IMPACT IN NORTHERN IRELAND OF CROSS-BORDER
ROAD FUEL PRICE DIFFERENTIALS
SCALE OF THE PROBLEM
11. At the outset of our inquiry, we sought to establish
the scale of the problem, which appears to have grown substantially
in the last couple of years or so as duty differentials have widened.[31]
We have approached this from two directions: fuel consumption
statistics and estimates of revenue loss to the Exchequer. We
have also sought to establish the relative contribution made by
lawful cross-border sales and by unlawful sales of smuggled or
laundered fuel respectively, and the relative prevalence of petrol
and diesel smuggling.
12. Figures for the inland consumption of petrol
and diesel, for both Northern Ireland and the Republic of Ireland,
for the period 1994 to 1998 are set out in the Tables below and
are also presented graphically. These show a significant drop
in deliveries in Northern Ireland, particularly from 1996 onwards.
Corresponding figures for the Republic of Ireland, which show
steady increases, are also shown in the Tables.
Inland Consumption of Petrol, 1994-98
| | Consumption ('000 tonnes) (Percentage of total in brackets)
|
| | 1994
| 1995
| 1996
| 1997
| 1998
|
| Northern[32]Ireland
| 555(35.9)
| 523(33.5)
| 508(31.7)
| 466(28.4)
| 417(24.2)
|
| Republic[33]of Ireland
| 992(64.1)
| 1,038(66.5)
| 1,097(68.3)
| 1,173(71.6)
| 1,306(75.8)
|
| TOTALS† | 1,547
| 1,561 |
1,605 | 1,639
| 1,723 |
Inland Consumption of Diesel, 1994-98
| | Consumption ('000 tonnes) (Percentage of total in brackets)
|
| | 1994
| 1995
| 1996
| 1997
| 1998
|
| Northern[34]Ireland
| 337«
| 350(27.7)
| 374(25.6)
| 338(21.9)
| 274(16.1)
|
| Republic[35]of Ireland
| «
| 912(72.3)
| 1,087(74.4)
| 1,208(78.1)
| 1,427(83.9)
|
| TOTALS† | «
| 1,262 |
1,461 | 1,546
| 1,701 |
« = Not
available
† = The two elements are not necessarily compiled
on a common basis.
13. These figures are quite clear: there are upward
trends in both petrol and diesel consumption in the Republic of
Ireland and significant downward trends over the last three years
in both cases in Northern Ireland. While there are no doubt many
factors contributing to increased consumption in the Republic
of Ireland, we believe it is highly likely that one such factor
is that some of this fuel is ultimately used in Northern Ireland.
14. Customs and Excise maintained in its September
1997 memorandum that it was not possible accurately to quantify
the extent of misuse of non-road fuels[36]
and in its December 1998 memorandum that it did not have 'a robust
estimate'[37]
of the amounts of road fuels being smuggled. The Legitimate Oil
Pressure Group considered that the duty lost through smuggling
might now be in the range £100-£200 million per annum.[38]
The Petrol Retailers' Association considered[39]
'a very conservative estimate' of the cumulative effective loss
to the Treasury to be £100 million per annum. Councillor
Byrne put the loss at £200 million.[40]
CBI Northern Ireland suggested a figure of £150 million per
annum,[41]
whereas the IBEC/CBI Joint Business Council estimated the Exchequer
loss at up to £200 million annually.[42]
The Road Haulage Association suggested that the revenue loss could
be in excess of £320 million per annum.[43]
Ms Patricia Hewitt, the Economic Secretary to the Treasury, took
the view[44]
that some of those estimates were "an exaggeration"
and stated:
"We assess from the
Customs' end that the revenue lost through both [cross-border
shopping and smuggling] ... was about £100 million in
1998".
15. The figure given by the Economic Secretary for
loss of revenue would appear to correspond to a total of around
170 million litres of fuel annually,[45]
which would equate to something in the region of 130-135,000 tonnes.
This would suggest that about one sixth of the fuel consumed in
Northern Ireland in 1998 was either purchased legally in the Republic
of Ireland or smuggled in. We believe that this estimate, while
not unrealistic, may be on the conservative side.[46]
16. We consider it is important that the scale
of the problem be determined as accurately as possible. We therefore
recommend that the Department of Economic Development seek information
on estimated sales volume losses from each of the main distributors
of fuel in Northern Ireland and, from this, to draw up a reliable
estimate of the extent of the problem.
17. We found it difficult to obtain information on
the relative importance of cross-border purchases and smuggled
fuel respectively. BP Amoco's estimate was a 50/50 split.[47]
The Economic Secretary could not separate out the respective contributions
of the two elements.[48]
Mr Archer, of the Freight Transport Association, thought that
abuse of gas oil had recently lessened, with a corresponding increase
in cross-border sales.[49]
Mr Norris, of the Road Haulage Association, commented[50]
that:
"... there is this idea
that sometimes the purely illegal fuel is in a sense now taking
second place to the perfectly legitimate notion of simply shopping
south of the border because that in itself yields a huge benefit.
