Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 240 - 259)



  240. The New Road and Street Works Act of 1991 specifically forbids any recycled aggregates from being used. If we have a law like that and you then impose such a tax are you going to do some research into how you can change it? Is that not a slight case of the cart before the horse?
  (Mr Boateng) What one could say there is that we should regard fiscal responses to environmental concerns as one part of a much wider response and the sustainability fund is another part, although it arises from that fiscal action. One also expects, I would expect and do expect green ministers and departments to take into account the environmental consequences of precisely that sort of regulation and seek to get a very clear evidence base from it. Speaking as a green minister in the Treasury and the person with the responsibility in terms of sustainability in the upcoming Spending Review those are certainly the sort of issues that one looks at in terms of how departments respond to their own responsibilities.

  Chairman: I understand only too well that you have a different take on this problem from the environment ministers and those who are exclusively concerned with trying to reduce environmental impact. It does seem strange that we are now going to introduce a tax to encourage the alternative use of recycled aggregates when we have a law which prevents its use in public works. I just offer that to you as a thought. Given that there is a much higher proportion of public works using aggregates in Northern Ireland than Great Britain that is another reason why this tax, this levy may not have the consequences in Northern Ireland you are expecting to have in the rest of the United Kingdom. That is the point we are trying to make.

Mr Clarke

  241. I wonder if I can push a little bit further the question of whether or not the research should have looked at the issues in Northern Ireland, in particular the researchers focus on not just the rock type but the output. One of the clear differences within the Northern Ireland/Republic of Ireland context is as far as output is concerned products very clearly could be extracted in the North, driven South, turned into products and sold without any need for a levy. That is something which would have been clear when the research was undertaken. It is clearly unique inasmuch as in the rest of the United Kingdom the extraction and production would not have made any difference or impact on the levy, whereas in Northern Ireland it will. Would that not in itself have been enough to suggest that researchers should have considered that issue in respect of output?
  (Mr Field) I think the point is the research was one stage prior to getting to that step, the research was about identifying environmental costs, it was not about looking at specific issues on the border with the Republic.
  (Mr Boateng) That is an issue that needs to be taken into account and which we are taking it into account in terms of design and implementation, it is a feature.

  242. I want to move on to look at the rate of the levy, there was a lot of evidence given to us and the conclusion was there could be an environmental case for a different treatment of hard rock and sand and/or gravel, could you explain to us what factors were taken into account in setting the levy at the universal rate of £1.60 per tonne?
  (Mr Boateng) The rate was set following the conclusion of the London Economics research. They came to the conclusion of £1.80 per tonne on a conservative basis of the cost of quarrying. We set it at £1.60 to err on the side of caution. Clearly there are issues around differential rates to take into account, the so-called green quarries. We recognise the attraction in principle of a differential rate in order to encourage less environmentally damaging quarrying but it is also necessary to consider the extent to which a different rate will be practicable. Treasury officials have carried out various consultations informally with the industry over the last couple of months on the practicability of differential rates to take into account so-called green quarries. I am not able with the Pre-Budget Review pending to go into the outcome of that but we have considered the issue of differentials and there are very real, practical problems to be overcome in having differential rates, whatever the superficial attractions.
  (Mr Field) We have been consulting with the industry and with other stakeholders over the last couple of months, as the ministers says. We have had a range of responses on this issue which we are considering at the moment.


  243. Is it technically possible to derogate from United Kingdom tax on a partial basis?
  (Mr Boateng) That is a different issue, it is a very big question of principle, it really is. Whilst technically it might be possible it would create its own difficulties and one would have to ask oneself whether it was desirable.

  244. What are the difficulties it would create? Aside from the bureaucratic difficulties, what are the difficulties in principle?
  (Mr Boateng) It strikes at the notion of a unitary state.

