Examination of Witnesses (Questions 240
THURSDAY 22 NOVEMBER 2001
BOATENG, MP AND
240. The New Road and Street Works Act of 1991
specifically forbids any recycled aggregates from being used.
If we have a law like that and you then impose such a tax are
you going to do some research into how you can change it? Is that
not a slight case of the cart before the horse?
(Mr Boateng) What one could say there is that we should
regard fiscal responses to environmental concerns as one part
of a much wider response and the sustainability fund is another
part, although it arises from that fiscal action. One also expects,
I would expect and do expect green ministers and departments to
take into account the environmental consequences of precisely
that sort of regulation and seek to get a very clear evidence
base from it. Speaking as a green minister in the Treasury and
the person with the responsibility in terms of sustainability
in the upcoming Spending Review those are certainly the sort of
issues that one looks at in terms of how departments respond to
their own responsibilities.
Chairman: I understand only too well that you
have a different take on this problem from the environment ministers
and those who are exclusively concerned with trying to reduce
environmental impact. It does seem strange that we are now going
to introduce a tax to encourage the alternative use of recycled
aggregates when we have a law which prevents its use in public
works. I just offer that to you as a thought. Given that there
is a much higher proportion of public works using aggregates in
Northern Ireland than Great Britain that is another reason why
this tax, this levy may not have the consequences in Northern
Ireland you are expecting to have in the rest of the United Kingdom.
That is the point we are trying to make.
241. I wonder if I can push a little bit further
the question of whether or not the research should have looked
at the issues in Northern Ireland, in particular the researchers
focus on not just the rock type but the output. One of the clear
differences within the Northern Ireland/Republic of Ireland context
is as far as output is concerned products very clearly could be
extracted in the North, driven South, turned into products and
sold without any need for a levy. That is something which would
have been clear when the research was undertaken. It is clearly
unique inasmuch as in the rest of the United Kingdom the extraction
and production would not have made any difference or impact on
the levy, whereas in Northern Ireland it will. Would that not
in itself have been enough to suggest that researchers should
have considered that issue in respect of output?
(Mr Field) I think the point is the research was one
stage prior to getting to that step, the research was about identifying
environmental costs, it was not about looking at specific issues
on the border with the Republic.
(Mr Boateng) That is an issue that needs to be taken
into account and which we are taking it into account in terms
of design and implementation, it is a feature.
242. I want to move on to look at the rate of
the levy, there was a lot of evidence given to us and the conclusion
was there could be an environmental case for a different treatment
of hard rock and sand and/or gravel, could you explain to us what
factors were taken into account in setting the levy at the universal
rate of £1.60 per tonne?
(Mr Boateng) The rate was set following the conclusion
of the London Economics research. They came to the conclusion
of £1.80 per tonne on a conservative basis of the cost of
quarrying. We set it at £1.60 to err on the side of caution.
Clearly there are issues around differential rates to take into
account, the so-called green quarries. We recognise the attraction
in principle of a differential rate in order to encourage less
environmentally damaging quarrying but it is also necessary to
consider the extent to which a different rate will be practicable.
Treasury officials have carried out various consultations informally
with the industry over the last couple of months on the practicability
of differential rates to take into account so-called green quarries.
I am not able with the Pre-Budget Review pending to go into the
outcome of that but we have considered the issue of differentials
and there are very real, practical problems to be overcome in
having differential rates, whatever the superficial attractions.
(Mr Field) We have been consulting with the industry
and with other stakeholders over the last couple of months, as
the ministers says. We have had a range of responses on this issue
which we are considering at the moment.
243. Is it technically possible to derogate
from United Kingdom tax on a partial basis?
(Mr Boateng) That is a different issue, it is a very
big question of principle, it really is. Whilst technically it
might be possible it would create its own difficulties and one
would have to ask oneself whether it was desirable.
