Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 20-39)

RT HON PAUL BOATENG, MP AND MR ANDREW FIELD

WEDNESDAY 20 MARCH 2002

  20. You would take a decision not to bring that—
  (Mr Field) That could be one option.

  Chairman: That, again, is very encouraging because it is relatively simple.

Mr Barnes

  21. The Committee recently visited Customs & Excise in Northern Ireland. Given its increased resources recently, we were impressed with the efforts it was engaged in, especially in areas like trying to tackle the fuel smuggling position. The considerable problem that Customs & Excise faces is that there is 300 miles of land border. Some of us on this Committee were on the Committee in the previous parliament and visited there three years ago. Certainly, the work of the Customs & Excise in these areas seems to have extended considerably, but is account taken, in relation to aggregates, of this very serious situation?
  (Mr Boateng) Since April 2000, as you have rightly perceived on the ground, Mr Barnes, we have considerably increased staffing in Northern Ireland; it has gone up from 25 to 160. As you also rightly surmised, most of them—not all—are engaged in relation to particular border fraud, which is of particular interest to your Committee, and the scale is such as to dwarf any likely fraud in relation to the aggregate levy. We do have to be clear about where our priorities have properly lain in this particular field. Resources are not yet finalised, but there is likely to be an additional five man-years for Customs in Northern Ireland to enforce the environmental taxes from implementation. Obviously, the aggregates level will feature there. Mr Field and his colleagues have done an assessment of the likely impact on smuggling in this area of aggregates, and their view is that, because of the bulk and the margins, this is unlikely to be a major feature. They do not envisage the running of aggregates on any large scale, certainly not on a scale comparable to other areas where the margins are much higher and where the temptation is that much greater therefore.

Chairman

  22. That is an interesting comment because it is not so much what you might call the regular smugglers who are in it for the money; it is the regular aggregate quarry owners who see a good profit to be made from driving their aggregates twenty miles, and with very little chance of being caught. No-one is suggesting that an organised crime syndicate will take this thing over, but the fear that has been expressed to us, which seems to be real, is that because it will be profitable for regular quarry owners to sell it to the north, then more of them will do so, thus putting the Northern Ireland quarries out of business. We were told quite bluntly and frankly by Customs that this was very, very small, and they were concentrating, quite rightly, on the much greater revenue loss caused by other forms of smuggling in Northern Ireland.
  (Mr Boateng) As you know, Mr Mates, from your own experience, and as other members of the Committee know from their considerable experience in Northern Ireland, compliance is an issue in relation to Inland Revenue, and in relation to Customs & Excise. One of the things one hopes for in these times—and this is certainly an issue that Jane Kennedy and I are very much exercised by—is how to create and contribute towards the creation of an environment in Northern Ireland in which legitimate business people feel that it is important to operate within the law. The law is clear: this is a levy that is due. It is being phased in. Consideration is being given to the specific circumstances; but, as I have said to business in Northern Ireland, this is a legitimate and lawful tax, which legitimate and lawful businesses are expected to pay. One will want to work closely with the industry and the communities to encourage compliance. I hope they will feel that in terms of the way in which we have handled this issue, the way in which their representations have been heard, the care and attention which the Committee and we ourselves have given to this issue, and the way that we have arrived at a solution, with the flexibilities that we have outlined in the course of this session, they will have good reason to be compliant, because it is in everybody's interests that the law is upheld.

Mr Barnes

  23. There is one option that would draw Customs & Excise into the situation more: if the only way that could be seen to handle the problem was for the tax to be extended to imported processed aggregates, that would give an extra kick, in those circumstances, for the Customs & Excise. Could that be contemplated?
  (Mr Field) Extending the tax to include imports of processed products is an interesting idea. It is something we have thought about and will look at further as a possible solution to the particular problem that we have discussed with regard to processed products in Northern Ireland.

Chairman

  24. That is a very interesting comment. Would it not have been better to have done it while you were bringing in this tax?
  (Mr Boateng) It is an option that is available to us, as Mr Field said, and which we will explore.

