With this it will be convenient to take the following: New clause 26—No exemption for commercial exploitation within the United Kingdom—
'.—In section 19(5) of the Finance Act 2001 (c. 9) at end insert ''and if the purposes for which the aggregate is commercially exploited are within the United Kingdom.''.'.
New clause 27—Aggregates levy: adjustment of contracts—
'.—(1) The Finance Act 2001 (c. 9) is amended as follows.
(2) In section 43(1)(a), after ''quantity of aggregate'' insert ''or quantity of product containing aggregate.''
(3) In section 43(1)(b), at end insert ''or quantity of product containing aggregate,''.
(4) In section 43(2)(a) insert ''or
(iii) indices for the price of aggregates''.'.
New clause 28—Reduced rate of aggregates levy—
'.—In subsection 4 of section 16 of the Finance Act 2001, for ''£1.60'' substitute ''50p''.'.
These new clauses, particularly new clause 28, enable us to have a debate on the nonsense of the aggregates levy. New clause 28 is drafted to reduce the rate from £1.60 per tonne to 50p per tonne, but that is a form of words to enable the debate to take place. New clause 26 would exempt from the tax, aggregate used in the production of concrete products for export—a straightforward competitiveness issue. New clause 27 would extend the protection in section 43 of the Finance Act 2001 so that price increases due to the levy could be passed on in long-term contracts to supply aggregate products. The increase shown by price indices due to the levy would not then cause rents linked to those indices to rise.
The competitiveness problems arising from the legislation are now coming into stark relief. Nowhere is that more true than in Northern Ireland, as we have said, but it is also true in Scotland. As I understand it, a company there manufactures products, for sale outside the United Kingdom, involving the use of a
lot of aggregate as an aggregate coating on those products. As a result of the incidence of this tax on its products, it is seriously considering whether to relocate its business outside the United Kingdom. The tax is making its product uncompetitive in the marketplace. If that is what the Government wanted to achieve, they are well on the way to doing so, unless they accept new clause 26, which would allow some relief.
While we are talking about Scotland, we know from the Quarry Products Association that the total aggregates tax regime will cost Scotland about £12 million. In contrast, Greater London will benefit by some £43 million each year. Is that something that the Government intended? Did they intend to subsidise Mayor Livingstone's people by £43 million and take away £12 million from the Scots as a result of the operation of the aggregates tax? I suspect that they did not, but that has been the consequence of this ludicrous taxation regime. Now, on top of that, they will find that, because of the effects on companies in Scotland manufacturing products involving aggregate for export overseas, those companies will be separately penalised and the Scottish economy damaged. What a deplorable state of affairs.
An argument put forward for the aggregates levy was that there would be a sustainability fund to help communities—as it was originally expressed—adversely affected by the impact of quarrying. One's immediately thought is that it is hard luck on people who live near the slate quarries that are now reopening as a result of what the Government's legislation is doing in the marketplace; they will not be given any help from the fund. The fund was originally intended to help communities close to quarries, but we are now told that that will not happen because much of the money will be frittered away on bureaucracy and so on. It will not be used to help local people, who normally feel imposed on when quarrying or sand and gravel extraction takes place in their communities. I know that from my constituency, where there are sand and gravel workings. One of the consequences of having a constituency on the very edge of both Hampshire and Dorset is that, because the Hampshire minerals plan has decided that it would be best to extract minerals right on the edge of the county boundary, and the Dorset minerals plan does exactly the same thing, my constituents suffer. They were led to believe that they would get some relief under the regime from the special fund that would be provided from the tax proceeds. We now find that that will not happen. That is one justification for significantly reducing the rate of the tax.
Another justification for reducing the rate of the tax—indeed, eliminating it—is to do away with the enormous bureaucracy that has built up around it. The tax was ill advised in the first place. The Department for Transport, Local Government and the Regions expressed serious doubts about it. In a previous debate, the Economic Secretary dismissed the studies that the Department carried out at taxpayers' expense as backward rather than forward looking. If the
studies were worthless, why were they commissioned in the first place? The short answer is that they came up with the wrong answer and, instead of accepting the advice that they should have accepted, the Government decided to ignore them and to try to justify the tax on the basis of fresh argument.
