APPENDIX 9
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.
SUGGESTIONS FOR
ACTION
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.
ENFORCEMENT
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.
REGIONAL REBATE
FOR EXEMPTION
SCHEME
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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