Northern Ireland Assembly

The Minister of Finance and Personnel (Mr Durkan):

I welcome the opportunity to respond to this motion and to hear the views of the Assembly on the aggregates tax. I have received several representations on this matter, and recently had a very useful meeting with the QPA to hear its concerns at first hand. I will say more about that meeting shortly.

First, I will provide some information about the tax and its stated purpose. Secondly, I wish to inform the Assembly about representations made to me and the actions I am taking in response. Thirdly, I would like to set out for the Assembly the wide range of issues that the new tax raises for us in the context of our Programme for Government. Lastly, I will explain how I propose to take this matter forward in conjunction with my Executive Colleagues.

I lay particular emphasis on that last point, as some other Members have done in their remarks. The one thing that has been made abundantly clear to me today is that this is a cross-cutting issue that will impact on a range of departmental interests. Obviously, it would be inappropriate for me to speak on behalf of others, but I know that Sir Reg Empey, who is unfortunately unable to be here this afternoon, has a keen interest in the economic impact of the tax. He is concerned that it will damage the competitive position of Northern Ireland quarry companies.

I know from interdepartmental discussions that others will be affected. The Roads Service in the Department for Regional Development is, as some Members have mentioned, the largest user of aggregate in Northern Ireland. It anticipates a major increase in its costs as a consequence of this tax.

From a different perspective, the Department of the Environment is seeking to promote a range of environmental improvement policies, including the greater use of recycled aggregates. There are various factors that need to be considered, and I will explain some of the background to the tax.

In this year's Budget the Chancellor announced his intention to introduce an aggregates levy which will come into effect from April 2002. According to the Chancellor the purpose of that levy is to ensure that the environmental impacts of aggregates production are more fully reflected in prices, encouraging a shift in demand away from virgin aggregate towards alternative materials such as recycled aggregate.

The levy will apply to virgin sand, gravel and crushed rock which is subject to commercial exploitation in the UK - including that dredged from the seabed in UK territorial waters. It will be charged at £1·60 per tonne. The levy will not apply to recycled aggregates or to certain secondary aggregates such as those derived from reworking old spoil heaps.

To protect competitiveness, exports will be relieved and imported aggregates will be subject to the levy when they are first sold or used in the UK, though this will not apply to imported processed products.

There will be a range of exemptions or relief for certain rocks and industrial minerals, for the production of lime or cement from limestone and for silica sand or limestone used in certain agricultural and industrial processes.

The Chancellor claims that the levy furthers the Government's aim of shifting the burden of taxation from - as Mr Byrne mentioned - what the Chancellor describes as "goods" to "bads". The revenues from the levy are to be fully recycled to the business community through a 0·1% reduction in employers' national insurance contributions and the newly created sustainability fund. It is contended that the reductions in national insurance contributions will provide a significant benefit to Northern Ireland employers. We will need to quantify that accurately.

Details of the sustainability fund have recently been announced. Around £35 million per annum will be set aside from April 2002 to establish that fund. Of that, almost £1 million per year will read across to Northern Ireland under the Barnett formula. The figure is £0·97 million in 2002-03 and 2003-04.

In October, the Treasury suggested that the devolved countries should pool their shares of the fund with the English resources. That would create a UK-wide pool from which groups or organisations could bid on a competitive or challenge basis to fund projects which would achieve a number of environmental objectives. These will include reducing the environmental costs of quarrying, promoting environmentally friendly quarrying practices, supporting conservation and increased biodiversity, retaining the natural landscape and encouraging the construction industry to use recycled aggregates. I considered this with Sam Foster and, after consultation between our Departments, we resiled from the proposal to take part in the pooled fund.

Does the hon Member accept that due to the way that quarrying was carried out in Northern Ireland it is not unusual for a closed-down quarry to be declared an area of special scientific interest? Does he accept that many quarries eventually become havens for wildlife in what is often a green desert?

Has the Minister done any research to find out if the impacts of quarrying in Northern Ireland are in any way similar in scale to those in the rest of the United Kingdom? Many of us contend that they are not and therefore believe that we do not need to take ameliorating action.

