Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  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 attractive.
  (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 north—a 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 spent.

  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.

Mr McCabe

  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 also?
  (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 case.

Mr Donaldson

  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 on smuggling?
  (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 Treasury?
  (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 England.

  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
BR@those 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 of price.

Mr McWalter

  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 in Hampshire?
  (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.

Mr McWalter

  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.

  58.  Yes.
  (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 else?
  (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 that issue.

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