  25. It then cuts the ground from under the Northern Ireland lobby's feet, does it not, because it takes away that element of unfairness?
  (Mr Field) If it was a practicable solution, it looks as though it could be very a helpful way forward; but it is not something that we have made a great deal of progress with to date. It is not straightforward to assess the quantity of aggregate in different types of processed product. At the moment, the tax will come in as we planned, and imports of processed products will not be subject to the tax. However, if it proved possible to tax the aggregate content of imported processed products, we would be interested in pursuing that.
  (Mr Boateng) I do not think that one should underestimate the technical challenges. If it were easy, frankly, Mr Mates, we would have done it.

The Reverend Martin Smyth

  26. It would not be as great a challenge, maybe, as the Treasury faces at other levels to explain what it is doing. The language here is that the tax "internalises the negative environmental externalities associated with extracting virgin aggregates". In other words, it is dealing with the environment. Is it fair to say that the purpose of the levy is not to raise revenue but to reflect the environmental costs of aggregate production, which are not currently being met?
  (Mr Boateng) That is absolutely fair to say. Our intention is that this should be seen as across-the-piece and revenue-neutral. It is an environmental tax that the operation of the Sustainability Fund should, in terms of the way it works and delivers to local communities, bring real benefits to them. It should reflect the fact that this is an environmental tax; it is not a revenue-raising wheeze.

  27. It was suggested that it might be a help to change the alternatives to glass and tyres in aggregate mixes. It is open to debate how far that would be of benefit in Northern Ireland, as a small community. Can I therefore press you, since you have said that it is not revenue-raising: will the Government therefore reduce the cost of the levy when the environmental costs associated with aggregate production are reduced by other means such as regulation, because we understand attention has been given to regulation; so rather than a 10 per cent increase each year, will there be a reduction because of the regulations cutting down what might be looked upon as environmental pollution?
  (Mr Boateng) As you know, Reverend Smyth, the calculation of the environmental costs of aggregate extraction is contained in the LE report. They conservatively estimated the cost of aggregate extraction to be 1.80 per tonne. The levy was set, therefore, at the more cautious rate of 1.60. So we have already gone some way to taking an approach that is cautious and that does seek to err, if it errs at all, in a way that reduces the costs. Certainly, if you look to the future, you will have to bear in mind what the impact of the tax was in terms of the externalities that we are seeking to internalise, as you described. However, as it stands, the dust, the noise, the environmental degredation, are reflected in the figures we have arrived at, although it is to be hoped that good practice and the impact of the levy and regulation will ultimately reduce the environmental impact of the process.

  28. One appreciates that it is done by independent research, but the Treasury decided to reduce it. In the long term, the Treasury can recoup that, once the tax is there, by increasing it as the years go by. How far is the independent research completely independent since they have got to earn their bread; they have to show figures to justify what they are doing; and therefore recommend something to you that may not necessarily be accurate?
  (Mr Boateng) The research was certainly independent of the Treasury. It was managed by the DETR. We certainly did not have a hand in it, but of course it was independent of Government, and the DETR too, because it was an expert group drawn from academia and from the stakeholders in the particular processes. We would maintain that it was thoroughly independent and reliable, subject of course to the weakness that the Committee has reflected in its earlier deliberations, and which one understands because whilst we were satisfied that the research would be representative of Northern Ireland, it did not actually take place in Northern Ireland itself. Future research will take place in Northern Ireland.

