Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 180 - 199)



  180.  What proportion of hauliers do you feel are being forced to operate illegally? You said a lot. You clearly have some evidence?
  (Ms Smith)  It is very hard to get evidence because no-one wants to come forward and tell you exactly what they are doing, so obviously you do not have those figures to hand; you cannot quote figures, but if you look at the prices, if you look at the difference of 27p per litre between North and South, that is a big difference and it is a big difference to a haulier where diesel is perhaps 35 per cent. of his operating costs. I think you have got to look at that and see the difference that there is. Paul did some figures on what it would mean.
  (Mr Archer)  Yes, to bring in a tanker load of fuel illegally. My estimate is that an illegal operator bringing 25,000 litres of fuel from the North into the South could make a profit of around £7,000. You can actually bring up to 30,000 litres in a tanker load, so the profit for that illegal operation is enormous.


  181.  I think you reversed the direction. The traffic is the other way.
  (Mr Archer)  I am sorry, from the South to the North.

  182.  I realise there may have been moments in the history of the island where the traffic may have been in the opposite direction.
  (Mr Norris)  Indeed, that is not an entirely irrelevant point. Much of the traffic originates from the fact that sterling has hardened in recent years. Indeed, vis-á-vis other economies—and the Republic's is a typical one—the effects of the escalator combined with the hardening of sterling have tended to widen the gap much more rapidly. I just reinforce the point that fuel represents anything from 25 per cent. to nearly 40 per cent. of operating costs in haulage. The difference depends on what particular kind of haulage you do. If you do milk deliveries and collections around farms where you are constantly using the gearbox and not operating at speed, fuel can be a very large proportion. If you are operating at 56 miles per hour at a constant speed in top gear then fuel might be a lesser proportion, but it is always going to be, along with staff costs, driver costs and the cost of amortising a vehicle, getting on for a third of your cost structure. The classic operating margin in our business—and the evidence for this can be obtained from any of the public companies in this industry—is around 3 per cent. to turnover and it is, therefore, impossible to ignore what Ms Smith is saying in the sense that there can be no company operating transport in the North of Ireland which is immune to the enormous lack of competitiveness when compared with any comparable operation using fuel either obtained illegally or in the South.
  (Mr Armstrong)  May I return to Mr Salter's original question. I do not think there are any members of our organisation who are engaged in this illegal activity and the reason for that is, first of all, that I do not think people who are engaged in that illegal activity tend to join trade associations and there is no compulsion to join and it costs them money, so I think that would be unusual. But secondly, the whole thrust of what the RHA and ourselves are trying to do is to make the competition playing-field as level as possible for those people who are operating legitimately. That is what we are in business to do and we are having a situation where, with the disparity in prices North to South, you have legitimate competition from the Republic of Ireland operating in the North which is very difficult to compete with simply because the cost base is that much lower, to say nothing about the competition coming from illegal operators.

Mr Donaldson

  183.  We have touched on the problems that can occur when road hauliers use some of this illegal product. Can you advise us of the technical problems which can arise in road vehicles from the use of washed diesel and diesel over-extended with kerosene? Could you guide us as to how expensive it might be to rectify problems which arise in vehicles which have been damaged as a result of the use of this illegal fuel, and what information do you have as to the prevalence of such a problem among commercial vehicle operators in Northern Ireland?
  (Mr Archer)  If I may pick up on that, I really give you a second-hand answer because we obviously in our company operate legally, but I am led to believe that diesel that has been adulterated with kerosene burns at a higher temperature and it is not going to be immediately obvious. Somebody who is buying adulterated diesel will not see the effect that afternoon after he has filled up. It could be, in fact—I do not know, I am guessing—maybe some days or maybe even weeks afterwards. It may take two or three fills of the tank before it becomes evident to him, but burning at a higher temperature obviously does damage to the engine. I have heard of operators who have been using illegal or adulterated fuel, maybe unbeknown to them that it was adulterated, and having a complete engine failure as a result. So the costs can be considerable. It certainly would be generally known that adulterated fuels will harm the vehicle and that is why I think adulterated fuel is not a very large part of this problem. The problem centres around smuggled-in, perfectly normal fuel and also the loss to the Exchequer that has been caused by the very significant amount of cross-border shopping.

