Examination of Witnesses (Questions 40
WEDNESDAY 17 MARCH 1999
MURPHY and MR
40. So you are indicating that there might
have been a pulling back of operations to some extent because
of the nature of the peace process that was taking place? We have
had questions earlier about whether there is any paramilitary
involvement and you do not feel you are in a position to state
that because you have no hard evidence in connection with it.
One possibility could be that it is not just that process, but
it might be that if there was paramilitary involvement in it,
that makes an extra difficulty as far as Customs & Excise
are concerned in their operations in that these might be seen
to be highly dangerous activities in order to control what it
is that is coming over the border.
(Mr Holloway) I would suggest that the problem
does not just sit with Customs & Excise, but it is actually
an RUC problem as well. I do not believe that that element of
it is necessarily the issue that perhaps would stop a confrontation
of the problem. If I may answer this issue about the paramilitary
involvement in a different way, you will appreciate that in the
Province over many years it has largely broken down into residential
areas where such essential services as filling stations exist.
Therefore, it should be of no surprise that preferred purchase
points have always been indicated by some of the organisations
that we are talking about. It perhaps is, therefore, not impossible
to connect the fact that if you can indicate a preference for
retail sale, you may also be able to do so for wholesale purchase.
(Mr Palmer) I understand that Customs & Excise
powers are somewhat limited in respect to stopping tankers and
powers of arrest. One procedure which appears to be adopted in
the smuggling of fuel is that there are several outriders with
the tanker and if any Customs involvement is spotted, the tanker
will then turn around and go back south of the border. No crime
has been committed, though a certain amount of Customs & Excise
manpower and time over a period will have been expended all to
no avail. It would seem that the powers that they currently have
are not sufficient to do the task, but that does not detract from
the real solution to the problem which essentially is duty harmonisation.
(Mr Murphy) I think we have talked a lot about
smuggling and I must say this is probably not the problem; it
is part of the problem. We also have a legitimate means where
a motorist, anyone who is a motorist living near the border can
drive across the border, fill their car up with petrol, more so
commercial vehicles can drive across the border and fill up, and
drive back legitimately, and that is also a big part of the problem.
The only way that this can be solved is tax harmonisation. The
Customs are not the problem, but the tax on fuel in the UK is
the main problem and we are only diverting ourselves away from
the real problem if we keep on talking about smuggling, and I
am not saying it is not an issue, it is an issue, but the problem
is that we are not addressing the real issue. The real issue here
is that we have a border, a land border, where tax harmonisation
is needed and needed badly and needed urgently.
41. Is there any way of estimating what
the differences are in the sort of amounts that are involved?
I know by its very nature that how much is being smuggled is something
that is very, very difficult to get a hold of, but the degree
to which people will just slip over the border in order to fill
their tanks up and then return
(Mr Murphy) That is legitimate.
42. Is there any way of giving a guesstimate
to some extent of what the percentages are between them?
(Mr Murphy) Well, I live on the border in Newry
and I spoke to a retailer who lives on the border, in Strabane,
last night and his sales have gone down from 12,000 gallons a
week to 1,000 gallons a week. That is the extent of it. I have
lost 10,000 gallons a week. That is two stations and 20,000 gallons.
43. Then it is not a matter of the people
within your area going to alternative stations that are cheaper
within Northern Ireland?
(Mr Murphy) No, they go to Southern Ireland.
44. They go to the South?
(Mr Murphy) At this moment in time, I have a price
of 68.9 pence per litre for diesel and you can drive up the road,
ten miles to Dundalk, and buy diesel at 49.9 pence with the 15
per cent differential in the sterling rate.
(Mr Maxwell) Even worse is the fact that this
has been advertised widely in the Northern Ireland press, drawing
attention to the whole issue. We must understand from the consumers'
standpoint that it is right and proper for them to take advantage
of lower prices. By the same token, the further that you are away
from the border, then the less attractive it is for the consumer,
so there is a disadvantage for them.
(Mr Holloway) May I just put some figures to what
we are talking about here. These figures are as of yesterday,
so post-Budget and with no changes in the Irish Republic. If we
are talking about unleaded gasoline, petrol, 95 octane, there
is a difference at the pump of 24.3 pence per litre between the
north and the south at this moment in time. If we take diesel
north to south, retail diesel bought on forecourts, there is a
difference of 20.9 pence per litre, so that is a huge sum of money.