Mark Tami

  29. When we met the Quarry Products Association, they raised their concerns with us, but they also stated that they first raised their concerns with you back in September 1999. Why did it take so long for the Treasury to send people over to Northern Ireland to really get to grips with the problem?
  (Mr Field) The initial phase of the development of the levy was very much about assessing the environmental costs of aggregate extraction. As the Committee has previously discussed, the research that was carried out did not specifically include any quarries in Northern Ireland, although DETR advised us that the quarries chosen were representative of aggregate extraction across the UK as a whole. The process then led on to the development of the levy itself, and, as we discussed on the previous occasion when we attended before you, there was not a great deal of discussion on specific issues related to Northern Ireland in the early stages of development of the levy. It was really only around the beginning of last year that the particular concerns of Northern Ireland featured strongly in discussions which the Treasury and Customs & Excise were having with the industry. I am afraid that I cannot say specifically what was the outcome of the meeting that was held with the Quarry Products Association in 1999, but the fact is that it was only from early 2001 onwards that the specific discussion of Northern Ireland issues featured strongly in discussions that were held.

  30. There is a major impact, clearly, on Northern Ireland that is not relevant anywhere else; and surely that is something that should have been picked up a lot sooner than it was?
  (Mr Field) We all recognised at the previous discussion that it would have helped all round if those specific issues on Northern Ireland had been picked up earlier. The industry in Northern Ireland did not make the case particularly strongly, and it is fair to say that the Treasury and Customs & Excise equally did not have these issues strongly focused in our discussions.

Mr Clarke

  31. Returning to questions of research, during the Committee's inquiry we uncovered contradictory research in respect of the environmental impact of production of recycled aggregates. In fact, the research that was put before the Committee suggested that when measured in the same terms as quarrying, aggregates recycling could have higher local environmental costs than virgin aggregate extraction. That was quite a startling introduction of evidence because it meant the basis on which the tax was introduced could be challenged by the research that suggested its replacement, recycled aggregate, would be more damaging to the environment than the quarrying of virgin aggregate. Can you outline to us, Minister, if you have looked at that research since the Committee's inquiry, whether or not there is any basis for that contradictory view?
  (Mr Boateng) I am very interested in that view, and I would like to know more of it. The findings of the LE study on the costs associated with recycling were based on a very small number of recycling plants. My understanding is that these were not particularly representative of how recycling usually takes place because they were centred on three centres that happened to be in heavily populated areas, as they were stand-alone sites. They were not recycling sites, which is often the case, which were sites located on sites that were already, for instance, demolition sites. Therefore, they were not particularly typical. We would challenge the notion that the environmental costs of recycling were greater than the costs of aggregate extraction. We are satisfied that there is a real environmental benefit to be gained from recycling.

  32. Is that a view that you have taken since that research was introduced, or is that something you were looking at before the Committee reported?
  (Mr Boateng) My own attention to it followed on from the Committee's findings. So far as the Treasury is concerned, they have obviously a longer institutional memory and process—in fact a memory like an elephant—and this is a factor that they no doubt had in mind from the outset.
  (Mr Field) I think it was felt that this part of the London Economic study was not at all robust, and for reasons the Minister has stated, it was felt that the figures that were produced in this part of the study were not at all reliable. We were confident that the basis for establishing the costs of aggregate extraction was reasonable, but that this part of it is not.
  (Mr Boateng) It is an important issue, and in terms of future research and vis-a-vis Northern Ireland, it is one that we are clearly going to have to watch.

  Mr Clarke: That is very helpful, thank you.

Mr Bailey

  33. Can I move on to the sustainability question. When you appeared before us last time, you said you would be interested in looking at a new theoretical model which would redistribute money in proportion to the contributions made. Have you done that?
  (Mr Boateng) I am not quite sure I put it in precisely that way, Mr Bailey. I think what I would say—and I have a note of it—is that we were happy to build on the Barnett formula, which had been the preferred option of the devolved administration, which the Treasury had accepted; and that we would be open to consider proposals for a shared fund as between Northern Ireland and England. That remains the case. I have been actively pursuing that, not least with the Secretary of State. I have not yet myself had a feedback in terms of the approach of the devolved administration. It is something that we are obviously taking soundings on, because it will be necessary that they feel it to be a desirable way forward. The key point is to see the benefit that could accrue to Northern Ireland if there was a pot, as it were, that was shared according to some transparent and objective criteria that would respond to Northern Ireland's particular needs. If you are asking me what my preference is, it is for some form of shared fund. Whether or not that is something that will find favour with the devolved administration and with the Secretary of State therefore—the outcome I still await. As far as we are concerned, there is no obstacle. We are quite happy with that, and I would urge it myself as a way forward, because it is a way of responding to the particular needs that the Committee has shared with us, and that you have no doubt identified.

