1 Oct 2012
The foundation for a
strong economy
Initial assessment of the contribution of the mineral products industry to the UK economy
• Employs between 33,000 and 39,000 people directly.
• Generates over £1 billion of taxes each year.
• Generates over £4 billion GVA each year.
• Industry turnover of around £9 billion annually.
• Labour productivity over 2½ times national average.
• Essential input into the £120 bn construction sector.
Disclaimer: While every effort has been made to ensure that the data quoted and used
for the research behind this document is reliable, there is no guarantee that it is
correct, and Capital Economics Limited and its subsidiaries can accept no liability
whatsoever in respect of any errors or omissions. This document is a piece of
economic research and is not intended to constitute investment advice, nor to solicit
dealing in securities or investments.
1 Oct 2012
The foundation for a
strong economy
An initial assessment of the contribution of the
mineral products industry to the UK economy
Contents
1. Introduction and key findings ............................................................................... 3
2. Defining the mineral products industry ................................................................. 5
3. Scale of the mineral products industry .................................................................. 7
4. The supply chain upstream of the mineral products industry ............................... 14
5. The downstream markets supplied by the mineral products industry ................... 17
6. Mineral products’ contribution to the UK’s longer term prosperity....................... 21
7. References and notes .......................................................................................... 26
The foundation for a strong economy October 2012 1
2 The foundation for a strong economy October 2012
1.
Introduction and key findings
This report examines the economic contribution of the mineral products industry to the UK economy.
It is all-too-easy to understate the importance of mineral products, but the industry plays an essential
role in supporting the nation’s economic prosperity.
The mineral products industry – which, in
addition to the firms that extract rock, sand and
gravel, includes those that produce asphalt,
cement, concrete, dimension stone, industrial
sand and lime, and a variety of construction
products – is a vibrant and valuable sector of
British business, and is key to the prosperity of
numerous other industries and the economy at
large.
With the UK officially experiencing a so-called
double-dip recession and national output still
more than four per cent below pre-recession
levels, it is difficult to overstate the difficulties
facing our economy.
In this context, it is important that policymakers
leave no stone unturned in the search for
economic recovery and growth.
There has been a tendency of governments, of
all political persuasions, for their industrial
policies to focus on handpicked ‘growth
industries’ and ‘high value sectors’ – and for
them to try to pick the future business winners.
This is often to the exclusion, if not detriment,
of other businesses, which make up the bulk of
the economy. However, the rest of the economy
employs much of the workforce and generates
much of the country’s prosperity, and will be
critical to future growth.
The mineral products industry is a case in point.
It isn’t new (although it is innovative); it isn’t
high-profile (although so many glamorous
sectors and news-worthy developments rely on
it); it isn’t considered high value (although it has
high rates of labour productivity); and it isn’t on
the political radar.
But this report demonstrates and quantifies its
significance – as an employer, as a tax-payer, as
a purchaser from other British suppliers, and as
the producer of materials and products that are
essential to the economic fabric of the country.
The mineral products industry generates over £4
billion of gross value added each year and
employs between 33,000 - 39,000 people
directly (and supports a similar number
indirectly). It is also a highly productive
industry. Using gross value added per worker as
a measure, its employees are over 2½ times
more productive than the average for the UK. In
addition, the industry spends over £5 billion on
suppliers each year benefiting all regions of the
UK. The mineral products industry contributes
similar levels of gross value added to the
economy as creative industries such as
architecture, television and radio or some hitech manufacturing activities. Equally, it is not
significantly smaller than the motor vehicle
manufacturing and aerospace industries.
The industry has even greater significance when
we consider the markets that it sells into. These
are wide ranging but its biggest customer is the
construction sector, which is crucial to the long
term growth of the economy. In total the
construction industry spends over £6 billion on
mineral products, which are vital to almost
every stage and every type of building project.
To quantify the role that mineral products play
in supporting the construction sector we have
The foundation for a strong economy October 2012 3
considered a purely theoretical world where
there is no indigenous supply of aggregates and
demand is met through imports alone. We have
estimated that without an indigenous supply of
aggregates, reliance on imports would: almost
4 The foundation for a strong economy October 2012
double the price of aggregates; reduce
construction output by over one per cent per
annum; and shave £20 billion off GDP after
fifteen years.
2.
Defining the mineral products industry
In this section we attempt to define the mineral products industry. For the purposes of this report we
consider the mineral products industry to be a collection of firms which are involved with either: the
extraction of aggregates and industrial minerals, the manufacture of materials such as cement and
lime, or the production of construction products. Many of the firms identified are involved with a
mixture of these activities as well as providing other products and services such as road contracting.
In the real world, it isn’t as easy to categorise
businesses and activities into specific sectors or
industries as the economics textbooks might
imply. The mineral products industry is no
exception.
Quarrying for rock and sand and gravel is at the
heart of the industry – but it certainly does not
end there. For example, there is dredging of
materials from licensed areas of the seabed and
the production of recycled and secondary
materials. Then, there is the processing of
minerals, such as the crushing of rock, and their
use, in combination with other inputs, to create
products, such as cement, concrete and asphalt.
Additionally, there is the contracting work
required to use the materials to carry out work
such as road building and maintenance.
Obtaining accurate information on a specific
industry such as this is not straightforward. The
statistics produced by the government’s Office
for National Statistics provide estimates of the
size and linkages of different industries within
the economy based on the Standard Industrial
Classification of 2007 (SIC).