The main cause of that is that excise duty in the North at this
present moment in time is 20.29 pence per litre greater than in
the south and if we take diesel, it is 26.87 pence per litre more
in the north than in the south. If you take this Government's
policy with regard to excise duty, we are the highest taxpayers
on road fuels in Europe. The next country to us pre-Budget, before
our last increase, in the retail price of diesel was 60 per cent
of the UK price. That is an obscene differential and if you, therefore,
have convenience to the border, and let's call convenience anything
15 to 20 miles on a regular basis, then it is quite obvious that
cross-border shopping with this differential is actually very
(Mr Palmer) If I could just return to Mr Barnes'
question, you were mentioning people actually crossing the border
to do shopping and I have two adverts here supplied by people,
one from the Derry area and one from Enniskillen, County Fermanagh,
some 15 miles from the border, where people from southern Ireland
are actually placing adverts in the Northern Ireland newspapers,
attracting people to go across the border and I will just read
a brief extract from one of them. It says, "£20 of diesel
purchased from us would cost you £31.33 to get the same amount
of litres in the northa saving of 57 per cent for the northern
customer". Now, it is quite a substantial advert and I will
leave copies of both ads with you. Immediately below this there
is also mention of cigarettes showing a saving of 39 per cent,
so filling stations in the north are not only losing their fuel
sales, but they are also losing their ancillary sales which underpin
their very existence at this point in time.
(Mr Holloway) I would like just to add one more
statistic to that. If you actually spent £1,000 on diesel
fuel in the north and in the south, in the south you will have
purchased 570 litres more for your £1,000 than you will actually
have purchased in the north. The benefit is 570 litres per £1,000
45. So your response to me when I raised
questions about Customs and anti-smuggling devices and how they
should be organised is that that to some extent misses the main
problem, that they are trying to handle an impossible situation
and that it is the differential between the duties that creates
the problem, and it creates a problem not just for smuggling,
but on a wider basis.
(Mr Holloway) I think my answer to you, Mr Barnes,
is I hope you do not vote in the Budget debate in favour of the
moves that the Chancellor made on the 9th March.
(Mr Murphy) And added to that is the road tax
on 40-foot lorries. Road tax on a 40-foot lorry in the United
Kingdom is £5,800 and in the Republic of Ireland it is 1,300
punts and in Belgium it is £400.
46. As I understand it, the Committee is
engaged in an investigation into the illegal sale of fuel oils
and I think, whilst I am not trying to diminish the importance
of the points we have just been listening to, you have been substantially
arguing about the tax differentials rather than the illegal sale
of fuels and I just wanted to establish whether that is the substantial
position of the PRA, that you actually are making a case for having
tax harmonisation or a reduction in fuel duties rather than giving
evidence about the illegal sale of fuels?
(Mr Holloway) I think we gave the answer that
in fact we say that the illegal sale of smuggled fuel is caused
by the tax differential between the north and the south. That
is the cause of the smuggling problem and you cannot divorce the
two things. We are embarked on a totally different policy in the
UK from the Republic of Ireland's policy with regard to environmental
pollution and the use of excise duty as a restraining factor.
Those two things have actually got us to the point where we have
about a third of the legal market having declined, disappeared
in the North, but I think the most important point about that
is, and we have touched on it a few times, and Leslie Murray referred
to it very, very clearly, that this process of illegal and smuggled
fuel is actually forcing legitimate business people in the north
to actually buy such product in order to sustain their business.
The longer the problem exists and is not addressed, then you are
actually going to suffer the consequences socially of having created
an illegal act and what it inevitably will lead to.
47. Why do you think we do not experience
a very similar situation with, say, Germany and Luxembourg or
France and Luxembourg where there are quite substantial variations
(Mr Holloway) I think you have read my script
because the solution that in fact we will propose to the Committee
is in fact that we think that the UK should follow the example
of the Netherlands Government and take steps to equalise prices,
not duty. The harmonisation of duty across borders with such great
differentials would be very difficult to achieve, but harmonisation
of prices is perhaps where the solution lies in this particular
48. Mr Chairman, that brings me neatly on
to the next question that I wanted to ask. Being aware of your
proposal to introduce in Northern Ireland a scheme similar to
the Dutch scheme, which in effect amounts to a subsidy to fuel
prices in Northern Ireland, the Dutch scheme, as I understand
it, has a maximum rate of 3.1 pence per litre and is subject to
an overall ceiling. Would a subsidy at this level, in your view,
have any material effect on smuggling, particularly since the
Dutch scheme, I think, applies only to petrol, so assuming that
this included diesel fuel in Northern Ireland, would you have
a view as to the estimated cost of such a subsidy in Northern
Ireland and what is the material effect you feel this would have
(Mr Holloway) I think whatever solution we ultimately
move to in addressing the problem has to be a lasting one and
a practical one, therefore, in order to see it actually remove
smuggling as an incentive. If in fact we were to harmonise prices,
then that would indeed remove the need for much of the smuggling
issue. What we would not be addressing of course is the margin
issue which exists in the fuel, so there is still a loophole.
