Select Committee on Northern Ireland Affairs Minutes of Evidence

Memorandum submitted by the Road Haulage Association Ltd


  The Road Haulage Association (RHA) was formed in 1945 to look after the interests of haulage contractors in various areas of the country, in effect, amalgamating local organisations that had been established. The association has subsequently developed to become the primary trade association representing the hire-or-reward sector of the road transport industry. There are now some 10,000 companies in membership varying from major companies with over 5,000 vehicles down to owner-drivers.


  There is growing evidence that the enormous differential between rates of excise duty on fuel between the UK and the Republic of Ireland is leading to a major problem of fuel smuggling between the Republic and Northern Ireland. The problem is causing major problems for enforcement officials from HM Customs and Excise and is resulting in massive amounts of revenue being lost to the Exchequer. This problem is not unique to Northern Ireland—indeed the UK has higher rates of excise duty than every other EU country. However, the problem is exacerbated by the fact that Northern Ireland and the Republic are linked by a land border.

  Currently, the excise duty applied to diesel within the UK stands at 44.99 pence per litre leading to a retail price averaging around 53-55 pence per litre. In the Republic the comparable figures are 22.10 pence per litre of duty with a retail price of about 32 pence per litre. This gives a difference of at least 20 pence per litre of fuel purchased, or more importantly for our members, almost £230 per tank of fuel (based on a standard 250 gallon fuel tank). Clearly such a difference in price creates an enormous incentive to hauliers, as well as fuel retailers and others, to obtain fuel at the lowest price possible.

  There are a number of mechanisms, some of which are legitimate, by which the tax on fuel is now frequently evaded:

    (1)  Fuel is purchased legitimately by users when in the Republic and carried in the vehicles' normal running tanks—hauliers and other commercial users may then reclaim VAT;

    (2)  Fuel is smuggled in tankers for the use of those not able to make regular cross-border journeys;

    (3)  Fuel is smuggled or purchased by filling stations close to the border for resale at very low prices;

    (4)  Fuel is smuggled and mixed with other substances such as kerosene or lubricant oil. It is then sold by filling stations close to the border and by temporary sales points at various locations causing untold damage to vehicle engines and to fuel pumps etc. This is a practice used commonly by particularly unscrupulous individuals seeking to make the greatest profit they can;

    (5)  Operators simply use agricultural diesel—otherwise known as "Red Diesel" in Northern Ireland and "Green Diesel" in the Republic. Agricultural diesel attracts much lower levels of excise duty but the conditions under which it may be used legally are strict.

  Some of these mechanisms are used more frequently than others. For example amongst hauliers, the trend used to be that operators simply favoured the use of smuggled fuel because if they were stopped and checked by enforcement officials the fuel was, to all intents and purposes, "duty paid". However, because it is now common to find that smuggled fuel has been mixed with other substances, operators often prefer to use Red or Green diesel and hope that they are not stopped and checked, rather than risk damage to their vehicles.


  Evaluating precisely how widespread this problem is and thus estimating how much revenue is lost to the Exchequer is a very difficult task, not least because, as mentioned above, some of the mechanisms employed to avoid the revenue are entirely legitimate. However the RHA (along with the many parties interested in this issue) certainly believes that the problem is much bigger than any of the official estimates suggest.

  In terms of revenue, HM Customs and Excise estimates that the amount lost last year was around £160 million. However because this figure takes no account of either the use of agricultural diesel nor the revenue lost from legitimate purchases in the Republic, the RHA believes that a more realistic figure would be at least double this, if not more.

  It is also worth noting that this problem will undoubtedly continue to grow. There are two reasons for this; firstly the chances of being caught are low (see below), and secondly for every year that the UK Government continues with its strategy of increasing fuel duty by a minimum of 6 per cent (plus inflation) per annum, the potential rewards grow accordingly.


  At present the RHA understands that HM Customs and Excise employs only five staff in the area to enforce this particular problem. With such a small resource, even if the staff managed to achieve very high success rates, they can only "scratch the surface". Thus the chances of being caught and prosecuted for these crimes are, and more importantly are seen to be, very low. The following statistics provide a clear demonstration of the problem. Between June 1997 and (early) December 1998 there were only two prosecutions; 40 cases reported to the DPP (awaiting trial); 25 arrests; six compound penalties (settled out of court amounting to a total of £59,300); and 48 vehicles seized. Under such conditions the prospect of saving £200 per tank of fuel may be considered a risk worth taking.

  Nevertheless, it is clear that those involved in the trade are prepared to go to extraordinary lengths to remain undetected. Recent press notices issued by HM Customs and Excise detail numerous occasions when tanks of smuggled fuel have been found in vehicles apparently carrying other goods. For example in September, enforcement officers discovered around 1,000 gallons (4,500 litres) of diesel in a vehicle carrying sheep, and in October 18,000 litres of diesel were found in a bulk tipper carrying peat compost. Such determination, even under current enforcement conditions, demonstrates that the trade is unlikely to disappear unless drastic action is taken.

  The case for the Government to increase the resources available for enforcement is therefore overwhelming. If we are correct in our estimates of the amount of revenue lost, then the cost of providing the extra effort would soon cover itself, and would of course provide at last some deterrent.


  However, the RHA has long argued that the best way to deal with the problems caused by the differentials in duty that apply across the EU is to introduce an Essential User Rebate. The principle of the scheme is similar to that of the Fuel Duty Rebate (FDR) for stage services provided by buses, although the EUR would be much simpler to administer than the FDR. Under the EUR, essential users would be able to claim a rebate on fuel used for all valid business journeys of 20.9 pence per litre. For the purposes of the scheme, "Essential users" would be defined as properly qualified, professional hauliers, i.e., those currently falling within the Operator Licensing system. Full details of the scheme are outlined in the attached report.[1]

  The most significant benefit of the EUR is that it would create more of a "level playing field" for UK hauliers, thus preventing the loss of jobs and the associated impact on GDP. And of course, it would reduce the revenue lost on fuel since it removes the incentive (at least for hauliers) to purchase fuel either abroad (legally), or by illegal means.

  There is now a precedent for such a scheme. As of 1 January the French Government introduced a scheme whereby haulage operators purchasing fuel in France can claim a rebate of 3.54 centimes per litre of fuel. The primary reason for the French Government's decision to introduce this scheme is that it is worried about the impact on the French haulage industry of an increase in the price of diesel in France compared to its neighbours. No doubt the French Exchequer will also be pleased to retain some of the revenue from the purchases.


  The RHA believes that in order to stamp out this illegal activity and prevent the needless loss of massive amounts of revenue, drastic action is required. The combination of much higher levels of enforcement and the introduction of an Essential User Rebate will, we believe, provide a relatively simple, cost-effective solution to what is, and will continue to be, a very serious problem.

January 1999

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