Aggregates Tax (Hansard, 13 March 2002)

§ Mr. Alex Salmond (Banff and Buchan)
I am grateful for the opportunity to bring an important issue before the House. Five years ago, the Government issued a statement of intent on environmental taxation. The principle was simply stated: Over time, the Government will aim to reform the tax system to increase incentives to reduce environmental damage. That will shift the burden of tax from "goods" to "bads"; encourage innovation in meeting higher environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone. I support the Government in their attempts to protect the environment; it is in putting that principle into practice that the issues become complicated. Although I support the Government's principles, I cannot support an illogical tax that does not live up to the basic dictates of the Government's statement of intent.
Next month a so-called environmental tax will come into effect that will do little for the environment and bring nothing to the Exchequer. An environmental tax that has a neutral effect both on the environment and at the Treasury is a strange anomaly. If the story stopped there, it would simply be a case of a costly government exercise that will achieve little or nothing. Unfortunately, it does not stop there; for all its environmental and Exchequer neutrality, the aggregates levy is not a neutral tax. It will be disastrous for the quarrying and construction industry; it will drive small operators out of business, further hurt rural economies, decrease the international competitive position of domestic industry, and increase the cost of public works construction projects.
From next month, the aggregates levy will tax virgin aggregates at £1.60 a tonne, a rate that is three to four times the profit margin of many quarry operators. The figure is four times the tax in Sweden, six times the tax in Denmark, and more than 20 times the tax in France. The Government say that the tax will better reflect the real cost of aggregates extraction, but that "real" cost was arrived at by the fascinating exercise of asking people how much of their fictional money they would part with to close local quarries.
The £1.60 rate is made even harsher by the fact that it will be a flat-rate tax on an industry whose prices vary widely. The effect is that the price of primary aggregates in Scotland will rise by 40 to 50 per cent. as opposed to a more modest rise of 12 to 16 per cent. in the south-east of England. The aggregates levy is in effect a poll tax on chuckies and is perhaps the most anti-Scottish taxation measure since the poll tax.
The effect of that blunt instrument, which taxes all quarries the same regardless of differing environmental practices or product prices, will be to drive many small quarry operators out of business. As industry expert Leslie Campbell wrote, large aggregate producers will be better placed to pass on the rise in the cost [of the levy] than the independent producer. These smaller specialist companies will find it harder to increase their prices to customers. Their margins will be squeezed and some could leave the market. The Quarry Products Association predicts more than 10,000 job losses from the tax throughout Britain, more than a quarter of which will be in Scotland. The British 309WH Aggregates Association similarly predicts the loss of 2,750 jobs in Scotland, split between the quarrying industry and related industries such as mechanical engineering, fabrication and plant hire.
Those job losses are the first-order effects of the aggregates levy, but there will be second-order economic effects about which we should be equally worried. A net effect of the new tax will be to increase the cost of construction projects, which will sometimes lead to decreased construction activity. I wish that we were debating the tax theoretically and looking forward to the imposition of a tax that had not yet hit us. However, the House can consider a real example of a jeopardised construction project.
The breakwater project in Peterhead bay in my constituency has been heralded as a huge economic opportunity. The breakwater would limit the effects of severe weather and allow trade all year round in the port. Port officials have worked diligently to secure funding for the project, which may give Peterhead the safest deep-water port in the whole of Scotland. The Peterhead bay authority recognises the substantial gains that the project would bring, and has planned to invest £10 million in the breakwater. The rest of the funding for the £20 million project will come from loans and grants.
That investment in Peterhead's future is projected to attract at least £40 million in follow-on schemes, and to generate 360 permanent jobs. However, the future of the project hangs in the balance, thanks to the aggregates levy. The bay authority must grapple with an extra £1.9 million as a result of this chuckie tax. The Minister should note that, in contrast, the bay authority will receive a benefit that amounts to £800 from deductions in national insurance charges. The authority requested help from the Scottish Executive, which unfortunately offered none. The community is already suffering a decline in its fishing industry, the rundown of RAF Buchan and several factory closures. It now stands also to lose one of the largest civil works projects in northeast Scotland.
The Government surely cannot have legislated for that sort of sustainable economic growth, nor can they have intended the imposition of this tax to have such an impact. As I said, this vital project is about coastal protection and marine safety. Almost all the aggregates used will be non-machine crushed and will be provided by a local quarry a few miles away. It is inconceivable that the project was an intended target of the aggregates tax, and I hope that the Minister will consider the unintended consequences of his proposals for my constituency.
The choice would be more difficult if we were trading such job losses for substantial environmental gains, as we would be faced with the competing need to protect industry and our natural resources. The irony of the situation, however, is that we are courting economic loss without a corresponding environmental gain. The plain fact is that the aggregates tax will do little, or nothing, to improve or protect the environment. The Government has conceded that the opportunity to switch to recycled aggregates is small.
The British Geological Survey's report of 2001 and the 2000 survey by the Department for Transport, Local Government and the Regions of construction and 310WH demolition waste show that even if the maximum amount of hard waste were recycled, that could, at most, substitute only 1 to 2 per cent. of virgin aggregates. Even if that number were doubled, and the calculations of the Government's advisers were wrong, the effect would still be marginal. Nor is it clear whether a reduction in the demand for virgin aggregates would be a good thing. If recycled aggregates are carted across great distances to construction sites, the pollution associated with aggregates would increase, not diminish. We must anticipate that that will be likely when the small quarries that usually service local projects are closed.