The Dutch system is based on a kilometre distance from the German
border and in fact I shall leave you a copy of the Dutch system
today, both in Dutch and the translation into English just in
case anyone doubts the translation, but the fact is that it is
based on the equalisation of prices within a 10 kilometre distance
of the border, based on main road distances, and off-road is deemed
to be the same as on-road if in fact we were talking about moving
into residential areas. If you go 11 to 20 kilometres from the
border, then that is half the difference between Germany and the
Netherlands. The concession is indeed a rebate on the level of
excise duty and is actually paid off invoice. The system has changed
ever so slightly since it was introduced. It is effective because
it is actually a means of passing the whole benefit to the consumer
and it is policed because the VAT inspectors, who actually visit
in the same way as they do in the UK, are able to check purchase
concessions against the purchase and indeed sales against that
because there is an application that is necessary in order to
qualify for this rebate and, therefore, there is a very effective
administration system in place. The Dutch Government had to take
this action because within the EC Regulations you cannot have
two levels of excise duty within one Member State. This overcomes
that as it is supporting small and medium-sized businesses. The
Netherlands Government are under pressure from Brussels because
they believe that some of this could actually be passing to the
major oil companies. Within the way that we actually work within
the UK system, all service stations are operated by self-employed
people who would in fact be classed as small and medium-sized
businesses for the purpose of such a payment, so there is in fact
a very workable example here for the UK Government to follow.
In terms of the petrol and diesel, it is true to say that this
system does mention only petrol, but in actual fact payments have
also been made for diesel and the system is flexible enough that
when cross-border differentials occur because of currency or duty
changes, then the system is revised to accommodate those levels,
so I believe it is a very workable system. The Petrol Retailers
Association, therefore, promotes it and has promoted it to the
Treasury as perhaps the way forward in the difficult circumstances
that we have.
49. What response have you had from the
(Mr Holloway) I have to be very careful in choosing
my words when I give my view of the Treasury's response because
if I think Customs & Excise may have been slow in responding,
the Treasury are even slower than that. The Treasury in fact have
tried for a long time to pretend that this is a Northern Ireland
Office problem and the Northern Ireland Office have identified
it as a Treasury problem. As you heard referred to before, the
Treasury have actually said in print that the scale of this problem
is very small in the scale of the overall excise duty taken in
the UK. However, regardless of their reluctance to consider it
up to this point, we certainly suggest it to the Committee as
the way forward, as the most practical way forward to actually
deal with the problem in Northern Ireland and further perhaps
take steps to contain the smuggling issue within Northern Ireland
and not see an escalation of it over on to mainland UK because
there is evidence and increasing evidence that considerable quantities
of diesel, gas oil, are actually finding their way into the north-west
of England and indeed, as of last week, into the north-east of
50. In the evidence you have given this
afternoon, I detect that you are not happy with the way the Government
is approaching this whole issue both at the Northern Ireland level
and at the Treasury level. Does that apply to the way in which
you feel that the Customs & Excise authorities on the ground
have approached the issue in terms of being proactive in closing
down smuggling operations, closing down the fuel sites where illegal
fuel is being sold?
(Mr Holloway) Considerable evidence was given
to Customs & Excise about the location of what were quite
obviously service stations selling fuel at such a distance below
cost that such predatory pricing had to be suicidal in
cases. There is very little evidence from those early 1998 days
that Customs & Excise addressed the problem with enthusiasm.
I have seen a considerable change in the resources that Customs
& Excise have available, but I have also seen a considerable
change in the people who are responsible in Belfast for the exercise.
