Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Wednesday, 26 Oct 2022

Concrete Block Levy: Discussion

Chairman

The minutes of the joint committee meeting on 19 October 2022 were agreed in private session earlier today. The second item on the agenda is a discussion on the effect of the concrete block levy with representatives of the Society of Chartered Surveyors Ireland, SCSI, the Construction Industry Federation, CIF, and the Mica Action Group. I welcome from the Society of Chartered Surveyors Ireland, Mr. Kevin James, president, and Mr. Micheál Mahon, chartered quantity surveyor; from the CIF, Mr. Frank Kelly, president, and Mr. Tom Parlon, director general; and from the Mica Action Group, Ms Lisa Hone, chairperson. We will have a number of opening statements.

I remind members and witnesses of privilege. Those contributing from the Leinster House campus are covered by full parliamentary privilege and those contributing from outside of the campus may have limited privilege. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him, her or it identifiable.

I invite Ms Hone to make her opening statement.

Ms Lisa Hone

As a representative of homeowners impacted by the devastating effects of defective concrete, I will communicate why the proposed concrete levy is an ill-conceived tax and should not be implemented in its current form. For the thousands of families across Ireland enduring life in unstable structures that are impossible to heat and are riddled with damp, black mould and dangerous electrics, the concrete levy adds insult to injury. It is clear from the statements of representatives of the CIF that the concrete levy will be passed on directly to consumers. The cruel irony is that affected homeowners, the victims of this scandal, who are already burdened and paying in every physical and psychological way possible with onerous financial burdens and the loss of a cherished home, are now being told to take another hit.

In a letter dated 10 February 2022 to Mr. Michael Doherty of the Mica Action Group, the Minister for Housing, Local Government and Heritage, Deputy Darragh O’Brien, stated the scheme was a like for like remediation grant. Such a statement is contradictory. It conveniently glosses over that the fact that the scheme only allows for a very basic build to pre-2008 regulations and, therefore, immediately excludes all houses built after 2007 or those built to a higher specification. It does not include foundations, flooring beyond a certain amount of tiling in kitchens and bathroom, retaining walls or bison slabs. In addition, pre-2008 materials such as insulation, boiler systems and electrical wiring cannot be sourced, so modern equivalents have to be used. All of that applies even before construction inflation is mentioned.

The latest SCSI figures reported that costs to rebuild a house nationally had risen by 21%, while in the north west rebuild costs rose by 26% and between 18% and 20% in the west. Quantity surveyors report witnessing a 30% increase in the cost of concrete in the past year. The reality for most affected homeowners before they lay a single block, is that they are looking at a shortfall of tens of thousands of euros between the scheme allowance and the real costs of rebuilding their home.

Pensioners, people near retirement, those on low incomes or having undergone serious injury or illness cannot borrow. Parents trying to get children through college are now being forced into an either-or situation. Young families are being saddled with yet another layer of debt and this is all going on while we are in a cost-of-living crisis. Affected homeowners, forced to rebuild their homes through no fault of their own are caught in a storm of financial hell.

To some, an additional €2,000 on the costs of a house may not seem that onerous, but for people already trying to find €30,000, €40,000 or €50,000, an additional €2,000 which they do not have, pushes the prospect of rebuilding their homes further out of reach. Please remember that those affected are also taxpayers. They will contribute to the multi-billion cost of this crisis, as well as pay on an individual basis to restore their houses.

Let us get back to why this levy is needed in the first place. The levy is needed because, whether by design, negligence or ignorance, manufacturers were allowed to pump defective concrete products unhindered into the Irish market for years on end. The multi-billion euro cost is directly proportionate to the level of failure of the now disgraced regime of self-regulation. Even the name, the mica concrete levy, has insidious undertones. It implies to taxpayers that those who have the mica homes are somehow responsible for the extra-cost burden on those trying to buy or build a home. A more appropriate name would be "the failure of effective governance of the concrete industry levy."

The gaping omission from the blanket levy is accountability. It does not pursue or target manufacturers which are known to be culpable but instead reinforces a message of no consequences to producers which have obviously breached regulations. The concrete levy says to the industry that it can violate regulations, wreck and endanger people’s lives, be the cause of a multi-billion euro cost to the taxpayer and there are no consequences.

The same companies, known to have supplied defective concrete products, are still turning a multi-million or even multi-billion euro profit and are operating unhindered and unchallenged in the market today. The levy will not touch them. Even worse, as the Joint Committee on Housing Local Government and Heritage heard from an industry professional in June 2022, it is believed defective concrete products are still entering the market. Given where we are, how can this be possible?

The Tánaiste, Deputy Leo Varadkar, recently said he was disappointed there had not been any prosecutions in relation to the defective concrete. If the Tánaiste is disappointed, can the committee imagine how those who have had their lives shattered by this scandal are feeling? Try stressed, incensed and exasperated. Yet, we still wait on the long-promised appointment of a senior counsel to investigate how best to pursue the offenders. Until the Government grasps the nettle and overhauls the broken regime of self-regulation with an effective form of governance, taxpayers will continue to be asked to a sign a blank cheque to remedy the violations of an industry without accountability.

Mr. Tom Parlon

On behalf of the CIF, I thank the Chair, Deputies and Senators for the opportunity to meet them to address this important issue which will have major implications for the delivery of housing and general construction projects.

Since the publication of the Finance Bill 2022, the CIF acknowledges that the 10% levy has now been reduced to 5%. We also understand that pre-cast products have been excluded from the Bill although it remains to be seen how that will work in practice. Despite these changes, CIF expresses concern about the serious risk to Housing for All, the National Development Plan 2021-2030 and to general commercial construction activity.

The CIF has written to the Minister on the matter and submitted an accompanying policy document outlining the rationale for these concerns, many of which still apply. The CIF is calling for an urgent regulatory and economic impact assessment to be carried out as a first step before the levy is introduced. Given the exceptional inflationary environment, the CIF also recommends that its introduction be deferred for up to two years to allow the necessary time for the above review to be undertaken and for the industry to make the appropriate provisions. The industry has been subjected to supply-chain and material cost increases not seen in 40 years. The introduction of this levy, the application of which still remains unclear, appears poorly timed. The most recent wholesale index for construction materials is available on the Central Statistics Office, CSO, website where the extent of recent inflation on construction materials can be seen. The general construction and house-building sector requires time to recover from these supply-chain disruptions and material cost increases. The CIF has repeatedly highlighted the damage that has been done to industry balance sheets and cash flow. Many projects that have been tendered now carry an additional cost risk as these legislative changes will not be compensated under public works contracts. Therefore businesses that have no responsibility for the defects will be expected to fund the levy from their resources. This is simply unfair and damaging to an already financially stressed industry.

The levy is a blunt instrument which is not targeting those responsible for defects. The first-time buyer and the public and private client will ultimately pay the costs of this and the potential budgetary revenue from the measure is unlikely to be achieved due to its wider consequences. This is a quality control issue for the suppliers of raw materials and manufacturers. For example, the quarries supply raw materials to the concrete product manufacturers which are then processed and supplied to the industry. The Sale of Goods and Supply of Services Act is in place to ensure that goods placed n the market are of merchantable quality, that is, that they work for the intended purpose for which they were produced. Contractors, developers and home builders should have confidence that manufacturers and suppliers comply with the law and that Government is enforcing the law in conjunction with its own certification and standards regime. How can a civil engineering contractor building a BusConnects corridor be held responsible for the supply of defective concrete blocks? The levy is likely to inflate costs for first-time buyers and on projects like commercial offices, foreign direct investment, and transport, all cost inputs will have to be passed on. If it is not passed on finance for development would not be forthcoming and contractors would suffer financial stress. All of which would have major negative consequences for the delivery of Housing for All and the national development plan. The Construction Industry Federation, CIF, is asking the Government to strongly consider the following significant downside risks of the levy and their impact on its viability as a revenue generating solution to support any redress scheme.

It will have a negative effect on the affordability of housing and lead to the likely pausing of further developments. Currently all input cost increases are difficult to recover in the house building sector as the consumer, and in particular the first-time buyer, is limited in their ability to borrow more to fund cost increases. The Society of Chartered Surveyors Ireland, SCSI, has said before, and the committee will hear from it shortly, that the 10% levy will lead to cost increases of between €2,000 and €4,000 per house. Even at 5% this could result in a €2,000 increase. The market is now at its limits in terms of ability of a householder to increase the price point to the consumer. This will impact significantly on viability and project assessment in 2023 and it comes on the back of interest rate rises, costs associated with new building regulations, and planning and local authority development charges. Even timber frame construction requires an outer leaf of blocks and concrete bases, concrete footpaths, retaining walls, boundary walls, culverts and manholes, etc. An estimated 2,000 blocks are required for timber framed homes.

The levy, alongside the significant price volatility of concrete, is creating uncertainty for public and private clients and contractors. The rising energy costs are likely to lead to further cost increases for concrete in the coming months. This is putting many projects in jeopardy. The uncertainty means that contractors are unable to tender projects. It is likely that the levy will lead to substantial cost increases for in situ concrete, blocks and mortar, and foundation piles. These products are used across projects in residential, commercial and civil engineering construction. The levy will lead to significant uplift of the cost of these project costs. The majority of contractors are earning margins between just 1% and 3%. The uplifts could represent up to 25% of a contractor's margin thereby seriously undermining their funding capability and the viability of development. For those unfortunate enough to be in contract, they will be required to absorb it on top of all the other inflationary costs that they have had to absorb over the last three years. It is not sustainable and could put contractors out of business or terminate projects.

The CIF is making a number of recommendations regarding the application of the levy. First, an urgent regulatory and economic impact assessment should be carried out as a first step. Second, given the exceptional inflationary environment, the levy's introduction should be deferred for up to two years to allow the above review to be undertaken and the industry to make appropriate provisions for it. Third, those responsible for the defects in the manufacturing process should be held responsible under measures that are targeted and surgical. Other methods such as statutory inspection standards, certification and licensing should be considered as these could help protect future homeowners and clients. Fourth, we also recommend that the Sale of Goods and Supply of Services Act be strengthened for manufacturers and suppliers into the industry with the introduction of mandatory inspections by local authorities or National Standards Authority of Ireland, NSAI, officials. Finally, the industry needs a national product testing centre to ensure independent testing of construction products supplied into the sector.

Chairman

I thank Mr. Parlon. I now invite Mr. James to make his opening statement.

Mr. Kevin James

I thank the Chair, Deputies and Senators. The Society of Chartered Surveyors Ireland welcomes the opportunity to share our insights on the proposed concrete block levy with the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. As the leading professional body for chartered surveying professionals working in the public interest our members work across the built environment, in both the public and private sectors, providing real-time independent evidence of the current inflationary costs and the impact of increased construction costs.

The value of construction output is estimated to be €29 billion in 2022 according to Ernest & Young Economics, with employment levels in construction expected to continue to grow beyond levels of 150,000 people. Demand remains high across many sectors, though many projects remain challenged by increasing construction costs. With regard to residential construction, the Central Bank estimated that 24,500 new homes will be delivered this year, which is well short of the 33,000 needed annually to meet demand as outlined in Housing for All. To make up the annual deficits in supply from previous years, new housing output will need to steadily increase up to 45,000 units per annum by the end of the decade if housing targets are to be achieved in the lifetime of the plan.

The negative impact of Brexit and the cost on housing delivery over the last couple of years has been compounded by the tragic conflict in Ukraine and its impact on energy costs. While the sector and the industry has successfully overcome the challenges of the current high construction cost inflation to deliver almost 70,000 homes during this period, there is significant concern that the current increasing costs are pushing planned developments out of viability.

The national SCSI tender price index is running at 14% inflation for commercial construction to July 2022 and the largest contributor to tender inflation over the past 12 months is material price inflation. All building materials experienced some degree of inflation. Rising energy costs have had a significant impact on energy-intensive materials such as steel, aluminium, copper, concrete and cement, facades and curtain walling, which have been affected the most. Many companies are also grappling with increased inflation generally and increased operational costs, including labour costs.

Given the shortage of construction workers, spiralling construction costs and rising interest rates it is vital that the Government does everything possible to drive down construction costs and the SCSI has made a number of recommendations on how this could be achieved, most recently in our submission to Oireachtas Joint Committee on Housing, Local Government and Heritage on 24 May, which is appended to our submission. The cost of housing delivery is split between soft costs and hard costs. The hard costs are the bricks and mortar element of development, which account for 48% of the overall delivery cost. The other 52% of costs are soft costs, such as levies, margin, VAT, finance costs, connection costs and charges, etc.

The construction sector has witnessed sustained high material price volatility in the past 18 months and since September 2021 the price of concrete has increased by approximately 37%. The highly energy-intensive production process associated with concrete is a driver of concrete price increases. Therefore, the future price of concrete is linked to energy and fuel prices, which are currently difficult for market experts to forecast. The SCSI will monitor the impact on prices of cement and other construction materials closely in the coming months.

The construction sector is functioning with huge uncertainty about the pipeline of construction projects as viability remains so challenged. We have numerous anecdotal examples of housing projects being paused or are being cancelled outright. It is the long-standing view of the society to tackle rising costs of construction. Every facet of the input costs of residential development needs to be reduced. While several initiatives already under way to address the blockages to housing delivery and these are to be commended, such as planning reform, these are longer term and what is required now is urgent action to address construction cost inflation.

Contrary to the need to drive down construction costs, the concrete levy announced in budget 2023 directly increases building costs. While we understand that Government intends to seek a contribution from relevant stakeholders to the cost of remediating defective homes, however in a period of hyperinflation the introduction of a levy on concrete will further challenge the viability and affordability of construction projects, including new homes, and the construction sector in general. Housing delivery is intrinsically linked to viability and increasing construction costs that threaten viability can result in projects being paused or even cancelled. The SCSI estimated that the initial concrete levy announcement, as part of budget 2023 would add approximately €3,000 to €4,000 to the overall delivery costs of an average block built three bed semi-detached house, the most common house type in Ireland.

The levy has now since been revised to 5% and precast concrete elements have been removed.

However, there is still limited detail as to how the levy will be applied. The table attached to our submission is an approximation of costs based on the information available at the time. We estimate the cost of a three bedroom semi-detached house with a 5% levy will increase by approximately €1,200 per unit. A three bedroom semi-detached house with timber frame construction will increase by approximately €700 per unit. More important is the impact this levy will have on the construction sector for other building projects across the country. A large regeneration project with a mixed scheme of offices and retail over a single level basement in Munster will have an increased capital cost of around €350,000. The cost increase for apartment developments ranging from 160 to 275 units with or without a basement will be somewhere in the region of €400 to €700 per unit.