  245. But we have a precedent for this, there has been 100 per cent capital allowance in Northern Ireland for a long time. The Treasury has acknowledged that Northern Ireland is special, has special economic circumstances because of the troubles, special circumstances because of its relationship with the Republic on the same island, the whole of the agricultural industry has special arrangements and, as I say, there is a tax allowance available in Northern Ireland which is not available to anybody else. It is not a new precedent.
  (Mr Boateng) It is focussed specifically. When I was in Northern Ireland one of the reasons why I was there was to discuss with colleagues in industry and in the voluntary sector issues around regeneration and that is geared specifically towards regeneration and as part of a wider regeneration package. I think there are other potential problems around the proposal that you have just made.
  (Mr Field) Can I just say on one technical point, any regional differentiation of tax would count as a state aid and would have to be justified as a state aid. In the case of the examples we have just discussed I assume that has been approved as a state aid for regional development purposes. In order to have that sort of approval you need to be able to identify the specific regional development objectives which the tax incentive is intended to give.

  246. The point I would like to get from you is this, this would not set a new precedent, it has happened before. I agree it is a grey area, but all things are possible, are they not?
  (Mr Boateng) It is possible, however whether it is desirable is a very different question and whether it is permissible in terms of state aid and wider EU legislation is also debatable.

Mr Clarke

  247. Could I just take you back a step inasmuch as not just looking at the concept of regional variation but differentials in respect of product, because a number of producers mentioned to us that if there was a differential in respect of low value aggregates as high value then that would have a positive effect on the environmental tax introduction in Northern Ireland, it would assist in this problem of movement and the need to move products around and damage the environment through transport movement. It is not just about regional differentials, it is also about differentials in respect of the aggregates themselves, from hard aggregate to soft, from high costing aggregate to low cost and where the imposition of £1.60 a tonne on low cost aggregates, which is particularly that that is produced in Northern Ireland, means that there is an imbalance?
  (Mr Boateng) That was certainly a consideration and an option that officials have considered.
  (Mr Field) We have looked very carefully at the possibility of giving a lower rate for low value products, there has been a concern raised with us that the tax may make it difficult to sell the low value products if the tax is applied at full rate to all of these materials. It is very difficult to identify in a precise way what we mean by these low value products and what could be identified within the scope because, for example, one quarry's primary product may be a secondary product of another quarry, one person's waste is another person's primary product. This has been discussed extensively between Customs & Excise officials and the industry, again it is something that we are looking at in the context of the Pre-Budget Report.

  Mr Clarke: My understanding from previous evidence was that the average cost of product in Northern Ireland was about £2.40 per tonne against a United Kingdom average of £6 per tonne, you then see a stark difference between the imposition of £1.60 a tonne overall from £2.40 to £6?


  248. That is on a very low profit margin because it is so competitive and that is what makes the tax bite that much harder. The point in terms of competition and competitiveness is a business point but it is part and parcel, is it not, of the environmental point? I do not think it is part of your concept to consider the business side too much, you are looking at the environment and what you want to be a neutral tax. This is yet another factor which is going to militate against the environmental improvements you are seeking.
  (Mr Boateng) Of course the environmental impacts of quarries do not depend on the price of the product. There is not a simple equation to be made between the level of the levy to aggregate price. It is the same principle which is used in relation to landfill tax, which is applied per tonne of waste. If you are living near a quarry site or a landfill site it matters not to you the price of the tonnage.

Mr Clarke

  249. A question which has been raised earlier meant that if you were extracting sand in Northern Ireland you could ship it to the Republic, bag it up and sell it back without the imposition of the £1.60. The extraction would take place in exactly the same position, it would be extracted, moved to the Republic, bagged up and sold back to Northern Ireland without the imposition of the tax?
  (Mr Field) I do not think that is correct. If it is simply being bagged up it would be relieved of tax as it is exported, with the tax levy reapplied when it is brought back into Northern Ireland. I do not think that is correct if it is simply being bagged up.

