Letter from Robert Durward, Director,
British Aggregates Association
As you know we are very keen that the Environmental
Audit Committee question Government closely about the negative
effects of the Aggregates Levy.
We have just completed our response to HM Treasury
on their "Green Quarry Differential Rate Scheme," which
suggested that different levels of Aggregates Tax might be applied
to individual quarry operators based on their "green credentials."
Among the criteria suggested for deciding what rate of tax to
apply were location, which could have led to quarries in adjoining
counties being charged different amounts.
Our detailed response to this consultation has,
yet again, graphically illustrated the deeply flawed nature of
the Aggregates Levy. It has become a highly complex instrument
which has defeated the best brains of HM Customs and the quarry
industry alike. At the end of a tortuous six month consultation
period involving representatives from the BAA, QPA, HM Customs
and Treasury little progress has been made. The major stumbling
blocks of Northern Ireland, secondary aggregates, exemptions,
bad debt relief, competition and import substitution have not
been resolved and with only four working months left before the
tax is implemented the outlook is not good."
It was obvious, from the outset, that because
the tax is said to be "revenue neutral" with the proceeds
already earmarked for a reduction in employers' National Insurance
Contributions of 0.1 per cent and a £35 million "Sustainability
Fund" one operator's rebate would have resulted in another
operator paying more. This would have infringed competition law.
Quarry operators regard the situation as being
so serious that an industry wide coalition has retained the London
based law firm of Herbert Smith to prepare a legal challenge to
the Aggregates Tax! It is highly significant that no other EC
country is to impose an aggregate levy of this size. Denmark has
had a 25p materials tax, on all construction goods for 12 years.
Sweden has imposed a 35p levy on sand and gravel only, to encourage
greater use of rock and France has a 6p "environmental levy".
I sincerely hope that the Committee is able
to consider the disastrous effect that this tax will have on the
environment, with goods having to be transported much further
and severe job losses in the Rural Economy.
8 November 2001
1.1 The British Aggregates Association (BAA)
was formed to represent and protect the interests of the United
Kingdom's independent aggregates producers. Small, independent
aggregates producers face far greater difficulties than the major
companies in dealing with new regulatory and fiscal measures.
The Government is introducing an aggregates levy, payable at £1.60
per tonne, from 1 April 2002. The Government has justified the
levy as a response to the environmental cost of quarrying. The
evidence we submit to this inquiry focuses on this environmental
reasoning and the likely environmental consequences of the levy.
1.2 Stone is the strongest, most natural
and most sustainable construction product. It is inert, durable
and long-lasting. The use of local stone in rural areas is a key
part of the local heritage. Stone and aggregates are one of the
most environmentally friendly products. The country has many centuries
of reserves, despite using significantly less than 1 per cent
of the landmass at any point in time.
1.3 The quarrying industry in the United
Kingdom is already highly regulated and probably the tightest
regulated in the world. Alternatives to aggregates are often less
regulated, with a greater impact on the environment.
1.4 The BAA believes that the aggregates
levy will fail to achieve positive environmental improvements,
but will cause excessive damage to fragile rural economies and
to small quarry operators. As a direct consequence of the levy:
Quarries will close with the loss
of many jobs in remote rural areas, where alternative employment
is not readily available.
Aggregates will have to be carried
further by road, which is the largest environment cost of quarrying.
Stockpiles of unsightly waste will
accumulate at quarries, once the levy makes such waste impossible
to sell commercially.
Aggregates will be increasingly replaced
by untaxed alternatives, despite the environmental cost of producing
or transporting these alternatives.
2.1 The environmental impact of the aggregates
levy can only be considered within the context of existing regulatory
and voluntary measures within the industry:
(i) Under the Environmental Protection Act
1990, quarries are subject to integrated pollution control; their
total impact is measured, regulated and controlled.
(ii) The standards set followed the principle
of "best available technology not entailing excessive cost"
(BATNEEC), which by 2002 will be replaced by a stricter requirement
to use the "best available technology" (BAT).
(iii) Standards for compliance with BAT are
constantly reviewed in Process Guidance notes, and are tailored
to individual quarries.
(iv) In addition there are an increasing
number of EC Directives, which control the environmental impact
(v) Further incentives for best environmental
practice exist in the climate change levy, landfill tax, and fuel
duty, all of which hit the quarrying industry particularly hard.
(vi) The planning system is a further source
of regulation, with, for example, MPG6 in England and Wales providing
a strategy to restrict overall extraction to the necessary level,
and MPG11 providing strict planning guidance on various environmental
impacts. Both are currently being upgraded.
(vii) All applications for new quarries and
extensions plus ongoing statutory reviews under the Environment
Act 1995 now require an Environmental Impact Assessment. This
Assessment informs the basis of conditions controlling the development
and can even form the basis of a refusal or an order to close.
(viii) Site restoration is an integral part
of the planning conditions attached to each quarrying operation,
with quarries having to be restored to either agricultural or
amenity use, such as country parks or nature reserves.
(ix) A recent English Nature survey estimated
that between a third and a half of all Sites of Special Scientific
Interest (SSSIs) in England have been created through quarrying
activity and restoration.
(x) Very few complaints are ever received
about quarrying. Just one in 10 of respondents to the economic
study used by the Government to justify and set the level of the
aggregates levy paced a monetary cost on the impact of quarrying.
2.2 A raft of regulatory and voluntary measures
already exists, directed towards every environmental impact, kept
under constant review, and applied individually to each quarry,
ensuring the highest possible standards. It is not possible for
the industry to improve upon "best available technology"
making it difficult to see how the aggregates levy can improve
the impact of quarrying on the environment.
