Select Committee on Northern Ireland Affairs Minutes of Evidence

Memorandum submitted by the Quarry Products Association, Northern Ireland


  The Northern Ireland branch of the Quarry Products Association was formed in 1998 and its membership now accounts for 75 per cent of aggregate production in the province. Member companies operations include the processing of recycled and secondary materials, the production of downstream value added products, such as Asphalt, Ready Mixed Concrete, Sand and Gravel, Pre-cast Concrete and Concrete Blocks. QPA membership also includes a range of associated companies with interests in the industry.

  The Aggregates Tax divides the industry's products into two groups. The first is primary aggregates (crushed rock, sand, gravel etc) and the second is aggregate products (products made from aggregates like concrete, tarmac, concrete blocks, etc). Primary aggregates extracted and sold in Northern Ireland will be taxed, as will aggregates which are imported. Primary aggregates which are exported will not be taxed. Aggregate products manufactured in Northern Ireland will be taxed whether they are sold locally or exported into Southern Ireland. Incredible, imported aggregate based products will not be taxed.

  Quarry Products Association (QPN) Northern Ireland has been lobbying, and in correspondence with, relevant United Kingdom Government departments and individuals for some considerable time without adequate or definite response to date.

  There have been questions in the House from Northern Ireland Members and debates within the Northern Ireland Assembly but all this has resulted more in a fact finding exercise by Customs and Excise and Treasury than the addressing of the matters peculiar to Northern Ireland and how these might be resolved or alleviated.

  The opposition to the introduction of the proposed Aggregate Tax and its adverse effect upon Northern Ireland is probably the most important matter which has gained unequivocal cross party support in the Northern Assembly. The QPA is disappointed that to date it has received no formal constructive response or feedback from Treasury as to its intentions with regard to the introduction of the levy in Northern Ireland.

  London Economics (LE) was commissioned by the DETR in September 1997 to "derive and present estimates for the economic value of the environmental impact of the supply of aggregates". The LE report was completed in January 1998, and concluded that average environmental costs of aggregates extraction were £4.63 per tonne, including £2.62 per tonne for rock quarries and £9.00 per tonne for sand and gravel quarries. The results were calculated through contingent valuation (CV), a process by which a representative sample of people living within a five mile radius of seven quarries were asked how much money they would accept as compensation for continuing quarrying.

  Due to doubts strongly expressed by the QPA, and also apparent within Government, a peer review of the report was commissioned from Professors David Pearce and Susanna Mourato of University College, London. This peer review concluded that contingent valuation was an appropriate methodology, but criticised the London Economics report, particularly relating to the survey questionnaire, and said further research was necessary. The DETR then commissioned London Economics to carry out further research. The cost to Government of both London Economics reports is in excess of £500,000. The second London Economics report was published in May 1999.

  In the second LE report 9,361 people were interviewed within a five mile radius of 21 aggregate production sites (16 quarries, three recycling sites and two wharves). A hypothetical scenario was described to each person: under a Government scheme, the local quarry would be closed down. The site would be restored in an acceptable way, the employees would be found alternative employment and no quarry would open within five miles. Interviewees were asked how much they would be prepared to contribute to the cost of the closure. Environmental impacts were deemed to be eliminated and there would be no disbenefits. As a result of the survey the environmental costs were estimated as £0.34 per tonne for rock quarries and £1.96 per tonne for sand and gravel quarries.

  The closure scenario may not be real, but the CV survey to produce credible results, the scenario must be believable. Much of Northern Ireland depends so heavily on quarrying that the labour market could never absorb all redundant quarry workers. The "no new quarry within five miles", is also unrealistic given the greater number of smaller quarries in Northern Ireland. Northern Ireland accounts for 10 per cent of UK aggregate production but was not included in the survey. This exclusion from consideration became all the more regrettable when Customs and Excise recently stated that even small changes to the legislation are very difficult to make at this late stage.


  Our concerns are outlined below.

  1.  Northern Ireland relies more heavily on the quarrying industry than any other region in the UK. It will clearly be more adversely affected by the Tax than any other region. Yet it has received the least investigation, during the important early stages are we to accept the wholesale loss of jobs because of uncorrected mistakes?

  2.  The logic of the Tax is based on the assumption that the UK does not witness significant imports/exports within our industry. Therefore, if a levy is imposed on domestically produced aggregate products, the cost can be passed on to the end user. In Northern Ireland, the end user can source untaxed imports from south of the border. How is an Industry which is taxed expected to survive alongside one that is not?

  3.  The permutations embodied in the legislation allow the export of virgin aggregate from North to South, where it can be turned into value added product and then transported back into Northern Ireland, Tax free. In this case there would be no decrease in extraction, more lorry movements and processing jobs would transfer South. What an appalling achievement?

  4.  The possible introduction of a levy on imported value added products only shifts attention to another perverse affect. Those companies who export virgin aggregate as well as value added products will only be competitive in the sale of virgin aggregate if the Tax is implemented. Consequently, they will have to increase the extraction and sale of virgin aggregate in order to maintain their level of business.

  5.  Both scenarios in 2 and 3 above involve, at best, no decrease in extraction and an actual increase in lorry movements. Lorry movements cause a bigger environmental impact than any other activity within our industry. The objectives of the Aggregates Tax will patently not be met in Northern Ireland.

