Memorandum submitted by the Northern Ireland
1. In Budget 2000, the Chancellor announced
his intention to introduce an aggregates tax of £1.60 per
tonne on virgin aggregates, with effect from April 2002. The purpose
of this tax is to ensure that the negative environmental impacts
of aggregates production in the UK are reflected in prices, encouraging
the use of recycled aggregates.
2. The Chancellor announced that revenues
generated by the tax will be returned to business and local communities
affected by quarrying through a 0.1 percentage point cut in employers'
National Insurance contributions and a new Sustainability Fund
designed to deliver environmental benefits. The money being returned
to Northern Ireland through these measures will not have the intended
fiscal neutral impact because we are disproportionately a high
producer of aggregates.
3. The implementation of the tax causes
difficulties for Northern Ireland because of the land border with
the Republic of Ireland, which already enjoys several distinct
advantages in terms of exchange rate and lower fuel prices. Whilst
imported aggregates will be taxed to protect competitiveness,
imported processed material will not be taxed because of the difficulties
in establishing a global audit trail to determine the taxable
4. Given the close proximity of many of
the Republic's processors to the border it has been estimated
that it would be economical for companies to penetrate into the
NI market up to 25 miles following the introduction of the tax.
Some 62.5 per cent of NI's active quarries are located within
25 miles of the border, putting 3,000-3,500 jobs at risk. Whilst
this estimate is at the upper end of the range, it must be stressed
that even if 1,000 jobs were lost, this would still represent
a severe blow to the NI economy. Moreover, much of the quarrying
and related industries are located in New TSN/border areas of
disadvantage where it would be difficult to replace lost jobs.
5. An added complication is that it is not
clear that NI would have the same potential sources of material
for recycling purposes as in the GB mainland where disused airfields,
major urban regeneration projects or slag heaps can be exploited.
6. The Treasury's Statement of Intent for
Environmental taxes released in 1997 stated that "environmental
taxes must meet the general tests of good taxation . . . care
must be had to implications for international competitiveness".
Clearly, the Aggregates Tax has serious, perversethoughunintended
implications for the international competitiveness of NI's quarry
and related industries. The tax also indirectly impacts on ports
in Northern Ireland in terms of harbour development and improvement,
and damages their competitive position, particularly compared
with ports in the Republic of Ireland.
7. Implementation of the Aggregates Tax
will have disproportionate budgetary implications for a number
of NI departments in the devolved administration due to the lack
of recycled material. Inescapable pressures in relation to substantial
capital programmes undertaken by the Department for Regional Development
on roads, public transport, water and sewerage are considerable.
The costs of other departmental sponsored civil engineering projects,
for example, the refurbishment of designated sea defences with
rock armouring will add to overall public expenditure pressures.
Funding these will inevitably impact on the delivery of other
public services and output.
8. In Budget 2001, the Government stated
that it had received representations suggesting that the environmental
benefits of the Aggregates Tax could be enhanced by introducing
a differential rate for aggregates extracted from quarries with
better environmental performance. In response to this the Treasury
released a document for the Differential Rate Scheme. Under this
scheme, the most environmentally friendly quarries could qualify
for lower rates of tax. However, the scheme gives rise to many
practical difficulties such as how to assess compliance and define
environmental performance. There could also be potential problems
in implementing, administering and monitoring the schemethroughout
the UK, but especially in NI where quarries tend to be smaller
THE NI EXECUTIVE
9. Earlier this year, the First Minister
and Deputy First Minister met the Chancellor of the Exchequer
to press the case for derogation from the Aggregates Tax. In October,
the Department of Finance and Personnel (DFP) Minister met the
Financial Secretary to the Treasury to outline the adverse impact
of the tax in NI and discuss how the problem could be best addressed.
A cross-departmental working group has been established, examining
the environmental aspects of quarrying in NI and how it can be
10. DFPon behalf of the NI Executivehas
asked for a complete derogation of the Aggregates Tax for NI,
due to the unique competition firms face from the Republic of
Ireland. At the very least, a temporary derogation is being sought
so that the impact of the tax can be analysed in GB before being
implemented in NI.
11. In terms of securing a temporary derogation,
there are two options. First, significant discounts (temporaryup
to 10 years) could be granted to producers if they are viewed
as securing environmental improvements. Secondly, a temporary
degressive derogation would provide the industry with time to
respond to the implementation of the tax for up to five years
with incremental phasing in. But temporary derogation, if granted,
should be unspecified and not related to any one part of the aggregates
12. A recent exemptiongranted by
the HM Treasurywas the derogation in Air Passenger Duty
in respect of flights departing from the Scottish Highlands and
Islands. Another example is the five-year exemption from the Climate
Change Levy for natural gas in NI (agreed by HMT and the European
Commission). In this latter case it was accepted that the introduction
of the levy to the NI gas market would inhibit its development
with no resultant improvement in energy efficiency. The period
of exemption is to allow the gas market in NI to develop.
13. NI was not consulted during the formulation
of the Aggregates Tax, with regard to either the need for the
tax or its likely impact. Consequently, the unique circumstances
prevailing in NIit is the only region of the UK to share
a land border with another EU country and a large proportion of
NI quarries operate close to that borderwere not taken
into account. Moreover, the nature of the industry in NI differs
from that in GB. Quarries tend to be smaller, family owned, and
operate close to the aggregates market so lorry mileage/transportation
is, on average, lower than in GB.
14. It is the Executive's view that NI should
not be penalised because of a failure from the outset to take
account of its particular circumstances. Clearly such a proposed
tax would not have a fiscally-neutral impact in NI and it has
the potential to create a lasting, perverse and damaging impact
on a NI quarrying industryparticularly in disadvantaged
30 November 2001