Select Committee on Environmental Audit Second Report


Letter from Robert Durward, Director, British Aggregates Association

  As you know we are very keen that the Environmental Audit Committee question Government closely about the negative effects of the Aggregates Levy.

  We have just completed our response to HM Treasury on their "Green Quarry Differential Rate Scheme," which suggested that different levels of Aggregates Tax might be applied to individual quarry operators based on their "green credentials." Among the criteria suggested for deciding what rate of tax to apply were location, which could have led to quarries in adjoining counties being charged different amounts.

  Our detailed response to this consultation has, yet again, graphically illustrated the deeply flawed nature of the Aggregates Levy. It has become a highly complex instrument which has defeated the best brains of HM Customs and the quarry industry alike. At the end of a tortuous six month consultation period involving representatives from the BAA, QPA, HM Customs and Treasury little progress has been made. The major stumbling blocks of Northern Ireland, secondary aggregates, exemptions, bad debt relief, competition and import substitution have not been resolved and with only four working months left before the tax is implemented the outlook is not good."

  It was obvious, from the outset, that because the tax is said to be "revenue neutral" with the proceeds already earmarked for a reduction in employers' National Insurance Contributions of 0.1 per cent and a £35 million "Sustainability Fund" one operator's rebate would have resulted in another operator paying more. This would have infringed competition law.

  Quarry operators regard the situation as being so serious that an industry wide coalition has retained the London based law firm of Herbert Smith to prepare a legal challenge to the Aggregates Tax! It is highly significant that no other EC country is to impose an aggregate levy of this size. Denmark has had a 25p materials tax, on all construction goods for 12 years. Sweden has imposed a 35p levy on sand and gravel only, to encourage greater use of rock and France has a 6p "environmental levy".

  I sincerely hope that the Committee is able to consider the disastrous effect that this tax will have on the environment, with goods having to be transported much further and severe job losses in the Rural Economy.

8 November 2001

Annex A


  1.1  The British Aggregates Association (BAA) was formed to represent and protect the interests of the United Kingdom's independent aggregates producers. Small, independent aggregates producers face far greater difficulties than the major companies in dealing with new regulatory and fiscal measures. The Government is introducing an aggregates levy, payable at £1.60 per tonne, from 1 April 2002. The Government has justified the levy as a response to the environmental cost of quarrying. The evidence we submit to this inquiry focuses on this environmental reasoning and the likely environmental consequences of the levy.

  1.2  Stone is the strongest, most natural and most sustainable construction product. It is inert, durable and long-lasting. The use of local stone in rural areas is a key part of the local heritage. Stone and aggregates are one of the most environmentally friendly products. The country has many centuries of reserves, despite using significantly less than 1 per cent of the landmass at any point in time.

  1.3  The quarrying industry in the United Kingdom is already highly regulated and probably the tightest regulated in the world. Alternatives to aggregates are often less regulated, with a greater impact on the environment.

  1.4  The BAA believes that the aggregates levy will fail to achieve positive environmental improvements, but will cause excessive damage to fragile rural economies and to small quarry operators. As a direct consequence of the levy:

    —  Quarries will close with the loss of many jobs in remote rural areas, where alternative employment is not readily available.

    —  Aggregates will have to be carried further by road, which is the largest environment cost of quarrying.

    —  Stockpiles of unsightly waste will accumulate at quarries, once the levy makes such waste impossible to sell commercially.

    —  Aggregates will be increasingly replaced by untaxed alternatives, despite the environmental cost of producing or transporting these alternatives.


  2.1  The environmental impact of the aggregates levy can only be considered within the context of existing regulatory and voluntary measures within the industry:

    (i)  Under the Environmental Protection Act 1990, quarries are subject to integrated pollution control; their total impact is measured, regulated and controlled.

    (ii)  The standards set followed the principle of "best available technology not entailing excessive cost" (BATNEEC), which by 2002 will be replaced by a stricter requirement to use the "best available technology" (BAT).

    (iii)  Standards for compliance with BAT are constantly reviewed in Process Guidance notes, and are tailored to individual quarries.

    (iv)  In addition there are an increasing number of EC Directives, which control the environmental impact of quarrying.

    (v)  Further incentives for best environmental practice exist in the climate change levy, landfill tax, and fuel duty, all of which hit the quarrying industry particularly hard.

    (vi)  The planning system is a further source of regulation, with, for example, MPG6 in England and Wales providing a strategy to restrict overall extraction to the necessary level, and MPG11 providing strict planning guidance on various environmental impacts. Both are currently being upgraded.

    (vii)  All applications for new quarries and extensions plus ongoing statutory reviews under the Environment Act 1995 now require an Environmental Impact Assessment. This Assessment informs the basis of conditions controlling the development and can even form the basis of a refusal or an order to close.

    (viii)  Site restoration is an integral part of the planning conditions attached to each quarrying operation, with quarries having to be restored to either agricultural or amenity use, such as country parks or nature reserves.

    (ix)  A recent English Nature survey estimated that between a third and a half of all Sites of Special Scientific Interest (SSSIs) in England have been created through quarrying activity and restoration.

    (x)  Very few complaints are ever received about quarrying. Just one in 10 of respondents to the economic study used by the Government to justify and set the level of the aggregates levy paced a monetary cost on the impact of quarrying.

  2.2  A raft of regulatory and voluntary measures already exists, directed towards every environmental impact, kept under constant review, and applied individually to each quarry, ensuring the highest possible standards. It is not possible for the industry to improve upon "best available technology" making it difficult to see how the aggregates levy can improve the impact of quarrying on the environment.