3. WILL THE
3.1 The Government's approach to environmental
taxes is broadly aimed at internalising cost externalities so
as to influence polluter behaviour and the commercial decisions
of consumers. There are major limitations to the ability of the
aggregates levy to achieve this objective.
3.2 As outlined above, the quarrying industry
observes strict environmental regulations, including use of the
"best available technology". Standards for compliance
are assessed individually. It is difficult to see how the levy
can achieve significant improvements.
3.3 Even if improvements in performance
were reasonably practical, the levy lacks incentives to change
behaviour, as quarries will pay the same levy, regardless of environmental
performance. Although the Treasury consulted on a scheme for "green"
quarries to pay a differential rate, they have now rejected the
proposal, due to the huge problems designing a workable scheme.
As a result, the levy will do nothing to encourage better environmental
performance, and may bring about a poorer environmental performance,
by increasing costs and reducing resources available for environmental
3.4 Existing incentives to recycle are plentifulthe
landfill tax has stimulated an aggregates recycling industry.
The Symonds Report into construction and demolition (C&D)
Waste, commissioned by the Government in 2000, found that 56.5
per cent of C&D waste was already recycled, while a further
29.8 per cent was mainly soil. Just 3.6 per cent of C&D waste
was found to be sent to landfill. The level of recycling activity
has recently increased still further, with a British Geological
Survey seminar in February this year concluding that just 1-2
per cent of hard waste remained available for recycling.
3.5 The Government-commissioned report on
the environmental consequences of quarrying, suggested that the
environmental cost of recycling was 28 times that of hard rock
quarries outside national parks. The BAA does not oppose recycling,
but policies should recognise the environmental impact of recycling
and should provide clear, major environmental gains to outweigh
3.6 Incentives to convert and restore existing
buildings, which will again minimise demand for aggregates, already
exist in various Budget 2001 measures, such as the lowest possible
VAT rating for renovating and converting existing properties and
100 per cent capital allowances for converting spaces above shops
3.7 Overall demand for aggregates is relatively
inelastic; in many cases there are no suitable alternative materials.
Often it will be easier to find alternatives to replace low grade
secondary aggregates than to replace industrial grade aggregates.
Secondary aggregates are an unavoidable by-product of the extraction
process, usually sold for less than £1 per tonne and used
simply as fills. Secondary aggregates will be subject to the levy,
making them uneconomic compared to other untaxed waste, such as
china clay and slate spoil. Whereas approximately 20 per cent
of aggregates produced are secondary aggregates, the china clay
and the slate industry produces something like 90 per cent waste.
The levy will therefore be encouraging a switch from an industry
with relatively low waste, to industries with extremely high waste.
3.8 Furthermore and to make matters worse,
it is now clear that untaxed waste products may even be imported
as an alternative to taxed secondary aggregates from within the
UK. For example, the BAA is aware of the possibility that steel
slag may be imported, once the levy commences, to supply customers
currently taking secondary aggregates. The UK may well find itself
the dumping ground for waste products from abroad, while increasing
our own waste problems.
3.9 In its Pre-Budget Report, the Government
announced that it is giving further consideration to a scheme
to relieve secondary aggregates. However, the industry has been
working with Government for at least two years to identify a scheme,
3.10 Where alternatives to aggregates exist,
they will not always be environmentally friendly. Alternatives
to aggregates all involve some environmental cost:
steel, involves the import of iron
ore from countries with much lower environmental standards, transport
costs, intensive energy use, atmospheric emissions and dangerous
by-products from the production process;
glass, consumes high levels of energy
in its production and in any event uses industrial aggregates;
plastics, are produced from fossil
fuels using intensive energy and complex chemical processes. Disposal
of plastic is a particular concern for the environment;
timber, 90 per cent of which has
to be imported, and there are growing concerns about how sustainable
the sources of supply are.
3.11 The burden of administering and paying
the level will fall particularly severely on smaller quarries,
leading to the closure of many, with three adverse consequences
for the environment. Firstly, smaller independent quarry operators
tend to be better custodians of the local environment, as locally
based stakeholders in their landscape and economy. Secondly, closure
will mean that aggregates are transported further by road (80
per cent of aggregates are currently used within 30 miles of extraction),
with the attendant environmental impacts. The impact of this should
not be underestimatedthe greatest number of complaints
received by quarry operators relates to road haulage, and the
last Aggregate Minerals Survey for England and Wales (DETR, 1997)
found that 94 per cent of aggregates are transported by road.
Thirdly, secondary aggregates can only be sold within a certain
radius of the originating site as the high cost of road transport
means that they quickly become uncompetitive. Therefore, if fewer
quarries cause more centralised production this will also magnify
the remaining quarry's secondary aggregated/by-product problem.
3.12 The levy is likely to introduce perverse
incentives that could in themselves harm the environment. For
example, marine dredged aggregates will have an unfair advantage,
as they have no problems with secondary aggregates. Only saleable
sizes are brought ashore, with silt and secondary aggregates dumped
overboard. The levy may well encourage more marine dredging at
the expense of "more environmentally accountable" land
4. FISCAL, REGULATORY
4.1 The Committee requested comments on
the balance to be struck between fiscal, regulatory and voluntary
environmental initiatives. In the BAA's view, taxation is a very
blunt tool to achieve environmental objectives in the quarrying
industry. It is difficult to see how this particular levy can
supplement detailed regulations which are applied on a quarry-by-quarry
basis. Furthermore, environmental measures should avoid duplication.
Where environmental impacts are already subject to regulation
or successful voluntary schemes, all that is achieved by introducing
extra taxes, is to increase costs and thereby reduce the resources
available to be spent on environmental measures.
