Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 1 - 22)

WEDNESDAY 17 MARCH 1999

MR LESLIE MURRAY and MR TOM MCGRATH

Chairman

  1.  Mr Murray, we had the great pleasure of seeing you and Mr McGrath when we were in Belfast. Not all Members of the Committee were present in Belfast on that occasion so there will be one or two unfamiliar faces around the table. Some of our questions may go over ground we have been over with you before but in this instance we are doing it formally. Some of our Members will not be able to be present throughout and therefore you may see some slip from the group. Because we will seek to put questions in a logical order, questions may come from different corners of the horseshoe. You should feel entirely free after the event, either now or later, to gloss any answer you have given and equally, if there is a question which we fail to ask and which we would like to ask you formally, we will take the liberty of sending a note thereafter. Because we have had the pleasure of a previous conversation with you, I do not imagine there is anything you want to say of an introductory nature. If you should wish to, please do not hesitate to do so.
  (Mr Murray)  Thank you. It is a privilege to be here on a difficult subject. The LOPG represents a very broad church and is there for one purpose only. That is to get rid of the problem we presently have of the illegal selling of fuel oil products. From the CBI through to the oil companies, the petrol retailers and everybody, we are across the board. We have a small delegation today but I hope we will be able to answer your questions. I do hope I can take it that fuel oil means the various products that fall within that title—i.e., it includes petrol, diesel and kerosene, not just diesel?

Chairman:  I think that is an assumption you can readily make. We are conscious that we have asked you on an inconvenient day and we are very appreciative that you and Mr McGrath should have come.

Mr Salter

  2.  The budget did not make it any easier, did it?
  (Mr Murray)  The budget has raised the differential to 25p approximately which is £15 for a family motorist to fill up his tank with fuel. It has made it a lot worse.

  3.  I certainly found the informal meeting that we had in January very useful. You described in some detail the problems caused. In some ways, obviously, they have been exacerbated by the change in duty but are there any subsequent developments on which you would like to comment and what are your current estimates of the amount of fuel oil—diesel, petrol or whatever—that is currently being smuggled?
  (Mr Murray)  Nobody has done a model of what is happening and therefore it is hearsay. One can be criticised quickly on hearsay because you do not have tangible evidence, but that would be naive in the present situation. There is a lot of diesel and petrol being smuggled into the north of Ireland and there is a lot of washed diesel being used in the north of Ireland. Estimates done previously ranged around £100 million per annum of excise duty missing. I think Customs and Excise themselves seem to feel that it was £150 million and this was pre-Budget. The figure might have reached £200 million now, after the Budget, but that is speculation and I do not have hard figures. What I do have is a pack of information, which I will leave for your Clerk which contains the comparison of petrol and diesel sales in the north of Ireland and in the Republic of Ireland. You see one graph going like this up and you see the other graph going like that down (indicating). Do not tell me there are fewer cars on the road doing fewer miles in the north of Ireland because there are not and do not tell me that fuel efficiency has got to the point that we are all using so much less petrol. We are not.

  4.  I will not.
  (Mr Murray)  It is fairly self-evident from those graphs which I will leave with you. There is also an interesting graph which I might comment on, the excise duty in the Republic of Ireland and the excise duty in the United Kingdom over the last ten years, and you can clearly see the graph with the United Kingdom being about five pence above the line for about four years and suddenly at the end of 1996 it goes up and up and up and the problem started really seriously at the end of 1996, into 1997 and 1998.

