Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 40 - 57)

WEDNESDAY 31 OCTOBER 2001

MR JACK DUFFY, MR MATTHEW MURPHY, MR GORDON BEST, MR JEREMY ACHESON AND MR JOHN BAXTER

Chairman

  40. Just on that specific point, it seems to be a Treasury view that the impact of this tax is relatively minimal in national terms as far as Northern Ireland is concerned.
  (Mr Murphy) Minimal?

  41. In terms of the whole of the UK, the effect in Northern Ireland is really rather small. Have you made representations to the Treasury showing how great it is, showing what your facts and figures are?
  (Mr Duffy) The Northern Ireland Quarry Products Association visited the policy advisers to the Treasury as far back as 29 September.

  42. Did you bring them facts and figures from both Northern Ireland and the Republic in terms of costs of production, haulage rates and so on?
  (Mr Murphy) They received that information indirectly through the Northern Ireland Executive. There was a debate in Stormont last December and as a result of that motion, the DRD, Minister Durkan's department and Minister Empey's department began to make representations on our behalf to Treasury. It is fair to say that the majority of our discussions with Treasury have taken place in that forum. That information started to flow to Treasury from December last year and January this year.

  43. Do the Treasury have all the facts and figures and all the comparative facts and figures?
  (Mr Murphy) Yes, they do.
  (Mr Duffy) They do. We visited the Treasury policy advisers because these were the people who were responsible for the document and we wanted to get to the author of these reports. A delegation of three of us met them at the Treasury offices and we put forward our points for Northern Ireland. They had not taken into account our land border and they had not visited Northern Ireland. They did admit to that, but it was not until after the Customs & Excise visit to Northern Ireland in August of this year, almost two years later, when they reported back to the Treasury the difficulties, that Treasury then came to Belfast for a meeting.
  (Mr Best) In our submission, point 7, we highlighted the fact that "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 effects of the tax will only be felt 16 miles into Northern Ireland". What he failed to realise was that the haulage rates he was using were English haulage rates. As we all know, haulage rates in Northern Ireland are a lot less than that.

  44. Good to have that on the record. Do you know whether there have been any discussions with the European Commission about the problems which would arise if there was a differential tax, that is if there was an aggregates tax in Great Britain but not in Northern Ireland, to find a way round competition rules?
  (Mr Murphy) We have recently begun discussions with the representative of the Commissioner in Belfast, but I would stress that the discussions have only just begun. They will look at two areas. They will look at the legality of the tax in its present form. They will assess whether or not the tax in its present form interferes with competition. That is the tax as it stands. The way by which it may interfere with competition is in paper terms. The tax is a tax on aggregates, but for a company like ourselves, which quarries aggregate and then turn it into asphalt, our aggregate is taxed at the point it is turned into asphalt. To us the tax is a de facto tax on asphalt. In competitive terms that is in effect what the tax amounts to for us. It would not be legal for the Government to tax asphalt that we make yet allow a southern producer to sell asphalt into Northern Ireland untaxed. The Government have also made the point that any differential treatment for Northern Ireland would be contrary to state aid laws. We are not aware to what extent Government Ministers or Government officials have been investigating the possibility of differential or separate treatment for Northern Ireland with the commissioner, but we shall certainly be doing so.
  (Mr Baxter) It might be helpful to the Committee to understand. We keep referring in our responses to you to value-added products. It might be helpful to the Committee to understand that the trade in aggregates as aggregates, virgin aggregate or just aggregates is less than 50 per cent of the total trade. The bulk of the actual trade is in added-value products, downstream products.

Mark Tami

  45. Just to expand the point made there, if Northern Ireland were not covered by this, would there be the possibility of exporting? Could the argument be made that therefore you would either start or increase exports to mainland Britain? If that were the case, and the tax was introduced as it is planned to be, is there a market there for the Republic to export to mainland Britain as well?
  (Mr Murphy) If Northern Ireland were zero rated, we would be happy and we would see it as fair that any product crossing the Irish Sea would be subject to the tax. At the end of the day, as an industry, all we are looking for is a level playing field. What the Government have failed to understand up until now, through a gross lack of investigation, is that our main competitor is south of the border. He is not in London, he is not in Manchester, he is not in Glasgow, he is in Dublin, he is in Donegal. We need a level playing field with respect to those producers, but if we are zero rated in Northern Ireland, we will be quite happy and it would only be fair to have product which is crossing from Northern Ireland to Great Britain subject to the levy.