4.2 The levy duplicates fiscal measures.
A key aim of the levy is to provide an incentive to minimise waste.
However, such a fiscal incentive already exists in the landfill
tax, which has proved costly to many operators but has been successful
in reducing the level of aggregates waste that is landfilled.
The Symonds report, commissioned by Government, found that just
3.6 per cent of C&D waste was landfilled in 2000; this level
has since dropped.
4.3 The reality of existing environmental
legislation, based on the principle of the "best available
technology", is that the quarrying industry is heavily regulated
and spends large sums of money achieving the highest realistic
standards. The industry has accepted regulatory measures, and
in many cases adopted additional voluntary measures. However,
there are too many practical problems in designing a tax on aggregates,
and there are genuine concerns that it will simply result in a
double burden for no environmental gain. Quarry operators do not
want to shirk their environmental responsibilities, merely to
have them realistically defined.
5.1 The Committee requested views on the
consistency of the Government's environmental tax policy. With
respect to the aggregates levy, there has been a lack of clarity
regarding what the Government aims to achieve through the tax.
Initially the principal aim seemed to be to prompt environmental
improvements from quarry operators, but more recently the focus
seemed to shift to reducing overall consumption of aggregates.
The poor definition of the levy's objectives has made it difficult
for the industry to propose alternative ways of achieving them.
5.2 The Treasury has stated that it expects
revenue from the levy to increase. However, if the aim of the
levy is to reduce the impact of quarrying on the environment by
ensuring that operators bear the cost to the environment, then
if the levy is successful, this would suggest that revenue should
fall as the environmental cost of quarrying falls.
5.3 The levy will introduce a distortion
in the construction industry if aggregates are the only materials
to be taxed on the basis of their supposed environmental costs.
Other materials, which may also have a significant environmental
cost, will have an unfair advantage. If the levy has the effect
of increasing demand for alternative materials which are not "environmentally
friendly", the overall gains to the environment are questionable.
5.4 Aggregates quarrying has been treated
more harshly than other primary industries. The farming industry
is very heavily subsidised, yet there are serious concerns about
nitrate emissions and the uses of pesticides. The fishing industry
is also aided yet often causes pollution and would appear to have
been guilty of over fishing. Fish farming is another highly contentious
industry that has not been picked out for additional taxation.
Given the fact that employment in quarrying has declined significantly
and the fact that almost all quarries are located in rural areas,
socio-economic considerations should have been equally taken into
account in the quarrying industry. In addition, the quarrying
industry has been hard hit by the Climate Change Levy. Unlike
competing industries, such as cement or steel, aggregates quarrying
is not eligible for a discounted rate.
5.5 The Aggregates Levy is not consistent
with the Treasury's statement of intent on environmental taxation,
It cannot meet its objectives without
undesirable side effects. The levy will have a devastating effect
on the quarrying industry, often one of the few sources of employment
in fragile and remote rural economies. In addition it will also
impact heavily on the engineering sector, a major supplier to
the quarrying industry. Indeed there are some 1,380 quarry plant
and supply companies across the UK, often with no alternative
market outside the minerals industry.
The distributional impact is not
equitable, in particular across regions. Although the levy is
designed to be revenue neutral, this will not be the case across
regions. The levy will be raised according to where quarrying
takes place, yet the sustainability fund, designed to offset the
environmental cost, will be distributed according to the Barnett
formula and the benefit of the national insurance reduction will
depend on the distribution of employment. In Northern Ireland,
where estimates suggest £32 million will be raised by the
tax, only £14 million will be returned in lower employers'
NICs and just £1 million to the Sustainability Fund Northern
Ireland. The south east of England will benefit considerably from
the reduction in NICs, despite having little quarrying. In addition,
the £1.60 per tonne increase represents on average a price
increase of around 12 per cent in the south of England, where
aggregates prices are higher, an increase of around 35 per cent
in Scotland and up to 50 per cent in Northern Ireland.
It damages international competitiveness.
UK quarry operators will have to pay the levy on the unwanted
by-products of the production process, which overseas competitors
will avoid. Aggregates contained in products manufactured in the
UK will attract the levy, while aggregates in products produced
overseas will not. Britain already imports aggregates and aggregate
products, and the level will inevitably grow following the introduction
of the levy. Aggregates are now an internationally traded commodity
and regarded by countries like Norway as a valuable source of
It is not based on sound research,
as the next section of our submission sets out.
6.1 The Committee requested views on the
role of the Treasury in researching and developing environmental
taxes. Turning to the research first, the justification for the
levy, and the setting of its level was entirely based on two reports
commissioned from London Economics by the then DETR. Given the
significance of these reports, it is important to examine them
6.2 The basic method used in the study is
known as contingent valuationsurveying residents and asking
them to put a monetary value on closure of their local quarryto
assess the impact of quarrying. At its worse, contingent valuation
can simply quantify local "nimbyism" endorsing unrealistic
expectations. No industry has a baseline of zero environmental
6.3 The willingness to pay to avoid primary
aggregate production in the densely populated and the affluent
south east of England is some ten times more than that measured
in the remote Highlands of Scotland. Furthermore, only 11.6 per
cent of those surveyed gave a positive bid for the impact of quarrying,
which means the data used to assess cost came from a vocal minority.
6.4 The Government itself has found that
"the site may be incorrectly identified as the prime source
of concern. This may result either from the source of vibration
or noise being wrongly identified by the complainant or from a
general dissatisfaction with the site due to other reason."
(DETR consultation paper on revising MPG 11, 2001).
