Examination of Witnesses (Questions 171
WEDNESDAY 14 APRIL 1999
D ARCHER and MR
ROBERT M ARMSTRONG
171. We are delighted to welcome you and
thank you very much indeed for coming to give oral evidence on
top of the memoranda which you have already submitted to us. One
preliminary word I perhaps ought to say to guide us for the afternoon,
and that is that, although the Freight Transport Association did,
in a subsequent letter to the original memorandum they sent in,
raise the conditions which will pertain as a result of the most
recent Budget and thus the Finance Bill, we are effectively concentrating
in our inquiry on the smuggling issue. We appreciate that the
changes in duty or tax can affect the smuggling issue but we do
not want to talk about them generically. That is what our inquiry
is about and I just wanted to put that on the record to start
off with so that there was no misunderstanding.
(Mr Armstrong) That is understood, Chairman. Thank
you for that.
172. We shall seek, if possible, to make
the order of questions we ask you follow a reasonable logical
order and, therefore, the questions may come from different corners
of the room and not necessarily in a geographical order. It may
well be that you would want, in addition to the material you sent
us in advance, to say something to us at the start of the proceedings
before we start asking questions, and let me express our appreciation
that you agreed to give evidence together because in a sense we
are going over essentially the same ground and that is extremely
helpful from our point of view, but I will leave it to you to
decide whether you do want to say anything before we embark on
the questioning. What I will further say, however, is that if
at any stage you want to gloss an answer you have already given,
either now or during the course of the session today, in writing
hereafter, please do not hesitate to do so, and we will reserve
the right to ask any supplementary questions in writing if something
occurs to us having had the chance of reading the transcript.
Let me ask whether either organisation would like to say anything
of a preliminary nature before we embark on asking you questions?
(Mr Norris) No, I think we outlined in our memorandum
what our essential submission was and noting your reasonable advice
that we should not discuss the recent Budget increases, I just
merely reinforce the point that obviously the whole function of
smuggling is that it is a function of differential fiscal treatment
and has been since time immemorial, so that the same issues apply
in this case essentially as apply in relation to cigarettes and
alcohol in cross-Channel traffic, for example, between the South
of England and France. So with that proviso, we will try and help
Members with their questions, Chairman.
173. Very good. Let me ask a first question.
I will confess that I tried this question on Customs and Excise
and Customs and Excise were not particularly forthcoming in terms
of their response. That is not in any way a reflection on Customs
and Excise but it means that I do not ask you the question with
unbounded optimism based on the answer I got earlier, but what
is your assessment of the relative prevalence of the following
products being used or offered as road fuel, either on their own
or mixed with legitimate fuel: the first is red diesel, the second
is green diesel, which is obviously rebated Republic of Ireland
gas oil, the third is washed red diesel, the fourth is washed
green diesel and the fifth is kerosene-adulterated diesel? I do
not know how you decided between you as to who is going to answer
first and that we will leave in your hands.
(Mr Norris) Chairman, I should say that two of
my colleagues are intimately involved as operators in Northern
Ireland. Ms Smith is the Managing Director of a substantial haulage
company in the North; Mr Archer is a member of the FTA and is
a Director of the equivalent to the Milk Marketing Board, as you
probably know, and I suspect they are in a better position to
judge that question.
174. That is helpful advice. Let me ask
if either of them would like to comment on the question I have
(Mr Archer) Chairman, we obviously do not have
definitive figures and even wearing my FTA hat we just do not
have access to the level of red diesel and green diesel that is
being used as road fuel vis-á-vis Northern Ireland non-rebated
fuel. I would suspect there is slightly less being used as of
late because of the disparity in prices between the North and
the South and the very large extent of cross-border shopping that
takes place. You always run the risk, of course, of being apprehended
if you are using illegal fuels, so it is difficult for me to quantify
this. We hear at ground level that, yes, there are operators who
will use red diesel or green diesel because the level of detection
is not going to be very high, but I am not in a position, and
I am sure my colleagues are not in a position, to quantify that.
Going down through the various categories, it is the same answer
in many ways because we just do not know the extent of the use
of washed fuels, but certainly you see in Northern Ireland, particularly
in the West of the Province now, quite a lot of spurious fuelling
points quite openly advertised. I saw one yesterday outside Cookstown
selling diesel at 54p per litre compared with a normal retail
price of about 70-71p. That is either smuggled fuel or that is
washed fuel. I obviously did not buy any so I am not sure which
category it falls into, but there are a lot of these fuelling
points which are Portakabins and sheds and what have you, dotted
around, particularly in the West of the Province. So my answer
to the question is yes, I think those categories are there. I
am sorry, I am not in a position to quantify it.
(Mr Norris) Chairman, we enquired as an Association
of as many members as we could, trying to answer precisely these
questions and, not unreasonably, a great many of our members are
reluctant to give names and specific details. Our impression is
that there is perhaps less kerosene-adulterated fuel around than
is occasionally talked about. It is a spectacular notion that
you run the machine on a mixture of kerosene and lubricating oil.