I hope that the Committee will accept the new clauses and thereby improve the present position by reducing the adverse impact of the tax. However, as we have said before, the best answer would be to abolish the whole rigmarole.
I want to make a few remarks following on from my hon. Friend's comments. He raised some very important points about the measure. Most fundamental is the effect on many parts of our quarrying industry. Last week in the Chamber I had an exchange with the Chancellor of the Exchequer about a different industry but one on which the effects are likely to be similar. I pressed him again on the effect of the changes to North sea oil taxation. He started by defending the tax and its structure, but ended by asking how I proposed to raise the £500 million that the tax would raise.
The fundamental point is that, behind all of the window dressing, the Government are raising taxes from industry. They are taking £500 million from the North sea oil industry. In the case of the aggregates levy, they are taking millions of pounds from companies that are often key employers in remote parts of the country and thus fundamental to the survival of local communities. The Government cannot remove millions of pounds from an industrial sector without affecting its profitability and competitiveness, as well as its ability to play an active role in local communities and to follow good environmental practice and stewardship.
The Economic Secretary's response in the exchange a moment ago was lamentably weak. He had nothing to say about the Government's role in using the levy—if it must remain—to encourage good stewardship by companies that will continue, inevitably, to extract aggregates from the ground. The aggregates industry will not disappear and be replaced by a recycling service. If the Government wish to levy taxation on the industry, it is their responsibility to use the structure of the levy to encourage good environmental stewardship and performance. However, that is not happening. If the Government take millions of pounds out of remote communities in Scotland and recycle them in projects in other parts of the country, they provide no incentive whatever to companies to find the funds to put right some of the inevitable impact of aggregate extraction.
I would point the Economic Secretary in the direction of visible projects around the country. Gravel pits have been left in areas where sand and gravel have been extracted regularly for years, and the industry has turned those pits into some of our finest nature reserves. In many parts of the country—particularly the Cheshire countryside, which I know well—there are any number of high-quality reserves providing a valuable habitat for wild birds and other wildlife, which have resulted from investment put in by the aggregates industry after the extraction of minerals from a particular site.
Inevitably, if taxation is levied from that industry, which is not structured in a way that encourages good environmental practice, and all that is done is recycle through a giant bureaucracy into projects that may have no relation whatever to the original source of the mineral extraction, the development of such projects in future will not be encouraged—it will probably be hampered.
The Government need to think again about the impact of the measure. They seem to believe that they can extract money from different industries without any impact on those industries' finances, the communities that they serve or the responsible works that many companies involved in the industries perform in their local communities for the good of people and the environment. The Government need to think again on the subject. My hon. Friend the Member for Christchurch is doing a valuable job for many communities in this country by highlighting the issue. I hope that the Government will think about what has been said in the Committee this morning.
I want to make one or two remarks following the excellent and cogent lines of argument of my hon. Friends the Members for Christchurch and for Epsom and Ewell.
No one would disagree with the need in many areas to be far more aware of the environmental impact that human activity has. In the context of aggregates and minimising the impact on the environment, I think that people would generally welcome the measure's objectives, but the Government have perhaps a schizophrenic approach to some of their environmental legislation. The objectives of the aggregates levy could have been achieved by a different route.
Had the Government settled down with the industry to negotiate some binding agreements about minimising the production of wastes and recycling existing materials, that would have been entirely supportable and laudable, and would, no doubt, have achieved the objective. I pray in aid of that argument the approach that the Government have taken with industries covered by the Intergovernmental Panel on Climate Change arrangements in the context of the climate change levy. Those industries were the subject of negotiated agreements on the reduction of energy usage.