  5.  As you know, we had a presentation by Customs and had the privilege of seeing some footage. It occurs to me that places like Crossmaglen and others which are not known for oil refineries have a phenomenal amount of activity taking place. I would like to give you the opportunity to put this on the record, although I accept that this is probably anecdotal, but you intimated before that you felt that paramilitary involvement was well proven in the illegal smuggling of fuel oils, that there was some evidence that Republican paramilitaries were actually doing the direct smuggling in and Loyalist paramilitaries were involved in distribution, and that both sets of paramilitary organisations or their associated groups were benefiting financially from the process. Do you stand by that? Are you prepared to put that on the record and have you any other further information on that that you would like to share with the Committee?
  (Mr Murray)  You are quite correct and you paraphrase my words almost to a T. That is what I did say on that occasion. I have no proof of those events. There are very few people who live in the north of Ireland or in Dublin that have not followed the career of people like Mr Murphy and others with some interest over the years. The Sunday Times has done a tremendous job. Therefore, I think there is a point when perception tends to become reality and possibly I am guilty of that. Having said that, how many people have factual evidence of precisely what was happening in 30 years of trouble in Northern Ireland? Some of these guys are pretty unpleasant. I personally hold the belief that, from the smuggling across the border in the last 30 years, whether it was pigs, grain or petrol, depending on the year and what was in vogue, that money has been siphoned off to paramilitaries, predominantly on the Republican side, but I have no evidence for it other than anecdotal. On the other side of the fence, I have lots of evidence going back over the years in the height of the troubles when black taxis were sharing spare parts in the most hard-line parts of Belfast. The world of commerce seemed to tick along under the surface very often. I do not have any hard evidence. I think, with the distribution of the product in Northern Ireland, probably I am slightly coloured in that the one big hit that has been made in that respect was not very definitely of a Republican person. People feel uncomfortable when they move from Crossmaglen to North Down and parts of Antrim, if you follow me. Therefore, it seems to me that other people are involved, but I have no proof whatsoever that money has flowed.

Mr Robinson

  6.  Following on from the previous questions, can you give us some indication to place on the record, both locationally and in terms of the type of premises, where the sale of illegal fuel is taking place in Northern Ireland?
  (Mr Murray)  The smuggled fuel inevitably starts in the Republic of Ireland and has to be brought across the border. It then has to be distributed. To distribute it takes a network and that network must have some form of a sales force to entice and encourage people to buy. I do not feel uncomfortable making the comment, but I do feel uncomfortable for a lot of small filling station owners who are out of my mouth being branded criminals, because they are not all by any means criminals. They either go bankrupt and the family gets into a lot of trouble or they sell smuggled diesel, it seems to me, and that is a very difficult point. My sympathy is with them in some cases but we took photographs which we gave to your Clerk and Customs and Excise of some 70-odd filling stations that were selling fuel at a price which simply could not be economic if they were going to make any money.
  (Mr McGrath)  The number of filling stations that we have in the Province is becoming much less. That is, those sites that are under contract to the oil companies. Once the site is becoming free of tie, they invariably put up their own signs to enable them to buy wherever they please. The situation, as far as the stock being available, is that I am contacted from time to time by various dealers and given details of prices that they have been offered by various people. No later than the 11th, I was contacted by an Esso dealer who gave me prices and, comparing those prices to our prices at which we buy from the docks, if the dealer were to avail himself of that product, in spite of the fact that he has been very heavily supported by Esso's price watch and consequently his pump prices are very low, relatively speaking, he could make an additional profit of £2,500 a week.
  (Mr Murray)  Tom works for the Henderson grocery chain. Not very long ago they had 47 filling stations that they supplied under contract. Today, that figure is down to 16 or 17 but the filling stations are still there, doing business. Where are they getting their fuel?

  7.  I assume therefore that there are two forms of illegality taking place. One is that fuel is being brought across the border without going through the normal procedures in relation to the importation of fuel. Secondly, it is being purchased; no VAT is being paid on it and no other tax would be paid. Presumably what is sold by way of illegal fuel is hidden in terms of all of its cost from the tax man. We lose out in terms of the benefits that the government would get, in terms of the initial receipt but also the tax man, in terms of looking at the individual's own accounts for a filling station, would lose that degree of profit if it had been normal fuel used.
  (Mr Murray)  I see three scams. One is heating oil kerosene which goes from the north to the south because the price is slightly less in the south than the north. That makes two or three pence per litre but that gives a back load to the diesel being smuggled back which has a price differential of 25p per litre or thereabouts. It appears that most filling stations will cry poverty and that they are not doing very much business; they will take a few bona fide loads from a recognised supplier to be able to complete a set of accounts. The true volume of the smuggled product never gets to the books at all and therefore the Inland Revenue, the VAT and the excise duty are being avoided in totality.

