Examination of Witnesses (Questions 200
WEDNESDAY 14 NOVEMBER 2001
200. One final point. If this inquiry had not
been taking place, would you have submitted fresh evidence or
do you feel that this is an avenue that is more beneficial for
achieving your aims?
(Mr Smyth) I certainly welcome this. I probably would
not have prepared a submission and done further research unless
the Committee had embarked upon it.
201. This is a welcome opportunity to talk to
people with a Northern Ireland interest. But at this time our
commitment is with the local assembly and now with the Deputy
First Minister's statement that he has asked the Treasury not
to implement the tax. The last paragraph of his press release
of 24 October states: "For these reasons we are asking the
Treasury not to introduce the tax in Northern Ireland at the very
least to delay it, giving the industry time to prepare for the
tax and give the industry time to prepare for the tax and the
opportunity to explore other practical and viable approaches that
would deliver the designed environmental objectives." So
that is how he left Mr Boateng at the meeting on 23 October.
202. What do you estimate to be the costs for
organisations in complying with the levy?
(Mr Clarke) The main cost is obviously the actual
tax of £1.60, which is being taken at
203. I was thinking of the administration cost.
(Mr Clarke) The administration cost would be modest
in comparison to the levy in terms of having to change a few computer
programmes. There would also be a credit problem. I am in the
value added products side. We will get the bill from the aggregate
supplier. He will add £1.60; we have to pay him in 30 days.
Our customers don't pay us in 30 days so we will have extended
cash flow difficulties. So that will be a cost.
204. You don't see that aspect being a major
(Mr Clarke) The aspect of
205. The aspect of administering it.
(Mr Clarke) It will take people but we shall get round
206. What about smaller producers?
(Mr Clarke) For smaller companies anything that adds
to the admin will obviously add to costs. If you are a one-man
band there is a limit to what you can do.
(Mr Fidgett) There is a broader administrative issue
in terms of distinguishing between products that should have a
tax applied to them and products that should not. This is not
unique to Northern Ireland but it applies there equally. Certain
products are exempt if they are by-products of other mineral extraction
and there is a series of exemption clauses that are dealt with
slightly differently in regulations. Distinguishing between what
is a primary mineral and what is a secondary mineral is going
to involve someone in the public sectorperhaps from Customs
and Excise or the local authoritiesand the companies who
will want to justify their claims, that it is either an exempt
product or it is not. That would be additional work but is not
an issue that is specific to Northern Ireland. It is across the
(Mr Smyth) Another issue related to that is enforcement,
particularly of aggregates that may be imported from the Republic
of Ireland. We know of a difficulty with fuel, which the Committee
has already considered. How on earth they will monitor loads of
aggregate coming across the border I know not.
207. Do you see a role for Government in helping
companies with this administrative process?
(Mr Smyth) Our message is that that is a small part
of a much bigger problem out there. But if people are producing
or importing aggregates that are not enforced, the market will
be further distorted and there will be yet further distortion
and potential job losses on the back of that.
(Mr Fidgett) There is certainly an urgency in terms
of making the tax clear and simple in terms of its operation for
individual companies that will pay itand, indeed, for customs
officials in the field. One particular issue in Northern Ireland
which Ralph Clarke may comment on is, "Who actually pays
the tax and at what point?" When one is dealing with lorry
loads sold at or near a border that can be sold in Northern Ireland
with the purpose of being taken to southern Ireland, and therefore
being potentially exempt but actually going somewhere else. Such
issues are supposedly hidden in the administration but will encourage
certain difficulty for sure.
(Mr Clarke) I asked Customs and Excise when they were
over how they would collect the tax from imports from the Republic.
I asked, "Are you going to tax the producer in the Republic?"
They said, "Of course, no. He is not within our jurisdiction."
I asked, "Will you tax the merchant or the haulage contractor?"
"No, we will tax the end user" was the reply. I asked,
"How will you know who the end user is?" "He will
have to register", he said. That, to me, creates great difficulties.
If one is a ready-mixed producer buying 10,000 tonnes a month,
one will be caught, so you register, but if you are buying 20
loads to make a lane into your field you will not register. That
just won't happen. I then asked what happens if a Republic of
Ireland producer comes into a Northern Ireland quarry and says,
"I am taking this material to the Republic of Ireland, therefore
I don't pay tax?" He said, "That's fine." What
if he drives it down the road and takes it somewhere else in Northern
Ireland? "Oh, that is evasion." I asked how he would
catch that. He said, "We will rely on the producer to determine
the destination. As long as he makes an honest effort to determine
the destination we will accept that." But it is wide open
Chairman: We are coming onto the policing of
the tax later, but that is a very interesting comment.
208. When questioning members of the QPA and
the British Aggregates Association, I tried to get from them their
view on why there is such a wide differential between the price
of aggregates, not only in respect of the Republic and Northern
Ireland but in respect of Northern Ireland and the UK. I noticed
from the CBI evidence that you suggest that the value of aggregates
in Northern Ireland is £2.60 per tonne compared to £6.50
elsewhere. Can you comment on the huge price differential for
the same products between Northern Ireland and the Republic and
Northern Ireland and the UK?
(Mr Smyth) I will comment briefly and then ask Ralph
Clarke to speak. First, there is very favourable geology, considerable
amounts of sand, gravel and quarry aggregates. There are many
suppliers, which leads to high competition. Part of the reasons
for tight margins is the fairly intense competition in Northern
Ireland. We have about 170 sites, which reflects that problem.
