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Mr. Edward Davey: The point made by my hon. Friend the Member for Somerton and Frome (Mr. Heath) about exports could be dealt with if the Government extended the list of relevant substances. They could add to the list the requirement that aggregates used in manufactured products should become a prescribed industrial process. The Government could, therefore, find a way of getting round the problem by providing a new regulation, as they are empowered to do in the Bill. I still think, however, that, in relation to the hon. Gentleman's amendment, the problem would not be addressed through that prescribing process.
Mr. Letwin: The hon. Gentleman may be right, and there may also be other means of achieving the desired effect within the scope of the Bill. While we are at it, there may be other means of achieving what we are trying to achieve more elegantly, as I have mentioned. I hope that the Government will see that my remarks are aimed at the essence of the measure, rather than at mere accidents of phrasing.
Why is Northern Ireland a particular problem? First, there are lots of small quarries in a highly competitive marketplace. As I understand it, the average sale price of concrete in Northern Ireland is such that the effective sale price of the aggregate is only about £3 a tonne, which is rather less than twice the proposed tax. The tax will, therefore, impose a huge mark-up on the aggregate component cost of concrete in Northern Ireland.
The second reason Northern Ireland is particularly exposed is that it is very close to southern Ireland. There is, no doubt, already a problem due to exchange rates. I do not want to engage in hyperbole, and I do not claim that the entire Northern Ireland concrete industry will suddenly relocate to southern Ireland overnight--that is not so. However, on a rather longer time scale than overnight, such relocations might persistently occur. Northern Ireland is not a part of the United Kingdom that has had particularly good luck with employment. According to estimates provided by the industry, about 4,000 jobs could be affected. The Province can ill afford to lose those jobs.
Nothing that the Financial Secretary has said so far suggests that the transport cost argument--which has been his main argument to counter assertions that there is a real problem here--would apply in Northern Ireland. I shall come to the case of mainland Europe in a moment. However, in the case of Northern Ireland and southern Ireland, there will be opportunities for the relocation of production to places only slightly further away from the scene of their deployment than is already the case in Northern Ireland. In many cases, merely moving south of the border will involve a very small distance, and we see no reason to doubt the assertion that it will be possible to wipe out large parts of the Northern Ireland industry.
In the context of mainland Europe, the Financial Secretary, as I have said, relied on transport cost arguments. We understand that there are considerable opportunities for coastal quarry exports from, for example, Norway. There is no reason why such coastal quarries--in Norway or, indeed, Holland, Belgium or France--cannot be used to meet UK, particularly southern UK, pre-cast concrete requirements. Shipping is a perfectly feasible means of transport and, especially when demand for the product is close to our coast, we may see a significant switch.
If the Financial Secretary is saying that the industry has not provided him with an adequate cost breakdown showing the economics of such an exporting of jobs, it would be helpful if he stated that in terms. I am sure we can arrange for the industry to present him with costed examples showing that there is a real problem. As I said earlier, I think that the Government already accept the logic of protecting against the exporting of jobs. That is why they have provided for raw aggregates, when imported, to be subject to the levy. There cannot be an objection in principle.
There is a possibility that the Financial Secretary is right, and a possibility that the industry is right. Let us suppose that the Financial Secretary applies the levy to the import of pre-cast concrete and other fabricated substances, and disapplies it to the exporting of those substances. If he is right, it will make no difference: nothing will be lost, and nothing gained. If the industry is right, he will have saved between 4,000 and 10,000 British jobs. Why take the risk? What possible reason is there for neglecting to make some slight drafting changes to the Bill, if the possibility is either that no damage will be done or that great good will be done, with no downside risk? I cannot for the life of me understand why the Financial Secretary should resist that argument.
We are not talking just about the problem of pre-cast concrete, or, indeed, that of asphalt. I am sorry to harp on about dimension stone, to which I referred at length when giving the example of Mr. Jones. The fact is, however, that dimension stone itself will be exempt, but all the waste and secondary aggregates will not. As I said earlier, we do not really know what will count as not being exempt, but clearly a lot of stuff that comes out when the rock is cut to make the dimension stone will not be exempt.
United Kingdom dimension stone will be competing with dimension stone from other European Union countries that do not suffer from the same disadvantage. The production of dimension stone in those countries
The UK limestone industry will be crippled. I understand that it can take up to six tonnes of feed material to produce one tonne of industrial-grade limestone. As the hon. Member for Somerton and Frome pointed out, scalping must remove all the weak and impure stone as part of the process. All those scalpings will be subject to the tax. As the hon. Gentleman mentioned in his speech on the initial amendment hours and hours and hours ago, if that scalping is taxed, a place for it will have to be found. If it is left in the quarries, the limestone extraction from those quarries will become uneconomic and virtually technically impossible, so it will have to be moved. If it is moved, it will be taxed and that will render the economics decidedly disadvantageous.
The hon. Gentleman mentioned that simply as a disadvantage for the industry and it is, but it is not just that, because there is cross-elasticity: there will also be a severe competitive disadvantage for our industry--the imported variety will not face the tax. In addition, exporters of the material will be at a severe competitive disadvantage.
Mr. Nicholas Winterton (Macclesfield): I have been listening to my hon. Friend's case with much sympathy. Can he explain why the Government want to increase the cost of construction, to put jobs at risk in an industry in which I worked for many years, and to make this country less competitive than those countries that are close to us and part of the economic community? It seems nonsense that the Government emphasise the importance of competitiveness and then reduce the competitive nature of the UK construction industry.
Mr. Letwin: I think that the only honest answer to my hon. Friend in relation to the question about competition is that this is, as we said at an earlier stage in the proceedings, a comedy of errors. I do not think that the Government intend that result, or the sequence of results that we have been describing. I think that they have simply produced these provisions at too great a rate without full and proper consultation with the industry and have missed a major set of points, or, at best, so to speak, they have missed the danger that these circumstances will arise. Therefore, there is not a reason, there is only a cause for the problem--and the cause of the problem is negligence. However, there is an opportunity, as my hon. Friend will surely agree, for the Government to make up for that. They just need to correct these serious lacunae. That will not make the tax perfect. It will still leave a tax that we would far rather were not on the statute book, but at least it would resolve a problem of between 4,000 and 10,000 jobs potentially leaving this country. The Government have the opportunity to solve that problem.
Speciality aggregates have not been mentioned so far in our debates. The Government may be resting under the misapprehension that they have solved the problem in relation to speciality aggregates. They may think that, because the export is exempt from the tax, all is well, but the lesser-quality secondary aggregates that are produced
We see that pattern over and over again. It is either that the substance itself, in the case of pre-cast concrete or asphalt, is not being properly exempted when it is imported or exported; or it is that something is being exempted, but some other things that are produced when the thing that is exempt is produced are not being exempted and are raising the average cost of the production of the so-called exempt item. Therefore, across a wide range of products, and hence a wide part of the industry as a whole, UK jobs, completely needlessly, are being put at risk.
I go back to the question to the Financial Secretary: why take that risk? If I am wrong, nothing will be lost by making the changes to exempt those items. The fiscal effect on the Financial Secretary's own logic will be zero because he will not reduce NICs by a slightly smaller amount. In the first year--unlike all subsequent years--I agree that there will be a neutral effect. Meanwhile, he may be protecting British jobs. If I am right, he will be. This is a bet that he can make with sublime confidence, and he ought to be making it now. Otherwise, if we come back in a year or two and discover that large parts of the British industry have been wiped out needlessly, he will not be forgiven.