Although the SIC contains over 15,000 subdivisions, much of the data produced are
presented at a much broader level of
disaggregation. For example, the input-output
tables which provide estimates for the turnover,
gross value added and spending breakdown of
each industry splits the UK’s economic activity
into a little over 100 sectors. The mineral
products industry is predominantly captured
within two of the groups in this classification.
They are ’08: other mining and quarrying’ and
’23.5-6: manufacture of cement, lime, plaster
and articles of concrete, cement and plaster’. i
This provides a decent approximation for the
mineral products industry, but it is by no means
a perfect match. Both of these groups include
activities that are not related to the mineral
products industry, such as the extraction of peat
or the extraction of salt. Equally, elements of the
mineral products industry are contained within
other groups in the SIC classification.
To gain a better understanding of the mineral
products industry, we surveyed a sample of the
industry’s firms which provided data on output,
turnover, employment, wages, taxes, profits and
ii
expenditure. Using these results alongside
official statistics has enabled us to produce our
own estimates of the size and scope of the
industry.
In this report the mineral products industry is
defined as the total of the firms that it contains.
That is, it includes all the activities of firms that
are involved with either the extraction of
aggregate minerals, the manufacture of
materials such as agricultural lime, cement and
cementitious materials, industrial lime,
industrial limestone and industrial sand or the
production of construction products (asphalt,
concrete products, dimension stone, mortar or
ready mixed concrete).
The foundation for a strong economy October 2012 5
Most of the firms that engage in the extraction
of aggregates minerals also use some of their
own supply to produce a range of products and
materials as well as engaging in some
contracting work and other smaller scale
activities. There are also a small number of
companies which have major manufacturing
operations producing cement and lime and
other companies focussed on the supply of
materials such as industrial sand to nonconstruction markets.
FIGURE 1: STRUCTURE OF THE MINERAL PRODUCTS
INDUSTRY
To gain a greater understanding of the structure
of the industry we have separated out the
activities of the firms into three categories:
extraction; manufacture of construction
products; and contracting and other activities.
(See Figure 1.)
There is some overlap where the extracted
materials are used within the industry to
produce a range of construction products. The
products flow from the mineral products
industry into the downstream customer markets,
which is predominantly the construction sector.
6 The foundation for a strong economy October 2012
Sources: Capital Economics analysis of data provided by a
sample of companies
3.
Scale of the mineral products industry
In this section we assess the impact that the mineral products industry has on the UK economy. It is an
important sector in its own right and makes a significant contribution to the economy by:
•
•
•
•
•
Employing directly between 33,000 and 39,000 workers
Turning over around £9 billion per annum
Creating over £4 billion of gross value added annually
Generating taxes of over £1 billion each year
Achieving rates of labour productivity nearly 2½ times the national average
3.1 Output
Approximately 250 million tonnes of aggregates
and related minerals are extracted in the UK
each year. This includes sand and gravel,
crushed rock, industrial limestone and industrial
sand. For the sake of simplicity we have also
included the supply of recycled and secondary
materials within the extraction group.
is classified as an intermediate product because
it is used in the production ready mixed
concrete and other concrete products. (See
Figure 2.)
FIGURE 2: OUTPUT OF THE MINERAL PRODUCT INDUSTRY,
2011
Volume produced
In volume terms this would be enough to fill the
iii
O2 arena over 80 times.
Over half of this (160m tonnes) is sold and used
for a wide range of activities such as road
building, levelling pipelines and sewerage
systems, supporting railway sleepers or even
gardening and landscaping. The remaining 90
million tonnes is used by companies in the
industry to produce a range of manufactured or
synthesised products used for the construction
and maintenance of housing, infrastructure and
other buildings and structures. The total output
of the final products produced in 2011 was in
the order of 110 million tonnes, with ready
mixed concrete, concrete products and asphalt
being the most significant. Additionally, twelve
million tonnes of cement was produced, which
million tonnes
Extraction
250
Aggregates
225
Crushed rock
108
Sand and gravel
57
Recycled
60
Industrial limestone
20
Industrial sand
4
Intermediate products
12
Cement/cementitious
12
Final Products
110
Ready mixed concrete
50
Asphalt
25
Concrete products
25
Other
10
Sources: Capital Economics analysis of data provided by a
sample of companies and discussions with Mineral Products
Association
The foundation for a strong economy October 2012 7
FIGURE 3: STRUCTURE OF THE MINERAL PRODUCTS INDUSTRY, BY OUTPUT, 2011
Sources: Capital Economics analysis of data provided by a sample of companies and discussions with Mineral Products Association
3.2 Employment
Based on the survey data collected, we have
used two different methods to produce
minimum and maximum estimates for
iv
employment in the mineral products industry.
We estimate that there were between 33,000
and 39,000 people employed in the mineral
products industry in 2011 across all regions of
the UK. This range relates to the number of
people directly employed by firms in the scope
of this analysis and excludes many contractors,
drivers and others who work within the mineral
products industry. Between 21,000 and 23,000
people are employed in the production of
8 The foundation for a strong economy October 2012
products while approximately between 6,000 7,000 and 7,000 - 9,000 are employed in
extraction and contracting and other activities
respectively. (See Figure 4.)
Official data on employment are available at a
detailed level of the SIC in the Business Register
and Employment Survey. The government
statisticians suggest that the industry generates
over 40,000 jobs. However this is once again
based on a slightly broader definition of the
sector. v
FIGURE 4: STRUCTURE OF THE MINERAL PRODUCTS INDUSTRY, BY EMPLOYMENT, 2011
Sources: Capital Economics analysis of data provided by a sample of companies and Office for National Statistics’ Nomis website
There is a large cluster of employment
concentrated in the East Midlands, which is the
biggest producing region for aggregates and
industrial minerals in the UK. There are also a
significant number of jobs generated by the
industry in Yorkshire, Scotland and the South
West. It is noticeable that the areas which
benefit most from the industry are those outside
of the more prosperous greater south east of
England and therefore a thriving mineral
products industry should help towards the
government’s ambition to create a more
balanced economy geographically. (See Figure
5.)
