Memorandum by HM Customs and Excise
NORTHERN IRELAND AGGREGATES LEVY RELIEF SCHEME
Further to the Chancellor's Pre-Budget Report
announcement about the proposed extension of the current aggregates
levy relief scheme in Northern Ireland, the Northern Ireland Affairs
Committee requested, in the Clerk's letter of 12 December 2003,
full details of the scheme and how it would differ from current
policy. The questions the Committee asked are covered in turn
in this memorandum.
Each question posed by the Committee is set
out in full in italic sub-headings, with the Government's response
following.
1. What is the state of play regarding state
aid and the EU?
The tax relief which the Government intends
to make available to quarry operators in Northern Ireland under
the new scheme is a form of State aid and, therefore, in accordance
with European Treaty obligations, the UK must obtain European
Commission approval before implementing the scheme. To implement
the scheme without this approval would almost certainly result
in the Commission taking Infraction proceedings against the UK.
The Government's State aid application was submitted
to the European Commission on 5 January 2004.
2. When exactly will the new proposals come
into effect in 2004?
The Government aims to implement the new scheme
on 1 April 2004, subject to EU State aid approval having been
received by this date. This date would be when relief under the
current scheme falls from 80% to 60%; as the Government's intention
under the new proposals is, among other things, to fix the rate
of relief at 80% until 2012, it is desirable that the new scheme
is introduced by 1 April 2004.
The Commission have three months from the date
of receipt in which to consider State aid applications. However,
if, during that period, the Commission asks questions of the applicant
Member State about the detail of their application, the 3 month
"clock" is stopped and reset upon receipt of answers
to those questions from the Member State.
The Commission might also invoke the procedure
for inviting interested parties to submit comments, as provided
for by Article 88(2) of the Treaty establishing the European Community;
this procedure can take 12 months or more to complete.
The Government therefore acknowledges that the
target date is ambitious but not impossible to achieve. The Government
will do all it can to ensure that this date is achieved. However,
if State aid approval has not been granted by 1 April 2004, the
current relief scheme will continue to operate until such time
as the necessary approval is received from the Commission. This
means that the current relief would fall to 60% from 1 April 2004
but would be increased back to 80% following State aid approval.
3. Details of the new stringent environmental
improvements that will be required and how exactly compliance
will be monitored and/or measured
This information is contained in the Code of
Practice and Compliance Scheme public consultation document, summarised
at Annex A.
4. How enforcement is to be stepped up and
the resource implications this will have for Customs and Excise
Customs and Excise have allocated three additional
enforcement staff and redirected staff engaged in the assurance
of other environmental taxes to focus on the issue of aggregates
levy evasion. Customs have, in effect, increased their capacity
for aggregates levy assurance in Northern Ireland from three to
seven since 1 April 2003, with the new staff trained and fully
operational from November 2003. A further increase is planned
for 2004-05 but details are still being finalised.
Customs' priority is to register those who commercially
exploit aggregate without properly accounting for it and to assess
for levy due. This relates both to those who extract and sell
aggregate at unregistered quarries and those who use aggregate
from such quarries or import it from the Republic of Ireland.
An exercise completed by Customs in early 2003,
which targeted users of aggregate in the construction industry,
gave rise to 4 new registrations, with the extra revenue raised
from them currently standing at around £100,000. Customs
are now planning a second phase of more in-depth visits to construction
businesses (including some of those visited in the first phase).
In support of this, Customs are in the process of agreeing a system
of exchange of information with the Revenue Commissioners in the
Republic of Ireland to identify where aggregates levy and VAT
are not being properly accounted for in Northern Ireland, or where
VAT is not being properly accounted for in the Republic.
Customs also began visits to around 40 unregistered
quarry operations in November 2003. This visit programme will
be completed by the end of January 2004. To date, Customs have
visited most of these sites, resulting in three new registrations;
follow up action is being taken in respect of a further twelve
sites, so more registrations are expected in the near future.
