House of Commons Northern Ireland Affairs Committee Introduction of the Aggregates Levy in Northern Ireland: one year on Third Report of Session 2003–04 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed 10 March 2004 HC 395 [Incorporating HC 1101-i & ii, Session 2002-03] Published on 12 March 2004 by authority of the House of Commons London: The Stationery Office Limited £14.50 The Northern Ireland Affairs Committee The Northern Ireland Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Northern Ireland Office (but excluding individual cases and advice given by the Crown Solicitor); and other matters within the responsibilities of the Secretary of State for Northern Ireland (but excluding the expenditure, administration and policy of the Office of the Director of Public Prosecutions, Northern Ireland and the drafting of legislation by the Office of the Legislative Counsel). Current membership Mr Michael Mates, MP (Conservative, East Hampshire) (Chairman) Mr Adrian Bailey, MP (Labour / Co-operative, West Bromwich West) Mr Harry Barnes, MP (Labour, North East Derbyshire) Mr Roy Beggs, MP (Ulster Unionist Party, East Antrim) Mr Tony Clarke, MP (Labour, Northampton South) Mr Iain Luke, MP (Labour, Dundee East ) Mr Eddie McGrady, MP (Socialist Democratic Labour Party, South Down) Mr Stephen Pound, MP (Labour, Ealing North) Mr Peter Robinson, MP (Democratic Unionist Party, East Belfast) Rev Martin Smyth, MP (Ulster Unionist Party, Belfast South) Mr Hugo Swire, MP (Conservative, East Devon) Mr Mark Tami, MP (Labour, Alyn & Deeside) Mr Bill Tynan, MP (Labour, Hamilton South) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/parliamentary_committees/northern_ireland_affairs.cfm. A list of Reports of the Committee in the present Parliament is at the back of this volume. Committee staff The current staff of the Committee are Elizabeth Hunt (Clerk), Hugh Farren (Attached Clerk), Aileen O’Neill (Committee Specialist), Tony Catinella (Committee Assistant), Camilla Brace (Secretary). Contacts All correspondence should be addressed to the Clerk of the Northern Ireland Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2172/3; the Committee’s email address is [email protected] 1 Contents Report Page 1 Introduction 3 2 History of the Committee's involvement with the aggregates levy 3 3 The need for a follow-up inquiry 3 4 Government proposal to amend the levy relief scheme 4 5 European State Aid approval 4 6 Conclusions 5 Formal minutes 6 Witnesses 7 List of written evidence 8 Reports from the Northern Ireland Affairs Committee since 2002 9 3 1 Introduction 1. The aggregates levy was announced by the Government in Budget 2000, and came into effect from 1 April 2002. The levy was designed as a ‘green tax’ to promote recycling of waste aggregates and to mitigate the environmental costs of aggregate consumption. The levy is charged at a universal rate of £1.60 per tonne of aggregate extracted in the UK, whether the aggregate consists of sand, gravel or crushed rock. The levy is also charged on imported virgin aggregates, but not charged on imported processed aggregates such as ready mixed concrete. 2 History of the Committee's involvement with the aggregates levy 2. Our current inquiry follows our work in the 2001–02 session of Parliament. We began our initial inquiry into this subject in October 2001 after concerns were raised about: x The effectiveness of the levy as an environmental instrument; x The impact of the levy on the balance of competition between Northern Ireland and the Republic of Ireland where no levy exists; and x The cost of the levy to public sector construction. 3. Our investigation revealed that the research on which the levy was built had failed to take account of the distorting effect on the operation of the levy caused by the land border between Northern Ireland and the Republic of Ireland. In our Report, we recommended that the Government postpone any introduction of the levy into Northern Ireland, until a fully-informed decision has been reached as to its effects.1 4. As a result of representations from this Committee and from the aggregates industry in Northern Ireland, the Government agreed to phase in the introduction in Northern Ireland of the levy over 5 years2. The concession would apply only to processed products such as asphalt in order to allow the aggregates and construction industries in Northern Ireland time to adjust to the impact of the levy.3 3 The need for a follow-up