The survey results suggest that the average
annual wage across the whole of the industry
was approximately £33,000 in 2011, which is
approximately the same as the official estimates
from the Annual Survey of Hours and Earnings. vi
The foundation for a strong economy October 2012 9
FIGURE 5: EMPLOYMENT IN THE MINERAL PRODUCTS INDUSTRY, 2011
Value added
products
number
min
max
Extraction
number
min
max
Contracting and
other
number
min
max
Total
number
min
max
North East
400
400
800
900
300
300
1,400
North West
400
400
1,400
1,600
1,000
1,100
2,700
3,200
Yorkshire and The Humber
600
700
2,600
3,000
600
700
3,800
4,400
East Midlands
800
900
4,700
5,400
1,000
1,200
6,500
7,500
West Midlands
300
300
2,000
2,300
500
600
2,700
3,200
East
300
400
1,300
1,500
500
600
2,200
2,500
London
100
100
1,100
1,300
300
300
1,500
1,700
South East
500
600
1,500
1,800
1,100
1,300
3,200
3,700
1,200
1,500
1,600
1,800
600
700
3,400
4,000
South West
1,700
Wales
400
500
800
900
600
700
1,800
2,100
Scotland
900
1,000
1,400
1,600
900
1,000
3,200
3,700
Northern Ireland
200
200
500
600
200
200
900
1,100
United Kingdom
6,000
7,000
19,600
22,700
7,700
8,900
33,200
38,700
Sources: Capital Economics analysis of data provided by a sample of mineral product firms and Office for National Statistics’ nomis
website. Notes — Northern Ireland estimate made on basis of share of employment in the UK. Other regions based on Nomis data
for identified SIC codes
3.3 Turnover, GVA and productivity
Through the collection of data from a survey of
firms within the mineral products industry we
have been able to produce estimates which
exclude the extraneous activities included in the
official figures.
We estimate that, in 2011, the mineral products
industry turnover was a little over £8½ billion.
This comprised £1.5 billion of revenues from
direct sales of aggregate to outside the sector,
£5.3 billion of sales of construction products
and £1.8 billion of contracting and other
revenues. (See Figure 6.)
Given the structure of the industry, these
turnover estimates are liable to misrepresent the
scale of extraction activity. Around 35 per cent
(£1.1 billion in value) of aggregates extracted
are used by the industry itself to create other
10 The foundation for a strong economy October 2012
value added products. We suspect that around
40 per cent (or £420 million) of this is made up
of sales between firms within the industry,
which is missing from the figures when looking
at the collection of firms as one whole industry.
Furthermore, some firms both extract aggregates
and use them for the manufacture of products
themselves. If these ‘internal sales’ were
monetised, we estimate they would have been
worth another £630 million or so in 2011.
The best available classification of the mineral
products industry within the official statistics
(see section 2) produces a higher total turnover
estimate for the mineral products industry of
around £16 billion vii. As there are a range of
activities included in this definition which are
not directly related to the sector this is likely to
be a significant over estimation.
FIGURE 6: STRUCTURE OF THE MINERAL PRODUCTS INDUSTRY, BY TURNOVER, 2011
Sources: Capital Economics analysis of data provided by a sample of companies and Office for National Statistics’ Nomis website
Although turnover is a useful comparative
measure of the size of an industry, a more
meaningful indication of the scale of economic
activity generated by an industry is that of gross
value added.
Our survey results suggest that the industry
generated gross value added of over £4 billion
in 2011, accounting for 0.3 per cent of total UK
output. (See Figure 9.) The mineral products
industry contributes similar levels of gross value
added to the economy as creative industries
such as architecture, television and radio or
some hi-tech manufacturing activities. Equally,
it is not significantly smaller than the motor
vehicle manufacturing and aerospace industries.
(See Figure 7.)
than many sectors which are often described as
high value activities. (See Figure 10.)
For broader analysis of GVA by sector see the
Department for Business Innovation and Skill’s
Industrial Strategy: UK Sector Analysis. viii
The industry also makes a significant
contribution to the exchequer. Including a
specific levy on aggregates, firms comprising
the industry generate taxes of over £1 billion
ix
per annum. (See Figure 8.)