The Society of Chartered Surveyors Ireland, SCSI, has long called for an independent assessment of new and existing regulatory and compliance measures. With regard to a three bedroom semi-detached, a key recommendation of the SCSI real cost of new housing delivery reports in 2016 and 2020, was for a full independent cost-benefit analysis to be carried out ahead of any new regulatory and statutory measures that will impact on the overall delivery costs of new housing. One of the recommendations from the expert group that prepared the defects in apartments report earlier this year highlighted that the concept of an industry levy requires careful policy, legal and public scrutiny and should be considered as part of an option particularly in the context of other similar industry levies under consideration. The expert group further stated that Government Departments and agencies, including the Revenue Commissioners, have been working to identify and evaluate a range of options with regard to such a levy. It is envisaged that the views of relevant stakeholders will be sought before a final decision on the proposed levy is made.

It is imperative that where any changes are likely to increase the cost of construction there should be engagement with the sector beforehand. The SCSI recommends that consultation commences with the industry to discuss workable solutions to meet the Government's stated objectives while ensuring delivery of much-needed homes in the public interest. We are happy to provide any further information or clarifications that may be required.

Chairman

We will now turn to members. We will start with Deputy Doherty who will be followed by Deputies O'Callaghan, Mac Lochlainn and Barry.

Deputy Pearse Doherty

Given that we are talking about a defective block levy, I will start with Ms Hone if that is okay. We are very conscious that it is now a year since the Minister for Housing, Local Government and Heritage, Deputy O'Brien, announced that enhancements would be made to the redress scheme. One year later can Ms Hone describe the situation and the human impact on the ground in her county of Donegal and in the north west for those who have seen their homes crumble and the impact this announcement is having in terms of them being able to rebuild?

Ms Lisa Hone

We are approaching one year since the Minister, Deputy O'Brien, made the announcement at the end of November 2021. It was hoped that the scheme would be in place by now. We were hoping that it would be operational and open and the reality is we do not even have a date for the opening of the scheme. At the moment homeowners are left in limbo and an information vacuum. It is cruel what is happening to them. We have homeowners in unsafe and unhealthy homes that in any other circumstances would be and should be absolutely condemned. Those homeowners should not be in those homes but they literally have nowhere else to go. That is the reality.

In terms of the concrete levy, the overall feeling among homeowners is that it is a smokescreen. It is a PR exercise on behalf of Government to try to persuade the public that it is doing something. The public is aware of this failure to govern the concrete industry and the enormous impact it has had on homeowners all around the country. We have homes in Donegal, Clare, Mayo and now Wexford. It is everywhere. It is not just a few bad apples. This is a systematic failure within the concrete industry across the country. This seems to be no more than a smokescreen from Government to persuade the public it is doing something and holding companies that violated regulations to account, but this will not touch them. Those companies are still operating unhindered. They have not paid one cent. They have not been challenged in any way. As I mentioned in my statement, we are still waiting appointment of the senior counsel to work a way forward and pursue the offenders. We are still waiting for an audit report the Minister, Deputy O'Brien, commissioned at the end of October last year. That is another anniversary approaching. I believe the report was produced and submitted to the Minister by the end of June this year. Yet homeowners who are intensely interested in its contents have not had any information. People just feel abandoned at the moment. That is the overall feeling.

Deputy Pearse Doherty

Many of the homeowners are obviously continuing to pay the mortgages they have with financial institutions. They face a lengthy process to even get accepted onto the old scheme in the first instance, and they are waiting for the second scheme. We have heard in different committees about the shortfall families will have to make up themselves. Ms Hone touched on that in her opening statement. If a levy like this was introduced, whether at €1,200 or €2,000, would the additional impact on rebuilding tip people over the edge or are they already tipped over the edge? What is the impact of this from talking to people who are members of Ms Hone's group?

Ms Lisa Hone

I can tell Deputy Doherty there is huge anxiety around finances. Part of it comes from the information vacuum over what the actual scheme will deliver when it goes live. That is still a grey area. We have families who cannot even afford to apply to the current scheme because you have to pay between €6,000 or €7,000 to get the engineers' fees, costs and tests done. If between €5,000 and €7,000 is out of reach, can you imagine how it feels if you think down the line you will be looking at three, four, or five times that to replace your home? It is just not within people's reach. It is not conceivable. There is huge anxiety at the moment around the financials because there seems to be a gap between the reality, with a very particular set of terms of reference, and the reality of building a home. The SCSI gave us independent figures last year and we appreciate that, but if you go back to the terms of reference, it is like tying somebody's hand behind their back. They cannot say what the actual cost is to build the home because the terms of reference they have to use are very fanciful.

Deputy Pearse Doherty

I will touch on that later with the SCSI in relation to the levy and the figures being provided. I am not questioning it but when you decide to exclude certain things, then the overall costs and the true costs are also excluded.

I will turn to Mr. Parlon with regard to the Construction Industry Federation, CIF. I welcome his statement which took into account of the changes that happened in the last week in terms of the reduction of the levy and the exclusion of precast concrete. He said that this revised levy will have an impact on the delivery of housing and he mentioned issues in terms of the negative effect on the affordability of housing, likely pausing further developments. We are in the middle of a crisis in terms of housing. We are talking to developers. We are talking to people all the time. We see costs going up. The SCSI mentioned that concrete has gone up by 37% in the last year. Developers are telling me plasterboard has gone up by 10% in the last couple of weeks. There seems to be no end to this.

Is this additional levy, on top of everything else, really causing people to reconsider developments? Is that really what is happening in the sector, or is it likely that this will just be passed on? Mr. Parlon talked about price points, which is an amount people can stretch to. I think we are well past that, in my view, but could he give an assessment on that?

Mr. Tom Parlon

Clearly a project has to be viable, whether it is a single house, a development of houses, or a block of apartments. It has to be viable and it has to be financed. We know that interest rates are increasing. We know that the model there previously for investors does not appear to be as attractive to them now. Some of them are pausing and waiting to see what is going to happen. I made the point that first-time buyers have a limited amount of money and can only borrow so much.

Firs time buyers have a limited amount of money. The can only borrow so much. I know the Central Bank introduced some extra flexibilitu lately. They are minor enough but they give a little bit of extra but there is still very little scope for first time buyers to add on the extra cost. It is a bit like the last straw that broke the camel's back. When the Minister for Finance, Deputy Pascal Donohue, was opening his budget speech he said that he was very conscious not to add to the difficulty of cost increases by the spending of his €11 billion. The only place I can see where he has added to the cost is very clear. We can measure it and it has been measured professionally by the Institute of Chartered Surveyors and it is in the cost of housing and building. Not in 40 years have we had such unprecedented cost increases. For the Government to add to that, for whatever reason, just does not make any sense. One of the things that keeps jumping out at me is that when you are looking at the cost of housing the soft costs amount to just 52%. The hard costs, the bricks and the mortar and the work that the builder who we represent is less than half the total cost of the house. Obviously, the site has to be bought. I was just looking at a planning application in the west of Ireland. The local authority contribution was €10,880, the waste water connection for a single house was €3499 and the water connection was €1840. That is €16147 that has to be paid when a planning application is made. The costs are crazy and to add on extra costs and I know lots of people are saying that the industry should make a contribution as if the industry was one big conglomerate. The industry, if one takes all of the people that are involved are making a massive contribution to the exchequer, there is no question about that. Even the fact that Ireland is the only jurisdiction in Europe that has any VAT on housing. VAT of 13.5% on a regular three bed house that the Chartered Surveryors are talking about is around €40,000 that goes directly to the exchequer.

The Central Bank introduced some extra flexibility, although minor enough, lately. This gives a little bit extra but there is still very little scope for first-time buyers to add on the extra costs. It is a bit like the last straw that broke the camel's back. When the Minister for Finance, Deputy Pascal Donohoe, was making his budget speech he said he was very conscious not to add to the difficulty of cost increases by the spending of his €11 billion. The only place I can see where he has added to the cost is in the cost of housing and building. This has been measured by the Society of Chartered Surveyors Ireland, SCSI.

Not in 40 years of construction have we had the level of cost increases that we have seen recently. For the Government, for whatever reason, to add to that just does not make any sense. One thing kept jumping out at me, and I was delighted the Society of Chartered Surveyors Ireland mentioned it. When one looks at the cost of housing, the soft costs amount to 52% while the hard costs, the bricks and mortar and the work that the builder has to do, are less than half the total cost of the house. Obviously, the site has to be bought. I recently looked at a planning application in the west of Ireland where the local authority contribution was €10,800, the wastewater connection for a single house was €3,499 and the water connection was €1,848. That is €16,147 which has to be paid when the planning application is made. The costs are crazy and to add on extra costs makes no sense. Many people are saying the industry should make a contribution, as if the industry was one big conglomerate. The industry, if one takes all of the people involved, is making a massive contribution to the Exchequer. There is no question about that. We are the only jurisdiction in Europe that has any VAT on housing. VAT of 13.5% on a regular three bedroom house, which SCSI mentioned, is approximately €40,000. That money goes directly to the Exchequer. All the costs mentioned keep going up and viability is severely challenged, whether it be €1,000, €1,500 or €3,000 extra.

Deputy Pearse Doherty

Anecdotal evidence that developments are being paused or reconsidered was touched on. I see it in my own community, mostly with self-builds, where people pausing for a couple of years to see if the rates will come down. Suppliers in my area tell me that people are just trying to get the house closed in and then just leaving it like that because they cannot afford to continue at the present rates.

What is happening in the industry? We are seeing commencements start to slacken off, and there is concern for 2023. Are people pausing developments that they were thinking about previously?

Mr. Tom Parlon

All developments that I know of that are under construction are being finished. This is a good thing because when we had the crash sites were left unfinished which was horrific. Unfortunately, some of them are still there. Most, if not all, of the developments that are under construction are being carried out. I appreciate the point made about someone putting on an extension for a family member or whatever. They did their prices 12 months ago, went to the bank and got a mortgage for, say, €300,000. Now when they get a quantity surveyor to come in and revalue it, it is costing €380,000 or €390,000. That is scaring people and, as we heard from the SCSI, there is no guarantee that concrete prices will not go up again. The minute cement goes up in price, concrete and blocks go up in price as well.

I had a chat with Ms Hone before I came in and I empathise with the people in Donegal and their difficulties and the horrific situation they find themselves in. However, it is not that builders are mean. If there is a 10% price increase for concrete, as happened in September, that has to be passed on immediately. It is passed on to our payers. The unfortunate part is that if you are doing a public works contract, you do not have that facility to add that on. It is a crying shame that there is no flexibility in the public works' contracts.

Deputy Pearse Doherty

I thank the Society of Chartered Surveyors Ireland for its analysis of the impact of the concrete levy. Mr. James went much further in his opening statement, if he does not mind me saying that. He suggested that the Government will be challenged in terms of meeting its targets, that it has missed targets and that we would need to be reaching 45,000 by the end of the decade. He made it very clear that costs need to be pushed down and this is exactly the opposite of what needs to happen. This was a very strong statement and I will invite Mr. James to elaborate on it in a moment.

We know there was a dispute in terms of the costs. The Department will be here later on and it will try to tell this committee that it can be as low as €400 for a three bedroom semi-detached house. However, SCSI has suggested that it would be about €1,200. It all depends how things are counted. The Society of Chartered Surveyors Ireland is only looking at the hard cost element, is that correct? That is €1,200, excluding soft costs.

Mr. Kevin James

When the budget announcements came out we did an exercise to look at the 10% and the definition around that 10%. Given the lack of information available at the time, we looked at all the cementitious materials that could be affected in a typical house. We built up from the foundations to the slab, to the block walls and to the pre-cast lintels, sills and concrete roof tiles. When I look at the exercises being carried out, it is ensuring that we are comparing apples with apples. When you look at the total cost of the development, the site works have unique characteristics to each particular housing development. We have to look at the pro rata increase that will have on a levy.

Since the announcement to go back down to 5%, we have found that the 5% equates to concrete block work and poured concrete only. We have had discussions with tier one housing developers, looking at the implications for them in high density schemes. We have carried out independent analyses with the quantity surveying working group to look at our costs. When I say €1,200 per unit, it is up to €1,200 per unit because every development has a unique set of characteristics.

Mr. Michael Mahon

That is a really important point. It is up to €1,200. We could show an example of a housing developments with concrete retaining walls behind. Each site is very specific.

Deputy Pearse Doherty

Of course, some will use timber joists.

Mr. Michael Mahon

Exactly. There is a range. A semi-detached house could have €500 of a cost impact all the way up to €1,200 of a cost impact. I would clarify that our calculation includes VAT. That is technically a soft cost per se.

Deputy Pearse Doherty

I want to clarify the witnesses costings and those of the Department. First, the Department has carried out costings based on returns it got in September. It states that ''the cost ranges based on September 2022 tender returns and the impact on cost caused by hyper inflation, temporary works, Russia-Ukraine conflict, rising energy costs, abnormal ground conditions are also excluded''. All of those things are excluded from its costs. Is it appropriate to forget everything that is happening at this point in time to drive down the cost of a levy that is only going to drive up the cost of housing?

Mr. Michael Mahon

As quantity surveyors, we know that the devil is in the detail. If they call accountants bean counters, then we are the brick counters. You really have to get down into the detail of each comparable cost. However, it would be unusual to leave out, for example, the energy cost because energy has a huge impact on the cost of cement, which has a knock on effect on the cost of concrete. It may have been some of our members who prepared these costs. We will find the common ground where we compare apples with apples but it is difficult to get to that point without having seen the methodology.

Deputy Pearse Doherty

The Department also believes that two thirds of this levy will be hard costs and one third will be soft costs. The witnesses' figure of up to €1,200 is on hard costs only. The soft costs they have estimated are itemised as professional fees, contingency finance and risk. If you were to add that on, that could potentially take it up to €1,800. Would that be correct, using the Department's methodology?

Mr. Michael Mahon

I would not think so. We have only just seen the cost comparison but I would not think that it would be of that extent. Again, it would be a matter of getting down into the detail and the methodology behind those figures.

Mr. Kevin James

To some extent an academic exercise was carried out in a bit of a vacuum in terms of looking at market research.

If you go out to tender in a normal environment, the spread of tenders we are getting at the moment, whether it is a single house or 250 houses in a development, could be between 10% and 15%. The Deputy is absolutely right about the inflationary environment we are in at the moment and the risk market. This is a levy that is not going to come into effect until September. Therefore, in trying to look at the impact of where we will be in September and what the true cost will be at the market, plus the fact the industry is already on notice that concrete will potentially increase again given energy increases, to call a figure at a moment in time is a bit like the conversation we had with mica earlier - it is a freeze frame. We are trying to forecast and say what the implications will be for the industry come September and the impact on housing generally. We could debate whether this is €500 or €1,200. I think it is irrelevant.

