Select Committee on Northern Ireland Affairs Appendices to the Minutes of Evidence


Memorandum submitted by CBI Northern Ireland

  1.  CBI Northern Ireland welcomes the opportunity to submit a memorandum to the Committee on the above issue. The matter is of significant, and increasing, concern to CBI members and has been raised at a number of recent meetings. We share the concerns of the Legitimate Oil Pressure Group and the freight and haulage associations.

  2.  We are aware that the Committee is taking evidence from specific sectoral associations in Northern Ireland, particularly in the oil distribution and transport field, whose members are directly affected by the current differential in fuel prices with the Republic of Ireland. We do not therefore wish to provide a lengthy and detailed submission which will repeat much of the information which the Committee will already have access to. However the issue of a large and increasing price differential in fuel duties between Northern Ireland and the Republic of Ireland is of critical importance to the regional economy. It is also leading to a significant loss to the Treasury—industry estimates currently suggest £150 million per year.

  3.  Committee members will be aware how, in the 17th century, armed Revenue Cutters patrolled off the coast and Excise men were present in considerable numbers on land. Yet smuggled claret and cognac was said to be freely available in the cellars of most Irish houses as were silk and lace in the drawing rooms. Today's position with derv and petrol is not greatly different in that HM Customs and Excise appear to be unable to make more than minor inroads into the illegal trading; and obviously a land boundary is more difficult to patrol than the sea.

  4.  The drop in duty paid tonnage imported by sea into Northern Ireland demonstrates the approximate tonnage no longer sold legitimately in Northern Ireland—this reflects the impact of both smuggling from the Republic of Ireland and an increasing amount of fuel which is being purchased legitimately in the Republic of Ireland—a haulier can currently save £250 by filling his or her vehicle south of the border. We are unaware of any figures which specifically relate to volumes of fuels being smuggled, but industry sources suggest that it is substantial (the majority of the losses) and that these illegal operations are sophisticated and well-organised. Many tens of service station outlets in Northern Ireland are believed to be selling fuels at unrealistically low prices.

  5.  It appears that the cheaper prices of kerosene in Northern Ireland enable smuggling vehicles to carry that fuel southwards and then return with derv northwards.

  6.  To put down the size of the problem in monetary terms, the difference in duty on derv is such that it can be calculated that a smuggler might gross up to £35,000/£40,000 weekly (£2,000,000 per annum).

  7.  This is a most unhealthy position; it encourages law breakers and creates a state of affairs where an honest trader will eventually be forced out of business—indeed this is already the case with a significant reduction in service stations in recent years as the fuel price differential has increased. The situation has of course been exacerbated by the strength of sterling. It is a situation that cannot be permitted to continue. Widespread economic damage is being done throughout Northern Ireland due to smuggling, but much greater damage is also evident in border areas where fuel sales have all but dried up and broader distortions in retail purchasing are being experienced. The development and encouragement of "cowboy" operators, and the larger more structured and organised operations, in both the haulage and petrol retailing sectors is extremely concerning when Northern Ireland needs to build a business community based on quality and customer service and as we move into a more peaceful era. Damaging long-term effects on the economy are likely unless action is taken.

  8.  We do not believe the current price differential is in the longer term interests of developing enhanced levels of trade and business co-operation between Northern Ireland and Republic of Ireland. Businesses seek stability in order to plan and invest. Increasing fuel duties in Northern Ireland and the prospects for further increases (unless action is taken) is creating much uncertainty for many Northern Ireland businesses. It is also not assisting in Government's desire to reduce pollution—indeed the current policy implemented in Northern Ireland is encouraging more travel to avail of lower fuel prices south of the border resulting in an increase in pollution.

  9.  Many companies are re-routing vehicles within Northern Ireland to take advantage of cheaper fuel in the Republic of Ireland. We also understand that there has been increased usage of Republic of Ireland ports, with subsequent loss of business to Northern Ireland ports, due to the incentive to transit via the Republic en route to/from Great Britain.

  10.  The Committee might also consider the problem of the illegal removal by chemical process of the red dye in untaxed diesel fuel—this is also considered a significant issue and of course can lead to subsequent damage in the engines of the unwary purchaser.

  11.  Another point which is relevant to transportation, and undermines the industry further, is the differential in the level of vehicle taxation on freight vehicles between Northern Ireland and the Republic of Ireland. It is very much cheaper to tax a similar vehicle in the Republic and this can only be to the disadvantage of Northern Ireland hauliers; it is already leading to the "flagging out" of vehicles with loss of employment for drivers and on maintenance contracts as well as loss to the coffers of the Revenue—the reality is that the transport support infrastructure is being undermined and will be irreparably damaged by the increasingly uncompetitive position of the Northern Ireland cost base in relation to the Republic.


  12.  It is important to try to identify appropriate, practical measures that could be undertaken to address the worsening situation. We suggest two particular areas that need to be seriously considered below.


  13.  A stronger commitment and focus backed up by appropriate resources must be made available to address the illegitimate trade. A concerted effort involving a number of Departments and Agencies will be necessary to successfully address the matter. The costs of this investment should be repaid several times over. While some successful prosecutions were announced at the beginning of the year, there seems to have been very few public statements in recent months. The risks of participating in illegal trade must be increased and seen to be increased.


  14.  A number of suggestions have been put forward, including an essential user rebate scheme (which could address many of the concerns of the haulage industry) or a Regional Duty Concession (which could address the concerns of a wider group of interests). A similar scheme operates between Holland and Germany to overcome the fuel duty differential between these two neighbouring states. Such a scheme is worthy of investigation to see how it could apply to the Northern Ireland situation. It is not essential that parity in prices is achieved—the need is to reduce the differential in order to reduce the incentives of illegal trading.

  15.  We hope the Committee will look seriously at these two matters. This is a vitally important issue for the entire Northern Ireland economy at a critical time.

28 April 1999

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