Examination of Witnesses (Questions 1-19)
16 SEPTEMBER 2003
MR JOHN
BAXTER AND
MR RICHARD
BIRD
Q1 Chairman: Mr Baxter, Mr Bird,
good morning and thank you for coming to help us look at the aggregates
levy one year on. Perhaps you could tell us something of the scale
of the problem to start with. Can you give the Committee an indication
of the amounts of virgin aggregates and processed aggregate products
used in Northern Ireland?
Mr Baxter: The source for that,
Chairman, is the DoE statistics, the Government statistics. I
think the most recent set, which are for the year 2002, show a
market down from 26 million tonnes in 2001 to 23.5 million tonnes,
that is some 10% down on the previous year. I think those particular
statistics cover a very much more complex underlying situation.
Anecdotal evidence suggests that the market was quite busy up
to the end of the financial year in 2002 and then there were very
serious declines in the second half of the year. The market's
verbal message suggests that in some particular companies and
some counties the market was backed by as much as 40%. That is
the basis of the calculation we did to come up with this black
market of around seven million tonnes—two million coming
over the border and five million within the province itself. I
think the situation has probably got slightly better since the
dark days of September last year and that probably reflects the
fact that there had been a pre-selling before the end of the financial
year and that was balanced by this huge decline in the third quarter.
The market has got cleverer. The legitimate operators have learned
probably better than other regions in the United Kingdom how to
exploit the loopholes in the Finance Act, because they have a
much greater incentive to do so. The effect of the levy in the
province is far greater than anywhere else in the United Kingdom
and because of that they have been ahead of the game in Northern
Ireland at finding loopholes in the Finance Act and exploiting
them. That has had a reverse effect, in other words they have
been able to identify those parts of the quarry which, within
the fine definitions of the Finance Act, are not subject to the
levy and that probably marginally helped the legitimate operator
to take back a little bit of market share and stabilise his position,
but it is still extremely severe. The difficulty in judging the
size of the problem is reflected in Customs and Excise's decision
to commission Symonds to research the whole question in much more
detail, and I think all of us in the quarrying industry await
with considerable interest the Symonds Report which we understand
will be published on 25 September. In fairness, at that point
we will stop guessing. My figures are based on contact with our
members, on market discussions within the industry and you cannot
say that they are absolute for that reason.
Q2 Chairman: In very brief summary,
you think people pre bought to avoid the tax and stockpiled, do
you not?
Mr Baxter: Yes.
Q3 Chairman: And then a black market
has developed which was not there at all or not there in such
quantity?
Mr Baxter: I cannot say. I am
not familiar enough with the situation pre aggregates levy to
say that it was not there before. I suspect it was there to some
extent. The levy has certainly made it grow significantly. I have
had members point out to me fields that quite clearly have just
recently been opened up. This is not just a question of not being
registered for the aggregates levy, they are being exploited without
any authorisation at all, whether it be planning, environmental
or whatever.
Q4 Chairman: What is the actual cost
to the industry of aggregate extraction, both in virgin aggregates
and processed aggregate products so far, and what are your predictions
during the phasing-in period?
Mr Baxter: What do you mean by
cost?
Q5 Chairman: The actual cost to the
industry of the extraction and the levy you are paying for it.
Mr Baxter: If you mean the cost
of extraction, that varies significantly from site to site and
type of aggregate, but the cost for extraction of sand and gravel
would be significantly less than hard rock. As a very broad guess
I would say you are talking figures of £2 a tonne plus depending
on the site.
Q6 Chairman: You say to us that the
sale of aggregates within Northern Ireland has decreased by seven
to eight million tonnes.
Mr Baxter: As I explained in my
earlier answer, that was based on the anecdotal information coming
out from the second and third quarters of 2002.
Q7 Chairman: And you think all of
this will be revealed at the end of September, do you?
Mr Baxter: I think there will
be an improvement.
Q8 Chairman: What were their terms
of reference, do you know?
Mr Baxter: I do not know. They
were given by the Treasury and Customs and Excise.
Chairman: That is something we must find
out.
Q9 Mr Bailey: You have talked about
the reduction in legitimate sales and the black market sales.
I believe you have estimated the black market sales to be something
like five to six million tonnes. Do you think that is all unauthorised
quarrying or is there another explanation for that?
Mr Baxter: I think it is substantially
unauthorised quarrying. I believe my friends who will be following
us will have better and more detailed evidence than I do. If you
have a formal authorisation and a formal planning consent then
it is very difficult not to register properly for the levy in
terms of the Finance Act.