To go back to the Deputy's first question, single houses will not solve our housing crisis. It is high-density housing and the apartment schemes we are focusing on and the implications there. I absolutely get that we have to look at this as a three bedroom semi-detached house that is attributable to the mica scenario, but the society has run a sensitivity analysis in terms of the deficits of housing, where we have been, where we are now and where we need to get to to satisfy the housing demand over the next ten years. We have reported that we need to be building 45,000 houses a year for the next ten years. We have to look very closely at the viability of those decisions we make in terms of making those projects happen and, in conjunction with the CIF and other industry stakeholders, to ensure we understand the cost-benefit analysis to make sure we can satisfy the demand and we have a supply chain to deliver those. It is complex in some respects, but I feel we will not meet the Housing for All targets unless we look closely at how we unlock high-density developments throughout the country.

Deputy Pearse Doherty

Mr. James has made the point that this is contrary to what is required. Does he believe this challenges the viability of some projects? I am mindful it is coming on the back of changes in terms of the Central Bank, which has acknowledged there will also be modest increases in house prices as a result of that.

Mr. Kevin James

In isolation, it looks like a nominal increase. In our profession, as quantity surveyors or project managers, we are looking at developments at the moment that have gone out to tender. They are coming back from tender somewhere between 8% and 15% over budget. If we fast-forward to September and we are looking at projects coming back from the market that are 10% or 15% over budget, this 5% levy is an additional problem for the industry to try to value engineer a solution to bring the project back into an affordability position. Otherwise, you end up value engineering or cutting out the scope and I do not think that is going to serve the industry well in the longer term.

Deputy Jim O'Callaghan

I thank all our guests for coming in this afternoon, particularly to be able to give us a personal account of the impact of what can be simply seen as an academic or an economic discussion. Do I take it from listening to all of them that they all agree the levy will increase the cost of building new developments? Everyone has nodded by the way, just to confirm. Do I also take it the increase in cost will be paid for by the purchaser of a new development? Is that a fair assessment?

Mr. Frank Kelly

I might make a slight clarification on that. Contractors operate on a very tight margin. That is a known fact. It is in the public domain. Ultimately, if the costs are to be borne by the contractor, we will see failures in the industry, which is not what we want. We want contractors to be able to deliver. Unfortunately, whether it is the one-off house, in the case of the mica, or large-scale, high-density residential or commercial projects, the contractors will look to pass on those costs. They will look to recover them in terms of the public contracts. Where it is a private contract, they will seek to recover those costs. Unfortunately, all of those costs will not be recoverable so there are far-reaching implications with this levy.

One of the points Mr. James and the SCSI were making, which is very important to make here, when it comes to the delivery of housing, high-density residential plays a huge part in the delivery of the numbers we are trying to achieve within the sector. Unfortunately, viability is a major issue. We have had two price increases for concrete from September to the early part of this year, and we are already on notice that there are further concrete costs coming in terms of energy for cement, and now we are looking at an additional 5%. Unfortunately, high-density residential can only be built in construction. In housing at the lower scale, you might be able to look at alternative forms of construction and possibly eliminate concrete, but for high-density there is only one solution, so there is an increased cost to delivery.

Deputy Jim O'Callaghan

Do I take from what Mr. Kelly said that he has a slight concern that, if cost does not increase, there could be a dropping of standards and breaches of regulations?

Mr. Frank Kelly

We certainly do not want to go back to that position. We have had building control amendment regulations introduced since 2013 and the industry has welcomed those. It is very important the industry maintains standards. It has been highly successful. We certainly do not want to go back to that other position. However, I would be concerned that to try to eliminate or reduce the use of concrete, because of the cost implication, would drive the industry back to non-productivity. It would drive us back, which would be a retrograde step when we are trying to bring the industry forward to increase productivity with modern methods of construction.

Deputy Jim O'Callaghan

The purpose of the levy from the Government's point of view is to try to broaden the base upon which it can get funding to pay for what we all agree is correct, namely, the rectification and remediation of the houses. That is the objective. The objective is to try to make what is referred to as the industry contribute to the cost of the solution. Leaving aside whether this scheme does that or not, what does Mr. Parlon think of the proposal by Government that the industry should pay or make a contribution towards this? When one looks at other sectors of life, there are many examples of compensation funds into which people who have not been negligent contribute but which funds are responsible for the payment of negligence by others. What is Mr. Parlon's view about the industry making a contribution?

Mr. Tom Parlon

It sounds very plausible; there is no question about it. The CIF has 1,600 members and 90% of those employ fewer than ten people. We are generally small industries. The ones in our top ten, in the €200 million turnover bracket, are very few and far between. When you target the industry, you are targeting a lot of people. The Deputy said there are widespread examples, but even with the insurance levy that was put in place, we have a number of major international insurance companies in the country and maybe one Irish one, so it is slightly different, and then that levy is spread across every individual insurance payer, so it is quite different. In this case, there are many totally compliant businesses. In the concrete business, nearly every town has a small ready-mix outfit and a block-making contractor, or every county has a couple of them anyhow, who are fully compliant, who have never had a problem and who all of a sudden have been landed with a levy. That is certainly going down badly.

The other issue that will be an issue and is not addressed in the Finance Bill that I can see is the impact on suppliers along the Border. Thankfully, the Border has become less of an issue. Brexit has caused some difficulties but our milk products and lots of other stuff is freely going up and down. This would appear to cause a major difficulty and, no doubt, give an advantage to people north of the Border.

Deputy Jim O'Callaghan

To get the perspective of someone who owns one of these damaged houses, can I ask Ms Hone her view on the industry in general making a contribution, if it were possible? Does she think that would be a good idea or not?

Ms Lisa Hone

The contribution needs to come from industry in a way that it does not get filtered down, as far as possible. This is a question of justice as well. It is wrapped up in this levy and finances but actually what we are talking about here is justice. We still have known operators in the market today turning a profit. They have never been challenged or pursued. The quarries are still open. It is mind-boggling. The affected homeowners just cannot get their heads around how this can still be possible and the Government is talking about having to introduce more levies. They are saying why not go to the root source? Go to the root source of the problem. Make sure the governance is in order.

Make sure the control and quality assurance is in order. Stop the problem at source. That is the first thing. The second thing is that we know who produced the blocks. I can produce the list. I can have that on the Minister's desk tomorrow morning. People know where the blocks came from. They know who the offenders are. There is no reason for Government not to pursue those companies. The question homeowners ask is why nothing is being done. There seems to be lip service paid to it and promises to investigate. Everything seems to be on the long finger to be honest. However in terms of action and actually challenging those known to be culpable, nothing is happening. I think that is what homeowners want to see, and those who are culpable should be accountable for their actions. Justice should be seen to be done, and those culpable should contribute hugely to the overall cost of what is going to land on State coffers.

Deputy Jim O'Callaghan

I thank Ms Hone. I have a question for Mr. Mahon and Mr. James. If it is accepted, and I do not know if it is, that the industry should make a contribution, would it be more effective to try to get that contribution from the profits of the industry as opposed to a levy being put on a product? That is the objective of Government.

Mr. Kevin James

There are a few things in the question. If I go back to the levy, the purpose behind it was to contribute to the mica homeowners and look at the contribution to rebuilding. I absolutely take the point that has been made. For me, coming right behind this is the apartment defects report. The position in discussion with industry stakeholders is the why, and what is included in this particular levy. Is this going to be set for an indefinite amount of time to create a pot of money to contribute to the rebuilding of houses? We also have to take into consideration that we talk about the construction industry with regard to the quarries and house builders building one-off homes. Our industry is much bigger than that, when it comes to looking at who we rely on in terms of tier one, tier two and tier three contractors. They are servicing not only the residential industry but the foreign direct investment market, data centres, large tech and pharma companies coming into the market. They have had absolutely no involvement in this whatsoever. When you look at the house building companies under the umbrella of the construction sector, it is the targetting of who and who is left. We all understand that insurance has expired and contractors are no longer in play. However, when you look at the solution to create a revenue, the 10% or 5% as we know from the Minister is €30 million per year. That is as a contribution, in an industry turning over €29 billion per annum. I feel that collaboration is needed with the industry stakeholders to work out a solution that is more effective than the one on the table at the moment, and also to take into consideration where we are going with the apartment defects report.

Deputy Jim O'Callaghan

I am sorry to interrupt, but is Mr. James saying that it is not a good idea for Government to try to target the industry as a source of money for payment?

Mr. Kevin James

I think the 5% is going through a process now and is coming into effect in September. Ultimately what that will generate as a supplementary income to help support the rebuilding of houses, will come out in time. I think you need to look at the governance, and the history of where the industry was and where it is now, and you look at testing procedures for quarries. The point has been made in terms of how significantly the industry has moved forward in terms of the regulatory standards that are imposed. It is really now about looking back and saying how far have we come to make sure this does not happen again in the future.

Deputy Jim O'Callaghan

I want to ask Mr. Mahon the same question. I am conscious that when there are negligent solicitors and people have suffered loss as a result of it, that there is a compensation fund. However, the fund is not just contributed to by negligent solicitors. It is contributed to by the whole profession. I am just wondering if he thinks there is a role for the industry to be partially responsible for payment?

Mr. Micheál Mahon

It is a very difficult question.

Deputy Jim O'Callaghan

I do not know the answer.

Mr. Micheál Mahon

I know, absolutely. I am familiar with other organisations as well. There are compensation funds there, should events happen. It is really difficult and I suppose our biggest difficulty as a society is the law of unintended consequences. What is the knock-on effect of any measure? As Mr. James has mentioned, will it have an effect on foreign direct investment, FDI? Will it have effect on the overall industry in a negative manner? We are all about balance, Deputy. I do not think there is a formula that can be arrived at today, but if there is a measure, we certainly feel that negligent parties should be reprimanded in some manner at the very least.

Deputy Jim O'Callaghan

I am sorry to interrupt, but usually what would happen is that the manufacturer of the defective product would be sued in the courts and found liable on foot of a judgment. It is obviously too much to expect homeowners individually to do that. Is there a role for their right to be subrogated to the Government and for Government to pursue them, or is it just the case that the companies that are liable will have nowhere near enough assets to pay for this? Even if you go after them, it is going to be purely, you know-----

Mr. Micheál Mahon

I cannot comment as I do not know the current status of the alleged culprits. Certainly, as a society we feel where there has been negligence that should be dealt with. I mean even in our own membership we have disciplinary procedures if somebody is proved negligent. Every institution has disciplinary procedures. Yes is the answer, but the mechanism and how to avoid unintended consequences would be our position.

Deputy Jim O'Callaghan

I want to turn to Mr. Parlon. He mentioned how the industry is such a broad term to describe so many different entities such as the small builder and big builders. However, one of the proposals and suggestions I saw was that if you wanted to target the industry and get a contribution from them you would target the profits. Obviously that means the profits of the larger sectors in the industry. What would he say to that? I know that is a difficult question for the Construction Industry Federation. It would seem to be a more effective way of getting money from the industry that would not affect the cost of housing for the purchaser.

Mr. Tom Parlon

The first thing I would suggest is that if they were going to do it, the Department of Finance would do a very detailed regulatory impact study to see how that would work, and whether it works. I do not know whether it works. Clearly you would be talking about quite a select and small number. A couple of our developers are publicly quoted companies, and the rest of them are private operations. It is the timing that is the biggest issue in the extraordinary period of inflation. Nobody could have seen coming that we would have crises with energy and Ukraine, and costs gone up by what they are, and going up regularly. If at this particular time we decide to add to the cost, that is certainly something I have a difficulty with, whatever we try to find otherwise as an alternative. The levy just does not make sense in that context.

Deputy Jim O'Callaghan

I thank the witnesses.

Chairman

As indicated I call Deputy MacLochlainn, Deputy Barry, Deputy Farrell, Senator Sherlock and Deputy Durkan, in that order.

Deputy Pádraig Mac Lochlainn

I will be very brief as I am conscious of the standing members of the committee. I only have a couple of questions and they are directed to Lisa Hone, chairperson of the Mica Action Group. I just want to get a sense of the issue of the housing committee dealing with the legislation for the updated scheme. At that committee one of the contributors testified that he was aware some quarries are still manufacturing defective blocks. Ms Hone represents the homeowners in Donegal, and present at that committee were groups representing homeowners in Mayo and Clare. What was the sense when they learned about that?

Ms Lisa Hone

To be honest, it is not surprising. People have been living with this for a long time now and have done their own investigations. People have followed this very closely. It comes back again to this lack of appetite to enforce the regulations. The State has powers. It has powers within building control and within local authorities. However, and it is hard to say why exactly, there seems to be very little appetite for the State to challenge what is happening in manufacturing and in the quarries. When you get an industry professional stating that he thinks there are still defective concrete products being put into the Irish market, that is no shock at all unfortunately for those who are living in defective homes. They have followed this and they have never seen anything happen or change.

The same quarries that produced the defective product are still in operation. There is the answer.

Deputy Pádraig Mac Lochlainn

Can Ms Hone also tell us what the sense was among the homeowners she represents in Donegal when figures for a €2.7 billion scheme were being thrown around? That is even though we know that scheme will operate over maybe 20 or even up to 30 years to make right what has happened. There was a portrayal of speaking to the taxpayers across the country, which includes the affected homeowners. Last year people realised for the first time how serious this is. Homeowners found the strength to tell their stories and talk of their utter despair. People could see what was happening to the houses so there was a sense of solidarity and that the Government needed to do what was right. This was light-touch and no-touch regulation that led to this disaster along the west coast of Ireland. Now it is working its way into counties like Wexford.

Ms Lisa Hone

It is not just the west coast.

Senator Pádraig Mac Lochlainn

Something like 13 or 14 counties are potentially affected. God knows how many concrete manufacturers and quarries are involved in this. What was the sense when it was being said that this was going to cost the taxpayers €2.7 billion when this levy came in? The message was that taxpayers would have to pay for this. I know what my thoughts are on this but I want to know from the homeowners' perspectives if this is about turning the solidarity of the wider community in Ireland against homeowners? Is that the sense that is in Donegal?