  184.  I assume the cost of replacing an engine on some of the more modern trucks is prohibitive in terms of whatever short-term benefit there may be in the reduction of fuel costs, so are you suggesting, therefore, that the use of those adulterated fuels, because of the damage they can cause, is not so much of an incentive as against the use of fuels which are perfectly normal but, because of differentials in duty, are more attractive?
  (Mr Archer)  Absolutely. An operator will not choose to use adulterated fuel. He will not know it is adulterated, and the cost of the replacement of an engine of a 40-tonne vehicle could be upwards of £10,000. So no operator would choose to use adulterated fuel.

  185.  So is it your suggestion, therefore, that the problem in respect of adulterated fuel simply lies with people who wish to make quite a profit on the sale of the fuel and, therefore, are doing so on an illegal basis without informing people?
  (Mr Archer)  Absolutely. It is likely that adulterated fuel has been smuggled in the first instance, so it is a top-up to the profit margin on top of the smuggling by further adulterating it.

  186.  Is it likely that a haulier who is offered fuel at a considerably cheaper price than that which he would expect to pay were he purchasing it through the normal channels would not be suspicious of the possibility that that might be adulterated fuel?
  (Mr Archer)  If it is through normal channels he would not be, but I would suggest that operators are offered fuel at attractive prices and operators would have a fair idea that that fuel has not been adulterated.

  187.  When you say "offered at attractive prices" how does that happen? Is this private companies who approach hauliers and offer them? This is not a case of a self-employed haulier dragging along the road, seeing a decent offer at a filling station or one of these other operations, pulling in and loading on fuel? Are you saying it is actually much more proactive than that, that there are people out there who are offering this fuel, approaching hauliers?
  (Mr Archer)  Yes.

  188.  Surely in those circumstances hauliers ought to be suspicious?
  (Mr Archer)  Yes. I speak from personal experience. We are a large company and have been offered fuel at attractive prices on occasions but, of course, we have not shown any interest in that. We are a reasonable sized haulage operation in the Province and buy a lot of fuel, so we can buy at attractive prices, and as a company we have been offered, on a small number of occasions because we have not shown any interest, fuel at attractive prices by small oil distributors.
  (Ms Smith)  I can second what Mr Archer is saying because the same has happened to ourselves. We have had phone calls from people who will identify themselves by name and offer us fuel at a price which is attractive, but it does not lead us to believe that it is adulterated fuel. We would believe that it was fuel coming in from the South, which would be fine.

  189.  In terms of the adulterated fuel problem—and I accept what you are saying, that it is not the major problem—nevertheless, are there precautions which can be taken by commercial vehicle operators to seek to avoid purchasing this kind of fuel?
  (Mr Archer)  Again if I can field this, it is not easy to do this. In fact, you would have to have your fuel analysed and there are possibly only one or two companies in Northern Ireland will do that. It is quite an expensive operation to have your fuel analysed to detect if it has been adulterated.
  (Mr Armstrong)  Chairman, if I may, I think the major practical step is to make sure that you purchase your fuel from a reputable supplier that you have worked with for some considerable time, either one of the major oil companies or their subsidiary in Northern Ireland. Quite a lot of the larger companies will be buying in bulk, will be buying by the tanker load, and they will be able to enquire where it has come from. So they may not have to do the chemical analysis. But if you are spot purchasing fuel or buying at the roadside, it is extremely difficult to know.

  190.  So it would be the consensus, your collective contention, that road hauliers are very often driven to the point where they accept these lucrative offers because of excise differentials, high operating costs and, therefore, they may, in fact, abandon arrangements with reputable companies that they have used for some period of time in favour of attracting these more lucrative deals because of the high operating costs they are faced with?
  (Mr Armstrong)  That is true.
  (Mr Archer)  Yes. I think it is likely to be the small hauliers, who will do that because an operator who was to purchase fuel knowing it to be smuggled could be in difficulty.