Why ... take the risk of illegality ... when to run legally by
shopping south of the border yields such an enormous benefit?".
18. Although precise data is not available, it seems
highly likely to us that the relative contributions vary in different
parts of Northern Ireland. There was general agreement that smuggled
fuel was available throughout the Province. Cross-border shopping
was seen by the Petrol Retailers Association as "quite a
small effect experienced by service stations in proximity to the
border areas",[51]
but one of its witnesses drew our attention to advertisements
in the Northern Ireland press circulating some distance from the
border and soliciting fuel purchases in the Republic of Ireland.[52]
Mr Armstrong, of the Freight Transport Association, indicated
that, on current price differentials, a commercial operator in
Northern Ireland would find it cost-effective to make a return
journey of around 30 miles to refuel in the Republic of Ireland
(around 80 miles if he is a single operator not pricing in his
own labour).[53]
19. Not surprisingly, very little information was
available on the relative contribution of petrol and diesel respectively
to the overall level of smuggling. BP Amoco commented that the
emphasis had been publicly on diesel smuggling, but that they
were experiencing the same problems with petrol smuggling.[54]
The Petrol Retailers Association noted that diesel was an easier
product to handle than petrol and, for a number of reasons, was
easier to smuggle. However, it maintained that there was evidence
of a recent increase in the level of seizures of petrol.[55]
The Legitimate Oil Pressure Group commented that Customs and Excise
had done "very little regarding petrol".[56]
Mr Norgrove, of Customs and Excise, took the view that commercial
movements of diesel were "where the lion's share of this
problem lies".[57]
20. Although seizures by Customs and Excise are not
necessarily a reliable indicator of the level of smuggling activity,
we asked for a breakdown of seizures by product.[58]
Details of fuel seizures by Customs and Excise for the last five
years are set out in the Table below. In addition, there have
been admissions of smuggling in the eighteen month period 1 January
1998 to 30 June 1999 of 26.5 million litres of petrol and 7 million
litres of diesel.
| Year
| Category
| Volume (litres)
| Total (litres)
|
| 1994-95
| RoI* gas oil
Mixed UK/RoI gas oil
| 202
7,336
| 7,538
|
| 1995-96
| RoI gas oil
Mixed UK/RoI gas oil
Laundered gas oil
KeroseneDiesel
| 23,165
19,700
900
6,450
600
| 50,815
|
| 1996-97
| RoI gas oil | 10,663
| 10,663
|
| 1997-98
| Mixed UK/RoI gas oil
Laundered gas oil
DieselPetrol
| 20,639
62,507
199,906
11,796
| 294,848
|
| 1998-99
| Mixed UK/RoI gas oil
Laundered gas oil
DieselPetrol
| 48,703
147,497
471,713
27,829
| 695,742
|
* Republic of Ireland
These figures and the bar chart abundantly demonstrate
both the rapid growth in fuel smuggling and that the seizures
figure substantially underestimates the scale of petrol smuggling.
21. Although we have been unable fully either
to characterise or quantify the problems, as they are manifested
in Northern Ireland, arising from the substantial duty differential
on road fuels between the United Kingdom and the Republic of Ireland,
it is clear that they cause substantial distortions of normal
purchasing patterns and create significant opportunities for unlawful
activity.
31 Ev. p. 35; Ev. p. 14 and Q24, Q4. Back
32 Appendix
12, p.94. Back
33 Department
of Public Enterprise figures. Back
34 Appendix
12, p.94. Back
35 Department
of Public Enterprise figures. Back
36 Ev.
p. 23. Back
37 Ev.
p. 35. See also Q75. Back
38 Q3
and Q20. Back
39 Ev.
p. 10. Back
40 Appendix
8, p.88. Back
41 Appendix
9, p. 89. Back
42 Appendix
10, p. 90. Back
43 Ev.
p. 45. Back
44 Q244.
Back
45 The
precise figures depend on assumptions made as to the proportions
of the various fuels involved. On the assumption that the estimate
assumes that neither duty nor VAT are collected on any of this
fuel, and that equal volumes of both petrol and diesel are involved,
the annual revenue foregone corresponds to revenue raised from
sales of about 168 million litres of fuel, or 132,000 tonnes. Back
46 The
Petrol Retailers' Association estimated (Q46) that one third of
the legal market had declined and we have also seen other, lower,
estimates. Back
47 Appendix
7, p. 88. Back
48 Q244.
Back
49 Q174.
Back
50 Q174.
Back
51 Ev.
p. 13. Back
52 Q44. Back
53 Q197-200.
Back
54 Appendix
7, p. 88. Back
55 Ev.
p. 14 and Q24. Back
56 Q17. Back
57 Q84.
Back
58 Appendix
15, p. 98. Back
|