6.5 The surveys used made no reference to
the benefits of quarrying, such as local infrastructure, local
employment, the necessity of local stone to preserve the local
heritage, and the SSSIs and parks which often result from site
6.6 No attempt was made to supplement this
survey with an assessment of the extent to which impacts are already
addressed through planning and regulation. In addition, regulations
since the survey have been tightened still further, notably the
change from BATNEEC to BAT, reducing the impact of quarrying and
leaving the assessment of its cost externalities outdated.
6.7 Turning to the development of environmental
taxes, the BAA believes that the experience of the aggregates
levy has demonstrated fundamental failures of the Government to
consult internally and externally. In particular:
There are many practical problems
with the levy, which are still some way from resolution. Although
the Government suggested that the industry would have a year to
adapt to the proposals, fundamental details remain to be finalised
just four months before implementation. For example, the final
list of exemptions is not yet available, which is already delaying
the signing of contracts on some infrastructure projects;
Serious problems have emerged with
the primary legislation, for example, with respect to the definition
of non-exempt aggregates which may have to be changed;
The quarrying industry in Northern
Ireland faces particularly severe problems given the land border
with the Republic of Ireland, yet this issue was not considered
in the original research or development of the levy. The Government
has now accepted this itself and has announced that it is considering
phasing in the levy on processed aggregates in Northern Ireland;
The Treasury left it very late to
consult the industry on proposals for a differential rate scheme,
to encourage better environmental performance;
It is noticeable that no other European
country will have a tax on aggregates at anything like the level
in the UK, and many countries will have no tax at all.
6.8 The BAA believes that there has been
a serious breakdown in inter-departmental communications which
has meant that Treasury officials are now having to assess issues
that should have been addressed by other departments, such as
competition, import substitution and logistics. A more joined-up
approach needs to be taken across all Government departments.
The views of other departments, specifically the Department of
Trade an Industry, which has responsibility for industry sponsorship,
must be taken into account. The problems the levy will cause in
Northern Ireland might have been averted had the Northern Ireland
Executive been consulted earlier.
7.1 The BAA believes that the aggregates
levy was poorly researched and poorly executed. It failed to take
into account the considerable improvements in the environmental
performance of the quarrying industry in recent years and overlooked
the very serious problems with designing a tax on aggregates.
As a consequence, the aggregates levy is likely to cost jobs and
damage fragile rural economies for little or no benefit to the
ANNEX A: BRITISH AGGREGATES ASSOCIATIONSUMMARY
Our infrastructure depends on and benefits enormously
from readily available, high grade, cost effective aggregates.
Between 20-25 per cent of aggregates are used
in road maintenance and construction.
UK demand for aggregates is equivalent to nearly
four tonnes per person per year (this compares with a European
average of six tonnes)
Over 90 per cent of the UK's quarry products
are used by the construction industry, which contributes about
10 per cent of the nation's GDP
Some 40,000 people depend upon the quarrying
industry for their livelihoods many in rural areas where there
are limited employment opportunities
The Government uses nearly 40 per cent of minerals
for public sector projects
Today there are only some 200 private quarries
in Britain, compared with over 5,000 in 1960
Five major companies now claim 80 per cent of
Smaller independent quarries tend to be better
custodians of the local environment, having been locally-owned
for many generations
In addition to general business taxes, the industry
is particularly hit by:
The aggregates levy, to be introduced
at a rate of £1.60 a tonne from April 2002.
Quarrying is already tightly regulated, with
key regulations in the process of being tightened still further,
(this is rapidly approaching overload)
Planning permissions are constantly under review
and local authorities can require further environmental mitigation
works from the operators
New requirements include compulsory environmental
impact assessment of all new planning applications, and greater
protection for SSSIs under the Countryside and Rights of Way Act
Detailed, strict environmental standards are
being revised for on all aspects of quarrying, covering traffic,
dust, blasting, noise, visual intrusion, water, and mineral waste,
which is likely to impose a huge cost burden on the industry.
Horizontal and Vertical Integration
Five major companies now claim 80 per cent of
The major companies also now control 90 per
cent of the downstream markets of ready mix concrete and asphalt
as well as 75 per cent of UK cement production
For most small quarries, their biggest customer
is also their biggest competitor
The Aggregates Tax and new planning regulations
will have a much greater impact on smaller quarries, many of whom
will face closure or merger with one of the majors
General Business Climate
In addition to the burdens outlined above, there
is a range of general economic factors putting intense pressure
on the sector:
Static or declining market over the
past four years
Large increases in the price of new
plant brought about in part by the weakening of the pound against
Poor capital allowance regime
High cost of complying with strict
new environmental legislation
High cost of complying with new Health
& Safety regulations
Working hours directive
Paternity leave payment
It will damage the environment by:
Increasing the distance aggregates
travel by road as smaller quarries close.
Increase the use of recycled materials,
which a DETR study has suggested have 28 times the impact on the
environment of a hard rock quarry outside a national park.
Making it more difficult for quarries
to fund better environmental management.
It will cost far more than £1.60 per tonne
in practice because:
Compliance costs amount to an estimated
30 pence per tonne for an average quarry.
The levy will be applied to secondary
waste aggregates, pushing up the cost of the levy on quality aggregates.
It will damage British competitiveness because:
Imported aggregates will only pay
the levy on the quality materials imported, not on the secondary
waste materials produced.
Imported concrete products will be
exempt from the tax altogether.
It will damage small independent quarries because:
The compliance cost of the levy will
fall particularly heavily on smaller quarries.
The case for the levy is weak:
The case is based on a widely discredited
estimate of the environmental impact of quarrying, based on hypothetical
questions to residents around quarries.