  8.  It seems to me it would not be a desperately difficult task in the investigation of any firm's accounts to be able to see a significant reduction in what is, on the face of it, the amount of fuel sold and questions should follow quickly from that.
  (Mr McGrath)  The suppliers of the fuel have VAT numbers that have been checked out by Coopers & Lybrand from time to time and they are legitimate VAT numbers. They are claiming that the product is legitimate as well. I am aware of the fact that Customs and Excise are currently in the process of starting a series of visits round all of the locations in the north of Ireland, retail and wholesale, checking up on exactly that.
  (Mr Murray)  If you smuggle fuel across the border, you then house it in a VAT registered entity. As long as you keep changing your VAT registered entity, you then sell it on. If anybody rings up Customs and Excise and says, "Is this a legitimate company?", "Yes, it is VAT registered. We have nothing against them", because they have only just started trading presumably. It is a legitimate sale from a VAT registered company, in so far as that company exists.

  9.  Am I right in saying that the fuel companies themselves do not have an awful lot to lose in this, because if they are not selling it on one side of the border they are selling it on the other?
  (Mr Murray)  That I cannot answer in that I am only on one side of the border. The filling stations selling smuggled products are only on one side of the border. The majority, but not all, of the national oil companies are represented on both sides of the border, with the exception possibly of BP. There might be some truth in what you say but, as regards my business and the people that we are representing, no, that is not really an issue.

  10.  I do not get the impression that they are particularly exercised about this issue, which seems to indicate that if they do not sell it in Northern Ireland they sell it in the Republic and it comes up to Northern Ireland. It is still the same money to them.
  (Mr Murray)  That could be.

Mr Hunter

  11.  Can we have on record your analysis of the effect which the availability of illegal fuel is having on the legitimate trade? I have in mind that, when we met informally, you referred to dealers not signing new contracts and stations being disguised to look like branded stations and then the sign remaining once the contract was over. Can you take us through that again?
  (Mr Murray)  Of course. In your next session, the Petrol Retailers' Association is closer to that particular area but I will give you what I see as being the picture. You will hear from them and if they contradict what I say, forgive me, but I am telling you what I believe to be the case. The effects of what we are seeing are that a large number of Northern Ireland filling stations, not the major motorway or city centre type stations but those owned by families and small operators, are having the choice of closing down, accepting huge losses, going bankrupt or becoming criminals. They are under very severe pressure to buy at reduced prices. It is not just smuggled product. We must not forget the washed or laundered diesel. To give a very quick resumé, you buy agricultural gas oil at 10p; you probably spend 10p transporting and washing it and you have in the order of 50p to play with in terms of profit. On that gain, a very modest operator can make himself, in my view, £2 million per annum. All he has to do is four artic loads per week and he will be making himself £2 million per annum. It will not be lost upon you that in a letter to me from Adam Ingram he said their estimate was that the person they busted not so very long ago owed them £2 million in excise duty and he had only been in the oil business for about 18 to 20 months. I have a letter here from Montgomery Transport and they speak for all the transport companies, particularly if you are not in the border area. When you go to the border areas, the Western Education and Library Board, who are supported by our taxes, are buying all their fuel in the Republic of Ireland because it is cheaper. The significant difference between GB and Northern Ireland of course is the 300 mile land based European border with the highest differentials of excise duty from the bottom to the top in terms of fuel. I have a recent letter here from the CBI who are extremely concerned at the effect it is having on Northern Ireland with reduced revenues in the oil terminals at the Port of Belfast. It is making Northern Ireland industry compared to the Republic of Ireland more expensive. Energy in Northern Ireland, as you all know, is an expensive commodity. This is making it even more expensive in relation to attracting industry to the Republic of Ireland. You are encouraging an entire population to be immoral, which is not a very good thing. It is a joke.
  (Mr McGrath)  In addition, the market place has been distorted. Prices have been distorted because of the situation. Consequently, profits are very low and the only way the legitimate filling station can survive is if they have a reasonable shop. Otherwise, they just could not exist.