I am setting out the background to the tax and explaining about the sustainability fund. I have said what the Chancellor is advocating. I will subsequently address the points arising from the various representations we have received including those raised in this debate. I do not disagree with the Member. Perhaps he has a misapprehension concerning my point about the proposal that the Northern Ireland interest in the sustainability fund should be reflected through the pooling of the fund with the other devolved regions and with England. It is a straightforward matter of information. We have resiled from that suggestion.

On 29 November I had a very useful meeting with some representatives of the QPA. They presented a very cogent case for seeking exemption from the aggregates levy. In view of the cross-cutting nature of the issue, officials representing the departments of Sir Reg Empey, Gregory Campbell and Sam Foster also attended the meeting. The association argued that the tax would have a negative impact on the local quarrying business and would damage the wider Northern Ireland economy. It said that the tax would have a detrimental effect in border regions, which are already suffering from the impact of the exchange rate and from a depressed agriculture sector. The QPA argued strongly that the levy would make quarry operations here less competitive and would probably have the effect of displacing quarrying businesses from North to South. Crucially, it claimed that the tax will not lead to a switch by the local construction industry to other materials such as substitute or recycled aggregates.

Northern Ireland has a much higher dependence on newly extracted aggregates and therefore is unlikely to be able to make the desired change easily. As a result of this, the association made a strong case for suggesting that the displacement effect of the tax will not have a positive environmental impact. In fact, the association maintains that it will achieve the opposite because there will be no reduction in the extraction of raw materials and there will be a significant increase in the transportation of raw materials and aggregates.

The tax rate of £1·60 per tonne will add over 60% to the cost of Northern Ireland aggregates, which currently average around £2·50 per tonne. This compares with an average price of aggregates in Great Britain of around £7·00 per tonne and would provide the Exchequer with up to £40 million in revenue, based on the QPA's estimate of current aggregate production here. Hence, the tax rate in Northern Ireland would be 60% compared with 22% in Great Britain. As a consequence of this, the association claims that the jobs of up to 80% of the 5,000 people who work in the quarrying industry are under threat.

I have asked the association to provide further information to support its claims. However, on the basis of the evidence provided there appear to be grounds for concluding that the aggregates levy will have a more profound and damaging impact on the quarrying industry in Northern Ireland than was originally imagined.

Members' contributions today echo the QPA's strong arguments that this levy could have a perverse environmental impact here, which would match its adverse economic impact on this region. However, as I made clear to the association at the meeting, there are a number of competing issues to be considered. Apart from the very real risks which the quarrying industry now faces I must, in conjunction with my ministerial Colleagues, also have regard to the objectives on sustainable development which the Executive have signed up to in the draft Programme for Government.

Mining and quarrying impact on the environment, and the levy is the Westminster Government's response to public concern about the construction industry's involvement.

Will the Minister give way?

I think I am about to make the point that you are going to make.

I do not think so.

We live in the European Union, which is an area of free trade. In this case, if the UK Government were to introduce a tax on aggregates coming into the United Kingdom, other countries could take the United Kingdom up for creating unfair trade within the European Union. Is there a case for the quarry people who manufacture the aggregates to take a case against their Government for destroying trade and creating an unfair market for them?

I am not sure that the Member wants to continue down that road, given some of the recent discussions at the Nice Summit which went to the heart of the very sensitive issue of the sovereignty of member states on taxation. I would have thought that on that issue he would be on the side of those who say that taxation should remain squarely in the domain of the national Government.

Clearly, any challenge based on distortions of trade can be pursued if people want to pursue them. Given the difficulties of effecting change in these areas, any point is clearly worth pursuing. However, mounting that course of action would not be the most productive challenge that the parties most affected could make.

The Westminster Government claim that the tax is a means of encouraging the construction industry to use recycled aggregates, which are exempt from tax, because that would be in line with their sustainable development strategy. We must also bear in mind that, to protect competition, the Treasury decided that imported aggregates will be subject to the levy when they are first sold or used in the UK. I do recognise the validity of the points that have been made here and that the scale and nature of the quarrying industry in Great Britain is quite different from the scale, nature and operating context of the industry here. The reality is, however, that we are dealing with a tax that has been proposed, set and established at Westminster.

It is clear that the Executive have to weigh the environmental and economic costs and benefits carefully when dealing with this issue. If this is not the best means for Northern Ireland, we are duty bound to identify alternative ways of achieving these important environmental objectives. I am pleased to say that the QPA recognises this, and we have asked its members to propose workable, alternative ways of reducing the harmful effects of their industry.