Jobs in the sector have high rates of
productivity. Each worker generates over
£110,000 of value added per year. This is more
than 2½ times the national average and higher
The foundation for a strong economy October 2012 11
FIGURE 7: GVA OF SELECTED INDUSTRIES, 2011
FIGURE 8: TAXES GENERATED BY THE MINERAL PRODUCTS
INDUSTRY
GVA
£ m, 2011 prices
Manufacture of computer,
electronic and optical products
Motor vehicles
9,364
Advertising
6,479
Aerospace
6,421
Basic chemicals, fertilisers and
plastics
Television and radio
6,204
Manufacture of electrical equipment
4,630
Mineral products
4,079
Architecture
3,558
Film, video, photography
3,245
Furniture
2,957
Wood and wood products
2,417
Textiles
1,989
Video games
Tax paid
£ million
6,656
Aggregates levy
400
Net VAT
500
70
Non-domestic rates
Employers' national insurance
100
Total
5,689
1,060
Sources: Capital Economics analysis of data provided by
sample of companies. Note: the minerals products industry
is also subject to a range of energy and carbon - related
taxes and measures which are not included in the analysis
above
406
Sources: ONS, Annual Business Survey 2010. DCMS,
Creative industries economic estimates 2008. Oxford
Economics, The economic contribution of the UK games
development industry 2009. Note: All figures have been
projected to 2011 and converted to 2011 prices by Capital
Economics
FIGURE 9: SCALE OF THE MINERAL PRODUCTS INDUSTRY, 2011
Contracting
and other
Total Industry
(firm basis)
direct sales
250
160
90
120
-
-
2,540
1,490
1,060
5,280
1,770
8,530
Tax paid
540
-
-
390
140
1,060
Profits
350
-
-
980
330
1,660
Total pay
310
-
-
730
320
1,360
1,210
-
-
2,090
780
4,080
Volume (m t)
Turnover (£ m)
GVA (£ m)
internal sales
Value added
products
Extraction
Sources: Capital Economics analysis of data provided by sample of companies and the Office for National Statistics’ input-output
tables. For broader analysis of GVA generated by sector see the Department for Business Innovation and Skill’s Industrial Strategy:
UK Sector Analysis, September 2012
12 The foundation for a strong economy October 2012
FIGURE 10: LABOUR PRODUCTIVITY RATES FOR A SAMPLE OF INDUSTRIES, 2011
Gross value added per employee
Financial service activities, except insurance and pension funding £, 2011 prices
186,600
Mining support service activities 137,500
Other mining and quarrying 129,000
Telecommunications 121,900
Construction of buildings 115,700
Capital Economics estimate of mineral products industry
113,500
Manufacture of cement, lime, plaster and articles of concrete, cement an
100,300
Manufacture of computer, electronic and optical products 74,800
Information service activities 72,500
Legal activities 71,500
Accounting, bookkeeping and auditing activities; tax consultancy 56,800
Architectural and engineering activities; technical testing and analysis 56,100
Manufacture of air and spacecraft and related machinery
50,700
National average
48,800
Creative, arts and entertainment activities 40,000
Scientific research and development 37,200
Manufacture of motor vehicles, trailers and semi-trailers 37,200
Retail trade, except of motor vehicles and motorcycles 26,400
Sources: Office for National Statistics’ input-output tables 2009 and Capital Economics analysis of data collected from sample of
companies. Note: Data has been up-rated to 2011 by Capital Economics
The foundation for a strong economy October 2012 13
4.
The supply chain upstream of the mineral products
industry
In this section we examine the value that the mineral products industry creates in its supply chain. In
2011, the industry:
•
•
•
Spent over £5 billion on suppliers, of which £3.5 billion went to UK based companies
Supported 37,000 jobs in its supply chain
Stimulated over £2 billion of gross value added upstream
The contribution of the mineral products
industry is not limited to the direct activity of its
firms. The economy is also stimulated by the
money that is spent by the firms on suppliers to
the industry, creating jobs and adding value in
those businesses.
It doesn’t end there. The suppliers then spend a
proportion of that income on their own
suppliers and this continues through the supply
chain until the amount re-spent on suppliers
diminishes. These are known as ‘indirect’ or
‘multiplier’ effects.
Based on a combination of procurement data
supplied by a sample of companies and the
Office for National Statistics’ input-output
tables, we have estimated that a total of £5.2
billion is spent by firms on suppliers to the
industry in 2011. (See Figure 12.)
Around 85 per cent of the total is current
expenditure, with the largest sums spent on
transportation and energy costs. There is also a
significant sum of approximately £800 million
spent by firms on other companies within the
industry, much of which will be the purchase of
aggregates for the manufacture of products such
as concrete and asphalt. Capital expenditure
and spending on repairs and maintenance make
up the other fifteen per cent, totalling nearly
£700 million. (See Figure 11.)
14 The foundation for a strong economy October 2012
We have estimated that spending on foreign
goods and services accounts for around 30 per
cent of the total while 70 per cent is spent on
suppliers in the UK. (See Figure 11.)
FIGURE 11: EXPENDITURE ON SUPPLIERS BY THE MINERAL
PRODUCTS INDUSTRY, 2011
Expenditure
£m
Current expenditure
4,500
of which:
Transportation
1,500
Non-transport energy
540
Capital expenditure
300
of which:
Transport assets and plant and machinery
190
Repair and maintenance
370
Total expenditure on suppliers
5,200
comprising:
Expenditure on UK suppliers
Expenditure on foreign suppliers
3,500
1,700
Sources: Capital Economics analysis of data provided by
sample of companies and the Office for National Statistics’
input-output tables.
FIGURE 12: STRUCTURE OF THE MINERAL PRODUCTS INDUSTRY, SPENDING ON SUPPLIERS, 2011
Sources: Capital Economics analysis of data provided by sample of companies and the Office for National Statistics’ input-output
tables.
Figure 13 shows the effect that this spending has
through the supply chain. Over 37,000 jobs are
supported by the mineral products industry, in
addition to the 36,000 (average of range
quoted) directly employed staff. In total, this is
equivalent to three quarters of the number
x
employed at Canary Wharf. The effects are
spread across the country with over 1,000 jobs
supported in every region with London, the
South East and the North West regions home to
the largest numbers.
The industry’s expenditure also generates
almost £2.2 billion of gross value added by
stimulating activity in the firms in its supply
chain, with associated turnover of over £6
billion. Once again, each region of the UK
benefits from increased economic activity
which is created by mineral product firms.
