Clause 126 - Aggregates levy: transitional relief

Finance Bill – in a Public Bill Committee at 10:15 pm on 20th June 2002.

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Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 10:15 pm, 20th June 2002

I beg to move amendment No. 257, in page 100, line 21, leave out 'in Northern Ireland'.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will convenient to consider the following: Amendment No. 258, in page 100, line 24, leave out 'in Northern Ireland'.

Clause stand part.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

The aggregates tax is turning out to be a disastrous, bureaucratic nonsense. If the Government ever wanted to ensure that unemployed officials were given employment, it is a good way of doing it. The tax generates no net benefit to the Revenue, but costs an enormous amount to administer and, because of its complexity and unworkable nature, is the subject of amendments, the first of which, in this clause, is designed to give some relief in the anomalous situation in Northern Ireland. My amendments would go further than the Government are going and give some relief to all the people who are suffering under the tax and give them a bit more time in which to adjust to it.

The biggest problem with the tax is that it does not even meet the Government's stated objectives. Their 1997 statement of intent on environmental taxation stated that

''environmental taxation must meet the general tests of good taxation. It must be well designed, to meet objectives without undesirable side-effects; it must keep deadweight compliance costs to a minimum; distribution impact must be acceptable; and care must be had to implications for international competitiveness.''

People in Northern Ireland who have quarries producing aggregates considered the implications for them of the tax and realised that it failed in all the objectives. It damaged their international competitiveness, because it gave an advantage to aggregates producers south of the border, and it had very high compliance costs and led to undesirable side effects such as smuggling. Smuggling of aggregates may seem a new problem, but it exists in the marketplace and is a direct result of market distortions that have been introduced by this ludicrous tax.

As I understand it, traditional quarries in the Fermanagh and South Tyrone areas have seen a 40 per cent. drop in output, the severity of which has been worsened by the relative ease with which untaxed aggregates can be smuggled across the border. The £1.60 unpaid tax in such cases effectively pays for aggregates to be smuggled 20 to 25 miles into Northern Ireland. Of course, that is not very good for the environment. Heavy-goods vehicles carrying lorry loads of aggregates are going much longer distances and, in so doing, are polluting the atmosphere, as well as avoiding tax and creating a new black market.

The whole situation is ludicrous. It is said that the temporary partial exemption for Northern Ireland does not address the root of the problem, which has been made clear in several hearings and reports from the Northern Ireland Affairs Committee. Underlying

that is the revelation that is clear from the Red Book that the yield from the tax is much lower than had been expected last year. There was an idea that, nationally, employers would benefit from a 0.1 per cent. reduction in national insurance contributions. The folly of that has been exposed by the Government's increasing national insurance contributions on employers by a full 1 per cent.—10 times as much as the expected reduction—from next year.

The policy is in disarray and in tatters, and the Opposition think that it would be much better to scrap the whole business. Unfortunately, in considering legislation in the Committee, we cannot do that straight away. However, we can seek from the Government an explanation as to why there is a provision to help Northern Ireland and why it cannot be extended to the whole of the aggregates industry in the United Kingdom as a start in the process of eliminating this ludicrous tax altogether.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

In commenting on the measure, I do not want to discuss the efficiency or adequacy of the tax. In a sense, we take such comments as read. The usual question that I have asked hitherto is whether this environmental tax is actually achieving the environmental benefits intended. What assessment does the Treasury make of the effectiveness of its own tax? I have already seen evidence of the cost being passed on. Some of the biggest users of aggregates are local authorities and public bodies when they undertake major public works. They now factor in the aggregates tax. What is happening is not so much a recycling of benefit as a recycling of the charge—it is being recycled from the Treasury to the council to the council tax payer. What assessment does the Treasury make of that type of tax, where the only thing that seems ultimately to be recycled is the tax itself?