  12.  Can you tell us a little more about one of the points you made in January about stations being made to look like branded stations? Is this quite a frequent occurrence?
  (Mr Murray)  It would appear that once a filling station has a brand flag over it which is paid for by an oil company as the normal practice on a grant aided basis, when that contract ends, it is extraordinarily difficult to get back on to the property to remove it because of the laws of trespass, the laws of damage to the property, and oil companies are having a very difficult job going back and removing their own property.
  (Mr McGrath)  That is exactly the situation that we are experiencing. We have a Jet filling station that I can think of in particular and Jet have been trying for a year to have their signs removed. Maxol are certainly involved in exactly that with a number of filling stations. We are as well. That is a problem that would appear to be ongoing and it is very difficult to cover.
  (Mr Murray)  There is the boast that it (smuggled or washed fuel) can be supplied in whatever kind of tanker you would like. If you are actually flagged Texaco, we can give you a simulated Texaco tanker to give the impression that you are getting bona fide fuel from a bone fide source into a bona fide filling station.

  13.  What information do you have about the number of filling stations? There are trends for filling stations to be larger, perhaps with decreased numbers. Others will be closing because of this. What is the overall pattern?
  (Mr Murray)  I think my colleagues in the PRA will be better equipped to give you specific information. Without a shadow of a doubt, none of the major oil company-owned, or Tesco or Sainsbury's filling stations is participating. I have heard the figure quoted that 50 per cent of Northern Ireland's filling stations are using illegal products one way or another but I have nothing to back that up. The homework has not been done.
  (Mr McGrath)  The only evidence I would suggest would be the figures that have been produced through the imports of product through Belfast in that the amount of product, including petrol, is down by about possibly 25 per cent. Another example of the situation as it is increasing might be the fact that the analytical chemists which the industry use in the north of Ireland have reported to me that the number of samples of suspect product that they are being asked to analyse has grown, from January/February last year to January/February this year, ten-fold. That, to my mind, is a very clear indication as to how this is escalating so rapidly.
  (Mr Murray)  We must be a little bit careful. Unless I spend a lot of money, I cannot produce the facts that you are asking me for but if I do not produce them it is hearsay and yet it is happening.

Mr McCabe

  14.  Would it be fair to say that this is not exactly anything new? Where you have fairly cheap fuel, you are always going to have smuggling. Is that right?
  (Mr Murray)  You are absolutely right. It is nothing new in the context of the border. There has been something smuggled over the border since 1920. It depends what is worth doing. Just off the top of my head, it is probably the same people doing it, fathers and sons. I have no evidence to that effect, but it is good fun and the border is there and there is a lot of money to be made. It is a way of life. I think somebody in this room said, "Can you really kill the problem in Crossmaglen?" It has been there since the twenties but that is the way it is. Of course, fuel did flow the other way at some point in the past but a lot of water has moved under the bridge. Differentials are now way ahead of what they were in the other direction about ten years ago.

  15.  It would be reasonable to say that the supply companies might expect this to be happening at the moment because of this differential. I wonder if you are aware of any efforts the supply companies have made to assist the dealers through price support to try and counter or offset this incentive to smuggle?
  (Mr McGrath)  Yes indeed. Unfortunately, the stance taken by some of the hypermarkets is that they are actually matching locations that are selling illegal product. The price they are selling at would very clearly indicate that. Where we have a number of filling stations that were closed, these are now opening up again. The pump prices which they are selling at, without shop business or any other form of diversification, if they were selling legitimate product, they could not survive. Unfortunately, some of the hypermarkets are matching these prices.
  (Mr Murray)  Let's face it: if you have invested £X million in a hypermarket in Northern Ireland and fuel is, if you like, your attractive bit, you really have to get a return on your investment. You really have no alternative but to try and match the prices in the locality.

  16.  There is no real price support in that sense for the smaller, local dealer?
  (Mr McGrath)  Generally, the major companies are not interested in getting into a contractual situation with volumes less than 6,000 gallons. There is no support for the smaller sites whatsoever.