Ms Lisa Hone

Unfortunately I have to say that the way it was interpreted was that there was an insidious undertone to it. The message was that these mica homes would cost the taxpayer. At the time it felt like it was a tactic to try to divide the country into those who were affected and those who were not to ask why those who were not affected should have to pay. I return to the root cause because that is what it is about. It is not the affected homeowners who are costing the taxpayer; it is the failure of regulation and the lack of governance and accountability. As I said in my statement, there is nothing in place to deter this happening again. There are no consequences for the offenders and the governance has not changed. On building regulations, there was a Building Control (Amendment) Regulation in 2014 and that has amended the way building projects are supervised and governed but that does not affect products like a concrete product from a quarry; it is irrelevant. There is the same situation today that existed when the defective products were produced, and on we go.

It is no exaggeration when I say that taxpayers are being asked to sign a blank cheque because the Government is not acknowledging the root cause of this issue. There is no appetite to chase the offenders or to amend the governance. There needs to be independent regulation. There are many industries that operate in this country that have independent regulation. This is so serious; it is about the fundamentals of the State. Housing is one of the fundamentals of the State and if it goes wrong it is a catastrophe. We are living with a catastrophe. How can a Government sit back morally and allow this to continue, knowing that this devastation will land on future homeowners? As an affected homeowner and speaking for every affected homeowner I know, they would not wish this on anybody. We want to escape this scourge but we also want to make sure that nobody else in this country ever has to go through what we have been through. It has to stop now.

Deputy Mick Barry

My first question is for Mr. Parlon. I want to talk about the costs and the question of who pays. I will start with mica. I agree 100% with the points that have been raised by Ms Hone. The mica homeowners are entitled to every penny that will be paid to them under this scheme and then some because the scheme falls significantly short of fully covering the costs. The figure we have for now is €2.7 billion. Then there is a bill for pyrite and then there will be the bill for the defective apartments. Nobody is in a position to say what the final figure will be but between mica and pyrite, even before the full bill for the apartment defects is finalised, it will be well over the €5 billion mark.

The question arises of who pays for that. We are being told that the 5% contribution will amount to €32 million. Let us suppose that not a penny of that €32 million is passed on to homeowners and it is entirely paid for from the industry, which will not happen. That would mean €32 million would come from the industry and presumably the bulk of the rest would come from the taxpayer. When we talk about the taxpayer we are overwhelmingly talking about the PAYE taxpayer.

My question for Mr. Parlon is as follows. What does he think is a fair division for covering the costs of that €5 billion plus bill between the construction industry; the suppliers of the blocks; the banks, which are part of the mix; the insurance industry, which is part of the mix; and the PAYE taxpayers? It looks like a maximum of €32 million will come from the industry and approximately €5 billion will come from the taxpayer, which no one would agree is a fair division of the costs. What would the Construction Industry Federation think would be a fair division of the costs?

Mr. Tom Parlon

Deputy Mac Lochlainn said that this cost will be spread over a long number of years but it is still a substantial cost. The construction industry is a major taxpayer as well and will be contributing. One of the figures I used earlier that has been backed up by the Society of Chartered Surveyors Ireland is that half of the actual cost is a non-building cost and that a large part of it is taxed. We could take the VAT alone, and I know there is some interest again in looking at that. Say we build 25,000 houses this year - and hopefully we will build a few thousand extra - those 25,000 houses at €40,000 per house amount to €1 billion that goes directly into the Exchequer. The Minister for Finance, when he announced his budget, announced the spending of €11 billion. He largely had that largesse because of corporation taxes being paid. The economy is going well and the industry will be paying our part. Already the construction industry has been a major contributor to the economy. If you take the metric that we employ more than 150,000 workers directly, all of them pay their full PAYE, PRSI and so on, and that is effectively paid by the construction employers around the country. The construction industry is an important one to the Exchequer and we are making our contribution.

It goes back, as Ms Hone said, to the root cause, which is that individuals were found wanting. They did not produce the proper product. Whether you were an individual house builder, a small contractor or whoever, you bought defective blocks while believing them to be good quality so you will end up with a problem. Generally manufacturers have insurance or a bond to cover such an eventuality but I am not sure if that has ever been exposed. For anyone seeking a mortgage, such as a first-time buyer, the scrutiny and all the conditions that attach to the house are massive. The banks are very careful that they will not mortgage a house that may not be built to the full standards. Ms Hone or Deputy Doherty talked about the number of mortgages that are outstanding and still being paid by them. There are a whole lot of people to blame but the industry will be making a massive contribution in doing what it is doing.

Deputy Mick Barry

I listened carefully to Ms Hone's comments and she shone a light on the role of the individual companies that supplied the defective blocks.

She also pinpointed what she colourfully and correctly described as the disgraced regime of self-regulation. Would Mr. Parlon agree with the comment that the regime of self-regulation has been a disgrace? Would he agree that many companies in the construction industry have benefited financially to a significant degree from it?

Mr. Tom Parlon

I do not think that there was any regulation with regard to concrete blocks at the time, which was a major deficit in the Government policy. There was no regulation. Yet, the bulk of block manufacturers throughout the country in every small town and small block manufacturing quarry and pit around the country made good quality blocks. Those houses are all there to the good.

I am no geologist but mica is a naturally occurring substance. Perhaps the manufacturers were not aware of its presence. I am not sure about that but whoever was producing any material would have had an obligation that it would be fit for purpose. Clearly, these particular blocks are defective concrete blocks that caused the problem and that is the root cause of it. I can understand why people would be inclined to say the industry should pay. Of course, somebody should pay. Eventually, it will be every taxpayer in the country who will pay. However, if one points at those in the industry, they will say they were very careful about where they bought blocks and from whom they bought their concrete and that ultimately, they trust them and if there were to be a problem, they would be able to go back after them and so on. One might be going back after a small project that went wrong but going back with a bill for a couple of billion euro is a different category. Mr. Mahon spoke about how different organisations put by a fund for such eventualities but I do not think that anybody was going to have a couple of billion euro set aside. This is an extraordinary outcome that has happened and clearly it has to be addressed now.

Deputy Mick Barry

From listening to what has been said, one would get the impression that there is the industry on one side and on the other side there are a couple of rogue builders who have caused a problem for everybody else. Yet, I put it to Mr. Parlon that if one looks at the thing in its totality, in terms of what happened with mica, with pyrite and the defects in the apartments, one is looking at a significant section of the industry that has been responsible for putting profit first, above the needs of ordinary people. They are now trying to wash their hands and are saying, “We will be part of the mix in paying for this”, but not in terms of having special responsibilities. I would like to ask Mr. Parlon a question on this. The point has been raised that defective blocks are still a feature today. Does Mr. Parlon think that that is incorrect information? Does he think this situation could happen again?

Mr. Tom Parlon

I will take that information on the basis of the good faith on which Ms Hone has made those statements. I would be shocked by the notion of that. In terms of what the Deputy has said, I put it on record that the CIF fully supports the highest standards in construction and fully supports all engagement and the development of the building controls or Construction Industry Register Ireland, CIRI.

Deputy Mick Barry

Does the CIF have members in its ranks who have responsibility in terms of mica, pyrite or apartment defects? Have they been expelled from the CIF?

Mr. Tom Parlon

We are talking about a whole range of products now.

Deputy Mick Barry

We are talking about a whole range of construction companies.

Mr. Tom Parlon

I am not aware of any members that are involved in a mica situation. I am not aware of the-----

Deputy Mick Barry

Pyrite? Apartment defects?

Mr. Tom Parlon

Yes, pyrite certainly was a problem. Pyrite, again-----

Deputy Mick Barry

Are they still in the CIF?

Mr. Tom Parlon

Well, many people remedied the pyrite issue. Eventually, the Government came up with a pyrite remedial scheme where builders were no longer in business-----

Deputy Mick Barry

So, the companies are still inside the tent.

Mr. Tom Parlon

-----or whatever. So, many of our members remedied. They had good insurance cover and so on and went to extreme ends to put right those apartments.

Deputy Mick Barry

Are those who did not now outside the tent? Have there been exclusions of people who have been told they are not wanted here?

Mr. Tom Parlon

If they have gone out of business, they will certainly not be involved in the CIF.

Deputy Mick Barry

They could start up again under new names.

Mr. Tom Parlon

I do not think so. Since 2007, we have tried to get CIRI regulated, which is the Construction Industry Register Ireland. It just passed into legislation this year. That certainly sets a standard. It means that if one wants to be involved in any element of construction, one has to be competent and compliant and one has to tick a number of boxes. We supported that all along, and it has taken many years since I came into CIF - the last 14 or 15 years - for it eventually to get into legislation. We are waiting for it to be implemented and for a CIRI registration board to be set up and so on but it is the law of the land now. We absolutely back that.

Deputy Mick Barry

I thank Mr. Parlon. I have two brief questions, one each for Ms Hone and Mr. James.

To Ms Hone, on this point that there are still defective concrete blocks and presumably that this could happen again, this is not just Ms Hone’s own personal view, is it? She is-----

Ms Lisa Hone

This is not my personal view.

Deputy Mick Barry

Is she quoting other people on that?

Ms Lisa Hone

The information I am quoting was provided and it is on the record. The Deputy can look it up on the Oireachtas records. It is from an industry professional who was provided with witness statements at the hearing when the legislation for the defective blocks scheme was progressing through the Houses. It is therefore not me. I am quoting an industry professional-----

Deputy Mick Barry

That is what I thought the position was.

Ms Lisa Hone

-----and that same industry professional has stated that he is aware of 13 or 14 counties that he believes are affected with mica, pyrite and pyrrhotite, which is another issue because it is another investigation in Donegal at the moment.

Deputy Mick Barry

That is very helpful. Finally, for Mr. James, I am interested in his point about hard costs and soft costs. Take a house that would go to market in the range of €250,000 to €350,000. If one were to strip out the cost for land, if these houses were built on public land and gifted by the State, if one were to take out taxes that were to be waived by the State in the interests of affordable housing, and if one were to strip out profit and were the State to build those houses on a not-for-profit basis, what would those houses in the range of €250,000 to €350,000 then cost? At approximately what cost would they go to market?

Mr. Kevin James

Looking at the variables there in terms of an individual house and looking at taking out public land, taxes and profit, it does vary. It is difficult to give the Deputy a definitive response. For me, it is a matter of reaching a point of viability. We have seen other public sector clients that are struggling to make projects viable even though they are trying to negotiate with local authorities for land. They are still trying to make those particular developments viable. They are struggling to do that. I therefore could not answer that question.

Deputy Mick Barry

I know that Mr. James cannot give an exact figure, but as a broad-brush stroke-----

Mr. Kevin James

On the issue of land, it is arbitrary because the value of land in Dublin varies from the value of land across the country. On the issue of taxes and profits, profits vary depending on the size and the scale of the development. It is therefore an arbitrary exercise.

Deputy Mick Barry

Let us take land in Dublin, so. Let us presume that the land is in Dublin.

Mr. Kevin James

I will not be able to give the Deputy a definitive answer, unfortunately.

Mr. Micheál Mahon

We have published two real cost of housing reports, three years ago and in 2016. We are currently undertaking the same exercise and we will be doing the same comparison that the Deputy has outlined in relation to public sector costs versus private sector house costs. However, it is a difficult exercise to answer here. There are quite a few inputs into that question that the Deputy has asked.

Deputy Mick Barry

I will conclude by saying that I will look forward to seeing those data when it is published but it would seem to me that if one operated on the basis of no charge on the land, the State waiving the taxes in the interest of affordable housing and it operating on a not-for-profit basis, one could say that the prices would be reduced quite considerably. We will come back to the specific detail.

Deputy Mairéad Farrell

Go raibh maith agaibh as teacht os comhair an choiste. I have a number of questions, which I will group. I will initially start off with the CIF, whose representatives mentioned in the debate that any additional costs to themselves cannot be pushed on when it comes to public works. Can they could advise what impact they feel that may have on the delivery of public works? That is my initial question.

Mr. Frank Kelly

I will take that. My response was that the industry would seek to recover the costs. We have the discretionary framework with regard to inflation in costs. That is live and up and running. The process is still in the testing period but it is welcomed by the industry. Contractors will certainly be seeking recovery through that framework on public contracts. I would be concerned if those costs were not recoverable, whether in total or in part. We have had a lot of discussion here today on the particular issue of mica and individual houses. To some degree, we are looking at that issue through the small lens of a figure somewhere north of €2,000, depending on the particular house. My concern is about larger-scale projects, such as high-density residential projects, in which a lot of concrete is used. In some of these projects that involve basements, upwards of 25,000 or 30,000 cu. m might be used at €100 per cubic metre, which will now come with an additional cost of 5% along with two increases in September. It is a substantial increase and there are further increases to come. My concern is that, for the individual contractor who is under contract and trying to cover the existing increases, this further increase could have a significant impact. If those costs are recoverable through the public purse, it is ultimately the public purse paying, which raises an issue with regard to expenditure under the capital expenditure programme and the national development programme. We know that, in this inflationary market, some public projects are already being assessed for viability, which will affect whether they will go ahead or not. A lot of procuring authorities are holding back on tendering projects for that very reason.

Deputy Mairéad Farrell

As we do not have that much time, I will ask Mr. Kelly about something else. He mentioned modern methods of construction in his opening statement. Why has there been such slow progress in developing these?

Mr. Frank Kelly

I beg to differ. Great strides have been made as regards modern methods of construction. There is a slight misunderstanding about the process we are going through. Modern methods of construction will speed up the construction process but it is about scalability and economies of scale. Unfortunately, until there is enough adoption of that, off-site construction will come at a premium. The question is, who pays the premium? From the client perspective, if modern methods of construction are built into the project from the outset and the cost is encompassed at that stage, these methods can be embraced. However, if you are expecting contractors to reverse-engineer modern methods of construction into a traditional-build process, there is a premium involved and somebody has to pay it. Unfortunately, it does not always work out to be viable. It is about early adoption and scalability. We have a number of operators in precast and general off-site volumetric or two-dimensional construction that are now scaling up but they need visibility to be able to scale up their operations to cater for what the industry might need.

Deputy Mairéad Farrell

I thank Mr. Kelly for his interesting and helpful contribution. I may reach out to him again on those issues. I will move on to the SCSI. The SCSI has said that, at this moment in time, projects that were already under way have not been cancelled. Do the representatives have any concern about that happening in the short or medium term? What are their views about the introduction of this levy from a policy perspective? We are in the middle of a really bad housing crisis and are seeing its impact increase week after week. It has certainly been a topic of discussion this week. I would like to hear the SCSI's thoughts on those two issues.