In respect of the remainder, either registration action is not
appropriate or more information is needed. Further action is being
considered for these, mainly small, sites.
INFORMATION GATHERING
Customs officers working in other disciplines
in Northern Ireland (around 60 law enforcement officers) have
been briefed to gather information relevant to the levy. For example,
when officers undertake oils checks on lorries carrying aggregates,
they note vehicle details and question the drivers about the source
and destination of loads. They also note details of quarrying
activity when a site does not appear to be permanent (it may have
limited signs of identification or poor access roads) or there
are any other indications that it might not be registered for
the levy. This information is fed back and used by aggregates
levy assurance officers.
Customs are also working on a system to make
effective use of VAT visits to relevant businesses trading in,
transporting or using aggregates.
ACTION ACROSS
GOVERNMENT (PURCHASING)
About 60% of construction work in Northern Ireland
relates to the public sector, which equates to around 13 million
tonnes of the 21 million tonnes or so of aggregate quarried there.
So, ensuring that all aggregate purchased by Government departments
and agencies in Northern Ireland is from a levy-paid source would
significantly reduce the scope for exploitation of aggregate without
payment of the levy.
Customs have held discussions with the Northern
Ireland Roads Service about aggregate used in their contracts,
following which they put in place measures, in the form of a certification
system, to ensure that only levy-paid aggregate is used. The Water
Service, the Health Estates Agency, the Housing Executive and
the Construction Service in Northern Ireland also intend to operate
a similar certification process for their contracts. Contractors
and suppliers who do not fulfil their obligations relating to
the levy or other taxes may be ruled ineligible to tender for
future contracts under Public Procurement Regulations.
Customs are following this through to ensure
that all Government, whether national, devolved or local, purchasers
of aggregate in Northern Ireland have measures in place to ensure
that only levy-paid aggregate is appropriated to their contracts
and that this is enforced all the way down through each organisation.
Customs have arranged a high level conference
in early February 2004 for around 70 Government purchasing organisations
in Northern Ireland. The goal is to ensure that, by 31 March 2004,
aggregates levy is properly accounted for in relation to existing
public sector purchasing contracts and that all aggregate purchased
in Northern Ireland under new contracts is from a verified levy-paid
source.
ACTION ACROSS
GOVERNMENT (ENFORCEMENT
AGENCIES)
A particular feature of environmental taxes
is that those who evade them sometimes also breach other environmental
regulations at the same time. So, for example, unregistered quarry
businesses may also be extracting aggregate without planning permission.
This means that the best results are often obtained by Government
agencies acting in concert to ensure that businesses seek proper
authorisation or are closed down.
Customs have put in place a Memorandum of Understanding
(MoU) with the Department of the Environment in Northern Ireland
(DoENI) in relation to planning permissions for mineral extraction.
Under the MoU, Customs and DoENI have agreed to exchange information,
quarterly or on request, about quarries that may be operating
without proper planning permission and without registering for
the levy. They have also agreed to inform each other of planned
action against unauthorised sites, and the timetable for such
action, in order that this may be co-ordinated. In addition, Customs
already inform the DoENI about details of registration applications
for the levy.
Aside from Customs, bodies within the DoENI
carry out most other enforcement functions relating to the supply
of aggregate. The Health and Safety Executive for Northern Ireland
has responsibility for the Health and Safety Quarry Inspectorate,
and the Police Service of Northern Ireland for the control of
explosives. Customs have arranged a second conference in early
February 2004 with these bodies, with a view to co-ordinating
enforcement action against those who are operating quarries or
sand and gravel pits without proper authorisation. The overall
aims of the conference are to share information about the roles
of each organisation and to identify opportunities for co-ordinated
and effective enforcement action.
5. What will happen to those organisations
who either cannot or will not sign up to the new environmental
measures?
Businesses which choose not to adopt the new
scheme will not receive relief and will be liable to pay the full
rate of levy. This policy provides a strong incentive for all
quarrying businesses to join the scheme and reflects the importance
the Government places on encouraging quarrying businesses in Northern
Ireland to improve their environmental performance.