The foundation for a strong economy October 2012 15
FIGURE 13: TOTAL EFFECTS OF THE MINERAL PRODUCT INDUSTRY’S PROCUREMENT, 2011
Jobs
number
GVA
Turnover
£m
300
North East
1,500
£m
100
North West
4,000
200
700
Yorkshire and The Humber
3,200
200
600
East Midlands
3,400
200
600
West Midlands
3,500
200
600
East
3,100
200
500
London
5,400
300
700
South East
4,300
300
700
South West
3,300
200
600
Wales
1,500
100
300
Scotland
3,200
300
700
Northern Ireland
1,000
100
200
United Kingdom
37,200
2,200
6,500
plus industry's direct impact:
36,000
4,100
9,000
Total direct and indirect impact
73,200
6,300
15,400
Sources: Capital Economics analysis of data provided by sample of companies and the Office for National Statistics’ input-output
tables and Nomis website.
16 The foundation for a strong economy October 2012
5.
The downstream markets supplied by the mineral products
industry
In this section we assess the linkages that the mineral products industry has with the markets that it
supplies into. The key findings are:
•
•
•
•
The industries that rely on aggregates as an input have a total turnover of £400 billion and
employ over 2½ million people
The majority of mineral products are supplied to the construction sector
The performance of the construction sector has a significant impact on the UK’s capital stock
and overall GDP
An increase in the price of aggregates would lead to a fall in construction output, and a
reduction in overall long term economic prosperity
As well as being an important industry within its
own right, the products supplied by the mineral
products industry are essential to a host of other
sectors. Figure 14 lists the industries which use,
to varying degrees, mineral products. The
sectors range from the manufacture of perfumes
to the casting of metals and production of glass.
In total, the turnover of all industries that use
mineral products is around £400 billion, and
they provide jobs for approximately 1.3 million
xi
people.
This figure is calculated using employment data
from the Business Register and Employment
Survey, which reports the number of employees
by industry (SIC 2007) to a detailed level, based
on the overall classification of the business for
which they work.
An alternative source of employment data is the
Annual Population Survey. This is a survey of
the population and classifies an employees’
industry on an individual basis. This may give a
more accurate picture of the number of people
working in a particular sector however there is
less detail available.
Construction is the largest sector downstream of
the mineral products industry. Using total
construction sector employment from the
Annual Population Survey along with the other
sectors that we have identified in the Business
Register and Employment Survey, the total
employment in industries which use mineral
products is over 2½ million. xii This is also
consistent with the Government’s Industrial
Strategy: UK Sector Analysis which estimates
employment in construction of just over two
xiii
million.
Although the uses of mineral products are
varied and plentiful, their use is greatest in the
construction sector. Using data from the
Mineral Products Association on the end-use of
aggregates, we have produced estimates of the
value of mineral products which feed into
xiv
different types of construction. In total, the
construction sector spends nearly £6.4 billion
each year on mineral products, accounting for
five per cent of the sector’s total turnover. Over
£2 billion of product flows into infrastructure
projects while repair and maintenance and
private commercial property construction
accounts for a further £2.2 billion. Around £800
million is used for both private housing and
public non-infrastructure projects. (See Figure
15.)
The foundation for a strong economy October 2012 17
FIGURE 14: SCALE OF THE INDUSTRIES WHICH USE MINERAL PRODUCTS, 2011
Scale of mineral products' downstream markets, 2011
SIC
Code
Sector
10.91
Manufacture of prepared feeds for farm animals
15.11
17.12
Tanning and dressing of leather; dressing and dyeing of
fur
Manufacture of paper and paperboard
20.16
Manufacture of plastics in primary forms
20.17
Manufacture of synthetic rubber in primary forms
Employment
GVA
Turnover
number, 2011
7,700
£ m, 2011 prices
500
£ m, 2011 prices
3,100
1,400
100
1,300
9,200
500
3,400
11,500
1,400
16,500
400
0
500
Manufacture of paints, varnishes and similar coatings,
printing ink and mast
20.41/1 Manufacture of soap and detergents
15,700
1,100
4,800
4,900
400
2,200
20.42
Manufacture of perfumes and toilet preparations
16,500
1,400
7,400
20.6
Manufacture of man-made fibres
21.20
Manufacture of pharmaceutical preparations
22.1
Manufacture of rubber products
18,800
700
4,000
22.2
Manufacture of plastics products
119,700
4,600
25,400
23.1
Manufacture of glass and glass products
20,000
800
36,000
23.2
Manufacture of refractory products
2,700
100
4,800
23.32
5,000
200
9,000
23.4
Manufacture of bricks, tiles and construction products,
in baked clay
Manufacture of other porcelain and ceramic products
7,400
300
13,300
23.9
Manufacture of abrasive products and non-metallic
7,500
300
13,600
24.10
Manufacture of basic iron and steel and of ferro-alloys
19,700
1,600
8,600
24.5
Casting of metals
14,400
600
6,600
36
Water collection, treatment and supply
28,300
4,800
6,900
37
Sewerage
17,800
4,800
7,000
38.11
Collection of non-hazardous waste
56,500
3,100
11,000
41
Construction of buildings
318,300
37,600
98,600
42
Civil engineering
201,400
18,600
46,400
43.12
Site preparation
7,600
500
1,100
46.11
Agents involved in the sale of agricultural raw
2,800
100
300
46.13
Agents involved in the sale of timber and building
3,800
200
400
46.63
Wholesale of mining, construction and civil
7,700
400
800
46.73
105,900
5,100
11,200
49.20
Wholesale of wood, construction materials and sanitary
equipment
Freight rail transport
6,200
500
1,000
49.41
Freight transport by road
206,500
10,400
21,900
Total
1,280,800
111,200
400,600
Estimate for construction using Annual Population
Survey
2,137,900
Total (using APS)
2,891,600
20.3
41-43
1,300
200
1,800
34,400
10,400
31,500
Sources: Office for National Statistics’ nomis website and input-output tables 2009. Note: Where necessary, figures have been
projected to 2011 and converted to 2011 prices by Capital Economics
18 The foundation for a strong economy October 2012
FIGURE 15: VALUE OF PRODUCTS FROM THE MINERAL PRODUCTS INDUSTRY USED BY THE CONSTRUCTION SECTOR, 2011
£ m, 2011 prices
Public
Housing
Noninfrastruct
ure public Private
Private
Private
Repair and
work
housing Infrastructure
industrial commercial maintenance
Total
Aggregates
46
219
626
304
108
286
320
Cement and cementitious
19
115
220
118
37
130
103
742
Ready mixed concrete
33
207
396
213
67
234
186
1,337
Asphalt
Concrete products
Total value of mineral products
in construction
Total value of construction output
1,910
9
53
369
21
15
77
493
1,038
34
213
406
218
69
240
191
1,372
141
808
2,018
874
295
968
1,295
6,398
5,066
16,908
15,766
13,796
3,442
25,325
45,388
125,691
Sources: Capital Economics analysis of Office for National Statistics’ construction statistics, data collected from a sample of
companies and data provided by the Mineral Products Association.