  3.1  The Government's approach to environmental taxes is broadly aimed at internalising cost externalities so as to influence polluter behaviour and the commercial decisions of consumers. There are major limitations to the ability of the aggregates levy to achieve this objective.

  3.2  As outlined above, the quarrying industry observes strict environmental regulations, including use of the "best available technology". Standards for compliance are assessed individually. It is difficult to see how the levy can achieve significant improvements.

  3.3  Even if improvements in performance were reasonably practical, the levy lacks incentives to change behaviour, as quarries will pay the same levy, regardless of environmental performance. Although the Treasury consulted on a scheme for "green" quarries to pay a differential rate, they have now rejected the proposal, due to the huge problems designing a workable scheme. As a result, the levy will do nothing to encourage better environmental performance, and may bring about a poorer environmental performance, by increasing costs and reducing resources available for environmental improvements.

  3.4  Existing incentives to recycle are plentiful—the landfill tax has stimulated an aggregates recycling industry. The Symonds Report into construction and demolition (C&D) Waste, commissioned by the Government in 2000, found that 56.5 per cent of C&D waste was already recycled, while a further 29.8 per cent was mainly soil. Just 3.6 per cent of C&D waste was found to be sent to landfill. The level of recycling activity has recently increased still further, with a British Geological Survey seminar in February this year concluding that just 1-2 per cent of hard waste remained available for recycling.

  3.5  The Government-commissioned report on the environmental consequences of quarrying, suggested that the environmental cost of recycling was 28 times that of hard rock quarries outside national parks. The BAA does not oppose recycling, but policies should recognise the environmental impact of recycling and should provide clear, major environmental gains to outweigh it.

  3.6  Incentives to convert and restore existing buildings, which will again minimise demand for aggregates, already exist in various Budget 2001 measures, such as the lowest possible VAT rating for renovating and converting existing properties and 100 per cent capital allowances for converting spaces above shops into dwellings.

  3.7  Overall demand for aggregates is relatively inelastic; in many cases there are no suitable alternative materials. Often it will be easier to find alternatives to replace low grade secondary aggregates than to replace industrial grade aggregates. Secondary aggregates are an unavoidable by-product of the extraction process, usually sold for less than £1 per tonne and used simply as fills. Secondary aggregates will be subject to the levy, making them uneconomic compared to other untaxed waste, such as china clay and slate spoil. Whereas approximately 20 per cent of aggregates produced are secondary aggregates, the china clay and the slate industry produces something like 90 per cent waste. The levy will therefore be encouraging a switch from an industry with relatively low waste, to industries with extremely high waste.

  3.8  Furthermore and to make matters worse, it is now clear that untaxed waste products may even be imported as an alternative to taxed secondary aggregates from within the UK. For example, the BAA is aware of the possibility that steel slag may be imported, once the levy commences, to supply customers currently taking secondary aggregates. The UK may well find itself the dumping ground for waste products from abroad, while increasing our own waste problems.

  3.9  In its Pre-Budget Report, the Government announced that it is giving further consideration to a scheme to relieve secondary aggregates. However, the industry has been working with Government for at least two years to identify a scheme, without success.

  3.10  Where alternatives to aggregates exist, they will not always be environmentally friendly. Alternatives to aggregates all involve some environmental cost:

    —  steel, involves the import of iron ore from countries with much lower environmental standards, transport costs, intensive energy use, atmospheric emissions and dangerous by-products from the production process;

    —  glass, consumes high levels of energy in its production and in any event uses industrial aggregates;

    —  plastics, are produced from fossil fuels using intensive energy and complex chemical processes. Disposal of plastic is a particular concern for the environment;

    —  timber, 90 per cent of which has to be imported, and there are growing concerns about how sustainable the sources of supply are.

  3.11  The burden of administering and paying the level will fall particularly severely on smaller quarries, leading to the closure of many, with three adverse consequences for the environment. Firstly, smaller independent quarry operators tend to be better custodians of the local environment, as locally based stakeholders in their landscape and economy. Secondly, closure will mean that aggregates are transported further by road (80 per cent of aggregates are currently used within 30 miles of extraction), with the attendant environmental impacts. The impact of this should not be underestimated—the greatest number of complaints received by quarry operators relates to road haulage, and the last Aggregate Minerals Survey for England and Wales (DETR, 1997) found that 94 per cent of aggregates are transported by road. Thirdly, secondary aggregates can only be sold within a certain radius of the originating site as the high cost of road transport means that they quickly become uncompetitive. Therefore, if fewer quarries cause more centralised production this will also magnify the remaining quarry's secondary aggregated/by-product problem.

  3.12  The levy is likely to introduce perverse incentives that could in themselves harm the environment. For example, marine dredged aggregates will have an unfair advantage, as they have no problems with secondary aggregates. Only saleable sizes are brought ashore, with silt and secondary aggregates dumped overboard. The levy may well encourage more marine dredging at the expense of "more environmentally accountable" land based operations.


  4.1  The Committee requested comments on the balance to be struck between fiscal, regulatory and voluntary environmental initiatives. In the BAA's view, taxation is a very blunt tool to achieve environmental objectives in the quarrying industry. It is difficult to see how this particular levy can supplement detailed regulations which are applied on a quarry-by-quarry basis. Furthermore, environmental measures should avoid duplication. Where environmental impacts are already subject to regulation or successful voluntary schemes, all that is achieved by introducing extra taxes, is to increase costs and thereby reduce the resources available to be spent on environmental measures.

