Memorandum submitted by the Construction
Employers' Federation Northern Ireland
INTRODUCTION
The construction industry in the Province employs
some 45,000 operatives. The industry has an annual turnover of
£2.4 billion per annum, and makes a contribution of 8% to
Northern Ireland's Gross Domestic Product.
The Construction Employer's Federation (CEF)
is the representative body for the Construction Industry in Northern
Ireland. The CEF represents some 500 individual construction firms,
who collectively account for over 80% of all construction work
in the Province.
We welcome the opportunity to provide further
comment on the effects of the introduction of the Aggregates Tax
in Northern Ireland.
The CEF fully supports the alternative proposals
that have been put forward by the Quarry products Association
in Northern Ireland.
BACKGROUND
The Aggregates Tax was introduced on 1 April
2002. The levy applies to all virgin rock sand and gravel, which
is subject to commercial exploitation in the UK. It is charged
at £1.60 per tonne.
HM Treasury announced a phased introduction
over five years of the tax on processed products containing aggregates
at 32p per annum. The first 32p per tonne increment was introduced
on 1 April 2003.
The levy does not apply to recycled aggregates
or to certain specified secondary aggregates. Imported virgin
aggregates are subject to the levy when first sold or used in
the UK, but imported downstream aggregate's products are exempt.
THE NORTHERN
IRELAND MARKET
The Northern Ireland Quarrying Industry is unique
within the United Kingdom in terms of location, scale and economy.
— Northern Ireland is the only part
of the UK that has a land border with another EU State.
— The majority of quarries in Northern
Ireland are small family run businesses, producing less than 300,000
tonnes per annum.
— The average ex-quarry price for aggregate
in Northern Ireland is under £2.80 per tonne (excluding taxes).
By comparison, the market in Great Britain is
totally different.
— Great Britain has no land border
with any other EU State.
— Most quarries in Great Britain produce
well in excess of 600,000 tonnes per annum.
— The average ex-quarry price for rock
in Great Britain is in excess of £6 per tonne (excluding
taxes).
The majority of quarries in Northern Ireland,
are located along the border with the Republic of Ireland and
are therefore much closer to their customer base, thus minimising
environmental damage from transportation.
CROSS BORDER
HAULAGE AND
UNAUTHORISED EXTRACTION
We understand that the Planning Service in Northern
Ireland has noted a significant increase in the number of unauthorised
aggregates extraction operations in the Province. (From April
2002-December 2002, there were 30 confirmed reports of unauthorised
extractions, compared to 17 in the same period in the previous
year when there was no Aggregates tax. Source: DOE NI Planning
Service Minerals Unit).
The introduction of the tax therefore appears
to have created a "black market" for the extraction
of unauthorised aggregates.
The QPA in Northern Ireland commissioned the
University of Ulster to carry out a survey of border crossings
to assess the movement of aggregate from ROI to NI.
The University of Ulster report highlights a
significant volume of aggregate being imported to Northern Ireland.
This was something that rarely happened prior to the introduction
of the tax and the University estimates that the loss in Aggregates
Tax along the border equates to some £1.2 million per annum.
CAPITAL INFRASTRUCTURE
PROGRAMMES
The introduction of the Aggregates tax is having
a significant effect on public infrastructure projects.
The total value of output in the Construction
Industry in Northern Ireland is approximately £2.4 billion
per annum. This equates to total aggregate sales of some 22 million
tonnes per annum. The total "tax take" raised on 22
million tonnes of aggregate, would be £35 million per annum
(22 million tonnes x £1.60).
The public sector accounts for some 60% of construction
output, therefore the tax take from the public sector would be
60% of £35 million per annum or £21 million per annum.
In other words, around £21 million per
annum is being lost from the public sector infrastructure programme
each year, because of the Aggregates tax.
In December 2002, Ian Pearson, the Department
Finance Minister announced an additional £2 billion package
for infrastructure works that are urgently needed to begin to
redress the £6 billion infrastructure deficit in the Province.
This package will lose around £21 million per annum purely
as a result of the Aggregates tax.
This equates to the entire annual "Structural
Maintenance" budget for the Roads Service or, the total cost
of building a new large water treatment works, such as Culmore
in the North West of the Province. (Urgently needed to meet EU
Water Quality Standards).
IMPACT ON
EMPLOYMENT
While output in the construction industry is
not buoyant as a result of the additional infrastructure expenditure,
it is difficult to assess the effect of employment on the mainstream
construction industry resulting from this tax. It is more objective,
therefore, to concentrate on the effects on capital infrastructure
programmes as highlighted above.
RECYCLING
Government is the largest customer of the construction
industry. At present, however, government procurement policy provides
very little opportunity for the use of recycled materials.
One of the main objectives of the Aggregate
tax was to increase the use of recycled materials in construction.
There are however, a number of factors that combine to make this
difficult to achieve in Northern Ireland. These include:
— The lack of availability of quality
recyclable materials.
— Northern Ireland is a rural based
economy with limited major development and urban regeneration,
thus reducing the opportunity to use recycled materials.
The CEF believes that government agencies need
to be more proactive at specifying and encouraging the re-use
of products from construction and demolition waste.
PROPOSED ALTERNATIVES
TO THE
AGGREGATES TAX
The Quarry Products Association has had detailed
discussions with HM Customs & Excise and the Department of
Finance & Personnel regarding proposals to alleviate the effects
that the tax is having on the quarrying sector in Northern Ireland.
The CEF fully supports those proposals. Specifically:
(a) An 80% discount on the tax for all aggregate
used within Northern Ireland. This would be relatively easy to
administer and would give assistance to those quarries that operate
solely with virgin aggregates.
In return the quarrying sector will commit to
delivering environmental improvements as specified by the Department
of the Environment. Failure to meet those targets would result
in the tax being applied in full on those quarries that do not
meet the targets.
Recycling levels would also be increased to 20%
of available material by 2008.
If this proposal is not accepted, an alternative
might be:
(b) An 80% discount on the tax for all aggregate
used in processed products in Northern Ireland and zero rating
for all processed products exported to the Republic of Ireland.
Again each quarry would commit to deliver environmental
improvements as agreed with DOE. The targets to be implemented
over an eight-year period
Recycling levels would again be increased to
20% by 2008.
All exported aggregate from Northern Ireland
to Great Britain would attract the full tax.
We understand these proposals are under discussion
and have the full support of the British Aggregates Association.
The CEF would therefore reaffirm its full support
for these proposals.
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