I hope this provides a flavour of the range of issues which my Executive Colleagues must now consider. Please note that, without pre-empting our deliberations, I do not wish to downplay the difficulty of securing any form of derogation from this tax from the Treasury. The devolved Administrations have been conceded very few exemptions from UK-wide fiscal policies. We can predict that the Treasury will resist any special pleading on this issue. Merit, validity and compelling reality from a regional perspective do not have a strong record of sway with the Treasury. Therefore, before making representations to the Treasury on this aspect of fiscal policy, we must give the most careful consideration to the impact that this may have on the broad range of financial issues which we are pursuing with the Treasury.

This has been a most useful and informative debate. It has been vehemently argued that the aggregates tax could profoundly damage the Northern Ireland quarrying industry while simultaneously failing to deliver the environmental benefits which it seeks to secure. I would therefore like to assure the Assembly that we will take full account of the outcome of the debate in determining our response.

As I indicated earlier, the QPA has been asked to provide further material in support of its case, and I expect that we will be able to conclude our discussions after we have had an opportunity to consider that. Those discussions will involve the Departments already mentioned - my Department, the Department of Enterprise, Trade and Investment, the Department of the Environment and the Department for Regional Development. It will also involve the Office of the First and Deputy First Ministers.

Members should understand that the First Minister and the Deputy First Minister play a key role representing Northern Ireland's broad interests. That includes making fairly fundamental and significant representations to the Treasury. Just as I did in the meeting with the QPA, along with the officials representing other Ministers, I will give further consideration to, and put more work into, the issue, in conjunction with the other interested Departments and Ministers. I hope that we will arrive at ways that will allow us to deal actively with the key concerns voiced in support of the case.

I thank the Minister for his presence and the Members who contributed to the debate. It has been a wide-ranging and cross-party debate. From the sober elements of Mr Gibson to the stoned elements of Mr Dallat, I welcome all the contributions from five major political parties in the Assembly - I hope the fifth party welcomes its inclusion in the top league.

I welcome the recognition that this is very much a cross-departmental issue, and that has been widely echoed around the House. Capital programmes of all the Departments may be affected, but the Departments particularly affected have been well addressed by all Members, so I do not intend to delay a positive vote on the issue by going into too much detail.

The figure of between 10% and 15% on the cost of the capital structure programme for regional development is something that the House must take seriously. Remember where the job losses could and probably will occur if the tax is brought into being. They will be in already deprived areas, areas in which the textile industry and farming are suffering. It has been suggested that those areas are along the border. How far in does the border stretch?

The tax of £1·60 will allow producers from the Republic to go a further 20 to 25 miles into Northern Ireland. That means that five of our six counties will be directly affected. If you were to draw that line on the map, you would be talking about two thirds of the Northern Ireland land mass. That is the significance of what we are taking about - up to 4,000 jobs and to gather what in taxes? A figure of £30 million has been suggested. How much will it cost to pay for 4,000 unemployed? A fair figure to suggest might be £60 million in Northern Ireland alone, yet they expect to put between £30 million and £35 million into the sustainability fund.

There is the immediate impact of Northern Ireland on the Treasury figures. What the Treasury will lose on those two figures alone wipes out what it could possibly put into the sustainability fund. I do not intend to dwell long at this point in the debate. The issues have been well put by the Members, and I congratulate Mr Byrne - if I had been making his opening speech, we would have been using the same notes. I also congratulate all the contributors to today's debate.

I welcome the Minister's investigations and his collaboration with the aggregate producers. I urge him to continue these investigations for the good of the many people in that deprived community which lives in the two thirds of Northern Ireland that will be affected - those who live outside County Antrim - which is essentially what we are talking about.

I note Mr Close's reference to a question posed earlier in the year. I also note that the Minister said that the issue referred to in that question would have to be strongly pursued by the First and Deputy First Ministers. This should have been started already, as promised, as a result of that earlier question - but that will happen now.

The Minister referred to the potential difficulties of trying to change United Kingdom fiscal policy. This is evident from the fuel tax debates and representations from this part of the United Kingdom. Remember, however, that success was achieved with the climate levy change. I urge the Minister to make sure that, once again, the Assembly proves that it can work for the good of the people of Northern Ireland.

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