If the Government can deploy in pursuit of reduced energy usage agreements that effectively bind people to achieve certain targets, surely in the context of aggregates they could do the same. It is right that people should be suspicious of the true motives that underpin that form of taxation, because the Government have chosen not to go down that route, but to use the levy as a source or revenue generation. Having been part of a Government who introduced new taxes, I know that it is never easy to do. Sometimes, it is hard to explain why one is doing something to raise revenue, but in this case the matter is highly focused. It deals with minimising the effect of the extraction of aggregate materials on the natural environment, and encourages the recycling of already used materials, both of which are to be entirely welcomed. However, the way in which that has been
done shows that, in truth, it is really about raising money, rather than achieving an environmental objective.
I shall deal first with the points put to me in debate, and then with the three new clauses in reverse order.
I regret that the hon. Member for Christchurch has belittled the sustainability fund, which will be worth £35 million in the first year. It is a new fund that has been designed to promote alternative uses of virgin aggregate, efforts to reduce the impact on local communities that suffer from the blight of nearby quarrying, and the environmentally friendly extraction techniques that the hon. Member for Epsom and Ewell returned to again in the debate.
If I may finish this point, I will then certainly give way.
The sustainability fund will play a part in the encouragement of more environmentally friendly extraction techniques. If the hon. Member for Epsom and Ewell has suggestions for how, in addition to that, we might reinforce the operation of the levy to achieve that effect, I am very willing to look at them. I shall ensure that his proposal on encouraging members of the industry to be better stewards of the resources that they manage and exploit is put to the industry for discussion in our regular discussions with it.
In his remarks a moment ago, the Economic Secretary mentioned a number of arguments in favour of the aggregates levy. I wonder what plans the Government have to produce, on each anniversary of the introduction of the levy, an assessment of its impact and a commentary on how it is working.
As an experienced Treasury Minister, the right hon. Gentleman will know that the Government keep the operation and impact of all taxation legislation under continuous review. The annual Finance Bill often becomes the point at which such matters can be examined and debated. I trust that that will be the case in the future.
I am grateful to the Economic Secretary for his courtesy in giving way.
I accept entirely the Economic Secretary's first line of argument in response to my question, but he has put on record a series of tenets that he believes justify his position. So that Opposition Members and people outside might judge the robustness of his argument with even greater clarity, will the Treasury be kind enough to share with us the results of that continuous review exercise on the next anniversary of the introduction of the tax?
The right hon. Gentleman is very skilled at testing the robustness of my arguments and those of my hon. Friends, and I am sure that he will do so in future Finance Bills. On his second point, whether we should be considering for the aggregates levy something akin to the model of negotiated agreements that we have implemented for the climate change levy, if there is scope for such measures to help to achieve the purposes and objectives of this levy, we are indeed prepared to discuss them. That might be another item on the agenda for the next round of discussions that we hold regularly with the industry. I shall ensure that the right hon. Gentleman receives due credit for raising the point with me in Committee.
Does the Economic Secretary recognise that the difference between us, on the issues to which he referred a moment ago, is that the Government appear to believe that the sensible way to proceed is to levy a tax on the industry, put it into a fund and then allow people to bid for the fund for special projects? The approach that I would advocate is discussion with the industry, identification of possible ways of improving environmental stewardship, perhaps the provision of tax incentives to pursue those, then leaving the businesses with the job of carrying them out. That would be better than creating this convoluted, bureaucratic process where the money goes out, goes around through bureaucracy and then comes back in again.
I understand the hon. Gentleman's point, but the difference between us is that he does not want to see the aggregates levy in place and in operation. We believe that there is a strong case for it, with strong environmental objectives. That is why we have legislated for it.
On the point made by the hon. Member for Christchurch about Scotland, the argument that large areas of the UK, which produce the bulk of aggregate, will suffer disproportionately from the introduction of the levy because the tax bill outweighs the national insurance contributions cut from which they will benefit, is simply not accurate. The levy is an indirect tax and, as such, the cost will ultimately be borne by the consumer. Given that the cost of the levy will largely be passed on in price increases to the consumers of aggregates, the tax burden is much more evenly spread across the country than his argument suggests. London and the south-east, where companies will benefit from the 0.1 per cent. cut in national insurance contributions, are the very areas that are the most intensive users of aggregates for construction purposes.