  4.2  The levy duplicates fiscal measures. A key aim of the levy is to provide an incentive to minimise waste. However, such a fiscal incentive already exists in the landfill tax, which has proved costly to many operators but has been successful in reducing the level of aggregates waste that is landfilled. The Symonds report, commissioned by Government, found that just 3.6 per cent of C&D waste was landfilled in 2000; this level has since dropped.

  4.3  The reality of existing environmental legislation, based on the principle of the "best available technology", is that the quarrying industry is heavily regulated and spends large sums of money achieving the highest realistic standards. The industry has accepted regulatory measures, and in many cases adopted additional voluntary measures. However, there are too many practical problems in designing a tax on aggregates, and there are genuine concerns that it will simply result in a double burden for no environmental gain. Quarry operators do not want to shirk their environmental responsibilities, merely to have them realistically defined.


  5.1  The Committee requested views on the consistency of the Government's environmental tax policy. With respect to the aggregates levy, there has been a lack of clarity regarding what the Government aims to achieve through the tax. Initially the principal aim seemed to be to prompt environmental improvements from quarry operators, but more recently the focus seemed to shift to reducing overall consumption of aggregates. The poor definition of the levy's objectives has made it difficult for the industry to propose alternative ways of achieving them.

  5.2  The Treasury has stated that it expects revenue from the levy to increase. However, if the aim of the levy is to reduce the impact of quarrying on the environment by ensuring that operators bear the cost to the environment, then if the levy is successful, this would suggest that revenue should fall as the environmental cost of quarrying falls.

  5.3  The levy will introduce a distortion in the construction industry if aggregates are the only materials to be taxed on the basis of their supposed environmental costs. Other materials, which may also have a significant environmental cost, will have an unfair advantage. If the levy has the effect of increasing demand for alternative materials which are not "environmentally friendly", the overall gains to the environment are questionable.

  5.4  Aggregates quarrying has been treated more harshly than other primary industries. The farming industry is very heavily subsidised, yet there are serious concerns about nitrate emissions and the uses of pesticides. The fishing industry is also aided yet often causes pollution and would appear to have been guilty of over fishing. Fish farming is another highly contentious industry that has not been picked out for additional taxation. Given the fact that employment in quarrying has declined significantly and the fact that almost all quarries are located in rural areas, socio-economic considerations should have been equally taken into account in the quarrying industry. In addition, the quarrying industry has been hard hit by the Climate Change Levy. Unlike competing industries, such as cement or steel, aggregates quarrying is not eligible for a discounted rate.

  5.5  The Aggregates Levy is not consistent with the Treasury's statement of intent on environmental taxation, because:

    —  It cannot meet its objectives without undesirable side effects. The levy will have a devastating effect on the quarrying industry, often one of the few sources of employment in fragile and remote rural economies. In addition it will also impact heavily on the engineering sector, a major supplier to the quarrying industry. Indeed there are some 1,380 quarry plant and supply companies across the UK, often with no alternative market outside the minerals industry.

    —  The distributional impact is not equitable, in particular across regions. Although the levy is designed to be revenue neutral, this will not be the case across regions. The levy will be raised according to where quarrying takes place, yet the sustainability fund, designed to offset the environmental cost, will be distributed according to the Barnett formula and the benefit of the national insurance reduction will depend on the distribution of employment. In Northern Ireland, where estimates suggest £32 million will be raised by the tax, only £14 million will be returned in lower employers' NICs and just £1 million to the Sustainability Fund Northern Ireland. The south east of England will benefit considerably from the reduction in NICs, despite having little quarrying. In addition, the £1.60 per tonne increase represents on average a price increase of around 12 per cent in the south of England, where aggregates prices are higher, an increase of around 35 per cent in Scotland and up to 50 per cent in Northern Ireland.

    —  It damages international competitiveness. UK quarry operators will have to pay the levy on the unwanted by-products of the production process, which overseas competitors will avoid. Aggregates contained in products manufactured in the UK will attract the levy, while aggregates in products produced overseas will not. Britain already imports aggregates and aggregate products, and the level will inevitably grow following the introduction of the levy. Aggregates are now an internationally traded commodity and regarded by countries like Norway as a valuable source of export revenue.

    —  It is not based on sound research, as the next section of our submission sets out.


  6.1  The Committee requested views on the role of the Treasury in researching and developing environmental taxes. Turning to the research first, the justification for the levy, and the setting of its level was entirely based on two reports commissioned from London Economics by the then DETR. Given the significance of these reports, it is important to examine them critically.

  6.2  The basic method used in the study is known as contingent valuation—surveying residents and asking them to put a monetary value on closure of their local quarry—to assess the impact of quarrying. At its worse, contingent valuation can simply quantify local "nimbyism" endorsing unrealistic expectations. No industry has a baseline of zero environmental impact.

  6.3  The willingness to pay to avoid primary aggregate production in the densely populated and the affluent south east of England is some ten times more than that measured in the remote Highlands of Scotland. Furthermore, only 11.6 per cent of those surveyed gave a positive bid for the impact of quarrying, which means the data used to assess cost came from a vocal minority.

  6.4  The Government itself has found that "the site may be incorrectly identified as the prime source of concern. This may result either from the source of vibration or noise being wrongly identified by the complainant or from a general dissatisfaction with the site due to other reason." (DETR consultation paper on revising MPG 11, 2001).

  6.5  The surveys used made no reference to the benefits of quarrying, such as local infrastructure, local employment, the necessity of local stone to preserve the local heritage, and the SSSIs and parks which often result from site restoration.