Mr. Kevin James

To respond to the Deputy's first question, it is a very difficult market at the moment. We are struggling to make a lot of projects viable. From a personal perspective, I know of contractors who have entered into contracts in the public sector and who can no longer honour their obligations and have had to walk away because of the inflationary increases they have incurred. This causes problems for the public sector client in question. There are different scenarios for the public sector and private sector markets. There is probably more flexibility in negotiations in the private sector to help the contractor. Although there are measures to deal with inflation in the public procurement rules and regulations, it is a matter of a discretionary discussion between the contractor and the public sector client in the event of disputes over increased costs. We have yet to see whether those discretionary discussions will turn into a conflict if a contractor incurs costs and makes a claim that the client is unwilling or unable to pay. That is one issue in respect of the market.

On the levy, there are two issues to consider, namely, how to fix the problem immediately and accountability. As regards the €30 million per annum we have talked about and what it will generate in comparison to the potential €5 billion exposure, the priority is to get moving. A plan needs to be put in place to prioritise and accelerate this process and to then retrospectively look at how the contributions will build up over time and contribute to the overall cost. The sliding scale of €30 million per annum will not make a massive contribution to moving forward, particularly with the mica homeowners.

Deputy Mairéad Farrell

My final question is for the mica group. In its opening statement, it was mentioned that the group is still awaiting the appointment of a senior counsel. What are the group's views on the slow progress in that regard? It can be contrasted with the situation in An Bord Pleanála, which was dealt with much more quickly. I would like to hear the group's thoughts on that.

Ms Lisa Hone

Everything relating to the defective blocks seems to be done at a very slow pace. Whether it is progress with the scheme, with the legislation, with investigations and audits of quarries or with appointing a senior counsel to look at how those offenders can be prosecuted, everything is happening at a snail's pace. We find ourselves in information vacuums. Months and months go by between announcements and any activity. From the point of view of the homeowners, it is extremely frustrating. We are aware that, if prosecutions are going to be made, they have to be made within a certain period of time. There is great concern that we will run into issues with regard to the statute of limitations. The Minister, Deputy Darragh O'Brien, is extremely conscious of this. He stood in the Seanad a decade ago and made the same case on behalf of those in Leinster affected by pyrite. He understands what is at stake here. If this just drifts on without action being taken very quickly, we will run out of time and those who are culpable will vanish over the horizon.

Senator Marie Sherlock

I thank all the witnesses for attending today and sincerely apologise for missing their contributions. The Labour Party is very much opposed to the design of this levy. We put forward an alternative proposal for a levy on the profits of concrete block suppliers. Ms Hone makes the very powerful point that there is a double penalty here for those now facing the challenge of having to rebuild their houses while dealing with this increase in the cost of construction. It beggars belief that the levy is being applied on the open market value as of the supply date.

My first question is for the SCSI. With regard to the application of the levy on the supply date, to what extent is concrete forward-purchased, particularly for big developments? Is the price hedged in any way?

Is that a feature of construction of big developments? It seems unusual that the price is at the supply date as opposed to the manufacturing date. Will the witnesses shed light on whether the price of concrete is forward-purchased in any way or set in a forward-purchase contract?

Mr. Kevin James

It is a two-pronged approach. Again, it is public sector-private sector and the rules that cover quantity surveyors are that we work, go through a tender process, agree the programme with the contractor and the first stage will be the enabling works for the site. If there is a basement to be dug or concrete foundations, the concrete will go in quite early in the process. This comes down to whether it is poured concrete or block work. If contractors bring materials to site prematurely, there is a mechanism and agreement with the client as to whether we pay them in advance or not, or pay them for material stored on-site. There is a debate around - and the CIF can vouch for this - when the main contractor goes to the subcontractor and the manufacturer. It is whether the characteristics of the site allow you to bring the stuff on-site early or not and you agree a price with the contractor at the outset. If the contractor does not agree a price at the outset and decides after six months or a year on-site to negotiate a price, he may win or lose. He may have to pay more in an inflationary environment, as opposed to paying less. There is complexity to that. It is discretionary between different contractors and organisations. I do not know if Mr. Mahon wants to add to that.

Mr. Micheál Mahon

I think Mr. James has covered it. Mr. Kelly or Mr. Parlon could probably answer better but, as we understand it, the supply chain will only hold its prices for a certain period. I do not know to what extent hedging is possible. Perhaps this is better for the CIF because we are not directly involved with the procurement of-----

Senator Marie Sherlock

I wanted to ask the CIF as well.

Mr. Frank Kelly

The process from a contracting point of view is we tender a contract and get market level prices for the materials or components of the project. If it is a Government project, the tender is generally valid for 180 days and can be up to 360. That is effectively the price we will get paid for the materials, provided the contract proceeds in that period. There is not the ability to hedge concrete because concrete cannot be put in a warehouse. It is batched on the day and dispatched to site. We have incurred from September 2021 into early 2022 two massive increases due to the energy cost of cement production. There is massive inflation on the product and we are due an additional increase. Unfortunately, it is not within the industry's gift to hedge on concrete prices.

Senator Marie Sherlock

This question has come up already and I apologise for repeating it but it is important. Who pays this bill? We have an unmerciful mess on our hands between mica, pyrite and 100,000 apartments with fire safety defects across the country. The CIF says we have not seen proposals targeting those responsible for the defects. I am not sure we have heard proposals from the CIF as to how we target those responsible.

Initiatives are being taken in the UK under the Building Safety Act and other proposals are being spoken about. Is blocking developers or contractors from trading if they have been found to walk away from defects they have caused something CIF would support?

Mr. Frank Kelly

I would bring it back to the basic point that generally if a contractor is undertaking a project, whether a private house, a scheme or a high-density or commercial project, there is a contract between the client and the contractor. If a defect arises, provided the contractor is still solvent and trading, the contractor is obligated to remedy the defects in the project. If they do not, they are contractually liable and can be procured by the client for the cost of remediation. I am not party to what contracts exist or do not exist in relation to one-off houses. In some cases, it may be labour-only and there may not be a contractor involved.

The other important point touched on today relates to building control. All commercial projects are automatically governed by building control. There is a process of checking and validating on the materials side and the construction side. Unfortunately, under domestic construction, there is an opt-out clause so much domestic construction does not have to be carried out under the building control amendment regulations. That means the duties of the client do not come into play so the appointment of the contractor, the responsibilities, the assigned certifier and the process of inspecting through the building process do not exist. The industry prior to this has advocated that we do not believe domestic construction should be an opt-out. Domestic construction should be brought back in to the building control regulations.

I am not party to what contracts are or are not in place but, certainly on large-scale projects, the contract is in place and the contractor is responsible.

Senator Marie Sherlock

We are all aware of the Statue of Limitations with regard to product defects liability. Would CIF be opposed to making directors of construction companies and building supplier companies liable? Phoenix companies are a huge characteristic of what goes on in the construction sector. It is a huge feature of what has happened in Donegal and across the country with regard to concrete supply, as well as for those building. Would the CIF oppose proposals to make directors of companies operating in the construction sector liable, effectively closing off the option of a company that has gone insolvent no longer being liable?

Mr. Frank Kelly

There is a moral issue here. We are all fully in agreement that the mica situation is terrible for everybody affected but, ultimately, whatever laws are imposed on the industry we have to comply with.

Senator Marie Sherlock

Will the CIF resist it, as it is resisting this and has resisted many other measures?

Mr. Frank Kelly

I cannot say we would or would not. We would have to see what it means and looks like. Our members are acutely aware of their obligations. As Mr. Parlon alluded to, many contractors have already remediated projects where there are defects. It is our obligation to do that. In answer to the question, we would have to look at what that means and looks like.

Deputy Bernard J. Durkan

I welcome our delegation. I know a little bit about the subject because I was involved in the beginning when pyrite became obvious. I was involved, along with others, in the construction of the blocks of houses and in the removal of blocks of houses about 30 years ago where there were structural defects covered by insurance, Home Build or its predecessor. There was no difficulty about it. What Ms Hone has said is true. The problem was identified and, within six months, resolved. Houses were remedied in a major way, taking the roof off and the whole thing down to the foundation. They were able to be rebuilt and no hassle about it. All was covered. It cost the householder nothing. It was all because there was insurance cover from the beginning.

To put things in order now, we need to ensure no more of this happens. If we allow a situation develop where the State has to move in with several billion to solve every problem that comes up in the future, the State will be fully occupied doing that for a long time to come. That will not work. The economics of that is out the window. I am not a supporter of the block levy. It is a clumsy way to address the matter. The Minister knows my views on that subject. I am anxious, as I have mentioned to several people involved, to try to bring about some resolution to the problem that is reliable, such that we can say we have solved the problem, that it will not happen again because of regulations and that no house purchasers will be imposed on for that reason.

Ms Hone takes the view, and I agree, that 90% of people believe that nobody wants to do anything about it and it will go on forever and that we cannot do anything about it. My first suggestion would be a fund into which the contributors would include, for instance, the insurance companies and the construction industry, local authorities, engineers including Engineers Ireland, and everybody who was involved in construction, acquisition of materials and the building of a house in any part of the country, whether a scheme or a single house. In saying that, I acknowledge the number of quite small builders who were dutiful and who went about it their own way and resolved the problems at their own expense. But they had insurance to cover themselves. We know that. But there were other cases where the insurance companies ran away from their responsibilities. Once that was allowed to happen the first time it became the order of the day. That was it. I suggest a fund as a solution. It could be a profit-making fund over a period but in order to correct the problem that exists now, something must be done. Otherwise we will still be here talking about the same thing in ten years because we are trying to catch up.

I have not mentioned all the people who could be involved. As I said, I was involved in the construction of a couple of hundred houses in that period through a co-op. We enforced the strictest measures to apply at all times. Thankfully, none of those houses was affected. The architects, engineers and all involved had to pass the original test. For those who say that this could continue forever and they are still doing it, there is a very simple way to find out - you do a test, a concrete test or a cube test and all the other tests. If you visit a place once, then that is it. They do not supply any more. If there is defective product there, in order to ensure that the State does not have to continue remedying something forever over which it had adequate control in the first place, then we have to do that.

There are individual householders in Donegal, the west coast and all over the country, including Kildare, who were looking at a serious defect in their property and nobody was willing to resolve the problem so the State moved in. The State should not have moved in, that is the problem. The system should have been able to correct itself at that time. If it had done so by enforcing rules and regulations that were effective straight away then we would not have an ongoing problem and it is the ongoing problem that I want to try to deal with. I know that what people here are saying is true but I do not like to hear people say that this will be going on for many years and implying that there are guys down the track we do not know about yet who will come on stream in the future and it will be worse than we have seen so far.

Apart from the fund to deal with the existing situation, I am suggesting that we set in place sufficient and rigorous impositions now that prevent this from happening on an ongoing basis. We need to stop it, full stop. Ms Hone is absolutely right about that. I know the construction industry are responsible people and I have always recognised that. They have always stood up to it. The fact is, everyone ran away from this. Everyone was going to be responsible for a start and then nobody wanted to be responsible.

Finally, on the apartments, it is a disgrace that people who were ill prepared for it found themselves having to buy a house or apartment that five or ten years later has major defects. They are structural defects for which somebody is responsible and if those people do not have to pony up and contribute in some shape or form then this will continue. It is carte blanche for everyone to get involved. Why does everyone not get involved? Because the State will eventually pick up the bill and that way they are guaranteed. They are not guaranteed and they should not be guaranteed. There is a simple way to deal with that as Ms Hone said - bring the horse to water. If the horse does not want to drink then the water is taken away. Simple as that. We have to do something really serious and responsible about it. We need to end it now for existing faults and future potential faults. I grew up in the local authority under an engineer which I am sure the representatives from the construction industry will remember, John Carrick. He had a very rigid policy in relation to construction with cube tests, testing the material and the construction of a roof, for instance. If it did not comply with regulations then it was a case of "Sorry" and it came down again. You could say you cannot afford that but you will have to afford more if you do not address it. It is a question of facing reality. We have kicked this around for the last number of years and have avoided dealing with it straight-on as we should. If we do not do it now, then in ten years we will still be trying to catch up and it will never be resolved.

Chairman

I thank Deputy Durkan. I think that was more a passionate statement than a question. We will note it. That brings us to the end of this part of the meeting.

Deputy Pearse Doherty

Can I ask one quick question with the Chair's indulgence? There are two types of blocks that will be covered in this legislation - the typical masonry block and the aircrete or autoclaved block. How much of the second, light weight ones, are used on the Irish market? I know Quinn manufacture them here but they are obviously imported as well. They are very thermal efficient and all the rest.

Mr. Frank Kelly

To be honest, I cannot say that I am hugely knowledgeable on that. My own experience is that the majority is the former. I do not think the latter is much used here.

Chairman

If you have any information, could you pass it on to the committee?

Mr. Micheál Mahon

I agree, they tend to be in the substructures primarily. The main walls from the ground up tend to be of the traditional block.

Chairman

I thank everyone for attending. I want to say to Ms Hone that it is refreshing to have someone before us who tells it as it is and who demands the type of action that the Government and the politicians who make up that Government should take. I hope that this morning's hearings were listened to and that her voice, along with the constructive contribution made by the four people beside her, all men, will be heard loud and clear. On apportioning blame, as a country we have watched illegal quarries operate for decades and did nothing and are doing nothing about it. The challenge in this is for those in national Government, local government, health and safety, the EPA, building controls and the National Standards Authority of Ireland, NSAI, to take their jobs seriously and go to these quarries and do the job that they are paid to do; that is not happening. As we sit here in this room, I know that in Kilkenny and Laois there is significant quarrying going on that is absolutely illegal. It has been reported and highlighted in the Dáil. I brought one issue to the direct attention of the Green Party in the person of the Minister, Deputy Eamon Ryan, and not only did he not reply but nobody that had any authority in relation to the issue replied.

In her contribution, Ms Hone mentioned the appointment of a senior counsel. That will happen when it happens when they go through the motions of procurement and so on but that is only a step. The real drudge will happen after that. It will be a case of "On this hand; on that hand" and then at the end it will probably be on no one's hand but the Government and those who make it up.

They know full well what has to be done. The big question is, as in many other areas, whether they are ready and prepared to take on the vested interests. That is the question. Are they ready to arrest somebody for doing something wrong or are they not? If there is any evidence required to do that sort of extreme thinking and extreme action, I am sure there are many people who can bring forward that evidence or direct them to a quarry that is breaking the law and which forces local authorities to take them to court, spending taxpayers' money that was hard earned in the first place, and playing ducks and drakes with the system itself. Cowboys, the lot of them.