Mr Bellingham

  46. Before we look at the environmental side, I want to ask you a bit more about consultation with the Government. The Financial Secretary has made it clear that he has commissioned a couple of independent reports. I understand the Environmental Audit Committee did have a look at this whole issue, but in their memorandum the Quarry Products Association state that Northern Ireland was not included in the survey.
  (Mr Murphy) That is correct. That is the point alluded to earlier on. Northern Ireland was not visited by Treasury or Customs & Excise until the summer, at which time they were invited by ourselves. You do refer to a study carried out by London Economics where they visited 16 quarrying sites in order to establish in monetary terms what the environment cost of quarrying was. They looked at 16 sites and two recycling plants and a wharf; 19 sites in total. Northern Ireland accounts for ten per cent of UK aggregate production. We should have thought we should at least have had one site if not two sites looked at. We had none.

  47. What would you say were the main environmental costs associated with aggregates extraction?
  (Mr Murphy) Transport would figure very high on the list. One additional piece of information I should like to give the Committee in answer to your previous question is that the study which was carried out was a study called Contingent Valuation. A representative sample of people within five miles of a quarry had a scenario described to them and that scenario was that under a government scheme their local quarry would be closed down. It would be restored in an acceptable manner and no new quarries would be opened within five miles. All employees who lost their jobs would be offered alternative employment. The interviewees are then asked how much they would contribute towards the cost of the closure. The scenario described is hypothetical, but in order for the methodology to produce reliable results, the scenario has to be credible. The points I listed there to describe the scenario must all be believable. In Northern Ireland most quarries are within five miles of another quarry, because quarries are much, much more plentiful. In Northern Ireland there would be a level of threat to employment such that jobs which are lost would be much greater than any other area of the United Kingdom and the Government cannot realistically say that everyone who loses their job would be offered alternative employment. Whether Northern Ireland was left out of the survey for that reason, we do not know, but left out of the survey it was.

  48. That is probably quite likely. What other environmental costs can you think of? Destruction of habitat, for example?
  (Mr Best) The greatest impact is transport. For every tonne of aggregate produced and delivered, 11kgs of CO2 emissions are released into the atmosphere. Fifty per cent of that is in transport. The other thing I should like to enlighten the Committee on is the difference between the industry in Northern Ireland and the industry in the UK. If you go to the Geological Survey in Belfast and get a geological map of Northern Ireland there is a wide array of colours. We are blessed with a plentiful supply of aggregate and good quality aggregate at that. The Northern Ireland industry is probably one of the most heavily and strictly regulated in the UK. I shall just give you some facts and figures and these can be checked. Last year in Northern Ireland there were 1,700 reported water pollution incidents to the Environment Service. Eleven of those were from the quarry industry. I checked with the IRTU before I came over today. The quarry industry within Northern Ireland has had the highest uptake of ISO14000 environmental management system of any industry within Northern Ireland. We are very much a self-regulated industry. Going back to the transport question, the average journey of a lorry within Northern Ireland is 10 to 15 miles and on the mainland here it is about 30 to 35. The impact of quarrying within Northern Ireland is very much less than on the mainland. That was not taken into consideration during the initial study by London Economics.

  49. Do you think that the levy could be effective in addressing those environmental costs we have touched on, albeit having stated that the costs in Northern Ireland are less than elsewhere in the United Kingdom?
  (Mr Best) One of the implications of the tax will be to hit first of all the areas where the margins are lowest and the area where the margin is lowest is in the dry aggregate, particularly stone quarries. What will happen is that those quarries will close. This is not unique to Northern Ireland, this applies to England, Scotland or Wales. What will happen is that Northern Ireland will still need that 22 million tonnes. We have an infrastructural deficit within Northern Ireland and hopefully over the next number of years that might increase. The effect of that will be to close down the smaller quarries. You will have to maintain that level of aggregate production so the bigger quarries will up their output, you will get longer lorry movements and hence an environmental deficit.
  (Mr Murphy) The logic of the tax legislation as it is currently formed is that by and large the products our industry produces are not of sufficient value to warrant import or export. By and large that is true, but true for Great Britain is not true for Northern Ireland. In a mechanism by which the tax is expected to work, the levy of £1.60 per tonne will be imposed on the product and the client who is responsible for that product's use will have no alternative other than to pay it because you cannot competitively source an alternative. In Northern Ireland the client has an alternative. The client can simply source product from elsewhere.

