Examination of Witness (Questions 60 -
WEDNESDAY 31 OCTOBER 2001
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.
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
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
(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
(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
(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
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.
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
Chairman: We can always obtain that.
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
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
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
(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 radiusand I do not have an
estimate of what that is likely to bewould be at risk.