Since the study, further regulatory
measures have been imposed on the industry, which must reduce
its impact on the environment, making the levy an unnecessary
The application of the levy is complex, with
many unresolved problems, including:
The system of exemptions.
How to estimate weight of aggregates,
at the tax point.
The fact that the levy is payable
immediately on contracts requiring a stock of aggregates to be
held by the supplier.
The problem for long-term contracts,
particularly in the construction industry.
As the perceived environmental impact of aggregates
extraction is promoted as justification for the Aggregates Tax
and much tighter planning controls it is useful to consider the
environmental impact of the industry:
Aggregates quarrying already faces
some of the toughest regulations in Britain, and has made costly
improvements in recent years.
There are opportunities for nature
conservation resulting from aggregate extraction and site restoration
and after-care, including habitat creation, species reintroduction
and future land management for conservation. Many SSIs have been
created in this way.
Sand and gravel operations have often
provided tangible public gain with award winning nature reserves,
lakes and improvement to agricultural land, such as the Cotswold
Water Park and Inverkip Marina.
80 per cent of aggregates are used
within 30 miles of their extraction; therefore the closure of
a number of quarries will mean aggregates travelling further,
with the attendant environmental impacts.
Aggregates extraction uses just 0.35
per cent of Britain's land areaand its level is decreasing
rather than increasing.
Current revisions to MPG6 and MPG11
will mean the regulatory framework is even tighter in future.
New regulations will be costly and difficult to implement, at
a challenging time for the industry and small producers in particular.
The aggregates industry is vital for investment
in the nation's infrastructure.
UK competitiveness is being undermined.
The viability of the UK aggregates industry
is under threat, with many small quarries being forced out of
ANNEX B: BRITISH AGGREGATES ASSOCIATION ANALYSIS
STATEMENTS ON AGGREGATES TAX
The British Aggregates Association continues
to lobby strongly against the introduction of Aggregates Tax and
the Government has responded to a number of our criticisms. However,
the responses, to date, which have mostly come from the Treasury,
have not been particularly well informed or encouraging. We analyse
them, for your information.
"Other European countries have already introduced
an Aggregates Tax"
Although there is an element of truth here,
this statement is misleading. Denmark, for instance, is renowned
for its punitive tax regime but only charges three kroner per
tonne, about 25p. Sweden has introduced a tax on sand and gravel
but not on crushed rock, it is set at 0.6 euro/tonne or 36p. Their
Ministry of Industry does not intend to tax any other minerals.
France has also introduced an environmental levy on all aggregates
but it is set at a more reasonable level of 6p per tonne. Holland
has postponed any decision, with Germany and Eire having no plans
to introduce a levy.
"The rate of £1.60 per tonne (+ VAT)
is prudent and was set following independent research commissioned
by DETR to established costs associated with noise, dust, visual
intrusion, loss of amenity, damage to bio-diversity and transportation."
There are several misconceptions being promoted
here. All the above issues are strictly controlled by the 1995
Environmental Act. The UK Quarry Industry is the most highly regulated
in the world and our record on environmental protection is second
to none. We are credited with promoting bio-diversity with sensitive
restoration projects and more than half of all "Sites of
Special Scientific Interest" are as a result of quarrying.
Transportation is a fact of life and is already taxed to the hilt.
In fact a Member of Parliament recently asked the House how many
complaints had actually been received regarding sand, gravel and
hard rock quarries, the eventual response was that no-one knew.
In reality very few complaints are made on this subject. The "independent
research" referred to, was non scientific and seems to have
been commissioned to justify a decision which had already been
taken. To summarise. London Economics sent researchers to ask
householders how much cash they wanted, to allow their local quarry
to continue in business. Their answers were extrapolated by the
number of households within a given radius and balanced against
the annual output of the quarry in question, giving varying results
of up to £15.00 per tonne. This report was universally condemned,
when presented by DETR, and the researchers were sent out to try
again. However the only difference in technique was that instead
of asking the householders how much they were willing to accept
to allow their local quarry to continue in business, this time
they were asked how much they were willing to pay, hypothetical
money of course, to have the quarry shut down. Again the results
showed great variation across the country but suggested an overall
cost of £380 million of £1.60 per tonne. The quarry
industry again protested about being singled out for this type
of bizarre, non scientific "research" but were told
that, by now DETR had spent over £600,000 on the report and
that was the end of the matter. Furthermore absolutely no account
was taken of the environmental benefits of quarrying or any allowance
made for economic necessity. London Economics were also asked
to evaluate the environmental costs of recycling operations, using
the same methodology. Their report clearly shows the environmental
cost of recycling stations as being 28 times greater than quarries.
However this part of the research was not shown in the Phase II
report. BAA had the London Economics research reviewed by Wardell
Armstrong, a respected firm of minerals consultants who look after,
among other enterprises, Crown Estates, and they criticised many
aspects of the report. A copy of the Wardell Armstrong review
was submitted to the Treasury. Can be viewed at http://www.british-aggregates.com/wararmreport.htm.
Such was the criticism levelled against the first report that
DETR commissioned Susana Mourato and David Pearce CSERGE of University
College London to carry out an additional review which was also
highly sceptical of many of the report's conclusions. Mourato
and Pearce went on to make recommendations to make "Phase
II" or rather "second attempt" more robust. In
the event, few of their recommendations were adopted.
"Revenues raised by the tax will be returned
to business and the local communities affected by quarrying through
a 0.1 per cent point cut in employers' NIC."
Unfortunately although the tax might just be
referred to, at present, as revenue neutral the return of the
NIC rebate will most certainly favour the more densely populated
and industrious areas, thus bleeding funds from the regions and
rural economies to the more affluent South East in particular.