  17.  Can I turn to the question of Customs and Excise? I think you said to some of my colleagues in January that you were less than happy about their response to some evidence that you had supplied to them and some representations you had made. I just wondered if the situation has changed at all since January?
  (Mr Murray)  Finding people who are happy with Customs and Excise and the Inland Revenue is a difficult task. It is the relative state of unhappiness, you might say. We made a decision in LOPG to have dialogue with Customs and Excise as a constructive way forward. We took a very strong line in the beginning. We went for a potential judicial review. You are not doing your statutory job; you should get on and do it. They softened up a bit on that. A letter from Dr Mowlam and Adam Ingram says, "This is not our bailiwick. This is the Treasury. Sorry, old boy." I find that difficult, coming from Northern Ireland, but that is the way it is because the problem is in Northern Ireland and it is a uniquely Northern Ireland problem. Customs and Excise, in my view, have certainly tried to do more. Whether they have the resources to do it and whether the political will is there to assist them to do it when it is required I am not so sure. Quite a proportion of the activity we are talking about is in border areas. If they are going to do their job effectively, the Customs and Excise are not exactly the SAS and they are going to need back-up in the form of military, police and whatever. It strikes us that after one pretty notable success just around the time we last met, I think it was, following that there has been a lot of talk but not a lot has happened.
  (Mr McGrath)  On the situation regarding Customs, we are unhappy with the situation in that up to now they have only been dealing with contaminated diesel or laundered diesel. They have done very little regarding petrol, with one exception. They seized a 20,000 litre load of petrol on 16 February. As far as I know, that is the only amount of petrol that they have seized. When confronted with the situation, a senior official said to me, "In that respect, we have been burying our heads in the sand as regards petrol".
  (Mr Murray)  Frankly, they have an impossible task. It does not matter how hard they work or how many resources you give them. There is too much money. How do you cope with an unbranded commodity product? A motor car is one thing; it has a stamp and initials and goodness knows what, but an unbranded commodity product with tax differentials, out of sight, on a land based border of 300 miles, you are never going to control it with the amount of money there is to be made. I would not spend my money trying to control it. I do not think it is controllable, frankly, at the level it is now at.

Chairman

  18.  I will preface a couple of questions of my own with a brief anecdote. I shall not reveal whether the source of the anecdote was the person in an official position or the person whom he was going to visit, but I did hear it from one of them. A Chancellor of the Exchequer visiting Belfast before the troubles concluded his business reasonably early and indicated that it would be extremely congenial from his point of view if he could visit a friend near the border. A posse set out from Belfast containing the Chancellor of the Exchequer and a number of official looking cars. There was a drive of reasonable length leading up to the house in question. As the posse wound its way up the drive, the friend, who had no notice whatever that the Chancellor was coming and who assumed that the visit was for some other purpose, decided to go to ground so the Chancellor never actually saw the friend whom he had come to see. That seems to be in line with some of the narrative which you have been describing. Cross border pricing differentials in road fuels and other areas are nothing new in principle. I think you acknowledged that in earlier answers. It has been suggested that a number of Northern Ireland firms open garages close to the border to exploit the drive-over market when the duty differential favoured purchase in Northern Ireland. That is historical. To what extent is the problem we are talking about now exacerbated by distortions in the locations of filling stations in Northern Ireland, particularly in border areas, so as to take advantage of a duty differential that has since changed direction?
  (Mr Murray)  The PRA will be able to answer that question more definitively than I will. I will give you my best attempt at it. If you are a businessman, you do what is businesslike. If it means having filling stations on both sides of the border, one doing well and one doing badly from one decade to the next, that is business but that is not really the issue that we are talking about. That is a commercial decision by somebody to do that. There will be casualties of inefficiency in any business, people who simply do not manage well or operate well. Ballycastle and Comber are about as far from the border as you can get and I do believe you will buy smuggled product in both Ballycastle and Comber. It is province-wide. It is known to be province-wide and, if it has been that bad in the last year, it can only get worse now.