  6.6  No attempt was made to supplement this survey with an assessment of the extent to which impacts are already addressed through planning and regulation. In addition, regulations since the survey have been tightened still further, notably the change from BATNEEC to BAT, reducing the impact of quarrying and leaving the assessment of its cost externalities outdated.

  6.7  Turning to the development of environmental taxes, the BAA believes that the experience of the aggregates levy has demonstrated fundamental failures of the Government to consult internally and externally. In particular:

    —  There are many practical problems with the levy, which are still some way from resolution. Although the Government suggested that the industry would have a year to adapt to the proposals, fundamental details remain to be finalised just four months before implementation. For example, the final list of exemptions is not yet available, which is already delaying the signing of contracts on some infrastructure projects;

    —  Serious problems have emerged with the primary legislation, for example, with respect to the definition of non-exempt aggregates which may have to be changed;

    —  The quarrying industry in Northern Ireland faces particularly severe problems given the land border with the Republic of Ireland, yet this issue was not considered in the original research or development of the levy. The Government has now accepted this itself and has announced that it is considering phasing in the levy on processed aggregates in Northern Ireland;

    —  The Treasury left it very late to consult the industry on proposals for a differential rate scheme, to encourage better environmental performance;

    —  It is noticeable that no other European country will have a tax on aggregates at anything like the level in the UK, and many countries will have no tax at all.

  6.8  The BAA believes that there has been a serious breakdown in inter-departmental communications which has meant that Treasury officials are now having to assess issues that should have been addressed by other departments, such as competition, import substitution and logistics. A more joined-up approach needs to be taken across all Government departments. The views of other departments, specifically the Department of Trade an Industry, which has responsibility for industry sponsorship, must be taken into account. The problems the levy will cause in Northern Ireland might have been averted had the Northern Ireland Executive been consulted earlier.


  7.1  The BAA believes that the aggregates levy was poorly researched and poorly executed. It failed to take into account the considerable improvements in the environmental performance of the quarrying industry in recent years and overlooked the very serious problems with designing a tax on aggregates. As a consequence, the aggregates levy is likely to cost jobs and damage fragile rural economies for little or no benefit to the environment.



  Our infrastructure depends on and benefits enormously from readily available, high grade, cost effective aggregates.

  Between 20-25 per cent of aggregates are used in road maintenance and construction.

  UK demand for aggregates is equivalent to nearly four tonnes per person per year (this compares with a European average of six tonnes)

  Over 90 per cent of the UK's quarry products are used by the construction industry, which contributes about 10 per cent of the nation's GDP

  Some 40,000 people depend upon the quarrying industry for their livelihoods many in rural areas where there are limited employment opportunities

  The Government uses nearly 40 per cent of minerals for public sector projects

  Today there are only some 200 private quarries in Britain, compared with over 5,000 in 1960

  Five major companies now claim 80 per cent of output

  Smaller independent quarries tend to be better custodians of the local environment, having been locally-owned for many generations



  In addition to general business taxes, the industry is particularly hit by:

    —  The aggregates levy, to be introduced at a rate of £1.60 a tonne from April 2002.

    —  Climate change levy

    —  Landfill tax

    —  Fuel duty


  Quarrying is already tightly regulated, with key regulations in the process of being tightened still further, (this is rapidly approaching overload)

  Planning permissions are constantly under review and local authorities can require further environmental mitigation works from the operators

  New requirements include compulsory environmental impact assessment of all new planning applications, and greater protection for SSSIs under the Countryside and Rights of Way Act

  Detailed, strict environmental standards are being revised for on all aspects of quarrying, covering traffic, dust, blasting, noise, visual intrusion, water, and mineral waste, which is likely to impose a huge cost burden on the industry.

Horizontal and Vertical Integration

  Five major companies now claim 80 per cent of output

  The major companies also now control 90 per cent of the downstream markets of ready mix concrete and asphalt as well as 75 per cent of UK cement production

  For most small quarries, their biggest customer is also their biggest competitor

  The Aggregates Tax and new planning regulations will have a much greater impact on smaller quarries, many of whom will face closure or merger with one of the majors

General Business Climate

  In addition to the burdens outlined above, there is a range of general economic factors putting intense pressure on the sector:

    —  Static or declining market over the past four years

    —  Static prices

    —  Large increases in the price of new plant brought about in part by the weakening of the pound against the dollar

    —  Poor capital allowance regime

    —  High cost of complying with strict new environmental legislation

    —  High cost of complying with new Health & Safety regulations

    —  Working hours directive

    —  Paternity leave payment


  It will damage the environment by:

    —  Increasing the distance aggregates travel by road as smaller quarries close.

    —  Increase the use of recycled materials, which a DETR study has suggested have 28 times the impact on the environment of a hard rock quarry outside a national park.

    —  Making it more difficult for quarries to fund better environmental management.

  It will cost far more than £1.60 per tonne in practice because:

    —  Compliance costs amount to an estimated 30 pence per tonne for an average quarry.

    —  The levy will be applied to secondary waste aggregates, pushing up the cost of the levy on quality aggregates.

  It will damage British competitiveness because:

    —  Imported aggregates will only pay the levy on the quality materials imported, not on the secondary waste materials produced.

    —  Imported concrete products will be exempt from the tax altogether.

  It will damage small independent quarries because:

    —  The compliance cost of the levy will fall particularly heavily on smaller quarries.

