Now is not the time for tax rises, says leading construction suppliers
As the final touches are put to the Budget, MPA call on the Chancellor to go for growth, support employment and ensure the supply of the essential material we provide | Credit: Adobe
As the suppliers of the materials that construction and a host of other industries rely on, now is not the time to hit our members with tax hikes.
With the financial costs of Coronavirus still racking up, the pressure on the Chancellor to raise taxes in an attempt to reduce the deficit must be intense.
But with the economy still very much in recovery mode and with plenty of challenges ahead, now is not the time to raise taxes on industry.
There are two key fiscal measures of particular concern for the mineral products and quarrying sector at this Budget: Red Diesel and the Aggregates Levy.
The mineral products and quarrying sector employs 81,000 people across the UK, adding £5.8 billion GVA to the UK economy and producing 400 million tonnes of material a year – the largest material flow in the economy.
Like all sectors of the economy, we are still recovering from events last year, which saw output fall dramatically before recovering in part.
That recovery process is not over yet, especially for products used most in housebuilding – ready-mixed concrete and mortar, which saw falls in sales volumes of 18.2% and 23.5% respectively in 2020 compared to 2019.
Red Diesel
At last year’s Budget, the Chancellor announced that the long-standing red diesel rebate would be removed from most sectors of the economy other than farming from 2022, ostensibly to encourage innovation in alternative fuels and adoption of new technologies to power machinery and vehicles.
Our sector relies on some of the largest and most powerful equipment in the economy; it will be several years until suitable alternatively-fueled equipment comes to market.
The cost to our sector of the proposed withdrawal of the rebate – about £100 million per year –will not actually change behaviour any time soon but will instead damage confidence and hamper investment.
In responding to the Treasury consultation about the change to the tax, MPA’s members were clear that they already use the most efficient equipment available, so there will be no efficiency benefit generated as a result of the Government’s proposals.
Most producers will pass the cost on to customers – in turn raising the cost of new infrastructure and housing. For products which are traded internationally such as cement, lime and dimension stone, the tax will simply make UK industry and suppliers less competitive.
Once suitable non-diesel powered equipment is available on the market, our members will switch over as they replace equipment and we welcome Government funding for innovation in this area.
The UK is a small part of a global market for this type of kit, however, so the tax change here in the UK is very unlikely to affect or influence global suppliers’ research and development plans. Given this, we call on the Chancellor to keep the rebate in place until alternative-fueled equipment is closer to being available.
Aggregates Levy
Virgin aggregates produced in the UK attract a levy of £2 per tonne. This tax, introduced by the Labour Government in the late 1990s, generates around £400 million revenue per year from our sector. The rate has been frozen since 2010, reflecting the industry’s minimal environmental impact and its essential place in the economy.
The Treasury held a thorough review of the Aggregates Levy in 2019, and published an initial response at the Budget in 2020, as well as freezing the rate for this year.
In this year’s Budget we expect an announcement on next year’s rate, and possibly an indication or information about the longer-term trajectory.
In our submission to the review, we identified a number of policy changes where a small amount of investment would yield significant benefits. Initially, the Levy had alongside it an Aggregates Levy Sustainability Fund which was abolished in England in 2011 and Wales in 2017.
In our submission, we called for a new Aggregates Levy Community Fund to be established, using 2.5% of Levy revenues to support local community, biodiversity and conservation projects.
We also made the case for investing more in the mineral planning system, which is demonstrably under-funded.
Over the last decade, demand for land-won sand and gravel outstripped the amount of new reserves being permitted, with the 10-year average replenishment rate at 63%; for crushed rock, the 10-year average replenishment rate stood at 75%.
Improving the capacity and performance of the mineral planning system would help ensure that the materials needed to deliver the Government’s ambitions for the nation’s housing and infrastructure can be supplied in the long term. This is supported by a number of conservation charities.
Budget for recovery
We all need a Budget that boosts the recovery.
As the suppliers of the materials that construction and a host of other industries rely on, now is not the time to hit our members with tax hikes.
As the final touches are put to the Budget, we call on the Chancellor to go for growth, support employment and ensure the supply of the essential material we provide.
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