You can, of course in the short term but there are enormous effects
on your engine of doing that for any length of time. So whilst
man's innovation knows no bounds, I suspect that that one is not
as prevalent as is sometimes suggested. But it ought to be pointed
out that there is such a large amount of legitimate shopping these
days that there is this idea that sometimes the purely illegal
fuel is in a sense now taking second place to the perfectly legitimate
notion of simply shopping south of the border because that itself
yields a huge benefit. Why, one might ask, take the risk of illegality,
which is, I think, what Mr Archer was pointing out, when to run
legally by shopping south of the border yields such an enormous
(Mr Armstrong) Could I comment on that. It appears
to me that, although we have no specific figures, there has never
been any evidence amongst our membership that the use of these
illegal fuels was any higher in Northern Ireland than it was in
the other parts of the United Kingdom. Indeed, I think the incentive
in Northern Ireland is now less than it is in other parts of the
United Kingdom because it is easier to obtain cheaper fuel south
of the border.
(Mr Archer) If I could fill in some sort of detail
on price differentials; because I am representing the haulage
industry here we can take VAT out of the equation as it is reclaimed.
A company such as I work for, and Val Smith works for, will buy
fuel legitimately in Northern Ireland, and at around 58-59p per
litre plus VAT. We can buy fuel legitimately in the Republic of
Ireland at the current exchange rate of £IR1.17 to the pound
Sterling, this equates to 32p per litre. So if you can buy fuel
legitimately south of the border at 32p per litre why run the
risk on red or green diesel at 16-18p per litre?
(Ms Smith) Mr Chairman, there are tanker loads
of diesel crossing the border from the South into the North daily
and delivering to the people's yards. Those who want it, they
will deliver it, so you do not even need to go across the border
(Mr Norris) And it follows that you do not need
to buy adulterated fuel or marked fuel to obtain these massive
savings. Just to pick up on what Bob Armstrong said, Chairman,
my Association has very clear evidence that the problem of the
misuse of marked fuel, which was itself a wartime phenomenon,
is marked throughout the whole of the United Kingdom. There is
a great deal of abuse of red diesel generally which Customs and
Excise tend to under-estimate - I do not know, perhaps as a justification
for not putting more enforcement resources inbut our view
is that there is far more widespread abuse than is given public
175. I take the point you raised earlier
about how some of these problems could be produced from tax harmonisation
but getting tax harmonisation through any parliament is not always
easy, as you will be aware, and it is outside the scope of our
inquiry. Can you, for the record, define the roles of the Road
Haulage Association and the Freight Transport Association for
us? Who do you represent and what do you do?
(Mr Armstrong) I speak for the Freight Transport
Association. We represent users of transport by all modesroad,
rail, sea and airand those companies principally who operate
their own fleets; in other words, they are own account operators.
So our members tend to be manufacturers or retailers who are self-providers
of road transport services and users of rail freight, air freight,
sea freight and so on. We also have a small number of haulage
companies, small in terms of proportion of the total membership.
About 80-85 per cent. of our members are manufacturers, retailers,
users of road transport.
176. And the RHA?
(Mr Norris) As Bob suggests, the FTA represents
what are known as the own-account operators, in other words, people
who use their own fleets for their own purposes of manufacture
and distribution, and we represent what are called the hire and
reward operators, that is, those who actually sell the business
of haulage. We represent just under 300 companies in Northern
Ireland and the fleet size is of the order of several thousand
vehicles, and probably around 10,000 people directly employed
in our member companies.
177. So the companies that employ tanker
drivers or run tankers will be members of the RHA?
(Mr Norris) Not necessarily. The tanker could
be directly owned by one of the fuel companies or, indeed, by
Milk Marque, or it could be run by one of my members to carry
goods for a third party, of whatever description. More often,
as it happens, tankers tend to be directly owned by companies
because the tanker business tends to be restricted to a single
178. But the point I wish to pursue is building
on Val Smith's comment, which is that tankers of illegal fuel
oils are crossing the border daily, hourly, if some of the video
evidence we have seen is to be believed. There is, therefore,
some distinct possibility that some of your members are actually
involved in the smuggling. Would you care to comment on that?
(Ms Smith) I think you would find that the majority
of tankers that cross the border cross from the South into the
North and we as an organisation are Northern Ireland and United
Kingdom-based. There is a road haulage association in Southern
Ireland, which is separate from our own, so we would not have
that information, but you would appreciate that in the fuel oil
industry there are people who run tankers who deliver to smaller
filling stations, home heating oils, etc. who may not be in the
FTA or the RHA.
(Mr Archer) Mr Chairman, adding to Mr Salter's
point, I think it is highly unlikely that illegal operators are
going to be members of either the FTA or the RHA.
(Mr Norris) There is no requirement on an operator
to be a member of either.
179. If I may pursue that point, again some
of the evidence that we have seen earlier has shown tanker drivers
from the North of Irelandthe flip-side of your point, Ms
Smithrunning to the South and then picking up a very lucrative
load and running back North. I just wanted to put it to you that
you should not close your eyes to the possibility that perhaps
some of your members are involved in this and perhaps we all have
a responsibility to ensure that illegal smuggling is clamped down
on and that is also a responsibility both for us as a Select Committee,
for us as a government and perhaps also for representative organisations
(Ms Smith) I do not think anyone would disagree
with you. No-one wants to operate illegally and no-one wants to
have someone who is operating illegally as a member of their organisation.
But I think what we also have to look at is that because of the
diesel crisis in the North and South, because of the disparity
of prices, a lot of hauliers feel they are being forced to operate
illegally to be able to stay in business because of the competition.