  The case for the levy is weak:

    —  The case is based on a widely discredited estimate of the environmental impact of quarrying, based on hypothetical questions to residents around quarries.

    —  Since the study, further regulatory measures have been imposed on the industry, which must reduce its impact on the environment, making the levy an unnecessary "double whammy".

  The application of the levy is complex, with many unresolved problems, including:

    —  Bad debt relief.

    —  The system of exemptions.

    —  How to estimate weight of aggregates, at the tax point.

    —  The fact that the levy is payable immediately on contracts requiring a stock of aggregates to be held by the supplier.

    —  The problem for long-term contracts, particularly in the construction industry.


  As the perceived environmental impact of aggregates extraction is promoted as justification for the Aggregates Tax and much tighter planning controls it is useful to consider the environmental impact of the industry:

    —  Aggregates quarrying already faces some of the toughest regulations in Britain, and has made costly improvements in recent years.

    —  There are opportunities for nature conservation resulting from aggregate extraction and site restoration and after-care, including habitat creation, species reintroduction and future land management for conservation. Many SSIs have been created in this way.

    —  Sand and gravel operations have often provided tangible public gain with award winning nature reserves, lakes and improvement to agricultural land, such as the Cotswold Water Park and Inverkip Marina.

    —  80 per cent of aggregates are used within 30 miles of their extraction; therefore the closure of a number of quarries will mean aggregates travelling further, with the attendant environmental impacts.

    —  Aggregates extraction uses just 0.35 per cent of Britain's land area—and its level is decreasing rather than increasing.

    —  Current revisions to MPG6 and MPG11 will mean the regulatory framework is even tighter in future. New regulations will be costly and difficult to implement, at a challenging time for the industry and small producers in particular.


  The aggregates industry is vital for investment in the nation's infrastructure.

  UK competitiveness is being undermined.

  The viability of the UK aggregates industry is under threat, with many small quarries being forced out of existence.



  The British Aggregates Association continues to lobby strongly against the introduction of Aggregates Tax and the Government has responded to a number of our criticisms. However, the responses, to date, which have mostly come from the Treasury, have not been particularly well informed or encouraging. We analyse them, for your information.

"Other European countries have already introduced an Aggregates Tax"

  Although there is an element of truth here, this statement is misleading. Denmark, for instance, is renowned for its punitive tax regime but only charges three kroner per tonne, about 25p. Sweden has introduced a tax on sand and gravel but not on crushed rock, it is set at 0.6 euro/tonne or 36p. Their Ministry of Industry does not intend to tax any other minerals. France has also introduced an environmental levy on all aggregates but it is set at a more reasonable level of 6p per tonne. Holland has postponed any decision, with Germany and Eire having no plans to introduce a levy.

"The rate of £1.60 per tonne (+ VAT) is prudent and was set following independent research commissioned by DETR to established costs associated with noise, dust, visual intrusion, loss of amenity, damage to bio-diversity and transportation."

  There are several misconceptions being promoted here. All the above issues are strictly controlled by the 1995 Environmental Act. The UK Quarry Industry is the most highly regulated in the world and our record on environmental protection is second to none. We are credited with promoting bio-diversity with sensitive restoration projects and more than half of all "Sites of Special Scientific Interest" are as a result of quarrying. Transportation is a fact of life and is already taxed to the hilt. In fact a Member of Parliament recently asked the House how many complaints had actually been received regarding sand, gravel and hard rock quarries, the eventual response was that no-one knew. In reality very few complaints are made on this subject. The "independent research" referred to, was non scientific and seems to have been commissioned to justify a decision which had already been taken. To summarise. London Economics sent researchers to ask householders how much cash they wanted, to allow their local quarry to continue in business. Their answers were extrapolated by the number of households within a given radius and balanced against the annual output of the quarry in question, giving varying results of up to £15.00 per tonne. This report was universally condemned, when presented by DETR, and the researchers were sent out to try again. However the only difference in technique was that instead of asking the householders how much they were willing to accept to allow their local quarry to continue in business, this time they were asked how much they were willing to pay, hypothetical money of course, to have the quarry shut down. Again the results showed great variation across the country but suggested an overall cost of £380 million of £1.60 per tonne. The quarry industry again protested about being singled out for this type of bizarre, non scientific "research" but were told that, by now DETR had spent over £600,000 on the report and that was the end of the matter. Furthermore absolutely no account was taken of the environmental benefits of quarrying or any allowance made for economic necessity. London Economics were also asked to evaluate the environmental costs of recycling operations, using the same methodology. Their report clearly shows the environmental cost of recycling stations as being 28 times greater than quarries. However this part of the research was not shown in the Phase II report. BAA had the London Economics research reviewed by Wardell Armstrong, a respected firm of minerals consultants who look after, among other enterprises, Crown Estates, and they criticised many aspects of the report. A copy of the Wardell Armstrong review was submitted to the Treasury. Can be viewed at Such was the criticism levelled against the first report that DETR commissioned Susana Mourato and David Pearce CSERGE of University College London to carry out an additional review which was also highly sceptical of many of the report's conclusions. Mourato and Pearce went on to make recommendations to make "Phase II" or rather "second attempt" more robust. In the event, few of their recommendations were adopted.

"Revenues raised by the tax will be returned to business and the local communities affected by quarrying through a 0.1 per cent point cut in employers' NIC."

