69. The following are the Committee's summarised
principal conclusions and recommendations:
(a) 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
(Paragraph 13).
(b) 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 (Paragraph 16).
(c) 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 (Paragraph 21).
(d) Without knowing the overall size of the
problem, it is difficult for us to form a view on the effectiveness
of the measures taken to date by Customs and Excise to tackle
both smuggling and gas oil misuse. It is clear from the figures
that actual fuel seizures are very modest, both in absolute terms
and in relation to the volumes admitted to be smuggled. Actual
volumes smuggled are likely, in our view, to be considerably greater
than those discovered or admitted, which by definition only involves
the illicit activities of those apprehended. There is clearly
scope for a greater enforcement effort. We nonetheless commend
the staff on the success they have had to date (Paragraph 35).
(e) We support the strategy outlined by the
Economic Secretary for countering fuel smuggling. We were encouraged
by Mr Norgrove's description of the results of the pilot programme
of VAT assurance visits and we welcome the support for a multi-
agency approach (Paragraph 38).
(f) One witness suggested that a licensing
system should apply to all fuel retailers and bulk users in Northern
Ireland, to seek to reduce the incidence of smuggling. We recommend
that this idea be examined further. (Paragraph 39).
(g) We understand that a Memorandum of Understanding
is being negotiated between Customs and Excise and the RUC: we
welcome this and look forward to its early entry into force (Paragraph
40).
(h) We recommend that consideration be given
to making greater use of Trading Standards checks as part of the
multi-agency approach to countering road fuel tax abuse. (Paragraph
42).
(i) We would urge individual members of the
fuel retailing and road haulage trades, and their trade associations,
to co-operate as fully as possible with Customs and Excise and
other agencies in the stamping out of illegal sales of road fuels
(Paragraph 43).
(j) A number of witnesses argued that elimination
of fuel smuggling and of gas oil misuse is likely to prove impossible
through enforcement measures alone. We agree. Nonetheless, the
general approach of Customs and Excise of attempting to enhance
the risk of detection, and thus deter such activity, in our opinion
is sound. (Paragraph 45).
(k) We recommend that the presumption should
be that vehicles confiscated as a result of smuggling operations
and which are proved to have been involved in the unlawful transport
of fuel should be scrapped, to prevent their re-use in the same
trade. It appears to us that such re-use is a risk, however careful
Customs and Excise are in their disposal otherwise. In the long
run, such a policy might increase smugglers' costs, by reducing
the pool of cheap vehicles (Paragraph 46).
(l) We consider that the case for introducing
an appropriate marker into duty paid fuel, as an anti-smuggling
measure, should be further investigated (Paragraph 47).
(m) We recommend that work to develop indelible
chemical markers should be given a high priority by Customs and
Excise. Given that misuse of rebated fuels is apparently a general
problem in the European Union (though perhaps most severe in the
United Kingdom because of the size of the duty differential),
we further recommend that any common EU markers should be chosen
to enhance the degree of protection against unlawful removal,
and that the Government should press the case for this with the
Commission. Such developments might be expected to inhibit generally
the extent of misuse of gas oil (Paragraph 48).
(n) In short, none of the general measures
put forward to meet problems arising from road fuel price differentials
commended themselves to Government, although we welcome Lord Dubs'
undertaking to look again, without prejudice, at the Dutch scheme.
However, we hold out little hope that such a scheme will be introduced
in Northern Ireland, not least because the Commission has now
decided that the financial support given to majority of retailers
under the Dutch scheme is incompatible with Community law and
should be repaid. (Paragraph 58).
(o) There is no doubt that the differential
in fuel prices across the land border in the island of Ireland
is a difficult issue and one that has serious consequences for
fuel suppliers and road hauliers. It is also a wider problem in
that, besides distorting trading patterns, it appears to have
become a means of funding for paramilitaries and racketeers. It
is therefore damaging the social fabric of Northern Ireland (Paragraph
62).
(p) It would appear that the Government's
position can be summed up as sympathy for those affected, but
that wider policy considerations, such as the UK's Kyoto commitments
and the Single Market and consequent limitations imposed by EU
law, prevail, although the Government does not condone smuggling
and is keen to limit it. There is a certain irony in this situation,
in that the present position actually assists the United Kingdom
with its Kyoto targets, as cross-border purchases and smuggled
fuel count against the Republic of Ireland quota. (Paragraph 63).
(q) There is a clear paradox, seen in the
context of the geographical reality of the island of Ireland,
between the Kyoto obligations of the Republic of Ireland, which
is permitted a 13% increase in overall emissions of the basket
of six 'greenhouse gases' to 2008-12, and those of Northern Ireland,
which is part of a country required to decrease such emissions
by 12.5% over that period. Government policy should recognise
this: there are no marked industrial and environmental differences
between the two jurisdictions in the island, and some of the consequences
of different fiscal treatment are at the root of this Report.
(Paragraph 64)
(r) While we note that the Economic Secretary
considers that Customs and Excise now has the resources necessary
to tackle the problem of road fuel smuggling in Northern Ireland,
we recommend that its staffing in this area be kept closely under
review by Ministers, and that the Government should not hesitate
to increase further the staff resources devoted to tackling the
problem if to do so would be cost-effective (Paragraph 65).
(s) We also detected an element of complacency
on the part of the Government about the significance of the problem.
Lord Dubs commented:
".... We believe the overall policy is important,
both for Britain and for Northern Ireland, and there is sometimes
a price to be paid for it. That price is that, because we have
a land border, we have certain difficulties. I am concerned, on
behalf of the business interests who are suffering, but we have
had in the past situations where the movement has been the other
way and people have found that things are much cheaper in the
Republic and they have gone there. At times it has been cheaper
in Northern Ireland. This changes from time to time."
The Economic Secretary said:
"... £100 million in the context of
£21 billion overall from fuel duties as a whole is really
a very, very small part of the overall picture."
and:
".... in relation to duty, particularly duty
on petrol and diesel, then until the European Union does set minimum
rates [cross-border fuel procurement] is a problem
that we will have to live with and it is a problem we will clearly
take into account in terms of setting the overall United Kingdom
policy and it is an issue that in terms of its immediate impact
within Northern Ireland will obviously need to be dealt with within
the context of Northern Ireland structures."
We would only reiterate that the impact on the
Province is severe and that the loss of £100 million in revenue
is material. (Paragraph 66).
(t) We recommend that the Government investigates
further the experience of other EU Member States in dealing with
the problems of price and duty differentials across national borders
in relation to road fuels. The Treasury could provide us with
no information on this, which slightly surprised us as there are
other material differences in fuel duties and prices across Member
States' borders and corresponding difficulties: the existence
of the Dutch scheme alone is evidence of that. It may be that,
at European level, a consensus might emerge on measures to mitigate
the impact of the road fuel duty and price differentials between
Member States which are both effective and consistent with the
principles of the Single Market (Paragraph 67).
(u) The Economic Secretary commented that
a draft Energy Products Directive that would restructure the European
Community framework for the taxation of energy products was under
consideration. She pointed out that a part of the Directive, which
the Government would support and which would increase the minimum
rates of duty on road fuels, would, if agreed, assist in reducing
the duty differentials between Northern Ireland and the Republic
of Ireland. The Economic Secretary cautioned, though, that acceptance
of the Directive seemed to be "quite some way off".
We recommend that the Government seek to encourage both the Presidency
and the Commission to make early progress on agreeing this aspect
at least of the Energy Products Directive. (Paragraph 68).