The Treasury admit this will happen. (Stephen Timms Finance Bill
debate). One has to ask what becomes of "revenue neutral,"
if, or as is much more likely now, when, the Chancellor raises
employers NIC rate? Many respected economists have commented that
the Aggregates Levy has all the hallmarks of a Chancellor simply
broadening his tax base.
"Does not believe that the levy will lead
to significant job losses," and "that local quarries
will remain competitive."
This demonstrates a complete and unfortunate
disregard for a great deal of evidence, provided by the industry,
which clearly demonstrates that immediate, substantial and permanent
damage will most definitely occur. Faced with a punitive and highly
complex levy which greatly exceeds their profit level plus compliance
costs of over 30p per tonne many small companies will simply close
down. This will inevitably cause aggregates to be transported
further, resulting in more trucks, more congestion, more greenhouse
"This higher price will provide an incentive
to government and local authorities, in common with all other
users of aggregates, to use more recycled materials and to use
all aggregates efficiently."
Industry figures show that £3.04 and not
£1.60 per tonne will have to be added to the ex works cost
of stone because the application of a blunt instrument like the
Aggregates Tax will make UK production much less efficient and
cost effective. In addition the reduction in the overall number
of quarries will lead to an increase in radial delivery mileages
which could add up to an additional £1.20 per tonne to delivered
prices. Industry research also highlights the fact that increases
of this level will cause a massive influx of imported aggregate
as we will no longer be able to compete. Local authorities will
have to make significant increases to their council tax and business
rates, to maintain their work programmes. Unfortunately they could
well end up using this additional revenue to fund the purchase
of aggregates from Norway, France or Eire! Furthermore, BAA is
puzzled by HM Treasury's continued assertion that " a recent
survey carried out by the Environment Agency has established that
there is still significant scope for increased use of recycled
aggregate." The previous Financial Secretary, Stephen Timms
referred to an additional 12.7m tonnes per annum of hard waste
available for recycling which was derived from the "Construction
and Demolition Waste Survey" commissioned by the Environment
Agency and carried out by the Symonds Group. The publication of
the full report has been delayed. The results contained in the
technical summary do not agree with Mr Timms statement. The figure
of 12.7m tonnes is in fact the amount of waste material, "which
have some potential for recycling, but which are currently being
used for purposes for which other (primary or secondary) aggregates
might have to be purchased if the waste was no longer available."
The report actually concludes that "there is 2.6 million
tonnes of `hard' construction and demolition waste, clean or contaminated,
currently land-filled as waste." Their response rate was
of the order of 25-30 per cent. We pointed out this discrepancy
to Mr Timms at the time. Furthermore the British Geological Survey
seminar in Nottingham in February this year, "Aggregates
RecyclingLimits to Growth,?" at which the DETR, the
Environment Agency, the Recycling Industry and various "Green"
organisations all presented papers is very relevant. The firm
consensus was, that a lot had been achieved, even in the 80's,
and that this had been accelerated in the 90's by Landfill Tax.
It was agreed that some two to three million tonnes per annum
of hard waste available for recycling currently exists. This may
rise to a possible five to six million tonnes longer term, in
other words one per cent perhaps rising eventually to two per
cent of total primary aggregate use. This is documented on the
BGS website www.mineralsuk.com.
"Government is looking at the option, in
principle, of reduced rates for environmentally friendly quarries."
The BAA does not believe this to be at all practical
and would contravene existing competition legislation. Furthermore
BAA is strongly opposed to the blanket imposition of ISO 14001
which is extremely expensive, bureaucratic and totally unsuitable
for SMEs. ISO 14001 is an environmental compliance standard which
seeks to address matters already dealt with by existing legislation
and, of course, specific planning conditions. We are also strongly
of the opinion that any "rebate" scheme would need to
be "site specific" to offer any degree of worthwhile
protection to individual operators and that this would be precluded
by excessive cost.
"Government is committed to helping protect
the international competitiveness of British industry ... and
in line with this allows a tax credit to arise when aggregate
is exported from the UK, and provides for imports of aggregate
to be taxed on first sale or use in the UK."
Although this may be correct, these measures
will not have the least effect in protecting our international
competitiveness. The limestone sector will be damaged because,
although limestone used for industrial or agricultural purposes
is to be exempt it can take up to six tonnes of throughput to
achieve one tonne of industrial grade product. As these by-products
will be taxed heavily yet have to compete with a host exempt materials,
including recycled, the cost of producing the industrial grade
material will be greatly inflated. Foreign limestone will not
have this problem with the additional sting in the tail, that
because all industrial grade limestone is exempt foreign material
will not be taxed on import. Similarly the dimension-stone sector
will have to compete with foreign stone that will not be more
cost effective. Due to the labour intensive nature of this sector
it has already suffered greatly in the face of international competition,
often from countries with poor human rights records and virtually
no environmental control. Although dimension stone itself will
be exempt, secondary aggregate generated by the process will be
subject to the tax and have to compete with other wastes and by-products,
which are to be exempt. Foreign producers will not have this burden
which could spell the end of what little is left of Britain's
dimension stone production. There will also be a major problem
with imports of construction aggregates which although subject
to the levy when they are sold merchants will only ship in saleable
aggregates and have no need to make provision for by-products.
Overseas producers will still be able to sell their scalpings,
dust and less popular sizes in their existing markets with no
tax. Imports will thus have a significant and unfair advantage.
All the major ports are already handling sea-borne and marine
dredged aggregates so it will be relatively simple to switch to
imports. [Aggregate is already imported from Norway, France and
Southern Ireland.] although "Aggregate Tax" and Import
Substitution" BAA [available on request] deals with the
subject in greater detail it is important to be aware that this
is one instance where being an island could prove to be major
disadvantage since sea transport is much more cost effective than
road or rail.