  Unfortunately although the tax might just be referred to, at present, as revenue neutral the return of the NIC rebate will most certainly favour the more densely populated and industrious areas, thus bleeding funds from the regions and rural economies to the more affluent South East in particular. The Treasury admit this will happen. (Stephen Timms Finance Bill debate). One has to ask what becomes of "revenue neutral," if, or as is much more likely now, when, the Chancellor raises employers NIC rate? Many respected economists have commented that the Aggregates Levy has all the hallmarks of a Chancellor simply broadening his tax base.

"Does not believe that the levy will lead to significant job losses," and "that local quarries will remain competitive."

  This demonstrates a complete and unfortunate disregard for a great deal of evidence, provided by the industry, which clearly demonstrates that immediate, substantial and permanent damage will most definitely occur. Faced with a punitive and highly complex levy which greatly exceeds their profit level plus compliance costs of over 30p per tonne many small companies will simply close down. This will inevitably cause aggregates to be transported further, resulting in more trucks, more congestion, more greenhouse gases.

"This higher price will provide an incentive to government and local authorities, in common with all other users of aggregates, to use more recycled materials and to use all aggregates efficiently."

  Industry figures show that £3.04 and not £1.60 per tonne will have to be added to the ex works cost of stone because the application of a blunt instrument like the Aggregates Tax will make UK production much less efficient and cost effective. In addition the reduction in the overall number of quarries will lead to an increase in radial delivery mileages which could add up to an additional £1.20 per tonne to delivered prices. Industry research also highlights the fact that increases of this level will cause a massive influx of imported aggregate as we will no longer be able to compete. Local authorities will have to make significant increases to their council tax and business rates, to maintain their work programmes. Unfortunately they could well end up using this additional revenue to fund the purchase of aggregates from Norway, France or Eire! Furthermore, BAA is puzzled by HM Treasury's continued assertion that " a recent survey carried out by the Environment Agency has established that there is still significant scope for increased use of recycled aggregate." The previous Financial Secretary, Stephen Timms referred to an additional 12.7m tonnes per annum of hard waste available for recycling which was derived from the "Construction and Demolition Waste Survey" commissioned by the Environment Agency and carried out by the Symonds Group. The publication of the full report has been delayed. The results contained in the technical summary do not agree with Mr Timms statement. The figure of 12.7m tonnes is in fact the amount of waste material, "which have some potential for recycling, but which are currently being used for purposes for which other (primary or secondary) aggregates might have to be purchased if the waste was no longer available." The report actually concludes that "there is 2.6 million tonnes of `hard' construction and demolition waste, clean or contaminated, currently land-filled as waste." Their response rate was of the order of 25-30 per cent. We pointed out this discrepancy to Mr Timms at the time. Furthermore the British Geological Survey seminar in Nottingham in February this year, "Aggregates Recycling—Limits to Growth,?" at which the DETR, the Environment Agency, the Recycling Industry and various "Green" organisations all presented papers is very relevant. The firm consensus was, that a lot had been achieved, even in the 80's, and that this had been accelerated in the 90's by Landfill Tax. It was agreed that some two to three million tonnes per annum of hard waste available for recycling currently exists. This may rise to a possible five to six million tonnes longer term, in other words one per cent perhaps rising eventually to two per cent of total primary aggregate use. This is documented on the BGS website

"Government is looking at the option, in principle, of reduced rates for environmentally friendly quarries."

  The BAA does not believe this to be at all practical and would contravene existing competition legislation. Furthermore BAA is strongly opposed to the blanket imposition of ISO 14001 which is extremely expensive, bureaucratic and totally unsuitable for SMEs. ISO 14001 is an environmental compliance standard which seeks to address matters already dealt with by existing legislation and, of course, specific planning conditions. We are also strongly of the opinion that any "rebate" scheme would need to be "site specific" to offer any degree of worthwhile protection to individual operators and that this would be precluded by excessive cost.

"Government is committed to helping protect the international competitiveness of British industry ... and in line with this allows a tax credit to arise when aggregate is exported from the UK, and provides for imports of aggregate to be taxed on first sale or use in the UK."

  Although this may be correct, these measures will not have the least effect in protecting our international competitiveness. The limestone sector will be damaged because, although limestone used for industrial or agricultural purposes is to be exempt it can take up to six tonnes of throughput to achieve one tonne of industrial grade product. As these by-products will be taxed heavily yet have to compete with a host exempt materials, including recycled, the cost of producing the industrial grade material will be greatly inflated. Foreign limestone will not have this problem with the additional sting in the tail, that because all industrial grade limestone is exempt foreign material will not be taxed on import. Similarly the dimension-stone sector will have to compete with foreign stone that will not be more cost effective. Due to the labour intensive nature of this sector it has already suffered greatly in the face of international competition, often from countries with poor human rights records and virtually no environmental control. Although dimension stone itself will be exempt, secondary aggregate generated by the process will be subject to the tax and have to compete with other wastes and by-products, which are to be exempt. Foreign producers will not have this burden which could spell the end of what little is left of Britain's dimension stone production. There will also be a major problem with imports of construction aggregates which although subject to the levy when they are sold merchants will only ship in saleable aggregates and have no need to make provision for by-products. Overseas producers will still be able to sell their scalpings, dust and less popular sizes in their existing markets with no tax. Imports will thus have a significant and unfair advantage. All the major ports are already handling sea-borne and marine dredged aggregates so it will be relatively simple to switch to imports. [Aggregate is already imported from Norway, France and Southern Ireland.] although "Aggregate Tax" and Import Substitution" BAA [available on request] deals with the subject in greater detail it is important to be aware that this is one instance where being an island could prove to be major disadvantage since sea transport is much more cost effective than road or rail.


