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Taxing times looming for construction

Simon van der Byl (left) argues that all of the construction industry could pay the price of a green tax on quarrying

WHEN is a green tax not a green tax? It's a little early for Christmas cracker riddles but the answer would be the quarrying tax currently being considered by the government.

For many years there has been a lobby to change the basis of our tax system from employment taxes to resource taxation. The theory is that such a shift would reduce the cost of employment and therefore create more jobs while reducing the use of resources. In practice, life is a little more complicated.

By and large taxes, which are sold to the public as 'green' have actually been a fairly unsubtle way of widening, rather than refining, the tax base.

As governments of most colours are reluctant to overtly increase headline tax rates - for example, income tax and VAT - the attraction of less obvious tax increases becomes more marked.

However, the labour government has been very clear that the consideration of quarrying tax-ation is primarily an environmental issue.

In July, it said that the research into the environmental costs associated with quarrying will be used to determine whether there is a case for further tax measures, to ensure these costs are reflected in prices.

The Quarry Products Association has no argument with the government carrying out this review; it is entirely reasonable that any government should continue to examine both our industry's environmental performance and the impact of taxation policies on environmental and other policy aims.

Our view is simply that quarrying taxation would not be an effective nor targeted instrument for environmental improvement. The view that environmental standards need to continue to improve is not the issue - the issue is the means of achieving that end.

Superficially, it would be quite easy to assume that this tax could be an effective environmental

instrument.

After all, if you assume quarrying is a bad thing, a tax should increase costs and prices, reduce demand and therefore reduce the volume of quarrying.

So a good environmental result? Well no, and the reasons why not become clear if one takes a more considered view.

A key point is that the use of natural resources need not inherently be a bad thing.

Quarried materials, such as aggregates, have been fundamental to the development of our society, and remain essential today. There is nothing environmentally (nor economically or socially) friendly about poor housing, inefficient transport networks, run-down inner cities or untreated sewage, for example.

But to deal with such problems aggregate minerals need to be used for other purposes. Limestone, for example could be used to improve agricultural land, counter acidic power station emissions, and manufacture iron and steel.

In the extraction, processing and transport of aggregates there are environmental impacts which do need to be minimised.

Great progress has been made over the past decade, but the application of a quarrying tax would be largely irrelevant in affecting such impacts.

There is already a system of environmental regulations and planning controls which is specifically targeted at the day-to-day operations of the quarrying industry. And such regulations and controls do not stand still - they have become significantly more rigorous in recent years.

In the Chancellor's pre-Budget report it was recognised that the tax option is only one environmental instrument and 'others include regulation'.

So it is apparent that the government recognises that it has choices in how to regulate the

environmental performance of the quarrying industry.

But a quarrying tax would be, to all intents and purposes, a construction tax, which would be passed on to builders, contractors and, ultimately, clients. In the public sector higher costs would mean less construction within fixed expenditure budgets.

And it can't be assumed that the impact of a tax can be avoided by using recycled materials. The UK reuses 65 per cent of demolition waste while recycling contributes up to 15 per cent of the total aggregates market.

If the use of recycled aggregates was maximised this mar-ket share could increase to 20 per cent or even 25 per cent. Most construction clients would have to continue to buy quarried aggregates and pay the tax.

As the operation of the landfill tax and a variety of initiatives promoting the greater use of recycled materials are now under way, government recycling targets will be met without the need for a tax on quarried materials.

A quarrying tax would have little environmental impact and would increase construction costs. The government can already use regulation, planning controls and industry initiatives to influence

environmental impact.

The imposition of a quarrying tax is by no means a foregone conclusion - but if the construction industry is, as usual, regarded as a soft touch it might happen.

Are you a soft touch?

Simon van der Byl is director general of the Quarry Products Association.