Britain is alone in Europe imposing
a levy of this magnitude.
The methodology used to determine
the rate was highly controversial.
£1.60 is the equivalent of a
30 per cent price increase and greatly exceeds profit levels.
Quarry companies will incur an additional
30p compliance cost.
Few complaints made about quarries,
the UK industry is highly regulated.
NIC reduction will take from the
rural economy and give to the urban economy.
Many small companies will shut their
doors, significant job losses inevitable.
Only two to three per cent additional
recycling now possible.
Reduced rate scheme for "green"
quarries totally impractical.
Sub-standard materials will reappear
on construction sites.
International competitiveness compromised.
Inevitable and substantial import
Damage already occurring to supply
There are a great number of other issues, which
have been raised by the British Aggregates Association, but which
Government has yet to respond to, in any detail.
1. The question of Northern Ireland and its
problematic land border with Southern Ireland, which will not
impose the tax.
2. Mainland import substitution.
3. Pre-cast concrete products, many, many
4. The obvious lack of environmental benefit.
5. The disturbing lack of Government research
on the economic impact.
6. The greatly heightened probability of
sub-standard materials reappearing on our construction sites with
loss of client control due to DBFO schemes (design, build, finance,
7. Unsustainably high percentage compliance
costs due to (a) an extremely complex tax (b) comparatively low
unit value of construction aggregates (c) inevitable difficulty
collecting invoices (d) problems of secondary aggregates.
8. Inevitable confusion due to admitted flaws
in the primary legislation.
9. Damage to the Rural Economy.
10. Competition and SME support.
Although the tax is not due to commence until
April 2002, substantial damage is already being caused to our
supply sectors of heavy engineering, fabrication and plant manufacture
as well as the quarry industry itself. We are now "caught
in the headlights" of this impending juggernaut with many
companies being forced to abandon or postpone capital projects,
until the full effects of the levy become known.
There is absolutely nothing wrong with the UK
quarry industry, it is the most highly regulated in the World,
has the best Health and Safety record, the best staff welfare
and very few complaints are made about either sand and gravel
or hard rock workings. We have thousands of years of reserves,
still only using a fraction of 1 per cent of our landmass. Quarrying
is a local industry which provides essential, inert, and long
lasting construction materials. It brings benefit to the local
community and we will not be serving our country well if we allow
it to be destroyed by careless, ill-informed and completely unwarranted
With the manufacturing sector officially in
recession and the rural economy in a parlous state, the Government's
intransigent position on this issue is extremely concerning.
ANNEX C: UK CONSTRUCTION MATERIALS AND IMPORT
It is clear that one of the most serious side-effects
of Aggregate Tax will be the inability of a substantial part of
the UK quarry industry to compete with imported aggregates. Construction
materials are already being imported on a regular basis from Norway,
France and Eire due to a combination of factors.
All the major UK conurbations, with
the exception of Birmingham, are readily supplied by sea, which
is by far the cheapest form of transport available.
UK quarries are mostly located in
rural areas some distance from the major markets meaning that
the price of their products is artificially inflated by the ever
increasing cost of road and rail delivery.
The emergence of extremely cost effective
large coastal quarries, often referred to as super-quarries.
We can, in fact, take a UK coastal quarry as
an example, Glensanda.
Glensanda is located on the Morvern Peninsula
in the Scottish Highlands. It is a massive reserve of good quality
granite with its own deep water, high speed, ship loading facility.
Originally targeted towards the North American market it quickly
refocused on Northern Europe and the UK, when the American market
became uneconomic, due to competition from places like Mexico.
Glensanda has proved that it is commercially viable to deliver
aggregates using large discharging vessels, into Forth, Tyne,
Humber, Thames, Solent, Severn, Mersey and the Clyde. It is therefore
sustainable to argue that Aggregate Tax will bring about an immediate,
substantial and permanent increase in imports, for the following
Although imported aggregate will
have to pay the £1.60 levy, merchants will only import saleable
products and will not have to apply tax to waste, dust or other
Overseas producers will continue
to sell their by-products and less popular sizes, without tax,
in their existing and domestic markets.
There are already a great number
of ready-mix concrete and asphalt coating plants located in all
major UK ports due to cost effective materials being delivered
by companies such as Foster Yeoman, sea-dredged aggregates and
Overseas producers will not have
to make provision for Aggregate Tax compliance costs or suffer
the same massive cash flow problems.
UK production capability will be
permanently damaged. Due to intense pressure from lobbying groups
such as FOE and CPRE, redundant quarries will be landscaped and
lost with permissions for new quarries almost an impossibility.
Even in the unlikely event of the
remainder of the EEC signing up to Aggregate Tax, cost effective
supplies of aggregate are readily available from other, non EEC
countries, many of whom hold Free Trade Agreements with Britain.
Even UK quarries like Glensanda with its well
established site and excellent facilities will not be able to
withstand this degree of unfair competition. It is also important
to remember that once aggregates are placed in large, modern,
self-discharging bulk carriers they can be transported vast distances
at relatively little cost.
In an effort to evaluate the cost of shipping
aggregates from nearby countries, quotations were obtained from
different agents and form part of this report. These quotations
show clearly that even using open market figures and non dedicated
vessels there is likely to be a substantial problem.
The figures were arrived at using self discharging
vessels which do not require expensive dock labour to discharge.
This gives enormous savings not just on labour but, equally important,
The cost of shipping aggregates from France
to the Thames Estuary is given at £3.55 per tonne which includes
all port fees and discharging. Similarly from Eire, £4.25.
