Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witness (Questions 60 - 79)

WEDNESDAY 31 OCTOBER 2001

MR TONY DORAN

  60. Can you put your finger on why?
  (Mr Doran) There are probably three reasons. The first is the effect of world events, the recession, the effect on inward investment and the effect on Shorts Bombardier and companies in the telecommunications and IT sector. There is a diminution in inward investment. A second broad issue is probably a lack of confidence, a reduction in confidence in the Province as a whole over the last six months where perhaps as we move towards permanent peace investors will be wondering whether it is the right time to invest. Perhaps the final reason is that with the hiatus with the Assembly, government departments are creating new priorities, assessing those priorities, putting budgets in place, with the effect that perhaps government expenditure has not gone ahead at the rate we would expect it to. All of those doubts have created very short-term difficulties for the industry which will have effects on employment.

Mark Tami

  61. You have given us an insight into how the industry is faring at the moment. How would you project the industry into the future. Have you looked at the projections?
  (Mr Doran) One of the sad things about the Province is the total dearth of published government statistics on output and new orders. We have to look in arrears at figures which come out. Assuming that new orders have dropped at a rate of about 331/3 per cent over the last six months, that will mean a significant reduction in new orders which will reduce employment. Housing demand has flattened off very rapidly over the last three to six months, which again will reduce demand and potentially increase unemployment. I would not want to put a figure on that. We are expecting the budget sooner rather than later and hopefully within the budget figures there will be some level of optimism, but we shall see how quickly the Assembly can start bringing forward its projections. At present jobs are at risk.

  62. Given what you say, how do you view the levy as an addition to that, both in the short term and indeed the long term? How will the industry react to that?
  (Mr Doran) The contracting industry is a very competitive one. Contractors will buy the cheapest materials they can at the best price. Therefore I would say, taking very broadly the 5,500 jobs in the quarrying industry and two thirds of those being on the border, within the 20-mile radius which the Quarry Products Association mentioned, in that direct sector there could be up to two thirds of those jobs at risk. That is potentially, 3,500 to 4,000. Whether they will lose 1,000 or 2,000 jobs in the short to medium term is an issue. The other effect I should like to mention again is the question of housing demand. There has been a transfer from public sector to private sector of significant charges in relation to privatising over the last couple of years. The aggregates tax will put around £640 on average on the cost of a new house. That would further depress the market which would further reduce employment.

The Reverend Martin Smyth

  63. As I read your submission I began to think that the Treasury was living out that old adage, let not your left hand know what your right hand is doing. In other words, what would you imagine the impact of the levy upon a construction industry might have on other public developments and expenditure and the public purse?
  (Mr Doran) The current Minister for Finance in the Assembly, Mark Durkan, has agreed with the estimate put forward by the Quarry Products Association of a £35 million direct cost to public expenditure in Northern Ireland on construction activities. That is a significant proportion of current expenditure. It will mean current priorities within the regional strategy, which are much needed, within the transportation strategy, which are much needed, will not go ahead.

  64. I noticed that you referred particularly to the motorway and Westlink which would have an adverse effect upon our exports, which again would affect the economy, getting things earlier to shipping and abroad and this problem we are facing in Belfast with the whole concept of our major sewerage reorganisation.
  (Mr Doran) It is perhaps worthwhile briefly putting a context to that. In the Republic of Ireland there has been a very significant investment in the last ten years in infrastructure, in roads, new motorways, harbours, airports. The net construction expenditure has increased at around 12 per cent per year compound. The net effect of that is that it is putting at risk existing harbours and outlets in Northern Ireland, such as Belfast Harbour, Warrenpoint, Londonderry and Larne, because hauliers from the border area and from the Republic can find it more economical and quicker to get to their markets in Great Britain by going through the southern ports. The CBI, the Institute of Directors and the Chambers of Commerce have made it very clear that one of the major deterrents to economic regeneration in Northern Ireland is the lack of an adequate transport infrastructure. There are great needs there. The tax will take money directly out of those budgets and put all Northern Ireland business at a significant disadvantage to its competitors in the Republic.

  65. I appreciate the answer is dealing with the impact on our public sector and ultimately on our private sector. Specifically what will the levy actually cost the construction industry directly or in indirect costs?
  (Mr Doran) There would be directly a reduction in the public sector budget of £35 million. Approximately 10,000 new houses are built in the Province every year and the average cost will be £650 to £700 per house, which to a degree the customer will pay, whatever that multiplies out at. There is also the effect it will have on private investment, where again investment nowadays, because of world effects, is a very marginal activity and short-term, short increases in construction costs can mean the difference between projects going ahead or not. It is very difficult to quantify that in jobs, but we know that the total costs are going to be in the region of £50 million.