I say to all of the witnesses here who represent the industry and who are associated with the industry that I know how far all of you have come in recognising regulation, recognising best practice, and doing the best you can. It is time for the Government to take the lead on this and to root out those who simply should not be in the business. Not only are they causing this mayhem and havoc for people, they are also creating environmental disasters. They are disasters.

I thank the representatives for coming in and I commend them on their contribution. It is up to us now to try to make some sort of difference as we deal with this. Those who are central to the cause of it, however, are the ones who should be paying. I do not believe in taking money out of profits because, one way or the other, it goes back to the person at the end of the line, who will pay one way or the other. Those who are wrong on this should be made to pay, as much as they can be identified and made to pay, but the Government certainly, and local government in particular, have a long way to go to impress me in terms of the policing of the regulations and the preventing of illegal activities in quarries. There is one such quarry in Kilkenny, which I will not mention, although I have mentioned it in the House. That is the reality and that is our job of work to do.

I will suspend this part of the meeting for two minutes while we change over. I thank the witnesses for coming in today and I thank the members.

Sitting suspended at 3.32 p.m. and resumed at 3.38 p.m.

Chairman

We will continue to examine the defective concrete block levy. This session is with Department officials. I welcome all today. From the Department of Finance we are joined by Mr. Timmy Hennessy, principal officer, Mr. Pat McColgan, assistant principal officer, and Ms Leona Cantillon, administrative officer. From the Revenue Commissioners we are joined by Ms Jackie O'Callaghan, principal officer, and from the Department of Housing, Local Government and Heritage we are joined by Mr. Seán Armstrong, head of residential construction cost and innovation unit. I invite Mr. Hennessy to make his opening statement.

Mr. Timmy Hennessy

On behalf of the Department of Finance, the Revenue Commissioners, and the Department of Housing, Local Government and Heritage, I thank the committee for its invitation to discuss the defective concrete products levy.

I am a principal officer in the Department of Finance with responsibility for capital taxes, savings taxes and the tax treatment of pensions. The defective concrete products levy also falls under my remit. I am joined by my colleagues Pat McColgan and Leona Cantillon from the Department of Finance. My colleague Jackie O’Callaghan is also in attendance on behalf of the Revenue Commissioners, and she will be able to respond to questions regarding the legislation underpinning the levy. We are also joined today by my colleague from the Department of Housing, Local Government and Heritage, Seán Armstrong, who is head of the residential construction cost and innovation unit in that Department. He will be able to respond to questions on the impact on costs of the defective concrete products levy.

The starting point for the development of the levy was a Government decision in November 2021. At that time, it was decided that a levy on the construction industry would be put in place to raise in the region of €80 million a year, which would go some way to offset the costs of the defective concrete blocks redress scheme. The Government decided that it was to be developed throughout 2022, introduced in the Finance Bill and would to apply from 2023. The Department of Finance engaged with the Departments of Housing, Local Government and Heritage, the Environment, Climate and Communications and Enterprise, Trade and Employment when considering how to design a levy that would deliver on the Government's decision. The National Standards Authority of Ireland and Enterprise Ireland were also engaged with when the levy was being designed.

As the members will be aware, the levy was announced by the Minister for Finance in his budget speech on 27 September last. He announced that the levy would apply at a rate of 10% and come into effect from 3 April 2023. On budget day, the Department also published the Budget 2023: Tax Policy Changes document, which, among other things, sets out the 17 EU standards to which the levy was intended to apply at that time. Subsequently, in light of feedback received from the concrete industry, the broader construction industry and others, the Minister for Finance decided to make several changes to the levy. These are set out in the Finance Bill, which was published on Thursday, 20 October last. The Bill sets out how the levy will operate and the much reduced range of products in respect of which it will apply. The levy will now apply at a rate of 5% from 1 September 2023. It will apply only to concrete that is ready to pour and to concrete blocks manufactured in accordance with two EU standards. All precast concrete standards are now excluded from the scope of the levy.

The levy will apply to certain construction products within the scope of the construction products regulation. The regulation lays down harmonised rules for the marketing of construction products in the EU. The construction products regulation also provides a common technical language to assess the performance of construction products via harmonised European standards.

Concrete that is ready to pour, which is also known as ready-mix concrete, does not fall within the scope of the construction products regulation. However, it is defined in Part 4 of Schedule 3 of the Value-Added Tax Consolidation Act 2010 and is subject to a reduced VAT rate of 13.5%. Therefore, the product is well understood by Irish industry and is readily identifiable for the purpose of the new levy.

The Department of Housing, Local Government and Heritage commissioned a cost assessment analysis report to help identify the likely impact of the levy on construction costs. This is a bottom-up scientific analysis carried out by an independent construction economics cost consultant. The report also includes analysis undertaken by quantity surveyors in the housing advisory unit of the Department of Housing, Local Government and Heritage. This report is a cost assessment based on the 10% levy on concrete products for typical dwellings. The report has been published in advance of the Committee Stage debate on the Finance Bill. It sets out that the percentage increase in construction and development costs was estimated to be approximately 0.4% to 0.9% for a typical semi-detached dwelling and 0.3% to 0.4% for a typical apartment. As this analysis was based on the levy as announced on budget day and the rate of the levy, as published in the Finance Bill 2022, has been reduced, the costings can be reduced by approximately 50% to determine the impact of the new design of the defective concrete products levy on the cost of concrete products. Therefore, the levy will now result in an increase in construction costs while taking account of variables of between €400 to €800 for a typical three-bed semi-detached house and between €375 to €550 per apartment in a typical six-floor apartment block with a basement car park. The percentage increase in construction and development costs of the levy currently is estimated to be approximately 0.2% to 0.45% for a typical semi-detached dwelling and 0.15% to 0.2% for a typical apartment.

In order to determine the revenue raised by the levy the Department of Finance used statistics provided by the Central Statistics Office, CSO. The CSO series entitled Irish Industrial Production by Sector was utilised to estimate the revenue that would be raised by the levy. This series is based on an annual survey of the value and volume of products manufactured by industrial enterprises in Ireland and sold during the reference year. The survey covers all industrial enterprises comprising three or more persons that are wholly or primarily engaged in industrial production and industrial services in the mining, quarrying and manufacturing industries. The survey contains returns for the production of pouring concrete, concrete blocks and prefabricated concrete. The levy, as set out in the Finance Bill at a rate of 5% and encompassing pouring concrete and concrete blocks, will result in an additional €32 million in revenue accruing to the State in a full year of operation.

My colleagues and I can answer any technical questions on the development of the levy. As members will be aware, the Minister will be able to speak about the policy dimensions of the levy on Committee Stage of the Finance Bill, which is due to take place shortly. I hope that this overview of the levy will assist in framing the discussion at this meeting. I reiterate that we are happy to engage with any questions from members.

Chairman

I thank Mr. Hennessy. I understand that there is just one opening statement.

Deputy Pearse Doherty

I thank Mr. Hennessy for being able to present to the committee. I understand that there were some difficulties initially, but I am glad that the officials were able to rethink matters.

I wish to seek a few clarifications. I understand that the levy will apply to concrete block materials that are sold from the North into this State. Is that correct?

Mr. Timmy Hennessy

The levy will apply at the point of first supply. I will ask my colleague from Revenue to set out some of the technical details.

Ms Jacqueline O'Callaghan

There is a couple of different aspects to the levy. Paragraph (a) applies where it is sale or a transfer within the State. Paragraph (b) is where it is assigned within the State, so maybe there is a group of companies that, while they do not sell the blocks, assign it across. It is at that point that the levy will apply to them. The levy will be applied at first use. Let us say a developer imports blocks from Northern Ireland, it will be when they are used within the State that the levy will apply.

Deputy Pearse Doherty

Does Ms O'Callaghan mean when the developer uses them?

Ms Jacqueline O'Callaghan

Whoever brings in the blocks.

Deputy Pearse Doherty

Let us say I wish to build a house in Donegal and am based in Buncrana but source my blocks from Derry. In that instance, who pays the levy?

Ms Jacqueline O'Callaghan

If the blocks are sourced from Derry, then it is the person who sources them. If a person who lives in Buncrana sources the blocks from Derry, it would be that person to whom the levy would apply.

Deputy Pearse Doherty

Would I have to pay the levy?

Ms Jacqueline O'Callaghan

Yes.

Deputy Pearse Doherty

If my house is a self-build, why do I have to pay the levy?

Ms Jacqueline O'Callaghan

The levy will be applied at first use. The first point is the first use within the State. If I manufacture the blocks in the State, I will apply the levy once I first supply within the State. It is most likely that this will be at the point of the manufacturer supplying to industry.

Deputy Pearse Doherty

Exactly. If I buy the blocks from a company in Letterkenny, that company will pay the 5% levy to Revenue and will have the invoice.

Ms Jacqueline O'Callaghan

Yes.

Deputy Pearse Doherty

If I buy the blocks from Derry, it is not the Derry company that will pay Revenue.

Ms Jacqueline O'Callaghan

That company is not within the State.

Deputy Pearse Doherty

So, my house is a self-build. Between 5,000 and 6,000 self-build projects happen every year. If I source the blocks from outside of the State, must I pay the levy to Revenue.

Ms Jacqueline O'Callaghan

That is how the levy would operate.

Deputy Pearse Doherty

How will I do that in practical terms?

Ms Jacqueline O'Callaghan

You would register on www.ros.ie and apply the levy based on the value. The levy is based on the value of supply.

Deputy Pearse Doherty

Is that all self-assessment?

Ms Jacqueline O'Callaghan

Yes.

Deputy Pearse Doherty

There will be some craic with this levy in the Border counties. Figuring out who will pay it is going to be a nightmare. For example, the houses of the families affected by the Mica scandal are all self-builds, so they will have to act like contractors and do all of the work themselves. They will now have to register with Revenue, obtain a personal identification number and calculate the value of the poured concrete that went into their footpath, foundations and everything that they do around the house. I refer here to them accounting for every block that is laid, including for a garden wall or house, and calculating the value that they must pay to Revenue. Do the officials not think that these families have enough on their plates?

Ms Jacqueline O'Callaghan

I represent Revenue, so I draft legislation that gives effect to decisions made by the Minister.

Deputy Pearse Doherty

Yes, I know. I ask Ms O'Callaghan to pass on my comments to the Minister.

Ms Jacqueline O'Callaghan

In the scenario outlined, you have been invoiced by the supplier in the North so there is a value. The levy is based on the value stated on the invoice, and it will be applied at 5%. It is not that a person must calculate anything because the value is stated on the invoice and we know that the levy will be 5%.

Deputy Pearse Doherty

Applying the levy will be a challenge to say the least. I take the point made by Ms O'Callaghan that her job is to give effect to the decisions made by the Minister. It will be interesting to see how the levy will be applied, and that will be the same for anything outside of the State.

Let us delve into the costs that will apply to a three-bedroom semi-detached house, which is what people take as a property of an average size. What square footage is used in calculations? Is it 1,400 sq. ft?

Mr. Seán Armstrong

It is 119 sq. m.

Deputy Pearse Doherty

Is that roughly 1,300 sq. ft or 1,400 sq. ft?

Mr. Seán Armstrong

Around that, yes, and add about 10%.

Deputy Pearse Doherty

Is that the typical size of urban homes? Typically, one-off houses in rural areas would be larger than that.

Mr. Seán Armstrong

Yes, 119 sq. m is the average size of typical scheme development stock.

Deputy Pearse Doherty

It is 119 sq. m for a scheme development, but one-off housing is typically larger than that.

Mr. Seán Armstrong

I have a figure for that. It is 205 sq. m.

Deputy Pearse Doherty

Okay.

Mr. Seán Armstrong

I add 51% of houses are scheme development and 30% are apartments.

Deputy Pearse Doherty

Yes.

Mr. Seán Armstrong

Therefore, approximately 80% of dwellings are covered by our typical examples.

Deputy Pearse Doherty

So 20% will involve a higher cost than what Mr. Armstrong is suggesting because they are not scheme developments or apartments. They are larger and thus will involve the use of more concrete and blocks.

Mr. Seán Armstrong

Yes.

Deputy Pearse Doherty

Was it the Department for Housing, Local Government and Heritage that did the analysis in the note we received?

Mr. Seán Armstrong

No. The note states that we employed or engaged a professional independent construction economics consultant - a quantity surveyor - through a public procurement process.

Deputy Pearse Doherty

Okay.

Mr. Seán Armstrong

We have a few surveyors and consultant surveyors working on different projects.

Deputy Pearse Doherty

Mr. Hennessy suggested that the levy will "result in an increase in construction costs while taking account of variables of between €400 to €800". However, that is not the all-in cost. Is that not so?

Mr. Seán Armstrong

It is clear in our analysis there are hard costs and soft costs, and the figure quoted there is for hard costs.

Deputy Pearse Doherty

Yes, but for anybody watching these proceedings, the public line that has been given by the Minister over and over is this same. Let us deal with that. This is not the real cost, that is, the all-in in cost of the levy on a house. Is that not so?

Mr. Seán Armstrong

When we present the costs, we always say these are the construction costs and we-----

Deputy Pearse Doherty

Yes, but just so everybody-----

Mr. Seán Armstrong

-----published the soft costs as well.

Deputy Pearse Doherty

Yes, but just so everybody understands that the impact of this levy, as currently proposed, on a typical three-bedroom house is not the upper end of €800 all-in cost. Is that not a fact?

Mr. Seán Armstrong

All I can say is what was published. The construction costs are-----

Deputy Pearse Doherty

I refer to the all-in cost. Does Mr. Armstrong understand? I want to make it simple.

Mr. Seán Armstrong

Yes.

Deputy Pearse Doherty

We can deal with this in a minute, but the public are hearing about soft costs and hard costs. It is sometimes difficult to understand if you are not involved in the industry. Can we just talk about what people understand? What will be the impact of this levy on the all-in cost of a house now? I would argue the message being portrayed is that it is between €400 and €800, despite that not being true. The all-in cost is not at that level. Is that not the case? Is it not a fact?

Mr. Seán Armstrong

To repeat what I said, we have always said that the construction cost is between €400 and €800. The total development cost that includes construction costs and development costs is approximately €700 to €1,100.

Deputy Pearse Doherty

Okay, so it is not-----

Mr. Seán Armstrong

That is what is published officially.

Deputy Pearse Doherty

Thus, the upper end is €1,100, which, in fairness, is not far off the €1,200 figure the SCSI has presented. The Department calculated those costs using tender returns. The officials may correct me if I am wrong, but this seems a bit bizarre but they have excluded the impact on costs caused by the hyperinflation we are seeing.

Mr. Seán Armstrong

Yes.