Q10 Mr Bailey: On the issue of unauthorised
quarry sites, in 1998-99 there were 22 and now it is estimated
that there are 38 so it has obviously been a problem pre aggregates
tax. Why do you think unauthorised quarry sites existed before
then?
Mr Baxter: I can only speculate
and I am not sure that that would be useful. There are people
that are much more familiar with the historical situation than
I am. I really do not know the answer. There is a certain amount
of unauthorised exploitation throughout the rural parts of the
United Kingdom. My impression is that they are rather more prevalent
in Northern Ireland than they are in northern Scotland.
Q11 Mr Bailey: On the surface it
would look as though there has been a significant increase. Interestingly,
it was 22 in 1989-90, it went down to 11 the following year and
it has subsequently gone up to 38. I think it would be interesting
to have some sort of assessment of why these fluctuations have
taken place.
Mr Baxter: It could be a question
of advantage. I understand there are now over 50 or something
like that. There has been an interesting situation in the aggregates
industry generally since about 1996 when the landfill levy was
introduced and that really provided a huge incentive to recycle.
The reaction to that was a little bit slow in coming through from
the plant manufacturers. It was really not until about 2000 that
you began to get light, highly mobile, relatively cheap plant
for processing aggregate albeit initially for recycling, it was
going to be used for virgin aggregate and so the cost of entry
into particularly the bottom end of the quarrying market became
very much less. Combine that with the introduction of a tax—forgetting
the VAT element, it represents something like 56% of the selling
price of the material—and you create a huge incentive for
people to enter that particular, albeit grey, market. Then there
is the whole question of enforcement and control and here in Northern
Ireland there seems to be a particularly grave problem in the
control and enforcement of regulations concerning quarrying and
the Quarrying Act.
Q12 Mr Bailey: Quarries are not things
that you can hide easily. You would have thought enforcement and
control would be a relatively simple task for any government.
Has there been any co-ordinated attempt to check and to close
unauthorised quarries?
Mr Baxter: My impression is none
whatsoever. One of the comments that I get back from our members
is why cannot the guys who are doing the planning enforcement
or the environmental enforcement be connected up because they
are really dealing effectively with the same problem.
Q13 Reverend Smyth: Is the increase
in unauthorised quarrying solely as a result of the levy or are
there other factors that might impinge on it?
Mr Baxter: My opinion is that
it is solely as a result of the levy. The levy, £1.60, is
at the bottom end of the product range. The more sophisticated
aggregates which go into added value products have only just been
affected. It is the aggregates which are easiest to produce and
that require the minimum amount of processing which have been
given this huge advantage of over 50%. I do not need to point
out that the guy who is not paying the levy is probably not paying
the VAT as well and so the chances are that the actual advantage
is significantly greater than the 50-odd% that we are talking
about.
Q14 Mr Tynan: It was 38 unauthorised
quarry sites and you say it may be nearer 50 now. Is that a job
creation scheme?
Mr Baxter: It is also a job destruction
scheme because I think the evidence from the DoE statistics is
that they lost 200 jobs in the official market. The actual reduction
in employment between 2001 and 2002 was 200 people.
Q15 Mr Tynan: I had understood it
was 52 that had been made redundant with an expected 58.
Mr Baxter: That is the evidence
that they [Quarry Products Association Northern Ireland] put out.
If you actually look at the Government's own statistics, the number
is 200. Total employment in the quarrying industry in 2001 was
1,600 people; in 2002 it was 1,400 people.
Q16 Mr Tynan: How many people would
be employed in these unauthorised quarry sites, have you any idea?
Mr Baxter: You are talking about
maybe two loading shovel operators and an attendant who are probably
not too fussed about weighing stuff out at the weighbridge, so
maybe two or three people.
Q17 Mr Tynan: So a very small number?
Mr Baxter: Yes.
Q18 Mr Tynan: You have indicated
your support for the research by the University of Ulster. Have
you been able to identify the amounts of virgin aggregates and
processed product crossing the border?
Mr Baxter: My guess is that they
are all virgin aggregates coming across the border. One of the
problems with recycled aggregates particularly in a largely rural
environment is where is the feed coming from. You have to be knocking
things down and rebuilding things on a fairly massive scale to
get the incentive to recycle material in the first place and that
does not happen on any large scale in Ireland. It might happen
in Dublin, it might happen in Belfast, but it is not going to
happen on a huge scale anywhere else. That is one of the fundamental
problems with this whole concept of recycling materials, it works
great in the urban environment but when you get to the rural environment
you do not have the risings available to sustain investment in
the necessary plant.
Q19 Mr Tynan: So your view is it
would only be virgin aggregates coming across the border?
Mr Baxter: I would be totally
amazed if it was anything other than that.
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