Following Gordon Brown’s budget on Wednesday this week, The Construction Centre.co.uk is supporting widespread industry views that the aggregates sector now seems to be bearing the brunt of the Governments bid to raise funds, under the guise of encouraging greener practices.

The industry is reeling from the surprise announcement of a 20% rise in the levy on primary aggregates and the news is set to create a ripple of unrest from many industry spokespeople and Trade Associations.

This rise comes in the face of a long legal battle being fought by The British Aggregates Association regarding the legality of this levy and they are currently seeking to gain a favourable ruling from the European Court.

When the aggregates levy of 1.60 per tonne came into force in 2002 it was billed as a “green” tax. Exempt from this levy were aggregates such as slag from steel, slate and china clay waste which were branded with a new title; “Secondary Aggregates”.

The Government saw that the exemption would encourage the industry to use secondary aggregates as a way of recycling and cutting down on the increase of waste products. However for many construction works only primary aggregates can be used and so the use of secondary aggregates is not applicable. In the production of primary aggregates there are also significant amounts of bi-products produced (the equivalent of secondary aggregates in quarry terms) and these are still subject to the levy.

This has created an un-level playing field in the aggregates industry and has meant that the bi-products can not be sold competitively by primary aggregates as they are continually undercut by those exempt from the levy. This has resulted in large stock piles of bi-product, stagnating and remaining on site, unsold which is the opposite of what the Government originally intended when the levy was first introduced. The new raise in the levy on primary aggregates is likely to only further exacerbate this problem.

Richard Bird, Executive Officer for The British Aggregates Association explained “What the Government has failed to understand is that the construction industry will always have a need for primary aggregates to build infrastructure, such as road surfacing, bridges and rail ballast. The quality of secondary aggregates is such that they could never be utilised in these environments.” He went on to say that “The problem stems from the fact that if aggregate companies can no longer sell their bi-products with the levy intact, then secondary aggregates will always undercut the price. Now the levy has been increased to 1.95 per tonne, the problem will only get worse.”

The repercussions of the increased levy will also mean that the progress of the UK’s infrastructure could also be affected. The cost of both private and public schemes in road, rail and housing, will also increase as a result. It is doubtful however, that the Government’s spending budgets allocated for these schemes will have increased in tandem with the levy. The compound result of this could be fewer houses built, fewer roads repaired and fewer bridges built.

For example if 1 mile of motorway used 1 million tonnes of aggregates, the Government would now receive 1.95 million pounds in revenue via the aggregate levy. This simply reinforces the point that since the introduction of the levy, even greater costs have been added to the building of the nations’ infrastructure.

Project budgets and spend will inevitably be affected by the levy increase and reduced or alternative schemes may have to be drawn up in order to accommodate the additional expenditure. This could delay and hamper many projects, from large construction builds to small house builder projects and will include many government schemes in regions all over the UK.
The levy figure will see the additional costs passed on to end users and this will have a domino effect throughout the construction market.

Richard Simmons, Managing Director of The Construction Centre.co.uk and a property developer for over 30 years said “The outcomes of the levy announcement will affect the whole of the industry in some way, right down to the self employed builder buying bricks and sand. This just adds further to the burden Gordon Brown is forcing onto UK contractors who are now also being hit by the imminent April 07 revision of the sub-contractor and employment rules.”

Whatever the reasons might be for the tax increase in the aggregates levy, Gordon Brown is likely to have damaged some support from those in the building industry, for his bid to take the Premier’s seat next year.

Ends
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Notes for Editors:

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Published on: 12:00AM on 23rd March 2007