    —  Britain is alone in Europe imposing a levy of this magnitude.

    —  The methodology used to determine the rate was highly controversial.

    —  £1.60 is the equivalent of a 30 per cent price increase and greatly exceeds profit levels.

    —  Quarry companies will incur an additional 30p compliance cost.

    —  Few complaints made about quarries, the UK industry is highly regulated.

    —  NIC reduction will take from the rural economy and give to the urban economy.

    —  Many small companies will shut their doors, significant job losses inevitable.

    —  Only two to three per cent additional recycling now possible.

    —  Reduced rate scheme for "green" quarries totally impractical.

    —  Sub-standard materials will reappear on construction sites.

    —  International competitiveness compromised.

    —  Inevitable and substantial import substitution.

    —  Damage already occurring to supply industry.

  There are a great number of other issues, which have been raised by the British Aggregates Association, but which Government has yet to respond to, in any detail.

    1.  The question of Northern Ireland and its problematic land border with Southern Ireland, which will not impose the tax.

    2.  Mainland import substitution.

    3.  Pre-cast concrete products, many, many problems here.

    4.  The obvious lack of environmental benefit.

    5.  The disturbing lack of Government research on the economic impact.

    6.  The greatly heightened probability of sub-standard materials reappearing on our construction sites with loss of client control due to DBFO schemes (design, build, finance, operate).

    7.  Unsustainably high percentage compliance costs due to (a) an extremely complex tax (b) comparatively low unit value of construction aggregates (c) inevitable difficulty collecting invoices (d) problems of secondary aggregates.

    8.  Inevitable confusion due to admitted flaws in the primary legislation.

    9.  Damage to the Rural Economy.

    10.  Competition and SME support.

  Although the tax is not due to commence until April 2002, substantial damage is already being caused to our supply sectors of heavy engineering, fabrication and plant manufacture as well as the quarry industry itself. We are now "caught in the headlights" of this impending juggernaut with many companies being forced to abandon or postpone capital projects, until the full effects of the levy become known.

  There is absolutely nothing wrong with the UK quarry industry, it is the most highly regulated in the World, has the best Health and Safety record, the best staff welfare and very few complaints are made about either sand and gravel or hard rock workings. We have thousands of years of reserves, still only using a fraction of 1 per cent of our landmass. Quarrying is a local industry which provides essential, inert, and long lasting construction materials. It brings benefit to the local community and we will not be serving our country well if we allow it to be destroyed by careless, ill-informed and completely unwarranted action.

  With the manufacturing sector officially in recession and the rural economy in a parlous state, the Government's intransigent position on this issue is extremely concerning.


  It is clear that one of the most serious side-effects of Aggregate Tax will be the inability of a substantial part of the UK quarry industry to compete with imported aggregates. Construction materials are already being imported on a regular basis from Norway, France and Eire due to a combination of factors.

    —  All the major UK conurbations, with the exception of Birmingham, are readily supplied by sea, which is by far the cheapest form of transport available.

    —  UK quarries are mostly located in rural areas some distance from the major markets meaning that the price of their products is artificially inflated by the ever increasing cost of road and rail delivery.

    —  The emergence of extremely cost effective large coastal quarries, often referred to as super-quarries.

  We can, in fact, take a UK coastal quarry as an example, Glensanda.

  Glensanda is located on the Morvern Peninsula in the Scottish Highlands. It is a massive reserve of good quality granite with its own deep water, high speed, ship loading facility. Originally targeted towards the North American market it quickly refocused on Northern Europe and the UK, when the American market became uneconomic, due to competition from places like Mexico. Glensanda has proved that it is commercially viable to deliver aggregates using large discharging vessels, into Forth, Tyne, Humber, Thames, Solent, Severn, Mersey and the Clyde. It is therefore sustainable to argue that Aggregate Tax will bring about an immediate, substantial and permanent increase in imports, for the following reasons.

    —  Although imported aggregate will have to pay the £1.60 levy, merchants will only import saleable products and will not have to apply tax to waste, dust or other by-products.

    —  Overseas producers will continue to sell their by-products and less popular sizes, without tax, in their existing and domestic markets.

    —  There are already a great number of ready-mix concrete and asphalt coating plants located in all major UK ports due to cost effective materials being delivered by companies such as Foster Yeoman, sea-dredged aggregates and existing imports.

    —  Overseas producers will not have to make provision for Aggregate Tax compliance costs or suffer the same massive cash flow problems.

    —  UK production capability will be permanently damaged. Due to intense pressure from lobbying groups such as FOE and CPRE, redundant quarries will be landscaped and lost with permissions for new quarries almost an impossibility.

    —  Even in the unlikely event of the remainder of the EEC signing up to Aggregate Tax, cost effective supplies of aggregate are readily available from other, non EEC countries, many of whom hold Free Trade Agreements with Britain.

  Even UK quarries like Glensanda with its well established site and excellent facilities will not be able to withstand this degree of unfair competition. It is also important to remember that once aggregates are placed in large, modern, self-discharging bulk carriers they can be transported vast distances at relatively little cost.


  In an effort to evaluate the cost of shipping aggregates from nearby countries, quotations were obtained from different agents and form part of this report. These quotations show clearly that even using open market figures and non dedicated vessels there is likely to be a substantial problem.

  The figures were arrived at using self discharging vessels which do not require expensive dock labour to discharge. This gives enormous savings not just on labour but, equally important, on time.

