Memorandum submitted by the British Aggregates
Association
1. INTRODUCTION
1.1 The British Aggregates Association (BAA)
was formed to represent and protect the interests of the UK's
independent aggregates producers.
— The association is recognised by
all the appropriate government departments and is an essential
part of their consultation process.
— Small, independent aggregates producers
face enormous difficulties in dealing with new regulatory and
fiscal measures.
— Northern Ireland has a particularly
large proportion of small, independently owned quarries.
1.2 The aggregates levy is having a hugely
damaging impact in Northern Ireland.
— Since the introduction of the levy,
there has been a massive decline in reported sales. Demand for
aggregates is instead being satisfied through a massive increase
in smuggling and the "black market". Customs and Excise
are unable properly to enforce the levy.
— Legitimate quarry operators face
severe, ongoing problems as a result.
— The aggregates levy is proving unable
to deliver real environmental improvements; it may overall be
causing environmental damage.
1.3 There is an overwhelming case for the
complete revocation of the aggregates levy within Northern Ireland,
at the earliest possible opportunity.
2. QUARRYING
IN NORTHERN
IRELAND
2.1. The £1.60 fixed rate of the levy
represents a far higher proportion of the selling price of aggregates
in Northern Ireland than in other regions of the UK. It adds 56%
to the £2.85 per tonne average price of aggregate in Northern
Ireland[1],
compared to the approximately 16% increase to prices of £10
and over in South East England. This difference has caused the
levy to have a far more damaging impact in Northern Ireland than
in the rest of the UK.
2.2 The fall in reported sales across Northern
Ireland since the introduction of the levy varies between 20%
and 40%, depending on the county. All counties have been severely
hit, although the impact has been worst in the border areas.
2.3 The long border with the Republic makes
transporting cheaper industrial aggregates and concrete products
from the Republic into Northern Ireland very easy. This problem
is exacerbated by the concentration of quarries in the border
area. Many areas in these border counties are severely disadvantaged
and have been designated as "Targeting Social Need"
areas by the Government. The effects of the loss of industry and
jobs are acutely felt.
2.4 Most of Northern Ireland's quarries
are relatively small, independently owned concerns. They have
little flexibility to absorb the aggregates levy, and its administrative
costs, and are facing severe problems due to the fall in sales.
These smaller quarries return a great deal to the communities
they serve by way of much needed local employment and with a relatively
small environmental impact.
3. CROSS BORDER
TRANSPORTATION OF
AGGREGATE
3.1 Research carried out by the University
of Ulster found that aggregate has been imported across the border
from the Republic at a rate of 2 million tonnes per annum since
the levy began, equivalent to more than 11% of border counties'
aggregate production[2].
Prior to the introduction of the levy, the level of imports was
negligible, since prices were virtually the same in Northern Ireland
and the Republic.
3.2 The nature of the border, with numerous
minor, rural crossing points, makes evasion relatively easy—as
has been demonstrated with fuel smuggling. This point has long
been acknowledged by Customs and Excise.
3.3 Smuggled aggregates are seriously undermining
legitimate aggregates businesses in Northern Ireland, particularly
in the border counties, where a large proportion of quarrying
is concentrated.
4. "BLACK
MARKET" AGGREGATES
4.1 "Black Market" aggregates
are responsible for a large proportion of the decline in officially
reported sales. The drop in reported sales is far greater than
that attributable to imported aggregates above, varying between
approximately 20% and 40%, by county. This represents an approximately
7-8 million tonnes decrease compared to the previous average annual
aggregate sales of 26 million tonnes per annum, before the levy
was introduced. It is notable that construction activity, and
demand for aggregates, has not decreased.
4.2 With 2 million tonnes of the decrease
in sales accounted for by imports, an estimated 5-6 million tonnes
of aggregate is being sold on the "black market". Given
that the levy was, until April 2003, only applied to aggregates
not used in added value products (asphalt, ready mix concrete
etc), this tonnage represents a high proportion of taxable aggregates.
This is in addition to any aggregates that were part of the "black
market" prior to the introduction of the levy.