  6.  The evident lack of understanding on the part of Treasury officials on the subject is frightening. In a letter (31 May 2001) to Mr Eddie McGrady MP Stephen Timms, then First Secretary to the Treasury stated "There should be no risk of increased imports from the Republic damaging the Northern Ireland aggregates industry, as imports of aggregates will be subject to the levy and exports will be exempt. Opportunities to smuggle aggregates into Northern Ireland will be very limited because of the nature of the product, ie bulky, low value materials with high transport costs." He completely misses the point that it is imported tax free aggregate based products that the threat comes from.

  7.  Stephen Timms in an earlier letter to Tom Levitt MP, stated that a Tax rate of £1.60 per tonne corresponds to an economic haulage distance of 16 miles, implying that the anti-competitive affects of the Tax will only be felt 16 miles into Northern Ireland.

  Terrible as this may seem, far worse is the real picture. Hauliers in Northern Ireland will actually haul 20-25 miles for this amount. Approximately half of Northern Ireland is within 20 miles of the border. Within this zone, locally produced product will be uncompetitive. Export business will be severely hit.

  8.  The Government has recently issued a consultative document outlining plans for a rebate system for "Green Quarries". The number and range of questions posed in the document is incredible considering that the Tax is due to commence in five months. An excerpt from the document actually highlights how the Tax legislation has failed to meet it's objectives in Northern Ireland.

    "Any proposals for a differential rate scheme would need to be consistent with the government's general principles for a fair and efficient tax system, and in particular with the principles contained in the Statement of Intent on environmental taxation. Polluters should face the true costs which their actions impose on society, but taxes should deliver environmental gains cost effectively. In addition, environmental taxes must be well designed, to meet objectives without undesirable side-effects; they must keep compliance costs to a minimum; distribution effects must be acceptable; and care must be had for international competitiveness. And the environmental objectives themselves must be based on sound evidence, although uncertainty necessarily justify inaction".

  9.  "Internationally traded" is a label which has earned some products within our industry exemption from a Tax. How is trade between Northern Ireland and the Republic of Ireland defined? Surely Northern Ireland deserves to have its international competitiveness preserved too. Customs and Excise states that, for example, all aggregates used in the manufacture of cement are exempt because cement is internationally traded and because the manufacture of cement is a chemical process. Do they not realist that the formation of concrete is an irreversible chemical reaction also.

  10.  The regions most disadvantaged by the Tax, are designated by Government as areas requiring assistance by way of Targeting Social Need. This is another instance in which Treasury is working contrary to previous Government guidelines.

  11.  The Aggregates Tax is impacting on Northern Ireland companies already. In the month of October, a great number of annual contracts (2002) are tendered for. Should the Tax be factored in or out? Our industry needs to know now.

  12.  The introduction of the Tax will, particularly in border areas, greatly reduce the value of quarries. This level of financial impact coupled with environmental disbenefits is peculiar to Northern Ireland. There is a failure to address the Human Rights issues under the Human Rights Act 1998 and the European Convention on Human Rights in order to strike a fair balance between government policy and the particular needs and rights of those quarry operators in Northern Ireland whose livelihoods depend on the aggregates industry.

  13.  This proposed legislation can only lead to harmful tax competition and abuse to which in 1999 the then EU Commissioner for the single market and taxation, Mario Monti, appealed to member states "not to add further complaints to their (the commissioners) burden. This would further compound existing inequality where the southern manufactures enjoy not only being relieved of the Levy but also preferential lower level of corporation tax at 10 per cent even setting aside the favourable currency differential.

  14.  The questionable inequality of the allocation of the proposed Sustainability Fund as between Great Britain and Northern Ireland. Northern Ireland produces 10 per cent of UK aggregate production yet will only receive 2.4 per cent of the Sustainability Fund.

  15.  The disproportionate impact upon prices in Northern Ireland, an increase of up to 70 per cent, as distinct to parts of England of 20 per cent.


  The situation which is peculiar to Northern Ireland might be addressed by:

    1.  Excluding Northern Ireland from the application of the Tax and leaving the matter for self-determination by the Northern Ireland Assembly.

    2.  Excluding Northern Ireland from the application of the Tax and leaving the matter for determination by North/South bodies as the matter is relevant to both jurisdictions.

    3.  Applying the Tax to Northern Ireland but subjecting trade within Northern Ireland and trade from Northern Ireland to the Republic of Ireland to a Zero rating. This would maintain equality and would reduce the disproportionate prejudice to be suffered by the industry. All trade from Northern Ireland to Great Britain could be subjected to the £1.60 Tax similarly maintaining equality.


  The following specific questions arise:

    (i)  Has the Treasury carried out an equality impact assessment as required by Section 75 of the Northern Ireland Act 1998 having regard to the issues already raised with them by members of our Association?

    (ii)  Has the Treasury assessed critically, whether directly or by independent research on its behalf, the particular impact of the Aggregates Levy on the aggregates industry in Northern Ireland in order to strike a fair balance between government policy and the particular needs and rights of those such as the QPA members whose livelihood depends on the aggregates industry in Northern Ireland?

    (iii)  If the answer to questions (i) or (ii) above is "yes" we would ask Treasury to forward to us the relevant documentation.

    (iv)  If the answer to questions (i) or (ii) is "no" we would respectfully ask in such case to explain why?

October 2001

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