back
67
Source: The Economic Benefits of Environmental Awareness and
Training Programmes in the Aggregates Industry-Professor David
Pearce/EFTEC Ltd 1999. Back
68
Source: Notice AGL1 March 2003, HM Customs and Excise. Back
69
EAC Fourth Report-The Pre Budget Report 1999: Pesticides, Aggregates
and the Climate Change Levy-14 Feb 2000. Back
70
Source: Aggregates levy-Consultation on Waste Aggregate-Customs
and Excise Dec 2002. Back
| 
