Scottish Aggregates Levy: evidence review and policy options
Research reviewing, modelling and analysing illustrative options for a Scottish specific Aggregate Levy.
Review of the UK Aggregates Levy and Similar Taxes in Other Countries
UK Aggregates Levy
The aggregates levy in the UK was implemented in order to reduce the negative environmental impacts of aggregates extraction and to incentivise production of recycled aggregates. It was introduced in 2002 and is currently levied at a rate of £2 per tonne of aggregates. The levy is applied at the point at which it is commercially exploited in the UK. Since its introduction in 2002, the basic structure of the levy has not been reviewed. However, following the conclusion of litigation in February 2019, the UK government announced a comprehensive review of the levy.
Levy rate history
The levy was introduced at a flat rate of £1.60 per tonne of aggregates in 2002. In 2008, the rate was increased to £1.95 per tonne to account for inflation. It was increased further to £2 per tonne in 2009. Although the levy was expected to continue to increase in line with inflation, a planned rate change for 2010 was cancelled due to the response to the global economic crisis and shifting political priorities of a new Government. The rate has remained at the level of £2 per tonne of aggregates since 2009.
Scope of the levy
The levy is applied to all rock, sand and gravel that has either been dug from the ground, dredged from the sea in UK waters or imported. The levy is applied at the point at which the aggregates are first commercially exploited in the UK. Exemptions are in place for certain materials, e.g. clay, soil, vegetable or other organic matter. Export of aggregates and their use in certain agricultural and industrial process are also exempted from the levy. A number of exemptions have recently been the subject of State Aid investigations from the European Commission, which found part of the shale aggregates exemption unlawful in 2015. As a result, the exemption has been amended.
Collection and use of the levy revenue
The revenue since the introduction of the levy at UK level has ranged from around £247 million in 2002/03 to £367 million in 2018/19. All of the revenue currently raised forms part of the total revenues raised by the UK Government in taxation (£620 billion in 2018-19).
From 2002 to 2011, approximately £35 million of the levy revenue was allocated to the Aggregates Levy Sustainability Fund in each year. This fund had the stated objective of reducing or mitigating the local environmental impacts of primary aggregates extraction. The fund was devolved to England, Scotland, Northern Ireland and Wales and was implemented by local and national environmental NGOs and other organisations. However, due to budget considerations, it was abolished in England and Wales in 2011 and 2017, respectively.
Effectiveness of the levy
Since the levy was first announced in 2000, the use of primary aggregates per unit of construction output has reduced by around 40% for the period 2010-2014. However, these figures cannot be solely attributed to the Aggregates Levy. UK Landfill Tax, introduced in 1997, is also thought to have had a significant impact by incentivising recycling of construction and demolition (C&D) waste.
Given that the cost of primary aggregates tends to be only a small proportion of the overall cost of construction projects, it is unlikely that the Aggregates Levy in isolation has had any significant impact on the construction industry. There might have been some minor competitiveness impacts, particularly on smaller companies in the construction sector, but these impacts are likely to be small as the levy is expected to have been passed on to consumers due to the estimated price inelasticity of demand for these products. Moreover, the design of the levy may have eliminated any potential comparative disadvantage for the domestic producers, as aggregates imports from outside the UK are levied at the same rate as domestic extraction, while exports to destinations outside the UK are exempted from the levy. Although there has been some concerns about illegal cross-border movement of aggregates across the Republic of Ireland and Northern Ireland border, the issue relates more to monitoring and enforcement of the levy rather than its design. This is discussed further in the Northern Ireland case study in Appendix 5.
European aggregates taxes
Besides the UK, a few other countries in Europe have similar taxes in place. European Commission's Environmental Fiscal Reform Information System (EFRIS) database lists the following taxes:
- Austria - Levy for landscape protection and nature conservation (a regional tax applied to different types of materials in different regions);
- Belgium - Aggregates Tax (regional tax in Flanders);
- Denmark - Raw Materials Extraction Tax;
- Estonia - Mineral Resources Extraction Charge;
- France - Aggregates Tax;
- Hungary - Mining Act: Royalties charged on the extraction of minerals, gas and oil;
- Latvia - Natural Resource Tax;
- Lithuania - Taxes on Natural Resources;
- Slovakia - Resource Extraction Charge;
- Slovenia - Mineral extraction tax; and
- Sweden - Tax on Natural Gravel.
Out of the abovementioned taxes, we discuss the taxes in Denmark, Sweden and Estonia in Appendix 4. Other taxes were excluded from the discussion owing to a lack of detailed information (written in the English language) on them.
Table 1 presents the key features of the in Denmark, Sweden and Estonia, which displays substantial variations among them. It can be observed that the UK levy rate is significantly higher than the Swedish and the Danish tax rates at the exchange rates at the time of writing. The taxes also vary in terms of their scope - the Estonian tax has the widest scope which includes energy carriers and agricultural minerals along with aggregates-type of materials, while the Swedish tax only includes natural gravel in order to address the scarcity of this particular resource in the country. There are also variations in terms of the application of these taxes on cross-border movement of materials - for the UK levy and the Danish tax, imports are taxed, while exports are exempted, whereas the Swedish tax is applied to exported materials and the imports are exempted possibly reflecting the shortage of natural gravel there. Finally, both the UK levy and the Danish tax operates in conjunction with a waste disposal type tax in order to incentivise the production of primary aggregates substitutes (recycled aggregates).
|Name of the tax||Aggregates Levy||Raw materials extraction tax||Natural gravel tax||Mineral resource extraction charge|
|Year of introduction||2002||1977||1996||1991|
|Primary objectives||Internalisation of external costs, increase recycling of C&D waste||Increase recycling of C&D waste||Substitution of natural gravel with crushed rock||Reduce mineral extraction|
|Scope of the tax||Crushed rock, sand and gravel||Mainly sand, gravel, stones, peat, clay and limestone||Natural gravel||Various types of aggregates as well as energy carriers and agricultural minerals|
|Current tax rate||£2/tonne||DKK 5/m3 (£0.58/m3) or DKK 8/tonne (£0.92/tonne)||SEK 13/tonne (£1.07/tonne)||Rate varies according to type and quality of material. On average EUR 0.33 - 3.34 per tonne (£0.28 - £2.87 / tonne)|
|Application of the tax on cross-border movements||Imports are taxed while exports are exempted||Imports are taxed while exports are exempted||Imports are exempted while exports are taxed|
|Complementary taxes||Landfill tax||Waste tax|
The material above on the international evidence suggests that the following design features might be useful to consider when designing the Scottish Aggregates Levy:
- Landfill tax could play an important role as a complementary tax for increasing substitution towards recycled aggregates, as observed in the UK and the Danish case; and
- Applying the same rate of levy on domestic production and imports will eliminate any comparative disadvantage for local producers, considering the potential cross-border aggregates flows (in particular exports) between Scotland and the rest of the UK.
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