  19.  We talked round this subject on the previous occasion when we met informally. What is your group's preferred solution to the problem? I say that inevitably against the background of the decisions which the Chancellor announced a week ago.
  (Mr Murray)  In stating one's preferred options, the practicality of putting them into practice is not a great concern to me. Whether they are practical or not, I am not quite sure, but if you take the fact that doing nothing is not an option, if you take the fact that the policing of the border in terms of stamping this out is not a possibility, that in my view and in LOPG's view leaves only one possible option. That is harmonisation or rebate to get back to a reasonably close level of excise duty. That, if you examine it, appears to answer all the options. We are in the line of diminishing returns at the moment. The Republic of Ireland must be having a wonderful time. They have their lower level of duty and their volume is going through the roof. Their Exchequer must be terribly happy. We are on a line of diminishing returns in the north of Ireland. The businessman puts a filling station either side of the border. The government should consider what is the best option here. Do we collect £100 million per annum or say goodbye to £150 million? The answer is you collect £100 million if you can. That is where I would be coming from. That may be very simple for me to say but it does seem to be the practical solution. I know there will be political arguments and lots of difficulties but that seems to be the right answer. I have five points here and I will give your Clerk a copy. You have to clamp down on the washing of diesel. It has nothing to do with the border, but it is now becoming a way of making money which is filtering into Glasgow, Carlisle and Liverpool and the day it hits Surrey you will probably understand what is happening here. I say that in the nicest possible way but the washing of diesel is a big, big money-maker and it is happening on an increasing scale. It is damaging engines. That is why we have our local laboratories having a ten-fold increase testing on fuels in the last 12 months. The third thing which I think is important for LOPG is that there is ownership of the problem in Northern Ireland. That is no slating of the Treasury and the job that they do, but in Northern Ireland with its various problems you seem to get results when everybody is pulling in the same direction. That means Inland Revenue, DHSS, the Collector of Taxes, Customs and Excise, the police and the Government all pulling in the same direction. Then you tend to get some results. I am not sure if there should not be a "supremo" appointed to sort out this particular issue because at the moment there does not seem to be any one person who is coordinating this operation. If you do have some rebate for NI, as we mentioned the last time round, then you have to police the Irish Sea in terms of rebated fuel finding its way across the Channel, but that is a very much easier task than trying to police a 300 mile land border. The fifth point I would make is something I have no knowledge of at all but I did notice some time ago that Jack Straw said he was forming a national confiscation agency to somehow get his hands on the assets of the drug barons. Is that legislation happening and is it going to also include the ill gotten gains of smugglers? Will it be brought into Northern Ireland, because if it is not it should be. It would appear that a number of existing criminals in Dublin have moved to the United Kingdom mainland following the introduction of that legislation in Dublin and it should be brought to bear in Northern Ireland on the ill-gotten gains of smugglers. Those are five points that we have made, hopefully constructively, because we really do not see how else the problem can be effectively tackled.

  20.  When we met before—and it was partly as a consequence of Parliamentary Answers which had been given—you were concerned that the amount of money that the Treasury was losing was not sufficient in the greater sum of things for the Treasury law enforcement officers to be pursuing it vigorously. Do you take the same view two months later?
  (Mr Murray)  Those that live in the peripheral parts of the United Kingdom tend to enjoy smiling at those who live in the hub of London a little bit. There seems to me to be something unfortunate about a letter from the Treasury that said £100 million really was not a lot of money in the context of the United Kingdom. That did not go down terribly well in Northern Ireland and you might understand. Why? Because it is a hell of a lot of money in Northern Ireland and it is probably £150 million. For 1.5 million people, that is a lot of money going missing. The problem is greater today than it was then and I see no way of legitimately collecting that money effectively, frankly. There is no connection between the two things but I see the enthusiasm there is for selling Belfast Port for £100 million to build two or three bypasses and here is £150 million going missing every year in a road related activity.

Chairman:  I can only comment myself, having participated in the budget debate and read the whole debate, that the number of back bench contributions which did dwell on the subject of smuggling—I acknowledge covering different products in different parts of the kingdom—did show a marked increase, perhaps in line with the amount of smuggling which was believed to be taking place. Before we close, do either Mr Donaldson or Mr Beggs want to ask anything?

Mr Beggs:  Mine has been covered, thank you.

Mr Donaldson:  I have questions for the next group.

Chairman

  21.  We are extremely grateful to you for having come today. Let me conclude by asking whether there is anything that you were expecting us to have asked you which we have not asked?
  (Mr Murray)  I had no idea what you were going to ask me so preparation was useless. I know what I know and I have told you what I know. I have one general comment to make. I ask myself: is the pursuit of low direct taxation really tenable in the face of a differential in taxes across Europe, to the extent that indirect taxes are of such a differential nature? Is it really sustainable? I leave the floor with the question. I do not think it is, really.

  22.  You are the first witness that I can recall having given evidence to us since July 1997 who has concluded with a question. Since that is a first, let me express our appreciation first for your coming and secondly for the way in which you and Mr McGrath have answered our questions.
  (Mr Murray)  Thank you very much indeed and I hope you are able to do something with the evidence that has been given.


 
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