Construction activity is crucial to the strength of
the UK’s economy. According to the 2010 gross
value added estimates by the Office for
National Statistics it comprises six per cent of
xv
total output and the buildings and
infrastructure it constructs add to productive
capacity and efficiency. Each year, the change
in the built environment, which forms part of
the UK’s net capital stock, is dependent upon
the level of construction output. The total
impact is equal to the value of construction
output minus depreciation and retirements.
The overall level of capital in an economy has a
strong and well documented relationship with
economic growth. Although clearly estimates
will vary, a review of the literature suggests that
a reasonable estimate of the elasticity of output
with respect to capital is around 0.35. xvi This
means that a one per cent rise (or fall) in the
capital stock will result in a 0.35 per cent rise
(or fall) in GDP.
It is clear that, through construction, a secure
supply of mineral products plays an important
role in the economy as a whole. A rise in the
price of mineral products would lead to a rise in
the price of inputs into the construction
industry. This would feed through as an
increase in the direct cost of aggregates and also
a rise in the price of the products that they are
used to produce. Figure 16 shows the
proportion of the volume of the main
construction products which is made up of
aggregates (and industrial limestone for
cement).
FIGURE 16: AGGREGATES AS A SHARE OF TOTAL INPUTS
INTO PRODUCTS, BY VOLUME
Share of product volume
comprised of aggregates,
industrial limestone
Asphalt
96%
Cement and cementitious
50%
Concrete products
88%
Ready mixed concrete
80%
Source: Mineral Products Association
It is important to understand the dynamics of
how a change in the price of aggregates would
affect construction output. By employing
econometric analysis of the relationship
between construction costs and construction
output, as well as our own professional
judgement based on previous research and
evidence, we have estimated an elasticity of
xvii
demand for each type of construction. (See
Figure 17.)
Public works and repair and maintenance are
the most responsive to changes in construction
costs with a one per cent rise in costs resulting
eventually in a one per cent fall in output. For
infrastructure and private housing projects the
The foundation for a strong economy October 2012 19
elasticity of outputs with respect to costs is -0.5.
Private commercial and industrial construction
appear the least responsive to cost changes.
FIGURE 17: ELASTICITY OF CONSTRUCTION OUTPUT WITH
RESPECT TO CONSTRUCTION COSTS
Estimated elasticity of
construction output with
respect to construction
costs
Public Housing
-1.0
Private housing
-0.5
Infrastructure
-0.5
Non-infrastructure public work
-1.0
Private industrial
-0.2
Private commercial
-0.2
Repair and maintenance
-1.0
Source: Capital Economics
Going one stage further, we have also estimated
the elasticity of construction output with respect
to the price of aggregates. Figure 18 shows that
a one per cent increase in the price of
20 The foundation for a strong economy October 2012
aggregates will result in a 0.015% fall in
construction output. The price of aggregates has
the largest impact on the infrastructure and
public works sectors, which each have an
elasticity of around -0.03.
FIGURE 18: ELASTICITY OF CONSTRUCTION OUTPUT WITH
RESPECT TO AGGREGATE PRICE
Estimated elasticity of
construction output with
respect to price of
aggregates
Public Housing
-0.014
Private housing
-0.011
Infrastructure
-0.031
Non-infrastructure public work
-0.032
Private industrial
-0.009
Private commercial
-0.004
Repair and maintenance
-0.013
Total
-0.015
Source: Capital Economics
6.
Mineral products’ contribution to the UK’s longer term
prosperity
In this section we attempt to quantify the importance of the domestic mineral products industry to the
UK’s long term prosperity. To do this we have simulated and assessed the purely theoretical scenario
that there is no indigenous supply of aggregates. Without local supply, reliance on imports would:
•
•
•
Almost double the price of aggregates
Reduce construction output by over one per cent per annum
Knock £20 billion off GDP by fifteen years
This section attempts to quantify the
contribution of the mineral products industry by
assessing the counter factual scenario in which
there is no indigenous supply of aggregates.