Deputy Pearse Doherty

They have excluded temporary works. They have excluded the impact of the Russia-Ukraine conflict. They have excluded abnormal ground conditions.

Mr. Seán Armstrong

Yes.

Deputy Pearse Doherty

The officials have looked at the tender costs and said if all these things did not happen, this is what the tender cost would be and then applied the 5% levy.

Mr. Seán Armstrong

No.

Deputy Pearse Doherty

Just explain the methodology.

Mr. Seán Armstrong

I have clarified this with the independent consultant as well.

Deputy Pearse Doherty

Okay.

Mr. Seán Armstrong

The costs relate to tender prices for quarter 3 of 2022. That is what they are based on. They account for the inflation that applied at that time. However, any hyperinflation or events that occur after quarter 3 are not included.

Deputy Pearse Doherty

Mr. Armstrong is saying he and his colleagues have ignored even the projected inflation we all know is happening next year. Is that correct?

Mr. Seán Armstrong

We have not ignored it. We took the costs at a certain point in time and provided those costs.

Deputy Pearse Doherty

The levy does not apply now; it will not apply until next September. Have the officials just ignored the fact prices are going up?

Mr. Seán Armstrong

The word "ignored" is not fair, and-----

Deputy Pearse Doherty

Okay. Was it factored in?

Mr. Seán Armstrong

The SCSI explained earlier that this is a snapshot in time for typical costs. We calculated those in September from the information that was available. It is the costs that were current in September; it does not include future increases. However, I will say that-----

Deputy Pearse Doherty

So the impact of the levy will increase.

Mr. Seán Armstrong

If I can just finish my answer, these costs were calculated for budget 2023 and the extension for it after that.

Deputy Pearse Doherty

So is it the case the impact of the levy is likely to increase the costs of a dwelling potentially beyond the upper limit of €1,100, given we are going to see construction inflation increase between September, when the Department took the snapshot, and the levy taking effect a year later?

Mr. Seán Armstrong

The report that is published and is being compiled is for the returns in September.

Deputy Pearse Doherty

Yes.

Mr. Seán Armstrong

That is what we can say and what we have published.

Deputy Pearse Doherty

Does Mr. Armstrong acknowledge inflation is happening in the construction sector? Does he acknowledge what the CIF has told us about further increases-----

Mr. Seán Armstrong

Absolutely.

Deputy Pearse Doherty

-----with concrete and therefore the impact on house prices of this levy will be greater by the time it is introduced than what is in this report? I appreciate this is a snapshot in time but the real politics of this is that it is going to cost more.

Mr. Seán Armstrong

Yes. They would need to be adjusted for future inflation to take account of an application-----

Deputy Pearse Doherty

Then rising energy costs are also-----

Mr. Seán Armstrong

Just to finish as well, we have also given the percentage of 0.2% to 0.45%. That will also increase with inflation. The percentage will stay the same in September.

Deputy Pearse Doherty

Okay. The Department has excluded rising energy costs as well. Is that also excluded from September on?

Mr. Seán Armstrong

From September on.

Deputy Pearse Doherty

Okay. It is the same idea, is it? The Department is just taking a snapshot in time.

Mr. Seán Armstrong

It is a snapshot in time with the available information. We present the information we know at the time of the budget. That is what is being provided.

Deputy Pearse Doherty

Okay. We have concluded the all-in costs are in the region of the Department's upper limit of €1,100. However, those are based on September prices and given construction inflation they are likely to increase by the time this takes effect. Is that fair?

Mr. Seán Armstrong

Yes, they would need to be adjusted for future instances.

Deputy Pearse Doherty

I appreciate the clarity on that.

This is based on a Cabinet decision made over a year ago and outside the officials' bailiwick. As officials in Departments, however, they must give advice to the Ministers on how to give effect to the decision to have an industry contribution. What type of options did they provide to the Ministers on an industry contribution? One of them is the levy that is here in two different forms, namely, 10% and 5%. Were there other options on the table?

Mr. Timmy Hennessy

We presented the Minister with a number of options in our initial consideration to implement the Government decision. Some of the revenue-raising ones included the option of a levy on aggregates, a turnover levy and we also looked at construction and demolition waste, among other things.

Deputy Pearse Doherty

Those were the four options contained in the paper.

Mr. Timmy Hennessy

They were some of the options. We also looked at a levy on relevant contracts tax. That was another option we set out in the paper. They were the revenue-raising options we set out.

Deputy Pearse Doherty

Did the officials look at a levy on the profits of certain companies?

Mr. Timmy Hennessy

We looked at turnover. That was our focus on that. A levy on profits could be unreliable, and it was in the context of the decision that we needed to raise €80 million. Profits can obviously go up and down from year to year but there will always be a level of turnover. Thus when developing options the focus was more on a levy on turnover.

Deputy Pearse Doherty

Everybody who has been before the committee previously has acknowledged that this will be passed on by the industry to those who are purchasing homes or building homes for themselves. Do the officials accept that?

Mr. Timmy Hennessy

A number of things can happen with any tax measure introduced, namely, the company can absorb it, partially absorb it or pass it on. They are the likely or possible outcomes here. That situation would apply irrespective of the type of levy introduced.

Deputy Pearse Doherty

It is more likely that if one has a levy on profits, for example, the company can try to increase its profits but would Mr. Hennessy not acknowledge that it is far easier to pass on a levy on a product than it is to do so on profits?

Mr. Timmy Hennessy

I am not sure that I would know exactly what would happen. Looking at it, we would think that the same issue would occur with a levy on profits where there is a likelihood of pass-through as there is as much a likelihood of the same happening with a levy or another form of tax.

Deputy Pearse Doherty

Mr. Hennessy said that the aim here was to bring in €80 million but that is now gone. Is that gone for good or is it gone temporarily because of the kickback from the public in respect of this levy?

Mr. Timmy Hennessy

The Finance Bill as published indicates a rate of 5% and our estimates suggest that would bring in €32 million per annum in a full year of operation, that is, in 2024.

Deputy Pearse Doherty

Given that there are only two products being levied, which are concrete blocks and the aerated blocks, and that lintels, precast stairs and floors and all the apartments that are being constructed using precast walls are all excluded, the rate did not come down by very much. If everything that had been included in the rate had been reduced to 5%, one would expect a revenue stream of €40 million. This reduction has only reduced the revenue by €8 million further by excluding all of these items.

Mr. Timmy Hennessy

I understand the point being made by the Deputy and one of the difficulties with estimating revenue in this particular case was the statistical information available to officials. I referred earlier to the CSO data and the streams on that meant that one part of it was precast products and the returns covering all precast manufacturing. Even on the levy as initially proposed, not all precast products were included. There was a certain level of estimating the value from within the CSO figures that would be subject to the levy. Since all precast products have been excluded from the scope of the levy, the Department’s estimates are in a much stronger position because it is easier to apply a projection of what percentage one is applying on to all of the pouring concrete statistical data we have, and all of the concrete block data that we have.

Deputy Pearse Doherty

Did the Department of Housing, Local Government and Heritage raise any concerns about how we are in the eye of a significant storm in this State in which housing is a crisis and which the President called a disaster? We have so many people in emergency accommodation, house prices are beyond control and inflation is being turbocharged. Did this Department raise concerns that this would push up house prices further, that it was the wrong direction and that we needed to be looking at policies that could reduce house prices?

Mr. Seán Armstrong

There was an awareness of costs and costs were raised as an item that needed to be considered. The Department of Finance was well aware of that and of the importance of managing costs when introducing any measures.

Deputy Pearse Doherty

Mr. Armstrong’s Department would have communicated a number of times with the Department of Finance in the lead-up to this-----

Mr. Seán Armstrong

We discussed this at meetings when we were discussing the levy.

Deputy Pearse Doherty

Did Mr. Armstrong’s Department raise concerns as to the impact this would have on house costs at the time?

Mr. Seán Armstrong

As part of the measures then, we undertook to carry out the cost assessment to help inform the discussion.

Deputy Pearse Doherty

I am aware of that but when the Department realised that, as bad as house prices are, by the time it took effect this measure potentially would push up house prices by €1,100 and more, did the Department state that pushing up house prices in the middle of a significant crisis might be the wrong thing to be doing?

Mr. Seán Armstrong

We calculated the costs and we shared this information with the Department of Finance.

Deputy Pearse Doherty

Does the Department of Housing, Local Government and Heritage then not share any opinions; good, bad or indifferent?

Mr. Seán Armstrong

In discussions, we said that costs are an important issue to consider.

Deputy Pearse Doherty

The Department, however, did not suggest not to proceed on this on the basis of-----

Mr. Seán Armstrong

A Government decision was made around this and it was a matter for the Department of Finance as to how the measures would be implemented.

Deputy Pearse Doherty

Was it the Department of Housing, Local Government and Heritage that came up with options as to the exclusion of precast concrete? If so, how did that arise? Was it Mr. Armstrong himself and the officials? We have learned that it is because there is a big export market in respect of precast products. I believe the Minister for Finance has stated on the Dáil record that he acknowledges the value of Ireland's precast concrete sector and therefore has decided to remove precast concrete products from the scope of the levy. Is this because of the impact of the export sector for precast concrete and is that the rationale for this decision?

Mr. Timmy Hennessy

We might go back to the construction products regulation, which sets out the standards for the production of construction products and, in particular, concrete products. Officials initially looked at that list of concrete products and we set some criteria for including them in the list we recommended to the Minister. The criteria essentially were as to their use in the construction of roof structures or dwellings. That resulted in some precast concrete standards not being included in the 17 that were published on budget day. That was the first technical analysis of what precast products should be recommended to the Minister to be in or out of the scope of the levy.

Subsequent to that, contact was made by Enterprise Ireland expressing some of its opinions in respect of its client companies and the impact that this could potentially have on its client companies, which were also engaging in the production of some of the precast standards which were within the scope of the levy at that time.

Ultimately a decision on scoping and as to what was in or out is a policy decision for the Minister, which was one that was-----

Deputy Pearse Doherty

Did the Department of Finance make a recommendation to the Minister on the back of Enterprise Ireland’s views on the exporting of these products?

Mr. Timmy Hennessy

We highlighted those issues to the Minister and discussed them with him.

Deputy Pearse Doherty

We now have a situation where we now have to pay a levy for concrete products that are used by us here in this State but anything that is being exported across the water is not actually being charged with that levy any more. Let us charge those people who are already under serious pressure in respect of building. These exclusions are on the basis that this exclusion from the levy, more than likely, is going to impact most on the British market, that is, in England, which would be the beneficiary in respect of the export of precast concrete. Is that not the case?

Mr. Timmy Hennessy

Some of the points raised by Enterprise Ireland in our discussions related to the fact that this was a highly competitive sector and, obviously, as concrete is a very bulky item, the vast majority of exports, I understand, do go to the United Kingdom.

If a product is outside the scope of the levy, it is also out of such scope if it is produced and sold domestically. If a concrete lintel is sold, therefore, within the Republic of Ireland it will not be subject to the levy. Equally, if it is exported to another jurisdiction, it will not be subject to the levy.

Deputy Pearse Doherty

If one excluded blocks, for example, this would have a greater impact on house building here and there would still be lintels, sills, and the buying of slabs if one was not using joists, which would be impacted by the levy. One could then have captured all the export slabs. I will leave this issue at that as the rationale is clear. Obviously, the Government did not want these companies to have to charge more to a non-domestic market and, therefore, they were excluded.

On the technicalities of this, the supply of the material is very important even when it is not sold and is transferred from one company to another. I do not know if it exists now but I know that in the past it did, whereby companies were involved in precast concrete and had a concrete plant on-site where these products would be manufactured on-site. One might have two companies, however, because the company that was manufacturing concrete was both supplying the domestic market within the hinterland of where it was located and was supplying the market for the precast slabs. Where one company, even though it is under the same umbrella as another company, sells concrete to that other company which is located on the exact same site, does a charge exist?

Ms Jackie O'Callaghan

I believe we already have gone through the fact that precast is no longer within the levy but if I am manufacturing blocks and I transfer them because I am also a developer-----

Deputy Pearse Doherty

Can I just clarify because I do not think I made my point clear here, to assist Ms O’Callaghan? This relates to a person who is producing concrete and selling to the domestic market, which obviously has a levy in place. That person, for example, has one company that has been set up as Pearse Doherty Concrete Supplies Limited but also has a company called Pearse Doherty Precast Concrete Sills Limited on the same site.

If my concrete company is supplying and pouring concrete, which is captured under the levy, to create the sills, slabs or lintels, does a charge apply, since poured concrete is included?

Ms Jacqueline O'Callaghan

They are no longer within the list of products that are subject to the levy.

Deputy Pearse Doherty

Is poured concrete included?

Ms Jacqueline O'Callaghan

Poured concrete is. If one is supplying poured concrete, then it is within the charge. We would have to go through the example that the Deputy is giving. We would need more details about the type of poured concrete. I dare say, when the Deputy talks about poured concrete, that he is talking about a lorry coming and supplying poured concrete to another place. If someone was creating a batch then supplying it, we would have to go through the details to see exactly what the process is.

Deputy Pearse Doherty

There is a certain danger here. In the past, concrete would have been poured into the frames for lintels, left to cure for a while, then taken out and the frames would be used again. If there is a situation with two separate companies rather than one, then the concrete that is being used for the pre-cast will be subject to the charge.

Ms Jacqueline O'Callaghan

If it is poured concrete within the meaning here, then it would be, but we would have to go through the details. We would need an example of a specific place to see how the details would apply. The Deputy is talking about two companies operating in one plant.

Deputy Pearse Doherty

Exactly. There are two companies, which will happen numerous times. I do not know if they are still operating but I know of a company that was doing that. If companies are supplying to the domestic market because they have their concrete wagons on-site, they will have a separate company set up. They are invoicing internally. Therefore, the concrete that is used on sills, lintels and kerbs would be subject to the tax.

Ms Jacqueline O'Callaghan

We would have to look at a specific case to see exactly how it is operating.

Deputy Pearse Doherty

Part 4 of the VAT directive defines poured concrete as the supply of concrete that is ready to pour. It does not suggest that it even has to be in a lorry, just that it is ready to pour. It can come straight out of the batch. It excludes the margin scheme, which is double taxation. It appears that if two companies are operating, with one supplying the concrete to pre-cast, then they are captured.

Ms Jacqueline O'Callaghan

It would appear that way. I cannot say for certain because I do not have the facts. I am not an expert in this market so I would have to pass this back to Mr. Hennessy.