244. What are the difficulties it would create?
Aside from the bureaucratic difficulties, what are the difficulties
(Mr Boateng) It strikes at the notion of a unitary
245. But we have a precedent for this, there
has been 100 per cent capital allowance in Northern Ireland for
a long time. The Treasury has acknowledged that Northern Ireland
is special, has special economic circumstances because of the
troubles, special circumstances because of its relationship with
the Republic on the same island, the whole of the agricultural
industry has special arrangements and, as I say, there is a tax
allowance available in Northern Ireland which is not available
to anybody else. It is not a new precedent.
(Mr Boateng) It is focussed specifically. When I was
in Northern Ireland one of the reasons why I was there was to
discuss with colleagues in industry and in the voluntary sector
issues around regeneration and that is geared specifically towards
regeneration and as part of a wider regeneration package. I think
there are other potential problems around the proposal that you
have just made.
(Mr Field) Can I just say on one technical point,
any regional differentiation of tax would count as a state aid
and would have to be justified as a state aid. In the case of
the examples we have just discussed I assume that has been approved
as a state aid for regional development purposes. In order to
have that sort of approval you need to be able to identify the
specific regional development objectives which the tax incentive
is intended to give.
246. The point I would like to get from you
is this, this would not set a new precedent, it has happened before.
I agree it is a grey area, but all things are possible, are they
(Mr Boateng) It is possible, however whether it is
desirable is a very different question and whether it is permissible
in terms of state aid and wider EU legislation is also debatable.
247. Could I just take you back a step inasmuch
as not just looking at the concept of regional variation but differentials
in respect of product, because a number of producers mentioned
to us that if there was a differential in respect of low value
aggregates as high value then that would have a positive effect
on the environmental tax introduction in Northern Ireland, it
would assist in this problem of movement and the need to move
products around and damage the environment through transport movement.
It is not just about regional differentials, it is also about
differentials in respect of the aggregates themselves, from hard
aggregate to soft, from high costing aggregate to low cost and
where the imposition of £1.60 a tonne on low cost aggregates,
which is particularly that that is produced in Northern Ireland,
means that there is an imbalance?
(Mr Boateng) That was certainly a consideration and
an option that officials have considered.
(Mr Field) We have looked very carefully at the possibility
of giving a lower rate for low value products, there has been
a concern raised with us that the tax may make it difficult to
sell the low value products if the tax is applied at full rate
to all of these materials. It is very difficult to identify in
a precise way what we mean by these low value products and what
could be identified within the scope because, for example, one
quarry's primary product may be a secondary product of another
quarry, one person's waste is another person's primary product.
This has been discussed extensively between Customs & Excise
officials and the industry, again it is something that we are
looking at in the context of the Pre-Budget Report.
Mr Clarke: My understanding from previous evidence
was that the average cost of product in Northern Ireland was about
£2.40 per tonne against a United Kingdom average of £6
per tonne, you then see a stark difference between the imposition
of £1.60 a tonne overall from £2.40 to £6?
248. That is on a very low profit margin because
it is so competitive and that is what makes the tax bite that
much harder. The point in terms of competition and competitiveness
is a business point but it is part and parcel, is it not, of the
environmental point? I do not think it is part of your concept
to consider the business side too much, you are looking at the
environment and what you want to be a neutral tax. This is yet
another factor which is going to militate against the environmental
improvements you are seeking.
(Mr Boateng) Of course the environmental impacts of
quarries do not depend on the price of the product. There is not
a simple equation to be made between the level of the levy to
aggregate price. It is the same principle which is used in relation
to landfill tax, which is applied per tonne of waste. If you are
living near a quarry site or a landfill site it matters not to
you the price of the tonnage.
249. A question which has been raised earlier
meant that if you were extracting sand in Northern Ireland you
could ship it to the Republic, bag it up and sell it back without
the imposition of the £1.60. The extraction would take place
in exactly the same position, it would be extracted, moved to
the Republic, bagged up and sold back to Northern Ireland without
the imposition of the tax?
(Mr Field) I do not think that is correct. If it is
simply being bagged up it would be relieved of tax as it is exported,
with the tax levy reapplied when it is brought back into Northern
Ireland. I do not think that is correct if it is simply being
250. The issues we will obviously come back
to, we will come on to it later.