Typically, one would do this by looking at the
effects of using substitute products. However, in
the case of aggregates it is often hard to identify
what could be used as a replacement. Even
where new methods of construction are
employed, aggregates are still required for
elements of the work and there are no closely
matched alternatives which could do the same
job.
Instead, we have attempted to quantify the
importance of the mineral products industry to
the UK by looking at the hypothetical scenario
that there is no indigenous supply of aggregates.
In this case, all of the UK’s demand for
aggregate materials would have to be met
through imports.
Our analysis has largely put to one side the
practical issues that may arise, for example:
•
•
•
•
imported aggregates which the analysis
assumes
The availability of land to create new
port capacity
The ability of our transport networks to
move imported aggregates from port to
market
The availability of a sufficient supply of
aggregates from other exporting
countries
We consider a purely hypothetical scenario
which focuses on what would have been the
economic consequences of living with no
domestic mineral products industry over the
past fifteen years. Under this scenario there are
three key points to consider:
1. What would have happened to the
price of aggregates?
2. What effect would this have had on
construction output?
3. What impact would this have had on
the UK’s capital stock and economic
growth?
The ability of our ports to
accommodate the huge increase in
The foundation for a strong economy October 2012 21
6.1
What would have happened to the price of aggregates?
The starting point of the analysis is to determine
what effect importing aggregates would have on
their price. There are two main determinants of
the price of aggregates: the quarry price; and
the cost of transportation.
Having spoken to industry experts it seems
reasonable to assume that the most likely, or
possibly the only, country that could come
anywhere near fulfilling the UK’s demand for
aggregates is Norway, which produces and
exports large volumes. For the purpose of this
analysis we have assumed that the average ex
works price of Norwegian aggregate is fifteen
per cent lower than it is domestically, which is
roughly the current situation. Of course, if the
demand from the UK really did rise to the levels
in our hypothetical scenario, one might expect
prices to rise substantially.
Importing aggregates adds several stages to the
supply chain, increasing the transportation costs
incurred.
First, there are shipping costs. These can be
broken down into the cost of leasing the vessel,
the fuel (bunker) costs and a variety of port and
handling charges. A report produced by the
British Geological Survey and CEBR in 2008
estimates the shipping costs of a ‘typical’
journey to import aggregates from Norway to
the Grimsby and Immingham port xviii. The same
methodology has been used in this report with
figures updated using the most recent available
xix
data. We have estimated that the total port
and shipping costs would amount to around
£11 per tonne. The bulk of the increase is due
to the port and handling charges which will add
nearly £10 per tonne. (See Figure 19.) This is a
conservative estimate based on current port
charges. These, in all likelihood, would rise if
ports were to handle the volumes of aggregates
required.
22 The foundation for a strong economy October 2012
Second, there are additional transportation costs
to move the aggregates from the port to the
point of consumption, which will be different to
those from the domestic quarry. Using
consumption data from the Aggregate Minerals
Survey 2009 and assuming that aggregates
would be imported into the closest major port
to the point of consumption, we have estimated
that the average trip would be eighteen
kilometres longer than the average for
domestically sourced aggregate. xx The
additional travel costs would amount to around
xxi
50 pence per tonne . This is likely to be a
conservative estimate as in reality large volumes
of aggregates coming from Norway would
probably land on an east coast port rather than
the being shipped to ports dotted all the way
around the country.
Combining all of the price movements (positive
and negative) leads to a total price increase of
around £10 per tonne, almost doubling the
current domestic price for aggregates.
FIGURE 19: INCREASE IN PRICE OF AGGREGATES IF TOTAL
SUPPLY WAS IMPORTED
Additional cost
£/tonne
Shipping and port costs
11.30
Port and handling charges
9.70
Bunker costs
0.90
Vessel leasing
0.70
Quarry to destination travel costs
0.50
Assumed saving on ex works price
-1.80
Total
10.00
Sources: Capital Economics, British Geological Survey and
CEBR, The need for indigenous aggregates production in
England, 2008. Associated British Ports, Grimsby and
Immingham principal rates and charges and standard terms
and conditions of trade. Bunkerworld, Bunker bulletin daily
Jan/Feb 2012
6.2 What effect would this have had on construction output?
In one year this equates to over 7,000
construction jobs and over £600 million of
gross value added that would be lost. The losses
in the construction sector would also have
knock-on effects on the supply chain which
amount to over 10,000 jobs and approximately
£600 million of gross value added. (See Figure
20.)
An increase in the price of aggregates would
also feed through into the construction products
that it is used to manufacture.
Using our estimated price elasticities, which
measure the responsiveness of construction
output to a change in the cost of its inputs (see
section 5), we have estimated that an increase
in the price of aggregates of £10 per tonne
would result in a fall in construction output of
£1.5 billion or 1.2 per cent each year.
FIGURE 20: LOSSES TO THE ECONOMY AS A RESULT OF A RISE IN THE PRICE OF AGGREGATES
Jobs
number
North East
GVA
£m
Turnover
£m
700
50
100
North West
2,000
130
400
Yorkshire and The Humber
1,500
100
300
East Midlands
1,400
90
300
West Midlands
1,600
100
300
East
1,600
110
300
London
2,300
150
400
South East
2,500
170
400
South West
1,400
100
300
800
60
200
1,700
130
300
Northern Ireland
500
30
100
United Kingdom
18,100
1,230
3,200
7,300
610
1,600
10,800
610
1,700
Wales
Scotland
Direct losses to construction sector
Indirect losses to supply chain of construction sector
Sources: Capital Economics analysis of the Office for National Statistics’ construction output and price statistics and input-output
tables
The foundation for a strong economy October 2012 23
6.3 What impact would this have had on the UK’s capital stock and economic
growth?