  34. You started by saying you would build on the Barnett formula. Given the fact that under that provision—they would only get something like 1 million from the Sustainability Fund, as opposed to potentially 3.5 million under direct proportionality. Can you amplify what you mean by "building on the Barnett formula"?
  (Mr Boateng) What I would mean by that is that what we cannot do is to re-open this issue and have a UK-wide fund. We cannot do that because Scotland and Wales are entitled to their Barnett share. What I am able to say so far as England is concerned is that we are happy to enter into an arrangement with Northern Ireland that would enable us to pool our pot together, and to have from that objective clear criteria that will enable needs to be assessed and distribution of the fund accordingly. It will be a judgment for the devolved administration, for the Secretary of State, as to whether or not they believe they would benefit. I believe that potentially Northern Ireland would, but it is a matter ultimately for the devolved administration; it is not a matter for us, for me.

  35. Is that under active consideration?
  (Mr Boateng) It is certainly under active consideration, and I have spoken to the Secretary of State about it.

Mr McCabe

  36. Is the difficulty for the devolved administration that they cannot have this treated in isolation, and if they wanted to pursue this route here, it would require a complete re-opening of the Barnett formula elsewhere?
  (Mr Boateng) They might be worried about that.

  Chairman: We are now coming to another series of questions. I do not mean this in a critical way, but governments over the years have answered parts of reports and not always in their entirety, and we have some questions on parts that have not been mentioned in your response, which of course has not been published.

Mr McCabe

  37. Our report was absolutely clear in its findings that the cost of the levy to each generation in Northern Ireland could be as much as 22 million per year. There does not appear to be any comment at all on that from the Government's response. Does that mean I should assume that you broadly agree with our findings?
  (Mr Boateng) I do not feel I am in a position to produce alternative figures, except to say that there are undoubtedly additional costs as a result of this approach, because that is what it was designed to do; the levy is designed to ensure that all construction projects reflect the environmental costs of aggregate used in the construction process. The desire is that the market will drive the process and will therefore drive the most efficient and economic and environmental outcome. I think that the Committee has some solace in the comment by Mark Durkan, who said that the Chancellor's decision to phase in the aggregates tax will lead to a cost saving to the department. He went on to say that there will be no attempt to move those benefits to another department; and it should mean that for the same significant 14.8 per cent increase, people will see more programme outcome. I do not think that the decision that we have made in relation to the levy and the way we are introducing it in Northern Ireland, has had an impact, or will have an impact quite that is as severe as the figure you have produced might indicate. I do not have an alternative figure.
  (Mr Field) We do not have the figure to hand, but it sounds in the right ball-park.

  38. If it is 22 million, in a place like Northern Ireland, where regeneration is pretty important, it does seem a pretty big figure to me. Do you have any idea how much the phasing-in will reduce it by?
  (Mr Field) I think it will reduce it by at least half in the first year. My understanding is that at least half of the aggregate produced in Northern Ireland is used in processed products. I think that Mark Durkan, in his comments to the Northern Ireland Assembly in December, reflected the fact that the reduction in the levy as a result of this phasing-in would have quite a significant, positive effect on the budget for the Department for Regional Development in the year coming.[2]

Chairman

  39. More accurately, it will reduce the negative effect.
  (Mr Boateng) You could say that—and I might, if I were in opposition, Mr Mates.


2   Note by witness: "I said that I thought the phasing in of the levy for use in processed products would reduce liability for the levy in Northern Ireland by at least half. In fact, it will reduce it by about 30%." Mr Andrew Field, 22 March 2002.
 
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