4.3 The "black market" is supplied
by two distinct types of operation:
— The unauthorised quarry.
— The established operator supplying
on a "cash in hand" basis.
4.4 Unauthorised 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.
4.5 The massive increase in the "black
market" in Northern Ireland is endangering legitimate quarry
operators. Many are simply unable to compete, and are therefore
experiencing significantly reduced sales.
5. ENFORCEMENT
5.1 On the evidence above, Customs and Excise
are clearly unable to enforce the levy. This failure is causing
enormous difficulties for legitimate quarry operators throughout
Northern Ireland.
5.2 Customs and Excise face well-publicised
difficulties with enforcement in Northern Ireland; it is unrealistic
to assume that proper policing of the aggregates levy can be achieved
without a massive increase in their resources.
5.3 Given that the lost excise duty on a
tanker of fuel is in the region of £12,000, compared to £35
lost when a lorry load of stone is smuggled, it seems unlikely
that Customs and Excise will prioritise the enforcement of the
aggregates levy.
5.4 Those prepared to illegally smuggle
aggregate, or sell it on the "black market" therefore
have a clear and significant advantage over legitimate aggregates
businesses. The penalties they would face for tax evasion, in
the unlikely event of being found out, are small compared to the
gains to be made.
5.5 Smuggled and "black market"
aggregates evade not only aggregates levy, but also VAT. This
amounts to a significant loss to the Treasury.
5.6 Industry representatives have discussed
enforcement issues numerous times with Customs and Excise, but
have neither received a satisfactory response, nor seen any improvement
on the ground.
6. THE ENVIRONMENT
6.1 The aggregates levy was justified by
the Government as an environmental tax, which would deliver real
environmental gains. However it has failed to deliver environmental
improvements, and is worsening the impact of some environmental
problems.
6.2 A key Government claim for the levy
was that it would "encourage the use of construction and
demolition waste which is currently landfilled".
6.2.1 Very little construction and demolition
waste is landfilled in Northern Ireland. There is less construction
and demolition activity compared to the rest of the UK.
6.2.2 In any case, sufficient incentives
to recycle the "arisings" that are available already
existed before the aggregates levy was implemented. Not only was
construction and demolition waste already cheaper than aggregate,
it was also subject to £2 per tonne landfill tax unless it
was recycled or re-used. Indeed, the main barrier to increasing
recycling was, and still is, materials specifications that do
not allow the use of recycled aggregates for many purposes.
6.3 The Government also claimed that the
levy would "promote greater efficiency in the use of virgin
aggregate".
6.3.1 The levy is actually causing less
efficiency in the use of virgin aggregates, by pricing the by-products
(or so-called secondary aggregates) of legitimate producers out
of the market. Many BAA members are already reporting large new
stockpiles, particularly of lower-grade by-products which have
incurred proportionately the greatest price increases. This situation
is mirrored throughout the UK, and can only worsen as comprehensive
evidence continues to emerge over the coming months.
6.4 The Government also claimed that the
levy was necessary to achieve "reductions in noise and vibration,
dust and other emissions to air, visual intrusion, loss of amenity
and damage to wildlife habitats".
6.4.1 The quarrying industry in Northern
Ireland has invested a great deal in complying with the strict
demand for "best available technology" (BAT), an environmental
requirement which is regularly revised upwards through Integrated
Pollution Prevention and Control. These regulations, and the responsible
attitude of the industry itself, ensure that everything possible
is already done to reduce the environmental impact of quarrying.
6.4.2 Quarrying is a transitory activity,
and once extraction has ceased at a site numerous beneficial uses
result, including the creation of recreational amenity and sports
facilities, and geological exposures. A large number of Sites
of Special Scientific Interest (SSSIs) have resulted from quarry
restorations.
6.5 The aggregates levy is however proving
damaging to the environment in a number of ways.
6.5.1 The cross-border transportation of aggregates
from the Republic of Ireland has significantly increased the environmental
damage caused by the road haulage of aggregate.