I turn to the three new clauses. Let me be clear at the outset that I do not accept any of them, but I shall deal with them in reverse order. The hon. Gentleman was good enough to tell the Committee that the purpose of new clause 28 was to have a debate on the principle of the levy. Let me take the Committee back to the starting point. The levy is based on the work that we did—independent research and analysis—which concluded that significant environmental costs are associated with the extraction of aggregates. Before the levy, those costs were not covered by regulations and included noise, dust, visual intrusion,
loss of amenity and damage to biodiversity. The former Department of the Environment, Transport and the Regions, which was largely responsible for that research, concluded conservatively that the environmental damage attributable to extraction of aggregates could be costed at around £1.80 per tonne. The Treasury, as is its wont, took a prudent and cautious view and set the rate at £1.60.
It is £1.60 per tonne. That is the aggregates levy. The cost that the environmental research suggested for the environmental damage is more than that.
The levy is already bringing environmental benefits—that was the principal purpose of introducing the provision—by making the price of aggregates better reflect their true environmental costs and encouraging the use of alternative materials, thereby reducing the amount of virgin aggregate extraction.
I am extremely grateful to the Economic Secretary for giving way. Will he answer a straightforward question: is or is not the levy subject to VAT? Yes or no?
Very simply, as with a range of other services and goods, the levy is subject to VAT. It is set at £1.60 per tonne. The cost of the environmental impact is greater than that.
On the principle or purpose of the tax, which is where the hon. Member for Christchurch wanted to take the Committee, reports from Alfred McAlpine cited the strong impetus that it is providing for sourcing alternatives to virgin aggregates. Encore Environmental Aggregates, Northern Tyre Disposals, Alcan Smelting and Power UK have all reported recently that they are making moves in a similar direction. A tax rate for the aggregates levy of 50p per tonne plus VAT, as proposed in new clause 28, would not reflect the true environmental cost of aggregates extraction and would not provide sufficient incentive to encourage the efficient use of virgin aggregates and the use of recycled aggregates or other alternatives to virgin aggregates. Not only would the aggregates industry be affected, but the hon. Gentleman's new clause would entail a significant loss to the Exchequer of more than £200 million as the 0.1 per cent. reduction in employer's national insurance contributions that accompanied the introduction of the levy is already in place.
I should be grateful if the Economic Secretary would answer two questions. First, are imported aggregates subject to the levy? Secondly, what change has there been in the trade balance in aggregate materials since the introduction of the levy?
The answer to the hon. Gentleman's first question is yes. The answer to his second question is that the levy has been in place only since 1 April this year and it is too early to give a definitive answer.
products. To extend any of the provisions of the levy to processed products would be far from straightforward. When aggregates have been used to manufacture processed products they have already passed the tax point and are no longer aggregates for the purposes of the levy. The commercial arrangements for onward supply of aggregates beyond that are intentionally outside the scope of Customs legislation, and it is certainly not something that could be done simply by bolting a new clause on to existing legislation, as Conservative Members seem to think.
The second change that the new clause would make concerns the provisions for adjusting rent or royalty payments as a result of the levy. I confirm for the hon. Member for Christchurch that the Government have already examined the area carefully. We have benefited considerably from our extensive consultation with the industry and other interests. The results of the consultation have produced a suitable measure that renders the amendment unnecessary and, I hope, settles the hon. Gentleman's concerns.
Some rent or royalty payments are adjusted according to indices of aggregates prices published by the Office for National Statistics. The Quarry Products Association proposed earlier this year to make the necessary arrangements with the ONS to produce both levy-inclusive and levy-exclusive indices, so that the levy-exclusive index could be used to adjust rents and to ease industry concerns about the matter. That solution will not require a change to the primary legislation, as section 43 is already wide enough to allow for such adjustments. Therefore, the suggested change to the law covered by the second part of new clause 27 is not necessary.