In fact, at the end of this month, we will see the last person
of the original team of early last year disappear, so, with the
exception of the Collector, Bill Logan, the rest of the team will
have changed. That would not seem to me to be particularly wise
in the complexity of the business with which we are dealing if
in fact you really did have intent to wrestle the problem to the
ground. I do think that to some extent Customs & Excise have
done an excellent job given the resources they did have available.
51. But again there is an implied, if I
may say so, criticism there that maybe they have not got the resources
that they need to tackle this issue. You seemed to imply earlier
in response to Mr Barnes that there might be a connection between
an unwillingness, in your view, to tackle this problem, whether
it is at the level of the Treasury in dealing with the harmonisation
or dealing with the kind of proposal that you are putting forward,
or whether it is at the level of actually being proactive on the
ground in terms of closing down or preventing the illegal sale
of fuel oil, you seem to be linking that with political developments
in terms of early 1998 and so on and so forth. Is that still the
case? You linked the proximity of Good Friday, and I assume you
mentioned Good Friday because the Belfast Agreement was signed
on that date, and you seemed to link that date with the Budget
last year in March and there were problems there. Are you saying
that there is a lack of political will to take on this issue,
to deal with this issue effectively and why do you think that
would be the case?
(Mr Holloway) The political will is very difficult
to actually adequately answer because it would be true to say
that in my meetings with all of the MPs who represent the people
of Northern Ireland who have actually heard sufficient detail
of this problem, then we have had nothing but wholehearted support
from each individual, so there clearly is a political awareness.
The Customs & Excise problem is clearly one of resources to
adequately deal with it if you believe that the problem could
be adequately dealt with at that particular point in the problem.
I do not believe it can, but it would be obviously true to say
that at a time when the problem was escalating, which was early
1998, the most effective thing that could have occurred would
have been to have thrown resources at the problem because at that
particular moment in time, such creative ways of actually taking
marker dyes out of agricultural diesel, we were joking about in
discussions, but pouring agricultural gas oil through cat litter
to remove the marker to be sold on the retail fuels market is
in itself amazing, but if you talk about the scale on which it
was happening, that and other issues of continued seizures of
tankers crossing the border could have had greater importance
if more resources had been available, and if more resources had
been made available, I think the problem could have been stemmed.
I do not believe that that could ever solve the problem because
the incentive of what we are talking about, the simple cash benefit,
is too great to discourage those that are already established
in this illegal industry. If we are talking about that kind of
problem being a political problem because of the differential
in the duties, then if you cannot solve it by having every border
crossing manned for whatever reason, then the only other solution
is indeed a political solution, and I have said already that I
found the enthusiasm of the Treasury surprisingly lacking in attaching
themselves to the scale of the problem and accepting that perhaps
action was necessary.
(Mr Maxwell) In fact the Northern Ireland Office
and the Treasury Minister both refused to see us and that was
despite numerous letters that went in.
52. Why do you think that is?
(Mr Maxwell) Well, you would have to ask them,
but we have not been able to get an answer because I think we
set out our position very, very clearly and it would be right
and proper for them to have met us to discuss the real scale of
the problem. In addition to what our Director is saying, if one
just takes a step back in time, at the very outset, the petrol
retailers, most of them would not have even considered taking
in petrol and what we would call smuggled fuel because of the
perceived prosecution and the damage to their business and their
credibility and everything else, but then many have watched from
the sidelines and saw no action being taken and of course their
financial position became worse, so of course they were then attracted
to taking a load and one load became two and of course the whole
thing has grown to the extent now that there have been no prosecutions
or affirmative action taken to stem this and it is very easy now
for everyone just to jump on the bandwagon.
(Mr Murphy) If you propose stopping the smuggling
affair, that still does not resolve the question that I have and
the problem that I have, is that I live so near the border and
in such close proximity to the border that if you stop the smuggling,
you still do not stop the people driving past my station and stations
like mine and driving to Southern Ireland. We have got to get
back to the source of the problem and that is tax harmonisation,
to bring it into line.
53. I do think, if I may say so, if the
Association is giving collective evidence, that you do need to
decide whether you are actually asking for tax harmonisation or
price harmonisation. I think you frankly will confuse us unless
you speak with one voice.
