Select Committee on Northern Ireland Affairs Minutes of Evidence


Memorandum submitted by HM Treasury

GENERAL BACKGROUND TO THE LEVY

  1.  The environmental rationale and the efficient rate of an aggregates levy were established by independent economic research, commissioned by the Department of Environment, Transport and the Regions, and undertaken by London Economics.

  2.  Initial findings were published in April 1998. The Government invited an academic review of the first phase of the study, "Environmental Costs and Benefits of the Supply of Aggregates", in September 1998, which informed the second round of research.

  3.  The study concluded that there were significant environmental costs associated with quarrying, including noise, dust, loss of visual amenity and damage to wildlife habitat, and estimated the value of these costs on a conservative basis at £1.80 per tonne. Phase two of the report can be found at www.planning.detr.gov.uk/ecb.

  4.  The aim of the aggregates levy is to reduce these environmental costs and encourage the use and development of recycled and alternative materials in place of virgin aggregate. The levy will also encourage greater resource efficiency within the construction industry. The Government has set the levy at the cautious rate of £1.60 per tonne.

  5.  HM Customs and Excise initiated a consultation in June 1998 on how an aggregates levy could operate. The aggregates levy was announced in Budget 2000.

  6.  The levy was adopted in Finance Bill 2001, following usual Parliamentary discussion. This included a whole day devoted to the levy in Committee of the Whole House, ensuring thorough scrutiny. The levy will take effect from April 2002.

BRIEF OVERVIEW OF EVIDENCE PROVIDED AND CONTACTS WITH GOVERNMENT

  7.  The Government has received and requested a large amount of information about the impact of the aggregates levy, both in Northern Ireland specifically and across the UK. This has been a valuable resource that has helped the Government carefully consider the arguments from all parties when designing the aggregates levy. Information about a selection of some of the evidence, data and views that the Government has received from interested bodies is outlined below.

  8.  The quarrying industry, in particular the main trade associations, has provided information about what it believes the possible impacts of the levy will be, including the following:

    —  the Quarry Products association and the Quarry Products Association Northern Ireland have provided information and exchanged correspondence;

    —  the British Aggregates Association has provided "Aggregate Tax Impact Assessment", looking at the forecast impact of the levy on prices, costs and demand, and "UK Construction Materials and Import Substitution", which detail the effects of the levy on the construction materials industry and the implication for imports. The BAA has also commissioned two documents:

      —  "Assessment of the likely effects of the introduction of an aggregates tax", by BDS Marketing and Research Ltd. This considered the market relationship between GDP and aggregates production and the impact of a tax on the rural community;

      —  "Review of aggregates tax", by Wardell Armstrong Consultants, which considered the aggregates levy itself, the justification behind the levy, the reports commissioned by the Government and other economic factors.

  9.  The pre-cast concrete manufacturing sector has also supplied Government with information and been in correspondence, including the following:

    —  the British Pre-cast Concrete Federation has provided papers including "Impact from the Aggregates Levy upon the Pre-cast Concrete Industry". These provided data on sectors of the pre-cast industry, including price and market features. Their discussion of international trade covered Northern Ireland and provided estimates of the impact on the economically efficient distance that pre-cast products can be transported in the presence of the levy;

    —  Customs officials have corresponded directly with the British Pre-cast Concrete Federation to exchange data and check their analysis. The Financial Secretary corresponded with the British Pre-cast Concrete Federation, resulting in a series of letters providing more detailed information for officials and the Financial Secretary to examine, for example, on the aggregate composition of different pre-cast products, and price comparisons between Great Britain and Northern Ireland.

  10.  The Government has also exchanged correspondence and held meetings with officials from the Northern Ireland Executive, including work on the impact of the exchange rate, the geographical location of quarries around the border area and estimates of the impact of the levy on the additional distance it is economic for pre-cast products to be transported.

  11.  There has also been extensive work within Government on the impact of the aggregates levy. The Government has continued to discuss the details of implementation with the aggregates industry. This includes particular contacts with Northern Ireland given the fact that politicians and industry bodies have drawn attention to their perceptions of problems with the levy there. HM Treasury and HM Customs officials recently visited the Northern Ireland Executive, and met representatives of the Northern Ireland aggregates industry, while HM Customs officials also visited border area quarries and discussed aggregates issues with representatives of the industry during the summer. Officials continue to be in contact with the Executive.

  12.  Industry contacts have also been maintained through HM Customs' consultations with industry representatives about the details of implementation of the levy.

CURRENT POSITION

  13.  Treasury ministers are actively considering the issues surrounding the detailed implementation of the levy as part of the ongoing Pre-Budget Report and Budget 2002 process.

  14.  The Government is fully aware of all the issues relating to the levy and its implementation. There has been comprehensive work on the potential impact of the levy, including the impact on Northern Ireland. In addition to the evidence and data provided from the sources described above, ministers have also received representations from politicians and other interested parties, which have been carefully considered.

  15.  Treasury Ministers have taken account of a wide range of views as well as the extensive information provided by both officials an the industry. The Government will announce progress on issues concerning the implementation of the levy in the Pre-Budget Report.

5 November 2001


 
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Prepared 11 December 2001