Select Committee on Northern Ireland Affairs Minutes of Evidence


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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2004
Prepared 17 March 2004