  The cost of shipping aggregates from France to the Thames Estuary is given at £3.55 per tonne which includes all port fees and discharging. Similarly from Eire, £4.25. To Edinburgh from Norway is quoted at £4.60. However it is important to note that these figures will reduce even further as a market develops and bespoke vessels are dedicated to the work. Even if only 25 per cent of the UK requirement is imported, that represents over 50 million tonnes and shipping costs will be trimmed accordingly.


  It costs around £23,000 per day to time charter a 70,000 tonne self discharging vessel. However with a load and discharge rate of some 5,000 tonnes per hour and a steaming rate approaching 20 knots we can see that dedicated shipping will be particularly effective.


  Commence loading France 8am, complete 10pm. Sail for Thames arriving 5am and commence discharge, complete 7pm and return in ballast arriving load port midnight latest. Obviously provision will have to be made for tides, docking and pilots but with a 40 hour turnaround a two day allowance with one way traffic gives a base shipping rate of only £0.66 per tonne!


  Due to the highly regulated and bureaucratic nature of the UK Construction Materials Industry we find that aggregates are often cheaper in other countries. This has also come about as a result of an enormous amount of industry consolidation with substantial areas now suffering from a lack of meaningful competition. Quarrying has an unusually high entry level due to the difficulty and cost of obtaining planning permissions, high cost of capital equipment and a restricted marketplace. Recent quotations show "free on board" prices ranging from £3 to £4.50 for single size aggregates, £1.50 to £3.00 for sub-bases and even less for bulk fills.


  There will be particular problems with pre-cast concrete products. Although made of up to 95 per cent aggregate and sand, no duty will be payable on import. However domestic producers will have to pay a large premium, on top of Aggregate Tax, as almost all concrete products require good quality aggregates and sand. There is a growing import/export market in concrete products with exports rising slightly faster than imports. However this situation is likely to change very quickly as a direct result of Aggregate Tax. There is also the vexed question of Northern Ireland. It is now recognised that special provision will have to be made to protect the province. However, with between 4,000—5,000 tonnes of pre-cast being shipped to the mainland every week, UK producers will be even worse off if NI is given such a competitive advantage.


  To understand just how quickly this situation will develop it is important to consider which companies are most likely to become involved. Five large companies, referred to as the majors, Tarmac, Hanson, Aggregate Industries, RMC and Lafarge between them control 90 per cent of the market in ready-mix concrete and asphalt. They also control a substantial part of the UK pre-cast concrete capability. (98.48m tonnes used in asphalt and concrete therefore majors have in house requirement of about 85m tonnes.) These companies also claim 80 per cent of all UK quarry production of 206m tonnes = 164m tonnes, a substantial part of which they use "in house". All these companies own or control substantial dock facilities which they already use to service major markets. Although this activity is most pronounced in the South East it also occurs in most other ports. Therefore it is plain that these five companies will not have a problem switching to imported material. With the possible exception of Aggregate Industries the majors collectively operate quarries in Norway, Poland, Germany, France, Belgium, Spain and Portugal. Lafarge is a French company with substantial production capacity within striking distance of several Channel ports.


  Although it is plain that the demise of a substantial part of the UK quarry industry would please a number of people including the more extreme environmental pressure groups such as FOE and CPRE we need to consider the disadvantages.

    —  Balance of Payments. The most immediate and obvious result will be the effect on our balance of payment as we switch from domestic to imported aggregates and concrete products. Although the total value of the aggregate market is relatively small at just over £1bn there will be substantial collateral damage. We must also consider the additional cost of importing concrete products.

    —  Employment. Almost 30,000 people are directly employed in the quarry industry. A further 15,000 people are employed in supply and service companies such as engineering, fabrication, plant manufacture, plant hire and plant repair, to name but a few. A substantial number of jobs will also be at risk in the pre-cast concrete sector.

    —  Loss of Production Capability. As quarries are closed down the machinery is liable to be sold off and the sites used for landfill, amenity or agriculture. This trend will be difficult to reverse as new permissions are difficult to obtain. It can take several years to bring a new site on stream and it will not be easy to get venture capital when plant costs are so high and the market is so restricted.

    —  Inferior Quality and Selection. Imported aggregates are often of inferior quality with a restricted product range. Much degeneration takes place during the rapid loading and unloading as well as inter-particle communition during passage. However this is no longer such a major problem as a great deal of client control has been eroded. Many projects are now completed using DBFO schemes (Design, Build, Finance and Operate) which means that contractors are able to use any materials they wish and the choice is all too often dictated by price.

    —  Environmental Damage. At this point it is perhaps relevant to consider that although Aggregate Tax was borne out of a stated aim to protect the environment the opposite will be the case. The UK quarry industry is the most tightly regulated in the World with the highest standards of health and safety and the best staff welfare, however, aggregates will now be shipped in from countries with much less control and lower standards. As many of the smaller operators close down aggregates will end up being transported further, by road, to the customer. More trucks, more congestion, more greenhouse gases.


  1.  Although UK materials have to confirm to BS specifications and European materials to DIN standards this will not pose any real problems as product curves are similar.

  2.  Concrete uses 18.6m tonnes of crushed rock and 56.2m tonnes sand & gravel annually = 74.8m tonnes.

  3.  Asphalt uses 21m tonnes of crushed rock and 2.5m tonnes of sand & gravel annually = 23.5m tonnes combined total 98.3m tonnes.

  4.  The five major quarry companies Tarmac, Lafarge, RMC, Aggregate Industries and Hanson control 90 per cent of the ready-mix and asphalt industries.

  5.  A number of UK quarry companies also have quarries in Northern America.

British Aggregates Association

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