Chairman

  50. You have made that point several times. It is more than clear and does not need repeating.
  (Mr Murphy) I was seeking to illustrate how the tax mechanism cannot be the same in Northern Ireland as it was designed.
  (Mr Baxter) Trying to address this a little bit more broadly, and evidently this is a comment for the whole of the UK and not specifically for Northern Ireland, it is important to consider the very powerful legislative control framework that the industry is already subject to. For instance, there is current consultation where emission levels for dust—dust is obviously one of the potential environment impacts, though it applies to things like noise as well—are about to be halved. At the present moment the limit for an asphalt plant is 100mg/normal cubic metre. The Government's intention is to reduce that to less than 50mg. These are very, very powerful mechanisms. There is also a principle which is applied and has been over the years to the environmental control of the industry and that is the use of the best technical means. That means that in effect the whole environmental framework the industry is operating is under constant review according to the technology which becomes available.

Mr Bellingham

  51. You have virtually answered my next question. I was going to ask how we can mitigate these costs in other ways than the levy and I think you have answered that question quite well.
  (Mr Best) May I make a very relevant point here? I want to read out an extract from the Government's statement of intent on environmental taxation published in July 1997. They say that environmental taxes should meet the test of good taxation. Polluters should face the true costs their actions impose on society. The social consequence of environmental taxation must be acceptable. Economic instruments must deliver real environmental gains cost effectively which will not be the case in Northern Ireland. Environmental policies must be based on evidence, but uncertainty cannot necessarily justify an action. Environmental policies must not threaten the competitiveness of UK business. That is the main point.

Chairman

  52. Let us go from the general to the particular. It is quite clear that the Government's rationale for doing this was the list you have read out. It is quite clear that the Treasury's view is that there are significant environmental costs associated with quarrying, noise, dust, visual amenity, damage to wildlife, habitat and so on, and they put an estimate on it. Did they look separately at the environmental impact of quarrying in Northern Ireland as opposed to quarrying in the whole of the United Kingdom?
  (Mr Best) No.
  (Mr Murphy) No.
  (Mr Duffy) No.

  53. So no separate assessment has been made of the environmental impact on your industry. It may be better it may be worse for all I know, but has no-one assessed it vis-a"-vis the rest of the industry in the United Kingdom.
  (Mr Murphy) No.
  (Mr Duffy) No.

  54. May we turn to enforcement? What sort of expectation do you have of how the Government are going to police this tax? This is probably going to be a general answer followed by a specific one.
  (Mr Baxter) The BAA raised it in their paper. We see this as being phenomenally difficult in Northern Ireland for the reasons my friends have alluded to: the open border, the resources necessary to do it and the inevitable priority anybody managing those resources will put on the matter.
  (Mr Acheson) Our main quarry is about two to three miles off the actual border and in a five to ten-mile length of the border itself there might be a dozen border crossings. With regard to the money involved in a lorry load of stones compared with a lorry load of diesel or petrol, it is just going to be impossible to police.
  (Mr Duffy) The Customs & Excise have admitted to us verbally that it is going to be very, very difficult to police and they only have limited resources. As was said earlier, they are better chasing the revenue on a tanker full of oil than that.

  55. If it is not policed, for the reasons you have given and which seem very sensible to me, and knowing how strict people are and how difficult policing is in Fermanagh and South Armagh anyway, what would be the effect of that on your industry?
  (Mr Duffy) The effect would be an uneven playing field.

  56. No, what would be the effect of the collection of the tax and its operation not being properly regulated.
  (Mr Murphy) The impact on jobs would probably then be greater than we have outlined to date. To date we have been concentrating mainly on the threat to value-added processes. If the levy is not collected on individual loads of stones and individual loads of stones that have not got levy paid on them are not chased, and I would honestly say I think the likelihood of that happening a very unrealistic possibility, if that does not happen, you have the difficult situation where each individual load is not worth chasing but hundreds of loads put together are enough to put a local quarry out of business.
  (Mr Baxter) May I add a little bit of context? A very standard material, a sub base for road construction sells in Northern Ireland at the quarry gate for under £3 a tonne. The effect of £1.60 on the sale is very clear and it will be very easy for Her Majesty's Customs & Excise to ensure the collection of the £1.60 and very difficult for them to impose it on free imports coming across. With that sort of differential effectively you will export the stone industry across the border.

  57. We have come to the end. Does anybody else want to ask a question? Thank you very much. We shall send to one of you a transcript of what you have said so you can make any corrections. You have offered to send us extra information through the Clerk. Thank you very much for giving your evidence.
  (Mr Duffy) May I on behalf of our members in Northern Ireland thank you for giving us the opportunity to address you. It is nice to know that somebody is listening to us.





 
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