Clause 29 - Rate of aggregates levy

Finance Bill – in a Public Bill Committee at 2:00 pm on 16 January 2024.

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

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

The clause increases the rate of aggregates levy from 1 April 2024 in line with the retail price index as forecast by the Office for Budget Responsibility when the rate was announced in the 2023 spring Budget. Aggregates levy is a charge on the commercial exploitation of virgin aggregate, which includes rock, sand and gravel. The objective of the aggregates levy is to encourage the use of recycled rather than virgin aggregate in construction. Returning to index-linking the aggregates levy rate following a period of rate freezes will ensure the value of this price incentive does not fall in real terms. The changes made by clause 29 will increase the rate of aggregate from £2 per tonne to £2.03 per tonne.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

As the Minister set out, the clause increases the rate of the aggregates levy in line with inflation. As the Government policy paper on this matter sets out, the aggregates levy was introduced on 1 April 2002. It is a tax on primary virgin rock, sand or gravel, which is mainly used for bulk fill in construction works. We understand the levy provides an incentive to aggregate producers and construction businesses to use recycled or secondary aggregate.

Interestingly, the rate of the levy has remained frozen at £2 per tonne since 2009. Could the Minister explain why the Government have chosen to raise the levy now, after 15 years of it being frozen? We recognise, of course, that levy rates will need to go up from time to time, but I would be grateful if the Minister could share the Treasury’s thinking behind the timing of this increase. It may, of course, be because there has been such high inflation under this Government in recent years that the increase in a nominal rate has become necessary. I would like to fully understand the Government’s thinking on this, so I would appreciate if the Minister could also confirm what representations were made to the Treasury as it was considering the decision over this rate, and what data was provided to him in making this decision.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

The hon. Gentleman raises an understandable and legitimate question that many have asked, and I am happy to provide an answer today. As he points out, the aggregates levy was introduced many years ago and, at its introduction, was designed and introduced with the intention of being index-linked to inflation. However, over a number of years, the tax was subject to a specific piece of ongoing litigation; as a result of that litigation, the Government decided over many years that it would be inappropriate to change the tax and revert to index-linking during that litigation period. As that litigation has now concluded, and a review of the aggregates levy has concluded on the back of that, the Government have decided that it is now the appropriate time to increase the tax and return to how it was originally intended: to index it to inflation.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.