§ Mr. Michael Weir (Angus)
My hon. Friend mentioned the project in Peterhead. Is he aware of the impact of the tax on road building throughout Scotland? Local authorities use 40 per cent. of the aggregates used in Scotland. In my constituency, Angus council will face an additional cost of £2 million for the urgent dualing of the notorious A92 road.

§ Mr. Salmond
My hon. Friend makes a good point. Scotland will suffer disproportionately from the aggregates tax, as it has a large land area and a small population in comparison with more crowded areas such as the city we are in at present. If we include the national insurance rebate, the aggregates tax overall will put an additional £20 million into the economy of the south-east of England, but that sum will be drawn from the economies of rural England, Scotland and Wales.

§ Mr. Roger Williams (Brecon and Radnorshire)
The hon. Gentleman's mention of Wales brings me to the point that I would like him to consider. The community council of Old Radnor in my constituency expressed its concern about two local quarries: the Strinds at Dolyhir and Gore quarry. I understand from parliamentary proceedings on the aggregates tax that the Government considered having a rebate for quarries that operated environmentally friendly practices. Are the Government still considering that possibility?

§ Mr. Salmond
I do not know if I can say what is in the mind of the Minister. We will have to wait a few minutes for that, but the hon. Gentleman has put his finger on an important point. One would have thought that the best way to devise a tax on aggregates would be to consider the environmental damage caused by aggregates and different systems of production. One could consider the impact on the sea and air, and where quarries have good environmental practices, introduce a tax that was graduated and targeted. This flat rate levy will be full of serious economic consequences that are not desired by, I suspect, the Government or, I know, the hon. Member for Brecon and Radnorshire (Mr. Williams).
My hon. Friend the Member for Angus (Mr. Weir) made a very good point about the road-building programme in Scotland. Such concerns cast great doubts on the efficacy of the new tax. Further practical concerns should encourage the Minister at least to consider a delay in the introduction of the levy. As of this moment, a mere 18 days before implementation, the Government have not yet published the final guidelines for compliance of the tax. Even if those guidelines were published today, quarry operators would have just over two weeks to implement the new rules—a full two and a 311WH half months less than 12 weeks that the Government's own guidelines recommend for giving businesses time to comply with new legislation. The Minister must tell us why the Government are breaking their undertakings to industry on compliance.
Ambiguity remains about the phased introduction of the tax in Northern Ireland and how it will work there. The Government have rightly acknowledged the disastrous effects that the levy could have on quarries in Northern Ireland. I wish that they could have seen that the problem is not unique to Northern Ireland and exists in the other countries of the United Kingdom. We are still waiting to see how that delay will take shape and what it will mean for businesses, both in Northern Ireland and elsewhere in the United Kingdom.
As we debate the matter today, it is worth noting that industry representatives have been arguing their case in the courts. My understanding is that the matter will go to a full hearing and may result in a full judicial review. It is likely that that will be the start of a long process. Again, that shows the huge uncertainty in which the Government have placed the industry, a mere matter of days before their target date for implementation.
In closing, I should like to return to the Government's declared principle of environmental taxation and their desire to deliver a more dynamic economy and a cleaner environment, to the benefit of everyone. The aggregates tax does not give us a cleaner environment, but it will have decidedly damaging economic effects. I urge the Government to delay its introduction until a thorough examination of the environmental and economic consequences can be conducted. We must delay so that we can make this new tax fair to rural communities, fair to Scotland and fair to communities such as Peterhead where major public works projects hang in the balance.