Deputy Pearse Doherty

I am only looking for the technical analysis. Maybe that is rare, but I wanted to tease out the case of groups of companies. That is allowed in the legislation, where it is a transfer as opposed to a sale.

Ms Jacqueline O'Callaghan

No. The Deputy gave an example. I will give a couple of other such examples. It would not be unusual for a company that manufactures to also be a developer, so it could transfer products without it being a sale. As I understand the policy intention, it would not be the intention for that to pass over without being subject to the levy. Mr. Hennessy would have to confirm that with regard to the policy.

Deputy Pearse Doherty

That happens quite regularly where there is a small batching plant on the site of a larger development. The policy would cover the poured concrete that is going into the foundation, even though it was not sold.

Ms Jacqueline O'Callaghan

There are other examples that we could go through. In group companies, there are many ways to transfer items without going through a sale or even a legal transfer. As I said, that is how we understand the policy intention.

Deputy Pearse Doherty

The same reason that the Revenue Commissioners have captured that applies in the example I have, which is not about a developer but a company manufacturing pre-cast concrete. It is captured even though pre-cast concrete is excluded, since the material going into the moulds is now included.

I have significant concerns about this. The witnesses are carrying out the policy of the Government and Minister, so I will not raise it with them. I have a question about autoclaved aerated concrete masonry units. Those and aggregate concrete masonry units are the only two products which include poured concrete that are included in the scope of the levy. Was there any view about the exclusion of autoclaved aerated concrete masonry units, given the thermal efficiencies? The Finance Act gave €3,000 for bicycles. This is one of the most efficient blocks that can be used in the construction of homes to improve U-values and energy ratings. Was there any consideration of that? Why was that type of block included?

Mr. Timmy Hennessy

The three product categories the Deputy referred to are covered, which are pouring concrete and the two concrete block standards. They were the standards that the levy applied to. We had some contact with the Department of the Environment, Climate and Communications about looking at this to make sure that the levy would be consistent with Government policy in this area. The final list of products to be included in the scope was ultimately a policy decision for the Minister.

Deputy Pearse Doherty

I know it was a decision for the Minister, but with respect to the Minister, who may prove me wrong, he is not an expert on autoclaved aerated concrete blocks or whatever else. He relies on the witnesses, as officials who have engaged with the Departments of Housing, Local Government and Heritage and the Environment, Climate and Communications, to make a recommendation to him. I do not think he sat down and decided what to go with at random. Did the witnesses give any consideration to including this type of block?

Mr. Timmy Hennessy

One issue with a levy such as this is ensuring that it is legally robust. An issue that arose during the development of the levy was substitutability. There was a consideration that, where two products may be readily substitutable and one could be used for the other, it could give rise to difficulties if the levy was only applied to one. Regarding broader considerations on environmental policy, we looked at EU policy about embodied carbon in concrete and at what work is ongoing at EU level. The levy was defined with reference by EU standards. We understand that work is ongoing in the EU to define concrete with reference to its embodied carbon, which would establish its environmental credentials. That work is not yet completed so it is not yet possible, from looking at individual concrete products, to scope out things based on a new definition of embodied carbon, because one is not yet available for the standards used in construction products regulation. I will ask Mr. Armstrong if I have covered that point clearly.

Mr. Seán Armstrong

That is absolutely correct. The construction products regulation is under review at European level and the environmental characteristics of construction products are being defined under the regulation.

Deputy Pearse Doherty

It is fine that work on the regulation is ongoing, but do the witnesses acknowledge or have information that the type of product we are talking about is light years ahead of traditional materials? Its U-values, soundproofing and other characteristics are all better. If one wants a passive house, this is the type of product that one would use. The evidence is there. The witnesses might wait for a regulation and stamp of approval but the evidence is plain for everybody to see.

Mr. Seán Armstrong

Absolutely. This is a challenge for the Joint Committee on Climate Action. Under the climate action plan, there is significant motivation to have a method to measure the environmental credentials of products. We have been advised by the European Commission that to move in advance of its work is counter to harmonisation.

The Oireachtas Joint Committee on Environment and Climate Action, similar to this committee, has asked us can we move ahead but then we run the risk of sending the industry in a direction that is not aligned with the European standards that are being developed as we speak. The direction and the advice that we have been given by the Commission is to allow it to develop the environmental credentials for these products and then use that environmental criteria to assess the products, give them a score and relatively rate them. That is the current direction of travel for the environmental impact of products.

Deputy Pearse Doherty

The fact of the matter is that if one were to build an apartment now, then instead of using an energy efficient pro-environment block one can use a precast, which is far more carbon intensive, polluting and destructive to the environment. The Department is making a conscious decision today to make it more expensive to use the block that is more environmentally friendly and exempts the other one, which is bizarre given that the Government has schemes like the one that provides €3,000 for bikes with a carrier to encourage the necessary change we need. Climate and housing will be a very big area and change in that area will be challenging.

I appreciate Mr. Hennessy being so frank in terms of his last answer. If this block were not included he has suggested that there could be legal implications because there is a substitute for the concrete masonry block. Is that the issue?

Mr. Timmy Hennessy

That was fed into the consideration of what products should be in the scope of the levy.

Deputy Pearse Doherty

Has consideration of the levy been completed or does the Department seek to increase it further to €80 million per annum because it is now no longer near that per annum?

Mr. Timmy Hennessy

That is a policy question for the Minister as to what he wishes to do. The officials have the instruction that it is as published in the Finance Bill so the rate of 5% is set to be introduced on 1 September next year and that will apply to the few products that we have already discussed.

Chairman

As this was a budgetary measure can I presume that there was no consultation on how the levy might work in the industry?

Mr. Timmy Hennessy

There was no formal consultation. My Department did not conduct a public consultation per se. The Government decision to introduce a levy for the construction sector to raise €80 million was reported in the media at the time. Subsequently, the Department published a tax strategy group paper over the summer where reference was made to the levy. Those papers do sometimes give rise to people interested in the concept raising them, and making contact and submissions to the Department but there was no formal consultation.

Chairman

At an earlier session representatives of the SCSI made the point that the expert group who prepared the Defects in Apartments Report earlier this year highlighted that, "the concept of an industry levy requires careful policy, legal and public scrutiny and should be considered as an option in particular in the context of other similar industry levies under consideration." The expert group report went further and stated that any consideration of a levy should go out to industry and there should be wider discussion about how the levy would work. Has the Department set out for the industry how it expects the levy to work or left that to the industry? Now that we have the space to consider the levy, in the context of reducing the rate of 10% to 5%, will the Department now consult the industry in any way?

Mr. Timmy Hennessy

The Chairman has raised a few points and please remind me if I omit any.

Industry representatives have been in touch with the Department and we will respond to anyone who makes a submission or submits correspondence on development.

Chairman

Does the Department of Finance plan to proactively engage with them? Mr. Hennessy has said that the industry or the CIF has contacted his Department. Has the Department taken the initiative to involve the sector?

Mr. Timmy Hennessy

Last year, there was a Government decision to establish a levy to raise €80 million and that was a Government decision of that time. The Department has worked to develop a levy to meet the criteria as set out in the Government decision. We consulted internally within the service and I set that out in my opening statement. We will engage with any body that has made a submission or contacted the Department and we are very happy to do so. In the limited time between the publication of the Finance Bill and the various Stages of the Finance Bill going through the Houses of the Oireachtas I believe that there would not be sufficient time to consult a public consultation.

Chairman

There is time between now and the time that the levy is implemented to look further into the matter.

Mr. Timmy Hennessy

Yes.

Chairman

Does that take an instruction from the Minister or can the Department automatically take a look at the issue?

Mr. Timmy Hennessy

We would review any submissions, comments or correspondence received by the Department.

Chairman

Would the Department seek submissions from the industry, the SCSI and the lady who was here earlier and made a very comprehensive submission? From the point of view of the levy working, is it not worthwhile to reach out to those who have come to this meeting who are central to this issue and to the collecting of the 5% or whatever it might be? Would it not be worthwhile for Department officials to now engage with them to understand why there was such a kickback by the industry, the general public, etc. and why the 10% rate was reduced to 5% and so on?

Mr. Timmy Hennessy

Like I have said, the Department is very open to communicating and consulting with groups.

Chairman

Is it the case that the Department is not going to trigger that from its side but will allow others to make the case to the Department?

Mr. Timmy Hennessy

Yes, of course. If we do see a need to reach out individually to groups then we will do that. We look at publications, for instance by the SCSI or the CIF, and if further questions arise from the points that they have made then we will of course-----

Chairman

If I was one of the householders who had to rebuild their home then I would be very upset that that is the case. This is not the fault of officials but I would expect that a Department that is about to levy 5% on an industry, which will result in costs that the SCSI has set out for us here, would mean that the Minister and the officials would interrogate the proposition to a far greater detail in order to understand why there was a backlash to the 10% rate. I will say the same thing to the Minister and I encourage the officials, as the advisers who have been asked to provide the figures and the analysis, to suggest the same thing to the Minister.

Mr. Timmy Hennessy

I do understand. I think that the Minister has made some public statements on some of the wider engagement he had, following his budget speech, with some participants in the industry.

Chairman

Would any of the officials or representatives of the delegations present disagree with the table on the increased costs that was provided to us by the SCSI today?

Mr. Timmy Hennessy

I do not believe that the table was shared with us.

Chairman

Did Mr. Hennessy and the officials hear the committee discuss the table as they were here? No. Let me go into details. A SCSI representative said that a three bedroom semi-detached house that is block built, and excluding soft costs, would cost €1,200 per unit. Do people agree or disagree with that figure?

Mr. Seán Armstrong

That is a similar question.

Chairman

Do people agree or disagree with that figure?

Mr. Seán Armstrong

The range that we have given for total development costs, including hard and soft costs is approximately €700 to €1,100. The range that we have given for construction costs is €800 to €1,200.

Chairman

So Mr. Armstrong disagrees with the figure?

Mr. Seán Armstrong

No, the Chairman has given me a range and I have given a similar range.

Chairman

That is not the answer. In fact, it is no answer. I am asking you to comment on the three-bed semi-detached house which is block built, excluding soft costs. The Society of Chartered Surveyors Ireland, SCSI, said the cost will increase by €1,200 per unit. All I want to know from you is whether you agree.

Mr. Seán Armstrong

Excluding soft costs.

Chairman

That is what it says here. It says excluding soft costs.

Mr. Seán Armstrong

I heard the SCSI say-----

Chairman

It said €1,200.

Mr. Seán Armstrong

-----up to €1,200.

Chairman

Yes. Then you did hear it.

Mr. Seán Armstrong

You asked me whether we saw a table.

Chairman

The figure was €1,200 per unit.

Mr. Seán Armstrong

It was up to €1,200 per unit. Our cost is €400 to €800, excluding soft costs. The SCSI also included VAT in its costs.

Chairman

Thus, there is a big difference between your costs and the SCSI's costs.

Mr. Seán Armstrong

I am not sure that there is because we are not comparing the same thing. The SCSI's figure includes VAT whereas our figure excludes VAT.

Chairman

I am attempting to get the same figure from you.

Mr. Seán Armstrong

Our figure is €400 to €800.

Chairman

That is okay. I got it already. A three-bed semi-detached house with a timber frame, excluding soft costs, is €700 per unit.

Mr. Seán Armstrong

We do not have a timber-frame cost.

Chairman

Will you get the table that was given to us and give us the direct answer in order that we can have a direct comparison between what the SCSI is saying and what you are saying?

Mr. Seán Armstrong

We can compare-----

Chairman

Let us have a copy.

Mr. Seán Armstrong

I will.

Chairman

There are considerable issues nowadays with coal briquettes. We are told by the coal merchants that tonnes of them are coming in across the Border and being distributed directly to households. Revenue was supposed to have inspectors there to police that. I will go back to Deputy Doherty's question. How in the name of God will you police a fella bringing a load of blocks or cement for a house across the Border? Is the answer that you will not police him and instead rely on the honesty of the individual to pay the tax? Is that it?

Ms Jacqueline O'Callaghan

First and foremost, this is a policy matter which is being legislated for by Revenue. We will publish guidelines once the legislation is finalised on how it will operate. It is a while since I have been in an operational area. When one commences to build, one has to put in a commencement notice with the local authority which is a public record. It is not that Revenue will be looking at each and every case. A self-assessment will take place but there will be risk profiling within that, as is the case with any levy or tax that Revenue is administering.

Chairman

A woman or man deciding to purchase coal to light his or her fire at home from some form of merchant who comes with coal that has obviously come in from across the Border is illegal. I am asking the same question about blocks. If Revenue cannot stop the coal, how will it stop the blocks?

Ms Jacqueline O'Callaghan

You are asking how we would do compliance work on that levy. It would be no more than doing compliance work on excise or other items that might be due on those products. I am not in an operational but a legislative area. However, a number of compliance programmes are in place. As part of the introduction of any new tax or levy, a compliance programme would be drawn up to ensure that it is operated. It is self-assessed, but we obviously carry out compliance activities and ensure we look at where risks have been identified.

Chairman

Revenue's compliance performance on coal and such products would want to increase with regard to its rate of compliance for blocks, because there is no compliance with cross-Border traffic in that area. The reason I say this is there is a small business in the South selling coal or blocks, complying with the regulations, tax code and all of the rest of it while there is this considerable influx of cross-Border trade. Nobody seems to be stopping it and now we are saying we will add blocks and stuff to that.

Ms Jacqueline O'Callaghan

To give a bit of context, I am not in the area of excise or VAT but there is an open Border. One can buy certain products. I do not know and cannot say exactly what applies. That is not my area. However, I can come back to the committee with-----

Chairman

Will you mention it to the compliance section? I would be interested in hearing what it has to say.

Ms Jacqueline O'Callaghan

Yes.

Chairman

I understand it is not your area. The Construction Industry Federation, CIF, made recommendations this morning. I will ask the clerk to circulate those recommendations to you and ask you for a response. It is very important, when you have been given a policy to fulfil, that this committee would have the response required to the submissions made to us. I ask the clerk to make all of the submissions available to you and you can then respond comprehensively to what has been said this morning.

Deputy Bernard J. Durkan

I have already indicated my feelings on this issue. I realise why it was included. I know from listening to the experience across the water in the past few weeks that any expenditure proposed where there is no proposal or corresponding move to ultimately pay for it, maybe in the years to come, is not regarded as a positive movement. It could also affect many other things. I am not in favour of the lobby in general but it will do, for now, until we get a more comprehensive package to deal with the situation. On that basis, I support it.

Chairman

I thank the witnesses for responding in the way they did.

The joint committee adjourned at 4.37 p.m. sine die.