(Mr Clarke) Those two points are very valid. Another
point is that the profit margins in the industry in Ireland these
days are quite modest. Another pointthis goes back a few
yearsis that the number of suppliers relates to a period
in time when there was a 40 per cent grant for the erection of
quarry plant, ready-mixed plants, pre-cast concrete factoriesany
plant. That was availed of tremendously in the North of Ireland.
Everyone who had a little bit of aggregate thought he should have
a block plant; if he had a block plant he thought he should have
a ready-mixed plant. The industry is therefore grossly over-subscribed
and that was largely stimulated by 40 per cent capital grant.
209. To pick up on that, the industry is over-subscribed
so there is room for contraction, and the price is artificially
kept low by competition.
(Mr Clarke) That is correct. I would not, though,
say it is artificial. What is artificial about it?
210. I accept that it is not artificial.
(Mr Clarke) It is the real world. That is the price.
211. Do you accept that the cost to the end
user is probably lower than would be expected either in the Republic
of Ireland and/or in the UK?
(Mr Clarke) I fully agree with that. They have been
enjoying low-price building materials for many years.
212. You understand the question. I think that
we have differentials when we take into account the impact of
(Mr Fidgett) I believe that is correct. Obviously
the price will differ within mainland UK as well and prices in
the London area are probably significantly greater than they would
be at more remote parts of the UK. That is the function of supply
and demand. Effectively in Northern Ireland the tax would make
capital investment more expensive by a much greater degree than
anywhere else. Whilst the demand for aggregates is not greatly
influenced by price because, as I have said, if we need a road
or a building we need the aggregate to build it. If there is a
fixed budget, as many public sector projects have, then you will
be able to afford relatively less construction. All construction
costs will increase proportionately, so it will have a much greater
effect in Northern Ireland compared to southern Ireland where
capital investment will be relatively cheaper.
213. One final small question. You would agree,
then, that the QPA and the BAA assumption that if the levy were
imposed there would be an increase in aggregates being imported
from the mainland and the Republic is not necessarily so, because
the cost differential would still not make that attractive?
(Mr Smyth) No. I don't think that there is any potential
in bringing it in from Great Britain. At the moment I believe
we are in a relatively level playing field because the market
has created that over the past 10 to 15 years. The capital allowances
that Ralph Clarke talked about finished in the late 1980s. So
there has been a relatively level playing field and the market
has sorted itself out. That is very healthy.
214. The CBI claimed that quarrying is not really
suited to a uniform tax rate. Could you briefly takes us through
(Mr Fidgett) The principal alternative to achieve
an environmental enhancement over the current situation is direct
regulation and in effect we are getting both direct regulation
and a tax. The objective of using environmental economic instruments
is to change behaviour in some way and in that sense the aggregates
tax itself cannot possibly influence the amount of dust, noise,
traffic or other externalities associated with a quarrying activity.
What has a direct bearing on those are the conditions attached
to the planning permission for the site which will specify noise
limits, dust limits, routing of vehicles and so on. If there is
an issue there with an impact that is unacceptable then conditions
ought to be tighter, as ought the policies that apply to it. It
is a far more targeted and therefore far more effective way of
achieving the improvement that is sought. Taxation in this case
is a very blunt instrument and cannot alter that sort of behaviour.
215. You would prefer regulation rather than
taxation. What did you have in mind when you proposed the notion
of a value-based tax?
(Mr Smyth) One of the optionsthis was raised
during our meeting with the First Minister in February- was that
because of the lower value, having a set rate would have a much
more significant impact at 60 per cent of the raw material cost
on average, compared with less than half that in the UK. So if
we went to a percentage-type tax it might come out at 70p or 60p
which would be much less of a burden and an impact.
216. But that would create other problems if
you had a differential set of taxes?
(Mr Smyth) Yes, there are issues around that, which
is why we concluded that the simplest way, as we see it, is some
form of derogation.
217. So the position at the moment is that you
would prefer not to have a tax at all. You would prefer direct
regulation and if there is to be a tax you would prefer a value-based
tax, and you think that the rate being thought about for Northern
Ireland is around 60-70 per cent of the rate for the rest of the
(Mr Smyth) In terms of the average price for aggregates
it would bethese are Government figures£2.60
against £6.50. I was thinking of just under half, so it would
come out at 60p if we are looking at £1.60. That is a simple
218. One last thing. You say that you have now
moved to the position where you prefer an exemption. Would not
the case be, if there were an extension for a number of years,
that the rest of the aggregates industry in the UK would regard
that as anti-competitive, and how would you reconcile that difficulty?
(Mr Smyth) Instead of taking the UK as a land boundary
we would take Great Britain, so that imports into GBa couple
of hundred thousand tonnes of very specialised aggregates go into
GBshould be taxed. We have accepted that. We have given
sympathetic understanding to that issue. That was not what we
are getting at; that can easily be addressed.
219. Mr Smyth, you have already mentioned policingand
a moment ago you spoke about the Government would police the tax.
What expectation do you have that they will be able to police
it, especially in the light of illegitimate operators in the black
economy? What level of resources do you think Customs and Excise
would need to enforce the tax effectively?
(Mr Smyth) That is certainly a question for Customs
and Excise. I think that it would be with great difficulty. Part
of the problem is that there would be little incentive to do it.
A lorry has a tax value of £30 to £40 and we know that
they cannot address the issue in terms of fuel smuggling when
thousands of pounds are involved. We would be very sceptical.