inquiry 5. It became apparent to us that the levy was not bringing about the environmental improvements sought by the Government and that enforcing the levy was proving difficult. Concerns were also raised that the levy was encouraging the illegal use of untaxed 1 Northern Ireland Affairs Committee, First Report of Session 2001–02, Introduction of the Aggregates Levy in Northern Ireland, HC 333 2 HM Treasury, Pre-Budget Report, November 2002, Cm 5664, page 144, paragraph 7.73 3 The phased-in introduction of the levy will result in the amount of levy relief reducing by 20 per cent each year, starting with 20 per cent of the levy on 1 April 2002 (32p a tonne) with the full levy payable on 1 April 2007 (£1.60 per tonne) 4 aggregate and had led to a significant increase in unauthorised quarry sites in Northern Ireland. 6. We took evidence on three occasions in the period from September 2003 to February 2004. We would like to thank all those who gave evidence in this inquiry. We are grateful for the time and effort afforded us in understanding the complexities of the aggregates industry and the impact the levy has had on it. 4 Government proposal to amend the levy relief scheme 7. We took oral evidence from the Economic Secretary to the Treasury on 5 November 2003. In his opening statement, the Economic Secretary acknowledged that the levy was unlikely to meet its environmental aims and would not reduce the environmental impact of quarrying in Northern Ireland. As a result he said the Treasury was now prepared to look at alternatives to, or further reform of, the present scheme of levy relief.4 8. In the Pre-Budget statement on 10 December 2003, the Chancellor of the Exchequer announced details of a proposed new scheme designed to address the concerns raised by this Committee. 9. The new proposal for Northern Ireland would continue to cover aggregates used in processed products and the relief would be extended to cover virgin aggregate. The Government hoped the new scheme would come into effect on 1 April 2004, freezing the current rate of levy relief at 80 per cent until 31 March 2012. In return quarry operators would need to sign up to environmental improvements that would be regularly monitored and reviewed. Enforcement activity would also be stepped up.5 5 European State Aid approval 10. In order for the new scheme to be implemented, State Aid approval is required from the European Commission. After receipt of the UK Government’s State Aid application, the Commission have three months in which to consider the application. If further information is sought by the Commission then the 3 month time period is extended. Other interested parties (including other Member States) may submit comments; this procedure can delay the application by 12 months or more. 11. The Government’s State Aid application was submitted to the European Commission on 5 January 2004.6 12. In evidence to us on 25 February 2004, the Economic Secretary to the Treasury was unsure whether or not the introduction date of 1 April 2004 could be met but stressed that every effort was being made to assist the Commission in meeting this target. 4 Q 86 5 HM Treasury, Pre-Budget Report, December 2003, Cm 6042, page 163, paragraph 7.67 6 Ev 58 5 13. We are concerned about the effect any delay in introducing the new scheme might cause. If the new scheme is not in place by 1 April 2004 then under the present levy relief scheme the relief is set to reduce by a further 20 per cent on this date to 60 per cent. Subsequent introduction of the new scheme later in the year may necessitate the refunding of this additional 20 per cent—assuming that the new scheme can be applied retrospectively—back to 1 April 2004. 14. Under either scenario many businesses in Northern Ireland would be subjected unnecessarily to increased costs in the coming months. The Treasury told us that planning for late introduction of the new scheme, and development of a procedure for returning overpayments to those businesses, was not currently its priority.7 15. It was also apparent that, should the new scheme be rejected by the Commission, the Treasury was unsure of the future of the aggregates levy in its current form either in relation to Northern Ireland or the UK as a whole. 6 Conclusions 16. We are grateful to the Minister for listening to our concerns about the problems associated with the aggregates levy in Northern Ireland because of its land border with the Republic of Ireland.