(Mr Holloway) The request we have is for price
harmonisation and indeed inevitably, as European policies unfold,
that obviously leads to harmonisation of other tax levels, but
for the purpose of this discussion, we are talking about the harmonisation
54. One of the lines of enquiry from my
colleagues has raised the issue of paramilitary involvement and
I would like to go back to that in a slightly different way. Is
it the case that if there was significant action by the police,
the RUC or the Army or whoever, and we have seen filmed evidence
of some of the depots at which this trade is carried out and it
is large-scale businesses, so it is not hard to detect what is
going on, but presumably if there was a full-scale raid, you are
talking about a massive operation and possibly the loss of life,
so would it not be the case that most people would see such a
scale of operation as not being as justified as conducting that
scale of operation against people who, say, are plotting murder
or acts of terrorism? In a sense I am just teasing out whether
actually in the end there is not the political will to carry out
the operations which would be needed to seize goods, to conduct
prosecutions in the way that would happen if this was going on
(Mr Holloway) I think the issue really comes back
to the fact that smuggling takes place on the road and this product
that is being smuggled is being moved by road. It, therefore,
will cross the border at some point. In order to confront the
problem, we are not talking here about organised raids on depots
involving a lot of people, and I would agree with you that with
that definition it would be very difficult to actually get support
for such action, but we are talking here about a road vehicle.
People that have actually moved this product have developed some
very imaginative ways of disguising the fact that they are smuggling
and indeed the most humorous was probably that a Mother's Pride
van delivered 10,000 litres of diesel in Newry. Therefore, you
have to look at where the problem exists. It is on the road. I
think the thing that just does surprise me about that, and let's
just draw the parallel back to the political element here, there
was an incident last year when a young soldier was killed in stopping
a tanker to address this issue. Now, nevertheless, what we had
identified was in fact that there was a vehicle which was actually
believed to be smuggling fuel, so we know what the solution is,
which is to stop and check the tanker, and that identified with
the problem, but we did not see any increase in the activity to
carry out other checks which, if indeed we believed that the issue
was so important, I am quite sure we would have done.
The Committee suspended from 5.52 pm to 6.04 pm
for a division in the House.
55. I just want to put on the record that
although it is amusing, the transportation of inflammable liquids
in a Mother's Pride van, a vehicle which is not really equipped
for the purpose, it is deeply hazardous, and presumably it is
criminal, but not just criminal in terms of smuggling, but criminal
in terms of failure to comply with the labelling of hazardous
substances in transportation. Do you know if there have been any
prosecutions under that set of laws?
(Mr Maxwell) Mr Smyth, our regional manager in
Northern Ireland has been very much involved with trading standards
and I see that as an issue principally under their remit.
(Mr Smyth) I am unaware of any prosecutions at
the present moment either by Customs & Excise or trading standards.
56. Which is extraordinary because we have
seen the sort of vehicles in Customs & Excise yards and what
you are saying is that they are not referring them to prosecution
under trading standards which could be quite severe.
(Mr Holloway) It would be particularly severe
in the case of petrol of course, less so with gas oil, but, nevertheless,
a hazardous substance, yes, correctly labelled, undoubtedly no.
57. So one thing you might wish to come
out of this inquiry is for us to draw it to the attention of those
that seem not to have been promulgating those laws with the due
degree of enthusiasm?
(Mr Maxwell) I know one of my colleagues wants
to make a point on the environmental/trading standards issue.
(Mr Palmer) In the early part of the smuggling
issue, it was established by means of what they call "hole-in-the-hedge"
diesel operations, a single pump with a tank, and you have maybe
seen them on the back of containers.
(Mr Palmer) Now, petrol is licensed under law,
you require a licence to store it, whereas diesel does not require
that licence, and these people were able to establish a foothold
in the marketplace at the expense of existing retailers. They
had no requirement or whilst they may have had a requirement for
planning permission, it was never followed up. They certainly
had no drainage requirements in terms of interceptors. The implications
for drainage and the environment in general, diesel being the
product that it is, are quite horrendous. Of course being hole-in-the-hedge
operations, there could be no follow-up on these people. I feel
that trading standards could maybe bring this under the petrol
licensing arrangements, whereby all retail fuel outlets, whether
it be diesel, petrol, red diesel or kerosene, are brought under
this umbrella, and effectively maybe have their product tested
once per annum and this would also tie in with the washed product
scenario with the cat litter and the acid being used to remove
the dye from the product.
59. Is that hydrochloric acid or something
(Mr Palmer) Yes, one of the acid family. I feel
most people would have no objection to these people paying for
the costs of the test if the product is found to be defective
or the confiscation of their equipment would be a suitable fine
for such activity. I think that is all I would like to add on