251. Perhaps we can tackle that one. Now, if
all of the bodies and the united voices and everyone in Northern
Ireland fails to persuade you how are you going to police this
tax? You must be aware of the enormous problems you have with
the petrol smuggling and the extent to which Customs & Excise
are concerned and involved. One of the remarks that was made to
us was that Customs & Excise are going to spend much more
time chasing a lorry load of petrol for which if you smuggled
it you will lose thousands of pounds than a lorry load of sand,
which might cost you a fiver.
(Mr Boateng) Customs will be responsible for enforcement
in Northern Ireland the same way as they are for other indirect
taxes, that is their responsibility and they will need to address
any problems that arise with smuggling
252. Have they told you they are having problems?
(Mr Boateng)whatever the product. I have been
to both to Northern Ireland and to Dublin specifically on the
issue of smuggling and cooperation in relation to oil and tobacco.
You will know that Customs & Excise have recently made a major
haul, a major dent in tobacco smuggling and are to be congratulated
for that. We are well aware of the issues of cross-border smuggling.
What one would say is that opportunities to smuggle aggregates
will be limited because of the nature of the product, bulky, low
value and high transport costs. I cannot anticipate that the potential
for smuggling will not be impacted upon by the nature of the product,
the running of sand is never going to be a major money spinner.
253. The question I have is related to a point
that was made earlier about there being difficulty in differential
rates as far as Northern Ireland is concerned because of the European
Union state aid policy. Is that a general problem which exists
also with the petrol/tobacco position; that the state aid provision
rather prevents that from taking place? Because one solution to
these types of problems about the border would seem to have been
a case for a bigger, greater harmonisation between Northern Ireland
and Ireland and their tax regimes moving a bit in that direction,
so it is no longer worth the candle in order to smuggle or in
order to moves business around?
(Mr Boateng) I think it is very important to recognise,
both in relation to the issue of tobacco and alcohol smuggling
that as you will know particularly, Chairman, much of the contraband
has never paid tax anywhere, it is not a question of avoiding
differentials because these people are criminals and very often
linked with terrorists. Tax has not been paid anywhere and it
would only make a marginal difference if you were in fact to reduce
the differential. We must also remember in relation to tobacco,
alcohol and oil that cross-border shopping is perfectly legitimate,
perfectly proper and not something that we would want to inhibit
in any way. It is important and we do make a very clear distinction
between the smuggling of contraband and cross-border shopping,
one is perfectly legal and proper and the other one is completely
unacceptable and subject to rigorous enforcement.
Mr Barnes: That which is perfectly proper also
produces economic problems. In the case of petrol the problem
is that petrol stations have been built on the Irish Republican
side of the border and anybody within 20 or 25 miles will travel
in order to fill their tanks up in Ireland quite legitimately
as cross-border shopping and return, which produces problems for
the Exchequer and problems for the industry within Northern Ireland.
A similar problem, although maybe not involved in the same amounts
of money and not tied in with any smuggling, is it seems to be
developing as far as aggregates is concerned.
Chairman: When you say tax has not been paid
anywhere, that applies certainly to the tobacco, which goes round
and round and round it does not apply to fuel in Northern Ireland.
We were in Northern Ireland this week and I may be telling you
something that you did not know, you can now buy a special extractor
pump, fill up in the South and come into the North, empty your
petrol tank and go back and get some more. When does shopping
become smuggling? The answer is when it is abused. I do not think
we want to make too much of this point, here is another rod for
the Treasury and Customs' back in that there is an opportunity
in the bill of loading to give the wrong destination of aggregates,
are customs going to chase that with its tiny return as opposed
to a tank of petrol? This is one of the points that needs to be
254. Did I hear correctly, what the Treasury
are saying is that they have not ruled out at this stage, they
have not rejected differential rates, was that correct?
(Mr Boateng) I am afraid I must resist the temptation
to go down that line. We have considered a whole range of options,
differential rates was one of them. In due course the Chancellor
will make the appropriate announcements in the context of the
Mr Clarke: Thank you for that.
Chairman: We understand that you cannot dilate
on that but as long as all of this is going to be considered we
shall be content.