To Edinburgh from Norway is quoted at £4.60. However it is
important to note that these figures will reduce even further
as a market develops and bespoke vessels are dedicated to the
work. Even if only 25 per cent of the UK requirement is imported,
that represents over 50 million tonnes and shipping costs will
be trimmed accordingly.
It costs around £23,000 per day to time
charter a 70,000 tonne self discharging vessel. However with a
load and discharge rate of some 5,000 tonnes per hour and a steaming
rate approaching 20 knots we can see that dedicated shipping will
be particularly effective.
Commence loading France 8am, complete 10pm.
Sail for Thames arriving 5am and commence discharge, complete
7pm and return in ballast arriving load port midnight latest.
Obviously provision will have to be made for tides, docking and
pilots but with a 40 hour turnaround a two day allowance with
one way traffic gives a base shipping rate of only £0.66
Due to the highly regulated and bureaucratic
nature of the UK Construction Materials Industry we find that
aggregates are often cheaper in other countries. This has also
come about as a result of an enormous amount of industry consolidation
with substantial areas now suffering from a lack of meaningful
competition. Quarrying has an unusually high entry level due to
the difficulty and cost of obtaining planning permissions, high
cost of capital equipment and a restricted marketplace. Recent
quotations show "free on board" prices ranging from
£3 to £4.50 for single size aggregates, £1.50 to
£3.00 for sub-bases and even less for bulk fills.
There will be particular problems with pre-cast
concrete products. Although made of up to 95 per cent aggregate
and sand, no duty will be payable on import. However domestic
producers will have to pay a large premium, on top of Aggregate
Tax, as almost all concrete products require good quality aggregates
and sand. There is a growing import/export market in concrete
products with exports rising slightly faster than imports. However
this situation is likely to change very quickly as a direct result
of Aggregate Tax. There is also the vexed question of Northern
Ireland. It is now recognised that special provision will have
to be made to protect the province. However, with between 4,0005,000
tonnes of pre-cast being shipped to the mainland every week, UK
producers will be even worse off if NI is given such a competitive
To understand just how quickly this situation
will develop it is important to consider which companies are most
likely to become involved. Five large companies, referred to as
the majors, Tarmac, Hanson, Aggregate Industries, RMC and Lafarge
between them control 90 per cent of the market in ready-mix concrete
and asphalt. They also control a substantial part of the UK pre-cast
concrete capability. (98.48m tonnes used in asphalt and concrete
therefore majors have in house requirement of about 85m tonnes.)
These companies also claim 80 per cent of all UK quarry production
of 206m tonnes = 164m tonnes, a substantial part of which they
use "in house". All these companies own or control substantial
dock facilities which they already use to service major markets.
Although this activity is most pronounced in the South East it
also occurs in most other ports. Therefore it is plain that these
five companies will not have a problem switching to imported material.
With the possible exception of Aggregate Industries the majors
collectively operate quarries in Norway, Poland, Germany, France,
Belgium, Spain and Portugal. Lafarge is a French company with
substantial production capacity within striking distance of several
Although it is plain that the demise of a substantial
part of the UK quarry industry would please a number of people
including the more extreme environmental pressure groups such
as FOE and CPRE we need to consider the disadvantages.
Balance of Payments. The most
immediate and obvious result will be the effect on our balance
of payment as we switch from domestic to imported aggregates and
concrete products. Although the total value of the aggregate market
is relatively small at just over £1bn there will be substantial
collateral damage. We must also consider the additional cost of
importing concrete products.
Employment. Almost 30,000
people are directly employed in the quarry industry. A further
15,000 people are employed in supply and service companies such
as engineering, fabrication, plant manufacture, plant hire and
plant repair, to name but a few. A substantial number of jobs
will also be at risk in the pre-cast concrete sector.
Loss of Production Capability.
As quarries are closed down the machinery is liable to be
sold off and the sites used for landfill, amenity or agriculture.
This trend will be difficult to reverse as new permissions are
difficult to obtain. It can take several years to bring a new
site on stream and it will not be easy to get venture capital
when plant costs are so high and the market is so restricted.
Inferior Quality and Selection.
Imported aggregates are often of inferior quality with a restricted
product range. Much degeneration takes place during the rapid
loading and unloading as well as inter-particle communition during
passage. However this is no longer such a major problem as a great
deal of client control has been eroded. Many projects are now
completed using DBFO schemes (Design, Build, Finance and Operate)
which means that contractors are able to use any materials they
wish and the choice is all too often dictated by price.
Environmental Damage. At this
point it is perhaps relevant to consider that although Aggregate
Tax was borne out of a stated aim to protect the environment the
opposite will be the case. The UK quarry industry is the most
tightly regulated in the World with the highest standards of health
and safety and the best staff welfare, however, aggregates will
now be shipped in from countries with much less control and lower
standards. As many of the smaller operators close down aggregates
will end up being transported further, by road, to the customer.
More trucks, more congestion, more greenhouse gases.
1. Although UK materials have to confirm
to BS specifications and European materials to DIN standards this
will not pose any real problems as product curves are similar.
2. Concrete uses 18.6m tonnes of crushed
rock and 56.2m tonnes sand & gravel annually = 74.8m tonnes.
3. Asphalt uses 21m tonnes of crushed rock
and 2.5m tonnes of sand & gravel annually = 23.5m tonnes combined
total 98.3m tonnes.
4. The five major quarry companies Tarmac,
Lafarge, RMC, Aggregate Industries and Hanson control 90 per cent
of the ready-mix and asphalt industries.
5. A number of UK quarry companies also
have quarries in Northern America.
British Aggregates Association