Official figures show suppliers being hit by double whammy of falling demand and increasing tax costs
Aggregate extraction has fallen by 30 per cent in a year, according to official statistics from HM Revenue and Customs.
The total volume of aggregates declared to the taxman in the first quarter of 2009 was 42.4 million tonnes – the second lowest quarterly figure since the Aggregates Levy was introduced seven years ago.
The figure is down almost a third from the same period last year, highlighting the extent of the decline in construction work over that period.
Mineral Products Association economics director Jerry McLaughlin estimated that the aggregates market declined by up to 15 per cent in 2008 – and could contract by 20 per cent this year.
He added that recent rises in the Aggregates Levy had hit suppliers at a time when they were already vulnerable.
The Government increased the tax on 1 April from £1.95 to £2 per tonne – following a steeper increase from £1.60 to £1.95 per tonne a year previously.
Hence the total revenue received from the Levy only fell 11 per cent in the past 12 months, from £83m to £74m. Tax revenues peaked in the third quarter of last year when just over 61,000 tonnes of extraction brought in £97m.
Mr McLaughlin said: “Clearly [the Government] needs the money. There’s never been any kind of assessment about what the levy is doing.
“The official justification of it was to reflect environmental impacts related to the supply of aggregates. But it’s morphed into a revenue generator.”
He added: “New order figures are looking well down on last year. [The rise] is very unwelcome because clearly the commercial situation is very tight.”
He added that while the MPA was opposed to the Aggregates Levy when it was first introduced in April 2002, the body was now trying to establish with the Government what it wanted to achieve with the tax.
The falling use of aggregates reflects a tough 12 months for the construction industry.
Allan Wilen, economics director at business intelligence unit Glenigan, said: “The 30 per cent slump in taxed aggregates volumes over the last year has mirrored the decline in new projects starts recorded by the Glenigan Index.
“While last year’s hike in the Levy has limited the impact on the Government tax revenues, it has also added to the pressure on product manufacturers’ and contractors’ already squeezed margins.”
The Glenigan Index for April showed a 34 per cent fall in new project starts over the past 12 months as a declining housing market and a lack of private sector investment hit the construction industry.
However civil engineering project starts have picked up sharply since the start of the year, partially offsetting the decline in building projects.
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