255. There was one other question, I wonder
if I can move on to this principle question, in terms of environmental
tax it is not meant to be revenue raising. The government set
out in 1997 its principle for environmental taxation and within
it they use the words, "environmental taxation must meet
the general tests of good taxation, well designed to meet objectives
without undesirable side effects . . . competitiveness".
Given the comments we have made to both, are we satisfied that
the levy accords with those principles as set out in 1997, give
that particularly in that last part of the government's own test
care must be had to implications for international competitiveness?
(Mr Boateng) Broadly, yes. There are certain specific
special characteristics in relation to Northern Ireland that we
need to take into account in terms of design and implementation.
That is my response to that. That is why I honed in as I did on
the issue of competitiveness and jobs because that, to be frank
with you, Mr Clarke, has been the brunt of the representations
made to me. I am interested in the evidence that you had on the
environmental issues, but the thrust of the representations that
have been made to me, maybe because I am just a common or garden
politician, is "jobs" and "we are going to lose
out to the other lot", that is how they put it. That is obviously
an issue which draws my attention to the question as to whether
or not, as you have drawn it, this tax as currently designed and
as proposed and implemented in relation to Northern Ireland does
actually meet the statement of intent and our purposes there.
I do take those representations very seriously.
256. We are all proud to be common or garden
politicians, so do not be quite so shy about it! Of course the
lobbies have been on about jobs and competitiveness, that is what
they are there for, everyone understands that. It is becoming
more and more clear to us, and that makes us doubly glad that
we are able to share this with you. Because you might say that
the evidence is overwhelming that you are not going to meet the
environmental needs. It was interesting to hear you sayvery
honestlythat the last part of the government's own environmental
taxation principle is not being met with regard to Northern Ireland.
The question is, I suppose, for you, how heavily are you going
to let that, which is self-evident, weigh in the balance?
257. Good morning, Minister.
(Mr Boateng) Good morning, Mr Tynan.
258. We have spoken about the question of the
environment, and your position obviously and our position is that
the protection of the environment is absolutely important, but
doing that in isolation creates some difficulty for the people
in Northern Ireland in particular. We have the Assembly up and
running, we have a degree of peace in Northern Ireland, and on
that basis it is important we are in a position where we give
Northern Ireland the best chance possible of maintaining a good
economic position and providing the best opportunities for the
development of the economy in Northern Ireland. I understand you
had a meeting with Mark Durkan, the Deputy First Minister.
(Mr Boateng) I did.
259. The indications were that he said that
£35 million was the direct cost to public expenditure in
Northern Ireland as regards construction activity because of this
tax. The knock-on effect from that would be that they would have
to set priorities and it would mean a change of pattern in how
they developed. That being the case, the building of roads and
new transport infrastructure could be one of the casualties, and
that would impact on economic development. I do not know whether
we should separate the problems which exist there. I accept what
you are saying as regards the environment, but we have a problem
as regards the evidence given to us which says very clearly they
may move south of the border, the impact on the communities in
Northern Ireland who depend on aggregates production could be
substantial. I do not think enough evidence was given or was given
to us when we queried why they have not made the representations
which I believe should have been made in order to justify the
case for the difference in Northern Ireland. I would like your
comments on the broad aspects of how much has been given to you
in evidence, if you think it was sufficient and if there is room
for the opportunity to change the position as it exists at the
(Mr Boateng) I had a very fruitful and helpful discussion
with Mark Durkan. I have also had a number of conversations with
people engaged in business in Northern Ireland and also have received
representations on the phone from a member of the Assembly who
expressed her concerns about the impact on her constituents. My
officials and Customs have visited Northern Ireland now on a number
of occasions and entered into fairly detailed discussions with
the industry and with civil servants, and a much clearer and better
picture has now emerged as a result of that activity than was
the case, I would judge, in the early design stages of this levy.
In the early days, as I have indicated in my opening remarks to
the Chairman, and one does not want to go back and apportion blame
or fault, the representations were, to put it mildly, limited
or non-existent in some instances. So we have made up for lost
time. I believe that will be reflected in due course.