Finally, let me turn to new clause 26 and the concerns of the hon. Members for Christchurch and for Epsom and Ewell about competitiveness. There is no case for the new clause. The aggregates levy does not significantly affect international competitiveness. Frankly, the scare stories about the potential flight of firms from the UK are just that, because there is limited international trade in processed products. Exports represent only about 3 per cent. of total precast concrete industry sales, and that low level of exports is mainly in high-value products. The prices for such products may range up to £120 or £130 per tonne and are not significantly affected by the levy. Where there is a risk of international competition in processed products—in particular, in Northern Ireland—we have already taken steps to help the industry adjust to the aggregates levy. Apart from that special case, the aggregates levy should not have an impact on the competitiveness of exports of processed products, but we shall carefully monitor that.
Finally, the measure is unlikely to receive the necessary European Union state aid approval, as it is not consistent with the declared nature and logic of the aggregates levy. On that basis, I urge my hon. Friends to reject all three new clauses proposed by the Opposition.
The Economic Secretary has made a valiant attempt to defend the indefensible. Let us just remind the Committee of the effect of the levy. We are
coming up to the Commonwealth games. Lawn sand that is put on the green grass areas of the sports stadium is exempt from the levy, but sand put in the long-jump pit is subject to it. Is not that absurd? The absurdity is repeated a thousandfold across other parts of the economy, and all the time it is being policed by expensive Customs and Excise officials.
On exports, surely it would be reasonable to allow the new clause to be part of the legislation, if the cost is so low. The information that I have—the Economic Secretary pooh-poohs it, but I have not divulged it for commercial and confidential reasons—is that the levy is having an effect on people who are seeking to export products. Therefore, I hope that the Committee will support new clause 26 when we put it to a vote.
Does my hon. Friend agree that time and again, in this Committee and in similar proceedings, we see a total lack of understanding on the Government Benches of the impact of even relatively small changes on the profitability of a business. They seem to believe that an additional 1 or 2 per cent. makes no difference, but cumulatively, in industries with tight margins, it can make a huge difference to the viability of businesses.
My hon. Friend is absolutely right. One only has to look at today's financial news to realise that all those little bits and pieces are catching up with the Government because they are damaging our economy. Contrary to what the Prime Minister said at Question Time last week, the stock market is now lower than it was when the Government came to office, which is in no small measure because of their taxation policies.
The Economic Secretary has said that there is an environmental justification for the tax. That has certainly been the argument advanced. It is a pity that the Government did not listen to the arguments expressed by bodies such as Friends of the Earth Northern Ireland, which suggested that there were alternative ways of addressing in the planning system the issue of demand and the environmental impact of aggregate supply, and encouraging the reuse of construction wastes.
I put down this challenge to the Government. The levy purportedly deals with some environmental costs: the noise, the dust and the damage that comes from hard rock quarrying, and sand and gravel pits. However, what happens when a slate quarry is reopened? Is there no environmental impact? What is the environmental cost of reopening that quarry and transporting the slate and slate waste across hundreds of miles? The Government have been very partial in the legislation, and I return to the state aid issue. Perhaps the Economic Secretary has not yet seen the press release issued by the British Aggregates Association this morning, but it says:
''The BAA applied to the high court for a judicial review of the aggregates levy. At that review the Government successfully argued that the levy as a whole was not state aid.
The Government had previously applied to the European Commission, under State Aid rules, for permission to grant a temporary partial exemption in Northern Ireland. The Commission approved this special treatment''—
I emphasise this—
''but, in an unexpected move, then went on to approve the levy as a whole, even though the Government claims that it had not asked it to do so.
However, the Commission decision of the 24th April, passed privately to the UK Government just three days after judgment was given in the High Court, accepts that the levy is indeed state aid—and approves it on that basis.''
Sadly, that is why the issue will run and run in the courts, if the Government will not accept the arguments put forward against this ludicrous tax.
Question put and agreed to.
Clause 129 ordered to stand part of the Bill.