  66. Really a major purchaser of your construction industry in the future would be in the public sector?
  (Mr Doran) That is correct.

  67. How do you imagine you are going to recoup those costs you are losing either from private developers or from public?
  (Mr Doran) It will simply mean capital budgets from government will reduce to the value of £35 million a year which is significant over any medium term; taking ten years that is more than the total roads and water infrastructure budget is likely to be in capital terms. It is a significant loss. In the private sector it is an additional £500 or £600 cost on every new house in the Province, a direct tax on a limited number of purchasers.

  68. Are you suggesting that you are not going to be able to recoup that from those who are purchasing houses and apartments?
  (Mr Doran) The ability of the industry to recoup costs depends on the market. The market is very tight at present. If the market were buoyant the cost would be paid by the purchaser. The direct costs on house owners, house purchasers, will be to some degree that new house purchasers will pay the tax and in other cases individual developers will pay the tax and it will be shared between them at a proportion the market will allow to go ahead.

Mr Clarke

  69. We have already said that where you source your aggregate from within the construction industry is very much a question of locality: the nearer the better.
  (Mr Doran) That is right.

  70. It must be a competitive market. We have already said that we have seen increases in construction of over 100 per cent. Could you tell the Committee what the differential would be in price per tonne between aggregate sourced within the Province and that already sourced in the Republic? Is there a price difference? What would that be?
  (Mr Doran) That is not a point on which I would have direct experience but I can write to you specifically on it.

Chairman

  71. That is really an answer for the last group of witnesses to give.
  (Mr Doran) I am sorry, but I cannot give you direct information.

  Chairman: We can always obtain that.

Mr Clarke

  72. Presently in the industry do you find that construction firms do source from outside already?
  (Mr Doran) There are materials which are sourced outside Northern Ireland. Aggregates are generally sourced within Northern Ireland. I would assume that the markets which the producers around the border area have within Northern Ireland would be significantly at risk.

Mr Bailey

  73. The rationale for this is obviously environmental and the compensatory factor is the reduction in national insurance on employer contributions. Is the £640 you have quoted as an additional cost for housing net of any benefit obtained through national insurance reductions?
  (Mr Doran) It is a direct cost on the individual house purchaser. The benefit of national insurance contributions is spread across the total market. If it is the case that Treasury or Government in Northern Ireland and at Westminster wants to improve environmental benefits or reduce disbenefits, it is very easy to talk to the industry. Our Federation has been there for 100 years or more. We have had good contacts with the Government and it is very easy to put processes in place which improve the environmental record of the industry. Both we and the Quarry Products Association have started discussions with Friends of the Earth and the Environmental Heritage Department of the Northern Ireland Government to address that point.

  74. You have moved on to a slightly different issue. May I come back to the one I wanted? Basically, has any calculation been made of the net benefit from the changes in national insurance contribution to the industry in Northern Ireland? Has that been incorporated into those figures you have given?
  (Mr Doran) No, but we can do supplementary work on that.

  75. It might be helpful if you could. The second point, again getting back to the environmental rationale behind this, is what potential is there for the use of recycled materials within the building industry as substitution for imported aggregates?
  (Mr Doran) In the Province it is relatively limited. The Northern Ireland economy has been based on a different historical perspective from that in the rest of the UK. The potential is there but it is limited. That is something which to my knowledge has not been addressed by government in any way as a significant issue. There is potential but limited.

  76. You say that it has not been addressed. Has any assessment been made at all to your knowledge?
  (Mr Doran) Not that I know of. We have not been approached by government departments or by the Treasury to address that point.

  77. I would have reasonably expected interested bodies to have challenged the Government's rationale on it by doing their figures, if they were challengeable. I certainly think it is an area which should be researched more.
  (Mr Doran) I take your point but following on from the comments made earlier, that it was about a year ago when the issues became really clear. We have negotiated and discussed with the Treasury, Customs & Excise and government departments in Northern Ireland to see whether we could arrive at a point where alternatives could be addressed.

  78. At the moment what sort of percentage of aggregates used in the industry is sourced from outside Northern Ireland? Do you know this?
  (Mr Doran) I do not know, but in my experience it would be very limited. This again goes back to the question of haulage costs and all the rest of it. It would be very limited.

  79. What would be the potential if this levy were introduced or when it is introduced? What are the likely changes?
  (Mr Doran) Going back to the points made earlier by the Quarry Products Association, the haulage rates around the border would suggest that perhaps 25 miles would be the minimum area in which aggregates could easily be imported and all the work carried out within that radius—and I do not have an estimate of what that is likely to be—would be at risk.


 
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