Examination of Witnesses (Questions 40
WEDNESDAY 31 OCTOBER 2001
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
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
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
(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.
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.
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,
(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
(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
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 dustdust is obviously
one of the potential environment impacts, though it applies to
things like noise as wellare 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.
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
(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.
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
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
(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.