6.5.2 The levy has caused a massive increase
in unauthorised quarrying, which is not subject to planning controls
and is unlikely to conform to environmental regulations. From
April 2002 to December 2002, following the introduction of the
aggregates levy, there were 30 confirmed reports of unauthorised
quarrying, compared to 17 in the same period the previous year[3].
6.5.3 The levy has priced cheaper aggregates
by-products out of the market, as outlined in paragraph 6.3.1
above. This has created huge stockpiles of unsold by-products,
which are highly visually intrusive.
6.5.4 Any increase in aggregates recycling may
in fact cause environmental damage. Like quarrying, recycling
causes noise, dust and other emissions to air, as well as requiring
a significant amount of power. It is notable that the survey commissioned
by the Government to quantify the environmental costs of quarrying
found that recycling sites imposed a greater environmental
cost than quarrying itself[4].
7. LONG TERM
EFFECTS OF
THE AGGREGATES
LEVY IN
NORTHERN IRELAND
7.1 There is little realistic prospect of
Customs and Excise being in a position to enforce the aggregates
levy in Northern Ireland in the foreseeable future.
7.2 In the long term, many quarry operators
in Northern Ireland are likely to face a choice between either
going out of business, or breaking the law.
7.3 The situation will now become even worse,
as the levy begins to be applied to aggregates used in processed
products.
7.4 A significant amount of the production
of virgin aggregates has, in effect, transferred to businesses
in the Republic of Ireland, with millions of tonnes of aggregate
now crossing the border annually. Without a derogation from the
levy for aggregates used in processed products, at least 10 aggregates
processing businesses located close to the border also intend
to relocate to the Republic of Ireland.
7.5 Significant job losses have already
occurred; more are expected. A survey of 28 quarrying companies
showed that, since the levy was introduced in April 2002, 52 workers
have been made redundant, with a further 58 expected to lose their
jobs if the downturn continues[5].
Ten of these companies have indicated they intend to relocate
their processing operations to the Republic, with the loss of
282 jobs, if an exemption for aggregates used in processed products
cannot be secured. Since these are initial statistics and only
represent direct employees, the eventual job losses will be far
greater. Many of the jobs lost will be in the border counties,
in areas designated as "Targeting Social Need"; their
impact will be felt acutely.
7.6 The levy is not achieving environmental
benefits, and will in the long term damage the environment, through
increased road haulage, increasing stockpiles of unsold "secondary"
aggregates, and increased numbers of unauthorised, unregulated
quarries.
8. CONCLUSION
8.1 The Government claims that the aggregates
levy is in line with the Treasury's Statement of Intent on Environmental
Taxation, which said, "environmental taxation must meet the
general tests of good taxation. It must be well designed, to meet
its objectives without undesirable side-effects; it must keep
deadweight compliance costs to a minimum; the distributional impact
must be acceptable; and the implications for international sectoral
competitiveness must be taken into account"[6].
The aggregates levy fails to meet the tests of good taxation.
8.2 The problems caused by the levy have
become insurmountable due to Customs and Excise' inability to
enforce it. It is unacceptable that law-abiding quarry operators
have been placed in the impossible position of being undercut
by a massive amount of smuggled and "black market" aggregates.
8.3 These problems cannot be addressed within
the current legislative framework. The BAA therefore believes
the levy should be completely revoked within Northern Ireland.
8.4 The BAA urges the Committee to do all
it can to prevent the imminent crisis facing the quarrying industry
in Northern Ireland.
May 2003
1 Data taken from the Geological Survey of Northern
Ireland. £2.85 was the average ex-works price of aggregate,
before VAT, prior to the introduction of the aggregates levy. Back
2
Independent survey commissioned by the Quarry Products Association
Northern Ireland and carried out by the University of Ulster.
The survey was carried out at six different locations along the
border. Back
3
Statistics from Planning Service in Northern Ireland. Back
4
London Economics, "The Environmental Costs and Benefits of
the Supply of Aggregates-Phase 2", (August 1999). Back
5
QPANI survey of 28 companies, both members and non-members, Spring
2003. Back
6
HM Treasury, Budget 1997. Back
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