As construction output falls, growth in the net
capital stock slows. Under the theoretical
scenario that there had been no indigenous
supply of aggregates for the past fifteen years,
the UK’s net capital would have been £15
billion (or 0.5 per cent) lower by 2009. (See
Figure 21.)
The net capital stock of an economy has a
positive relationship with output. (See section
5.) Translating the reduction in the net capital
stock to GDP, our analysis suggests that if the
indigenous supply of aggregates had been
removed fifteen years ago, GDP would have
been £20 billion (1.5 per cent) lower in 2009.
This is the equivalent to losing the entire land
transport industry or the whole of the
telecommunication industry. xxii (See Figure 22.)
FIGURE 21: NET CAPITAL STOCK, 2009, £ BILLION
Sources: Capital Economics analysis of office for national
statistics’ capital stock and construction output data
FIGURE 22: EFFECTS OF AN INCREASE IN AGGREGATES PRICE ON GROSS DOMESTIC PRODUCT OVER FIFTEEN YEARS
Sources: Capital Economics analysis of the Office for National Statistics’ capital stock, construction output, construction price d
and GDP data
24 The foundation for a strong economy October 2012
The total impact on GDP is a combination of
the loss in construction output each year and
the cumulative effect of a smaller capital stock
reducing productive capacity. Over fifteen years
the annual loss of construction output would
amount to £15 billion. During the same period
the negative impact of the falling net capital
stock on growth would total over £115 billion.
This means that if there were no domestic
supply, a doubling of aggregate price caused by
higher import costs would result in over £130
billion of lost output over fifteen years. (See
Figure 23.)
FIGURE 23: GDP, £ BILLIONS, 2006 PRICES
Sources: Capital Economics analysis of the Office for National Statistics’ capital stock, construction output, construction price and
GDP data
The foundation for a strong economy October 2012 25
7.
References and notes
i
Office for National Statistics, Standard Industrial Classification 2007, – 2009 (ONS, London)
We received responses from seven firms covering 49 per cent of the extraction industry by volume and
70 per cent of the construction products industry by volume. Survey conducted between 11/05/12 and
30/05/12
iii
http://www.e-architect.co.uk/london/o2_arena.htm [Accessed 24/06/12]
iv
Employment numbers were calculated using two different methods: 1) Using average wage and total
wage bill data from a selection of companies. 2) Using a selection of company data to calculate turnover
per employee estimates and multiplying by total turnover estimates. Method 1 represents the maximum
estimates and method 2 represents the minimum.
v
Sector defined as two SIC 2007 groups: ’08: other mining and quarrying’ and ’23.5-6: manufacture of
cement, lime, plaster and articles of concrete, cement and plaster’
vi
Office for National Statistics, Annual Survey of Hours and Earnings 2011 (ONS, London)
vii
Office for National Statistics, Input-Output Analytical Tables – 2009 (ONS, London).
viii
Department for Business, Innovation and Skills, Industrial Strategy: UK sector analysis, September
2012 (BIS, London)
ix
Taxes include corporation tax, aggregates levy, net VAT, non-domestic rates and employers’ national
insurance
x
Canary wharf group website. One quarter of the workforce in Canary Wharf is approximately 25,000.
http://www.canarywharf.com/aboutus/Corporate--Social-Responsibility/Economic-and-SocialDevelopment/Employment-and-Training/ [Accessed 24/06/12]
xi
Turnover calculated from Office for National Statistics, Input-Output Analytical Tables – 2009 (ONS,
London). Data uprated to 2011 volumes and prices by Capital Economics. Employment calculated from
Office for National Statistics’ nomis website, Business Register and Employment Survey – 2010 (ONS,
London). Data uprated to 2011 volumes by Capital Economics
xii
Office for National Statistics’ nomis website, Business Register and Employment Survey – 2010 (ONS,
London). Office for National Statistics’ nomis website, Annual Population Survey, (ONS, London).
xiii
Department for Business, Innovation and Skills, Industrial Strategy: UK sector analysis, September
2012 (BIS, London)
xiv
End use assumptions provided by the Mineral Products Association
xv
Office for National Statistics, Regional, sub-regional and local gross value added 2010 spreadsheet,
released 14/12/2011. Data downloaded from the ONS’s main website www.statistics.gov.uk on 14 June
2012.
xvi
Elasticity estimate obtained from search of academic literature examining the link between capital and
growth
xvii
Regression analysis using data from Office for National Statistics’ data on construction output,
construction costs and gross domestic product
xviii
Typical journey consist of ten day round trip from Norway to Immingham. It is based on three days
loading, four days at sea and three days discharging using a 70,000 tonne capacity panamax vessel.
xix
We have updated figures using:Associated British Ports, Grimbsy and Immingham charging schedule
2012. Thomson datastream,The Baltic exchange panamax index. Fuel prices from the 2011 Bunker
Bulletin.
xx
Average road haul for bulk crude minerals in 2010 was 49 kilometres. Estimates from Department for
Transport, Road freight statistics: average length of haul by commodity.
xxi
Communities and Local Government, Aggregate Minerals Survey 2009– 2011 (DCLG, London).
xxii
Sectors based on Standard Industrial Classification 2007. Land transport defined as SIC code 49.1-2
and telecommunications defined as code 61
ii
26 The foundation for a strong economy October 2012
This document has been prepared, under commission from the Mineral Products Association, by:
Andy Evans
Mark Pragnell
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