However, the Government acknowledges that some
operators may consider that the costs of improving the environmental
performance of their quarry outweigh the advantages of tax relief;
that is a commercial assessment that only those businesses should
have the scope to make. The Government therefore does not plan
to make adoption of the new Northern Ireland levy relief scheme
compulsory.
The levy remains an effective mechanism for
internalising the negative environmental costs of the price of
aggregate and therefore, even though some businesses may choose
not to join the scheme, the cost to them and to the consumers
of the aggregate they produce will reflect associated environmental
costs.
6. The implications for (a) HMCE and (b)
the quarrying and construction industries of operating two separate
and substantially different relief schemes in Northern Ireland
The Government's intention is to replace the
present scheme with the new scheme, not to run two schemes in
parallel.
The Government has accepted Quarry Products
Association Northern Ireland and British Aggregates Association
claims that the current scheme offers insufficient time and protection
to processed product businesses which are adapting to the new
market conditions brought about by the levy and no protection
to businesses that deal solely in unprocessed virgin aggregate.
Moreover, the Government has concluded that the current scheme
will not allow the levy to achieve its environmental aims in Northern
Ireland. Therefore, it would not be appropriate to continue to
run the current scheme alongside the new scheme.
13 January 2004
Annex A
SUMMARY OF CODE OF PRACTICE AND COMPLIANCE
SCHEME
The Code of Practice and Compliance Scheme (COPCS)
for the quarry industry in Northern Ireland comprises a robust
code of environmental practice, addressing key areas of environmental
risk and, through the compliance scheme, measures to be taken
to ensure the sound management and improvement of environmental
performance. In addition to addressing the current regulatory
requirements in Northern Ireland, the COPCS incorporates a range
of environmental issues to deliver further benefits.
A compliance framework has been established
to enable the Department of Environment Northern Ireland to monitor
and assess the performance of individual operators through a schedule
of environmental audits. Operators who contract to join the Compliance
Scheme will, in return for (a) initial compliance with a set of
environmental standards and (b) a commitment to continuous improvement
with specific targets, receive 80% relief from the aggregates
levy. Initial compliance and continuing improvement will be achieved
by a rolling programme of audit and mitigation.
Primary audits, by the Department of Environment
Northern Ireland or its agent, will establish the current level
of environmental risk at each quarry site. Where appropriate,
mitigation notices will be issued, identifying risks or adverse
environmental impacts which are unacceptable and the period of
time allotted to make the necessary improvements. A further mitigation
audit will then establish whether the necessary steps to ameliorate
the risks or impacts have been satisfactorily completed. At this
time certification of compliance will be granted or withheld.
Operators will only be able to claim the relief from the levy
when they have a valid certificate of compliance.
Fifteen major environmental risks are categorised
within the compliance framework, then subcategorised to address
individual processes; these are:
— Archaeology and geodiversity
— Dust (excluding blast dust, which
is covered by "blasting")
— Oil/chemical storage and handling
— Restoration and aftercare
— Transport (off-site effects)
Each category is sub-categorised to deal with
individual processes, for example oil and chemical storage and
handling (a category recognised to have been the cause of around
one-sixth of all pollution incidents in Northern Ireland). Within
this category nine separate processes of storage and handling
are examined and audits will require a high environmental standard
in each sub-category to establish overall compliance. Annex 1
of the COPCS shows the proposed audit protocol, denoting the 15
categories, their sub categories, and setting out the standards
required to meet compliance with the Code of Practice.
The Department of Environment in Northern Ireland
does not intend to be prescriptive or suggest exactly how mitigation
measures will be carried out to reach the required environmental
standard; each operator will decide how to address the risks in
a manner best suited to the individual site. However, the Department
of Environment in Northern Ireland will require a commitment to
a high and continually improving standard of environmental management
and will seek tangible evidence of such improvements before certifying
compliance.
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