§ The Financial Secretary to the Treasury (Mr. Paul Boateng)
The choice for debate of the aggregates tax by the hon. Member for Banff and Buchan (Mr. Salmond) is welcome. He gives the Government the opportunity to restate our position on the tax and our support for it and to re-affirm our commitment to sustainable development on the day on which we shall publish a report on our achievements over the past year in delivering on our sustainable development targets.
The aggregates levy has been developed over an extended period and in close consultation with the industry. As I listened to the hon. Gentleman's analysis, I did not recognise the tax that has been so widely consulted on and welcomed by those who are concerned about our environment. Hon. Members, including the hon. Gentleman, have had ample opportunity to debate the principle of the tax over the years. He pays lip service to that principle, but we are putting it into practice. He and his party should put their commitment to the environment where their mouths have been these many years.
Independent research clearly shows that the process of extracting aggregates imposes significant environmental costs in the form of noise, dust, visual 312WH intrusion, loss of amenity, and damage to biodiversity. The hon. Gentleman and those of his constituents who live near quarries recognise that there is a cost to the environment, and they are required to pay it. With the tax, we seek to internalise the externality and incorporate the cost of environmental degradation into the price of aggregates—no more and no less.

§ Mr. Salmond
I am sure that my constituents who face the loss of economic opportunities will be pleased to know that the Government are internalising the externalities. The project that I described, which will be furnished by a local quarry, a mere five miles from the harbour, has support throughout my constituency. Why should that project, which involves transporting non-machine crushed aggregates a few miles to the harbour in a safe and economically processed condition, be subject to the levy, or is that an unintended consequence of the Government's position?

§ Mr. Boateng
The aggregates industry generally supports the extension of the levy to include uncrushed rocks of the sort that will be used in Peterhead. It believes that the tax should apply to all forms of aggregate equally. If I may use a rather unpleasant and hackneyed expression, the industry seeks a level playing field, which is precisely what we have provided. That is another indication of the way in which the Government have consulted and listened to the industry.
The levy, which is to be introduced in April, is designed to address the problems of dust, noise, visual intrusion, loss of amenity and damage to biodiversity by incorporating the costs of environmental damage into the price of aggregates. That will allow the market to determine efficient and sustainable levels of consumption.
The concept of internalising the externality is not unknown to the hon. Gentleman. Indeed, he is well aware that that lies at the heart of all fiscal responses to environmental degradation.

§ Mr. Salmond
Will the Minister give way?

§ Mr. Boateng
No. The hon. Gentleman and his party must consider whether they support the use of fiscal responses to environmental challenges. If they do not, that is their position, but if they do, they will need to recognise that internalising the externality is what a fiscal response to an environmental challenge is all about. I give way to the hon. Gentleman so that he can make his and his party's position crystal clear.

§ Mr. Salmond
Will the Minister focus on the project? I have explained the clear environmental benefits: coastal protection, marine safety and economic opportunity. Will he specify the environmental damage of the breakwater project? If he cannot, will he say why he is imposing a £1.9 million tax on it and jeopardising the project?