  250. The issues we will obviously come back to, we will come on to it later.


  251. Perhaps we can tackle that one. Now, if all of the bodies and the united voices and everyone in Northern Ireland fails to persuade you how are you going to police this tax? You must be aware of the enormous problems you have with the petrol smuggling and the extent to which Customs & Excise are concerned and involved. One of the remarks that was made to us was that Customs & Excise are going to spend much more time chasing a lorry load of petrol for which if you smuggled it you will lose thousands of pounds than a lorry load of sand, which might cost you a fiver.
  (Mr Boateng) Customs will be responsible for enforcement in Northern Ireland the same way as they are for other indirect taxes, that is their responsibility and they will need to address any problems that arise with smuggling—

  252. Have they told you they are having problems?
  (Mr Boateng)—whatever the product. I have been to both to Northern Ireland and to Dublin specifically on the issue of smuggling and cooperation in relation to oil and tobacco. You will know that Customs & Excise have recently made a major haul, a major dent in tobacco smuggling and are to be congratulated for that. We are well aware of the issues of cross-border smuggling. What one would say is that opportunities to smuggle aggregates will be limited because of the nature of the product, bulky, low value and high transport costs. I cannot anticipate that the potential for smuggling will not be impacted upon by the nature of the product, the running of sand is never going to be a major money spinner.

Mr Barnes

  253. The question I have is related to a point that was made earlier about there being difficulty in differential rates as far as Northern Ireland is concerned because of the European Union state aid policy. Is that a general problem which exists also with the petrol/tobacco position; that the state aid provision rather prevents that from taking place? Because one solution to these types of problems about the border would seem to have been a case for a bigger, greater harmonisation between Northern Ireland and Ireland and their tax regimes moving a bit in that direction, so it is no longer worth the candle in order to smuggle or in order to moves business around?
  (Mr Boateng) I think it is very important to recognise, both in relation to the issue of tobacco and alcohol smuggling that as you will know particularly, Chairman, much of the contraband has never paid tax anywhere, it is not a question of avoiding differentials because these people are criminals and very often linked with terrorists. Tax has not been paid anywhere and it would only make a marginal difference if you were in fact to reduce the differential. We must also remember in relation to tobacco, alcohol and oil that cross-border shopping is perfectly legitimate, perfectly proper and not something that we would want to inhibit in any way. It is important and we do make a very clear distinction between the smuggling of contraband and cross-border shopping, one is perfectly legal and proper and the other one is completely unacceptable and subject to rigorous enforcement.

  Mr Barnes: That which is perfectly proper also produces economic problems. In the case of petrol the problem is that petrol stations have been built on the Irish Republican side of the border and anybody within 20 or 25 miles will travel in order to fill their tanks up in Ireland quite legitimately as cross-border shopping and return, which produces problems for the Exchequer and problems for the industry within Northern Ireland. A similar problem, although maybe not involved in the same amounts of money and not tied in with any smuggling, is it seems to be developing as far as aggregates is concerned.

  Chairman: When you say tax has not been paid anywhere, that applies certainly to the tobacco, which goes round and round and round it does not apply to fuel in Northern Ireland. We were in Northern Ireland this week and I may be telling you something that you did not know, you can now buy a special extractor pump, fill up in the South and come into the North, empty your petrol tank and go back and get some more. When does shopping become smuggling? The answer is when it is abused. I do not think we want to make too much of this point, here is another rod for the Treasury and Customs' back in that there is an opportunity in the bill of loading to give the wrong destination of aggregates, are customs going to chase that with its tiny return as opposed to a tank of petrol? This is one of the points that needs to be considered.

Mr Clarke

  254. Did I hear correctly, what the Treasury are saying is that they have not ruled out at this stage, they have not rejected differential rates, was that correct?
  (Mr Boateng) I am afraid I must resist the temptation to go down that line. We have considered a whole range of options, differential rates was one of them. In due course the Chancellor will make the appropriate announcements in the context of the Pre-Budget Report.

  Mr Clarke: Thank you for that.

  Chairman: We understand that you cannot dilate on that but as long as all of this is going to be considered we shall be content.

