Select Committee on Northern Ireland Affairs First Report



The effect on public spending

69. A primary concern for the CBI Northern Ireland and the Construction Employers' Federation NI is the impact which the levy will have upon regeneration and public works. Mr Smyth of the CBI Northern Ireland emphasised to us that the industry was "essential" for construction, housing and roads;[120] the Construction Employers' Federation NI told us that the levy was putting current regeneration priorities at risk.[121]

70. In Northern Ireland the public sector is a major consumer of aggregate, accounting for 60 per cent of the 22 million of tonnes of aggregate produced there each year. As an end user, it will ultimately be liable to pay the aggregates levy, at a rate which the Construction Employers' Federation calculated would amount to an annual sum of £22 million per year.[122] The Construction Employers' Federation made the actual extent of the loss quite clear, informing us that £22 million "is equivalent to more than twice the value of the total major roads programme for 2001/02 and would bring into question whether significant projects such as the Westlink underpasses or the A1 Newry to the border ...will ever be completed."[123] The Northern Ireland Executive confirmed that the "inescapable pressures" the levy would create upon capital programmes "will inevitably impact on the delivery of other public services and output".[124]

71. The public sector does not have an entirely free hand to choose alternatives to virgin aggregate: the National Joint Utilities Group pointed out to us that the Statutory Code of Practice, "Specification for the Reinstatement of Openings in Highways", under the New Roads and Street Works Act 1991, makes the use of virgin aggregates compulsory in respect of some works.[125]

72. We put the point about the requirements of the Code of Practice under the 1991 Act to the Treasury: Mr Andrew Field of the environmental taxation branch told us:

    "I am not an expert on construction practice but one of the things we will be focussing on with the sustainability fund, certainly as far as England is concerned, is on research into options for using alternatives to primary aggregate for construction ... One of the focusses of the research will be to identify where those standards and codes of practice can be changed to allow a greater use of recycled aggregate and other construction materials."[126]

We suggested that to rely on the Sustainability Fund to find alternatives for aggregates use after the levy had been imposed was 'putting the cart before the horse'; the Minister responded:

    "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".[127]

This answer provides the Executive with no immediate relief. The consequence, inescapably, is that the levy will result in the loss to Northern Ireland of £22 million-worth of regeneration each year.

73. On top of the direct effects on regeneration projects, Mr Doran of the Construction Employers' Federation Northern Ireland pointed out that in the long term a slowdown in public sector works would have implications for the entire Northern Ireland economy. He told us:

    "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".[128]

The Northern Ireland Executive subsequently expressed similar concerns about the "unintended" effect the levy would have upon the competitiveness of Northern Ireland's ports.[129]

74. We are very concerned about these wider effects. We suggested to the Financial Secretary that the Government should do everything in its power to support regeneration as a fundamental part of the peace process; he told us that "a much clearer and better picture" of the potential impacts on Northern Ireland had emerged, which he hoped would "be reflected in due course".[130]

Fiscal neutrality

The Sustainability Fund and the Barnett Formula

   75. We heard criticism of the Government's proposal to return the revenues through the Sustainability Fund. The UK-wide Fund has been set initially at a level of £35 million.[131]

76. We understand that money from the Fund will be allocated to the devolved governments using the Barnett Formula.[132] Under this formula Northern Ireland would receive between 2.4 - 3 per cent of the fund; in monetary terms, about £1 million.[133] Witnesses believed that this was unfair, and that the return should better reflect Northern Ireland's 10 per cent contribution to UK aggregates production, and consequently to the levy.[134] Given the compelling evidence we have received about the likely effect of the levy on local communities and local economies, we are sympathetic to our witnesses' arguments on regional fiscal neutrality.

77. We asked the Financial Secretary to consider a region-by-region allocation of the Fund as an alternative to distribution through the Barnett Formula. He confirmed that the levy was intended to be "revenue neutral across the whole of the United Kingdom"[135] and told us that he believed it was not "in anyone's best interests to undermine" the Barnett Formula or take the decisions on spending the money from the devolved administrations.[136]

78. We pursued the matter further, asking the Minister if he found it satisfactory that the allocation of the Fund through the Barnett Formula would, in effect, make Northern Ireland pay twice in comparison to other regions. His answer was oblique:

    "What one says about the Sustainability Fund is that it is designed or predicated on the basis the Barnett Formula would be applied in order to distribute it. If it were to be structured in another way it would have another effect. I hear what the Committee says ..."[137]

79. The Financial Secretary appeared to us to hold out some hope for a change in the organisation of the Fund, conceding that he noted our point and:

    "It would be interesting to look, and I have not, at a theoretical model of the Fund. If it was designed in such a way as to distribute the Fund in proportion to the amount that each of the constituent parts of the United Kingdom contributed to aggregates, I would be interested to see what the impact would be".[138]

We hope that, now we have prompted the thought, the Minister will follow this through.

80. We believe that since the rate of the levy was set on the basis of local environmental costs it is only appropriate that the return of the revenue should in some meaningful degree reflect and restore these local contributions. We further believe that it is particularly necessary for Northern Ireland to receive a significant proportion of the Fund since, given the presence of the border, additional incentives will so patently be required to achieve the levy's original purpose.

120  Q161 Back

121  Q63 Back

122  Ev p27 Back

123  Ev p27 Back

124  Ev p82 Back

125  Ev p74 Back

126  Q238 Back

127  Q240 Back

128  Q64 Back

129  Ev p82 Back

130  Q259 Back

131  Q222; Q233 Back

132  See for example, Q145 Back

133  Q222 Back

134  See, for example, Q88 Back

135  Q262 Back

136  Q261 Back

137  Q266 Back

138  Q268 Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 11 December 2001