A briefing note from the aggregates industry has been made available to me. One would expect it not to welcome the tax, and indeed it does not. However, not all of its objections are in the self-serving category. Perhaps the Economic Secretary can respond to some of them. It suggests that there is a minimal recycling benefit from that tax and quotes not its own research but that of the British Geological Survey and the Department for Transport, Local Government and the Regions. It argues that there is, at most, a 1 to 2 per cent. gain in terms of recycling benefit.

The industry says—I think that this concerns some of my Liberal Democrat colleagues in constituencies that cover more far-flung places than mine—that there could be damage to employment in remote areas. Has the Economic Secretary considered that? It is an element in any taxation regime that ought to be taken into account. The industry also makes the point, which has some weight, that imported products made with aggregates are not subject to tax, so there will be strong product substitution from foreign countries—I think that one thing that the Government wish to preserve through all their taxation policy is international competitiveness for our industries. Will the Economic Secretary comment on those matters?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I can say to the hon. Member for Southport that, in designing any tax and in monitoring its impact, the Government consider all aspects, social and economic, including employment impacts. In this case, those have been considered alongside the potential environmental impacts in the design of the levy.

I shall cover a number of the questions raised by the hon. Member for Christchurch and then move on to an explanation of some of the rationale behind the provision in this clause and the clauses that follow. Before I do that, the hon. Gentleman mentioned the work of the Select Committee on Northern Ireland Affairs and I pay tribute to its work and the analysis that it has offered in considering the potential application and impact of the aggregates levy. The provisions in this clause reflect discussions with that Committee and points that it has raised with us.

The hon. Gentleman's starting point was that somehow this was a bad tax, which failed on all counts the criteria that we set for legislation. He will not be surprised to hear that I simply cannot accept that. This levy meets the Government's statement of intent, the very document that the hon. Gentleman mentioned, by incorporating the environmental costs of virgin aggregate quarrying. The levy is designed to be revenue neutral and is also in line with the statement of intent because it moves the burden of taxation on to pollution and offsets that by reducing employers' costs through a small cut in employers' national insurance contributions, plus a significant investment in the sustainability fund.

The hon. Gentleman asked why the yield has been reduced. The changes in the Budget forecast result from two factors. The first is the very recent changes in the volume of aggregates consumption; and the second is the impact of forestalling in anticipation of the introduction of this levy. The hon. Gentleman will see that the revenue in future years will be much closer to the original forecast.

I shall now deal with the suggestion that we are, somehow, either complacent about, or blind to, possible smuggling in the context of Northern Ireland. Customs is geared up for the introduction of the measure. It is not complacent about the potential for smuggling, but considers that the bulky nature of aggregates, their low value and their relatively low tax rate in relation to weight will significantly limit the incentive to smuggle that material. Resources have been allocated to combat potential smuggling in Northern Ireland. We shall keep a close eye on that and keep those resources under review.

Clause 126 authorises secondary legislation to provide a temporary aggregates tax credit scheme for Northern Ireland. Announced in the pre-Budget report 2001, it is transitional relief for companies in Northern Ireland that manufacture value-added products from aggregates. That is in recognition of the special circumstances of the long land border there. It allows the sector time to adjust to the changed market conditions by, for example, increasing the use of recycled or other non-taxed alternative material in

its processed products. The secondary legislation will allow the levy to be phased in over five years for aggregates used in the manufacture of concrete, mortar and asphalt. That measure has recently received state aid approval from the European Commission.

The amendments would extend the phased relief to the rest of the United Kingdom. However, as I have explained, the market conditions in Northern Ireland are unique, which is why the provision is restricted to that area. The change will take effect from Royal

Assent, but the secondary legislation will cover the period from 1 April 2002 to 31 March 2007. I hope that, with that explanation, hon. Members will reject the amendment and allow the clause to stand part of the Bill.

Debate adjourned.—[Mr. Sutcliffe.]

Adjourned accordingly at twenty-eight minutes to Eleven o'clock till Tuesday 25 June at half-past Ten o'clock.