Clause 277 - Transitional tax credit in Northern Ireland: new scheme

Finance Bill – in a Public Bill Committee at 2:45 pm on 22nd June 2004.

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Photo of John Healey John Healey The Economic Secretary to the Treasury 2:45 pm, 22nd June 2004

I beg to move amendment No. 157, in

clause 277, page 231, line 14, leave out '2012' and insert '2011'.

This is an important but relatively small amendment. As drafted, the clause would mean that the relief scheme for aggregates in Northern Ireland, and the regulations made under it, will come to an end on 31 March 2012. The amendment brings forward by one year the end date of the scheme.

The change is necessary to reflect the terms of the European Commission's approval for the extended relief scheme. That decision was announced on 7 May 2004, after the publication of the Finance Bill. The Commission accepted what was a bold and radical case for a new relief scheme for the aggregates industry in Northern Ireland—one that we advanced and the Commission processed and approved in almost record time. It added one condition to accepting the UK's state aid application in the field. The Government were seeking approval for the new scheme to run until 31 March 2012, which would have meant that businesses would have received tax relief for a period of 10 years after the introduction of the original scheme in 2002. However, the environmental guidelines on state aid, which provided us with the basis for the UK's application, stipulate that companies subject to such reliefs should be expected to pay a substantial amount of the tax over a 10-year period. As companies in Northern Ireland subject to the old relief paid no tax at all in the first year of the original five-year scheme, the Commission decided that tax relief should apply for only nine years overall and that the new scheme should therefore end on 31 March 2011.

In practice, the Commission decision is unlikely to have a significant impact because the UK is free to seek a renewal of the relief at the end of the scheme if the Government decide at that time that they wish to continue with it and there is a case for doing so. I hope that, on that basis, the Committee will accept the amendment.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I would like my hon. Friend the Economic Secretary to explain the thinking behind the clause, because it appears to introduce yet more subsidies for Northern Ireland by extending the transitional relief, albeit that the amendment has cut that back by one year. Perhaps he could explain why that is necessary in terms of the structure of the economy of Northern Ireland. Some 60 per cent. of the gross domestic product of that economy is down to the Government, as opposed to about 40 per cent. in the rest of the United Kingdom. If—

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. The Economic Secretary has explained that the amendment is intended to enable us to comply with a European ruling. The economy of

Northern Ireland is beyond the scope of the amendment.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Forgive me. I misunderstood and thought that we were on the stand part debate.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

We are. I beg the hon. Gentleman's pardon.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will, of course, be guided by you when it comes to how broadly the discussion can range, Mr. McWilliam. However, it is in the context of the relationship between the finances of Great Britain and Northern Ireland that I wish to ask my question.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. The clause is limited to the aggregates regulations, so unless the hon. Gentleman can relate their impact to the whole economy of Northern Ireland, he is in trouble.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

With respect, Mr. McWilliam, I was just about to try to do that. It appears to me—I may have misunderstood—that, pursuant to clause 277, the aggregates levy regime would be rather more favourable in Northern Ireland than in Great Britain. If that is the case, will the Economic Secretary explain why and put his reply in the context of the financial arrangements between Great Britain and Northern Ireland?

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

I had not proposed to elaborate on this matter to the Committee, but I am happy to do so. The short answer to my hon. Friend's question is that Northern Ireland, unlike the rest of the UK, shares a land border—quite a long one, with many crossing points—with another European member state. There are other features of the Northern Ireland economy—particularly in the case of the aggregates industry—that mean that it is a special and unique case as far as the UK is concerned. My hon. Friend may know that the Northern Ireland Affairs Committee has taken a particular interest in this matter and has produced two reports on it. Under the able guidance of its Chairman, it has contributed considerably to the Government's thinking.

Given the unique circumstances in Northern Ireland, our original relief scheme was introduced at the inception of the aggregates levy in 2002 for companies in Northern Ireland that manufacture value-added products using aggregate—in other words, concrete, mortar and asphalt—to allow the sector time to adjust to the changed market conditions brought about by the introduction of the levy: for instance, by increasing the use of recycled material and other non-taxed alternatives. The relief was due to diminish over the five years and end after that.

Since the introduction of the original levy in 2002, we have consulted widely with the industry—in passing, I pay tribute to the Quarry Products Association of Northern Ireland and its director, Gordon Best, for the role that he has played—commissioned detailed expert research into the impact in Northern Ireland of the operation of the scheme, and listened to the concerns of wider business in Northern Ireland. In doing so we have gathered evidence confirming that, given Northern Ireland's

unique circumstances, the levy as currently structured, even with the five-year digressive relief, was simply unlikely to achieve the aims we had set for it: to reduce the environmental impact of quarrying, and to increase the use of recycled or alternative materials to primary aggregates and therefore the level of virgin aggregate extraction.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

The hon. Member for Wolverhampton, South-West (Rob Marris) has raised a valid and extremely important point. In due course there will be a peace dividend for Northern Ireland, and other regions of the UK will be looking more closely at the level of Government investment and expenditure paid in that area.

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

That is indeed valid, if not rather broad in the context of the aggregates levy in Northern Ireland.

My hon. Friend was asking in particular why, in the circumstances of the design of the aggregates levy, special provision was required for Northern Ireland. I hope that I have explained both the reason for the initial relief scheme and our judgment, based on evidence, that the scheme was insufficient to achieve the environmental aims that we had set for the levy in Northern Ireland.

We announced at the pre-Budget report that we would introduce a new scheme, were we to get European Commission state aid approval to do so, to extend the scope and the duration of the original scheme. Relief is tied to industry agreements to improve levels of environmental performance under the new scheme, which will deliver the gains in Northern Ireland that we wish to see in a way that the previous arrangement and operation of the levy simply would not. I hope that my hon. Friend is now rather clearer. The new scheme is more generous, better suited to Northern Ireland's circumstances, and strongly welcomed by Northern Irish industry and our own Northern Ireland Affairs Committee. I hope that this Committee will give its approval.

Question put and agreed to.

Clause 277, as amended, ordered to stand part of the Bill.