§ Mr. Boateng
The hon. Gentleman knows better than that. He distorts the argument on the aggregates tax, which is the subject of this debate, by focusing on a particular project in his constituency. He knows that every tax will have its impact, and this tax is on aggregates. If a particular project utilises aggregates, it 313WH will pay the tax. That is the nature of such a tax. I do not want to particularise the general arguments to a specific project, save to say that on the advice available to me, his estimate that the additional costs are about £1.9 million is excessive.
However, that is not the point. We are debating a tax that is not a revenue-raising measure. The hon. Gentleman used that argument as if the tax were somehow defective. It was never presented as a revenue-raising measure and is neutral in that respect. All businesses will benefit from the 1 per cent. cut to employers' national insurance contributions, while areas affected by quarrying, including his constituency, will benefit from an annual £35 million sustainability fund. I did not hear a word from the hon. Gentleman about that fund, which was disingenuous of him. He knows well that his constituency and others will benefit from the fund.
Environmental damage affects us all, wherever we are in the United Kingdom, but for local communities affected by quarrying, the problems are more acute. The sustainability fund will provide funds to minimise demand for virgin aggregates and reduce the local effects of aggregate extraction. The devolved Administrations, including that in Scotland, have been allocated their share of the fund through the Barnett formula and will make their own decisions in the usual way about how to spend it. To suggest, as the hon. Gentleman did, that the tax is somehow anti-Scottish is an absolute travesty. That distorts both language and sense, because the tax is no such thing.

§ Mr. Salmond
Will the right hon. Gentleman give way?

§ Mr. Boateng
No, not again. I look forward to continuing the debate with the hon. Gentleman. It is an important topic, but he must give credit where credit is due for a tax that has been designed in close consultation with industry. The process has meant that industry has able to inform the decisions that have been made in bringing the tax to its present point and that the aggregates industry has had an opportunity to affect the tax's development. A point was made about the start date of the levy, and the general guide to the levy was issued on 14 January. We have published a list of reliefs on the Customs and Excise website, as well as providing drafts of the general regulations to the industry through the Customs consultative group. There has been extensive involvement and, on that basis, the fears raised by the hon. Member for Banff and Buchan are not justified.

§ Mr. Roger Williams
Does the Minister agree that a flat-rate tax is a blunt fiscal instrument for achieving environmental objectives?

§ Mr. Boateng
No, it is entirely justified in the circumstances. The research and the consultative process justify that approach. Discussions with the industry and with environmental groups have enabled us significantly to improve the levy. The definition of aggregates has been changed to capture materials that have not been crushed. Further improvements will be made in this year's Finance Bill and the hon. Member 314WH for Banff and Buchan and his colleagues will have another opportunity to reflect then and to make further exchanges—

§ Mr. Salmond
Could I have an opportunity now?

§ Mr. Boateng
Not at the moment.
The definition of aggregates now includes rock that has not been subject to an industrial crushing process. Various means are available for producing aggregates from rock: crushing is not always necessary as some quarries sift the rock produced by blasting and need only to crush the largest pieces. The change will ensure both the equitable treatment of all quarries and full realisation of the environmental benefits of the levy.
An interesting point about green quarries was raised in an intervention on the hon. Member for Banff and Buchan by the hon. Member for Brecon and Radnorshire (Mr. Williams). We were initially attracted to establishing whether some relief could be provided. After informal consultation with the relevant businesses—quarry operators and others—we decided that technical problems affecting the delivery of the principle at a differential rate would not justify such a measure. The tax still provides significant scope to bring real benefits to the community through recycling and using other waste products.
The Department for Transport, Local Government and the Regions estimates that 10 million tonnes of construction waste could be recycled—a real challenge that will bring real benefits. The levy is already providing an incentive for businesses to examine alternatives such as china clay waste and slate and to develop glass and tyre waste in aggregate mixes.

§ Mr. Salmond
Will the Minister give way?

§ Mr. Boateng
All that suggests that the measure will make a real contribution—

§ Mr. Salmond
Will the Minister give way?

§ Mr. David Amess (in the Chair)
Order. We cannot have two hon. Members on their feet and it is clear that the Minister is not giving way.

§ Mr. Boateng
All that suggests that the measure will make a real contribution to the environment. I hope that the hon. Member for Banff and Buchan will, after a period of mature reflection, come to see the real benefits to the people of Scotland, England and Wales—and, indeed, of Northern Ireland—that the introduction of a revenue-neutral levy will provide. It is designed to promote better use of waste material and to assure communities affected by quarrying that those purchasing the product of those operations should pay a price that reflects the environmental cost. All in all, it is a carefully researched measure, implemented only after full consultation. I thoroughly commend it as an important contribution to the cause of sustainable development.