Memorandum submitted by the Road Haulage
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
Irelandindeed 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
tankshauliers and other commercial users may then reclaim
(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
(5) Operators simply use agricultural dieselotherwise
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.
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.
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