  255. There was one other question, I wonder if I can move on to this principle question, in terms of environmental tax it is not meant to be revenue raising. The government set out in 1997 its principle for environmental taxation and within it they use the words, "environmental taxation must meet the general tests of good taxation, well designed to meet objectives without undesirable side effects . . . competitiveness". Given the comments we have made to both, are we satisfied that the levy accords with those principles as set out in 1997, give that particularly in that last part of the government's own test care must be had to implications for international competitiveness?
  (Mr Boateng) Broadly, yes. There are certain specific special characteristics in relation to Northern Ireland that we need to take into account in terms of design and implementation. That is my response to that. That is why I honed in as I did on the issue of competitiveness and jobs because that, to be frank with you, Mr Clarke, has been the brunt of the representations made to me. I am interested in the evidence that you had on the environmental issues, but the thrust of the representations that have been made to me, maybe because I am just a common or garden politician, is "jobs" and "we are going to lose out to the other lot", that is how they put it. That is obviously an issue which draws my attention to the question as to whether or not, as you have drawn it, this tax as currently designed and as proposed and implemented in relation to Northern Ireland does actually meet the statement of intent and our purposes there. I do take those representations very seriously.


  256. We are all proud to be common or garden politicians, so do not be quite so shy about it! Of course the lobbies have been on about jobs and competitiveness, that is what they are there for, everyone understands that. It is becoming more and more clear to us, and that makes us doubly glad that we are able to share this with you. Because you might say that the evidence is overwhelming that you are not going to meet the environmental needs. It was interesting to hear you say—very honestly—that the last part of the government's own environmental taxation principle is not being met with regard to Northern Ireland. The question is, I suppose, for you, how heavily are you going to let that, which is self-evident, weigh in the balance?

Mr Tynan

  257. Good morning, Minister.
  (Mr Boateng) Good morning, Mr Tynan.

  258. We have spoken about the question of the environment, and your position obviously and our position is that the protection of the environment is absolutely important, but doing that in isolation creates some difficulty for the people in Northern Ireland in particular. We have the Assembly up and running, we have a degree of peace in Northern Ireland, and on that basis it is important we are in a position where we give Northern Ireland the best chance possible of maintaining a good economic position and providing the best opportunities for the development of the economy in Northern Ireland. I understand you had a meeting with Mark Durkan, the Deputy First Minister.
  (Mr Boateng) I did.

  259. The indications were that he said that £35 million was the direct cost to public expenditure in Northern Ireland as regards construction activity because of this tax. The knock-on effect from that would be that they would have to set priorities and it would mean a change of pattern in how they developed. That being the case, the building of roads and new transport infrastructure could be one of the casualties, and that would impact on economic development. I do not know whether we should separate the problems which exist there. I accept what you are saying as regards the environment, but we have a problem as regards the evidence given to us which says very clearly they may move south of the border, the impact on the communities in Northern Ireland who depend on aggregates production could be substantial. I do not think enough evidence was given or was given to us when we queried why they have not made the representations which I believe should have been made in order to justify the case for the difference in Northern Ireland. I would like your comments on the broad aspects of how much has been given to you in evidence, if you think it was sufficient and if there is room for the opportunity to change the position as it exists at the present time.
  (Mr Boateng) I had a very fruitful and helpful discussion with Mark Durkan. I have also had a number of conversations with people engaged in business in Northern Ireland and also have received representations on the phone from a member of the Assembly who expressed her concerns about the impact on her constituents. My officials and Customs have visited Northern Ireland now on a number of occasions and entered into fairly detailed discussions with the industry and with civil servants, and a much clearer and better picture has now emerged as a result of that activity than was the case, I would judge, in the early design stages of this levy. In the early days, as I have indicated in my opening remarks to the Chairman, and one does not want to go back and apportion blame or fault, the representations were, to put it mildly, limited or non-existent in some instances. So we have made up for lost time. I believe that will be reflected in due course.

  Chairman: Careful!

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