The UK aggregate sector is set to receive several million pounds in tax rebates, following the European Commission’s (EC) conclusion that levy exemptions for most secondary aggregates are lawful.

The aggregates levy is an environmental tax on commercially-exploited aggregates that are used to provide bulk in construction (i.e. gravel, crushed stone, et cetera). Introduced in the UK in 2002, the levy included exemptions for secondary aggregates (such as those recovered from industrial combustion or separation of certain industrial minerals) to encourage the use of ‘less environmentally-damaging sources of aggregate’.

Although the EC originally approved the levy exemptions, its decision was annulled by the European General Court in 2012, after the British Aggregates Association – a representative body for large primary aggregate producers – claimed that a number of the exemptions were tantamount to state aid, which is prohibited by the EC for being ‘anti-competitive’ as it provides an advantage to certain companies while being a disadvantage to others.

In order to comply with its obligations under EU law, the UK suspended levy exemptions for certain secondary aggregates on 1 April 2014 to allow the EC to investigate whether the exemptions constituted state aid.

The affected aggregates were:

• clay, coal, lignite, slate or shale extracted for use for construction purposes;
• other industrial minerals extracted for use for construction purposes, namely: anhydrite; ball clay; barytes; china clay; feldspar; fireclay; fluorspar; fuller's earth; gems and semi-precious stones; gypsum; any metal or the ore of any metal; muscovite; perlite; potash; pumice; rock phosphates; sodium chloride; talc and vermiculite;
• spoil from the separation of coal, lignite, slate or shale from other rock;
• spoil, waste or other by-products resulting from the extraction of aggregate of china clay or ball clay;
• the spoil from the separation of certain industrial minerals from other rock with which the mineral was extracted or won; and
• the spoil, waste or other by-product of any industrial combustion process or the smelting or refining of metal.

Shale aggregates not covered by exemption

On 27 March, the EC announced that all but part of one exemption from the aggregates levy are lawful, and not state aid. The exception to the decision is part of the exemption for shale aggregate, which the EC has now deemed to be incompatible with state aid rules.

This is due to the fact that shale is ‘the only exempted material that is deliberately extracted to produce aggregates’. As such, the EC has withdrawn shale and spoil for shale extraction from the aggregates exemption, as it does not contribute to the environmental objective of the tax.

It has also asked the UK government to recover the ‘unlawful aid’ provided by this part of the exemption, as the beneficiaries of the exemption had ‘received an undue advantage that they now have to pay back’.

Commissioner Margrethe Vestager, in charge of competition policy, said at the time: “We have made sure that exemptions from the British aggregate levy will benefit only those materials and extraction processes that contribute to an environmental objective. We want to maximise consumers’ welfare and this is only possible if competition and environmental policy stay together.”

UK government to rebate millions

Following on from the March decision, the UK government has announced that once the new parliament comes into being (following the elections next month), the secondary levy exemptions will be reinstated (excepting that for shale aggregate).

The government has also said it will repay relevant businesses any tax that they have paid on the qualifying materials as a result of the suspension. It is estimated that this could equate to several millions of pounds.

Exchequer Secretary to the Treasury Priti Patel said: “I am pleased that the commission decision confirms once again that the levy is lawful. The decision will enable the government to reinstate the exemptions and repay businesses, as we promised we would do, in the new parliament. The decision also removes the uncertainty for the overwhelming majority of businesses that were affected by the commission investigation.”

He added, however, that he was “extremely disappointed” that the EC changed its mind on shale aggregates, saying that the government will “work closely with the industry and do everything in [its] power to minimise the impact on the businesses affected”.

‘Getting back to business selling environmentally-friendly secondary aggregates’

The news has been welcomed by a consortium of UK companies, led by Harworth Estates and Welsh Slate Ltd, which was set up to provide ‘a unified voice for secondary aggregate suppliers’.

The consortium had commissioned environmental consultancy Eunomia to provide information to HM Treasury to ‘assist in making the case to the commission that the exemptions are justified on the grounds that they contribute to the environmental objective of the levy’.

Chris Allwood, Managing Director of Welsh Slate Ltd, said: “The formation of the consortium and the appointment of Eunomia were two critical elements in helping ensure that the complex issues raised by the aggregate levy investigation were clearly understood and fully addressed.”

Mike Brown, Managing Director at Eunomia, concurred, stating: “Whilst the evidence presented to HM Treasury and ultimately the European Commission was compelling, I firmly believe that it was only listened to because… the consortium assembled by Harworth Estates was able to speak as one.”

Owen Michaelson, Chief Executive of Harworth Estates, also praised Eunomia’s work, adding that the ruling means that secondary aggregate businesses can now “get back to business selling environmentally-friendly secondary aggregates”.

Find out more about the EC’s ruling on secondary aggregate exemptions.