Mr Beggs

  191.  What level of support do your members give to Customs and Excise in their efforts to detect and stamp out smuggling? You have referred to an example this afternoon of very attractive pricing in one area of the Province, which suggests to me that the price was even cheaper than the price at which you could purchase. Did you feel disposed to notify immediately Customs and Excise that there may be a reasonable suspicion?
  (Mr Archer)  Chairman, it should be obvious to Customs and Excise. These are roadside operators advertising the price. They are not up farm lanes or in obscure places. These are on main roads. I would suggest it is the responsibility of Customs and Excise to check the source of the fuel in those operations. In answering your question, we would give every encouragement to Customs and Excise because we, as legitimate operators, want to see the problem stamped out.
  (Mr Armstrong)  If I may, our organisation has publicly stated that we believe that Customs and Excise are probably under-resourced in the Province and, therefore, in direct answer to your question, the support we are giving is the public support of saying it is probably cost-effective for the Government to spend more on enforcement because of the amount of revenue that is being lost.

Chairman:  But I thought in the context of the question which Mr Beggs asked we were going beyond the case of the person who was selling by the side of the road, appropriately advertised, and somebody who had made a private approach. Would that be right, Mr Beggs?

Mr Beggs

  192.  Yes.
  (Mr Archer)  May I pick up on that. If somebody telephoned me as a major purchaser of diesel and offered me a tanker-load of fuel at an attractive price, I think it is unlikely that I would go to the Customs and Excise because I would not be sure of the source of that. I suspect because of the price that there is something different. Why is it going to be much cheaper than the normal large companies that we buy from? It is not my business to know the source of that fuel. I think you are asking, do we phone up the Customs and Excise and say, "Joe Smith (factitious name) phoned me the other day and offered fuel at an attractive price. Would you investigate that?" As an operator, I have not done that.
  (Ms Smith)  I think also, Mr Chairman, when these people phone you they do not always give you their real name and they usually use a mobile phone, so it is not very easy to get information that is of use to Customs and Excise and I think if you were to speak to Customs and Excise and offer them information they would tell you the greatest information you can give them is movements, give them registration numbers of vehicles, when the movement is going to happen, the time and place, because they do not have the resources to do anything other than you give them substantial information to put them in the right place at the right time.
  (Mr Norris)  Chairman, I should have pointed out that both trade associations have a very long-standing relationship with Customs and Excise combatting smuggling, drug trafficking, trafficking in illegal immigrants from Central Europe and so on. We value that relationship and we would want to encourage it but I fear that our response to Mr Beggs would be really just to point out how pathetically inadequate the Customs and Excise resource in the Province is. The latest evidence we have indicates that there are far fewer Customs officers operating than ought to operate given the extent to which additional officers would undoubtedly pay for themselves in terms of the reward to the public purse many times over. I think it is rather disingenuous, if I may say so, not as an operator or as a resident of Northern Ireland, to ask operators whether they would think first of ringing Customs and Excise when they got the sort of call that you have referred to, when we have pointed out the huge extent to which fuel costs impact on one's ability to stay in business in the Province. I think the line that hauliers are being asked to draw, the position that they find themselves in, is an enormously frustrating one because they are, in effect, being put in a position where the way in which you operate profitably is constantly to have to close one eye to the origin perhaps of a particular shipment of fuel, and that is not acceptable. It is not something that happens elsewhere in the United Kingdom and it is a direct reflection of the existence of a land border with another European Union state which appears to have escaped the notice of the fiscal regulator. That is the reality of it. Hauliers who were absolutely whiter than white and reported every telephone conversation and refused to pay anything other than the perfectly legitimate fuel price through the pumps would be, I think, sustaining a pretty heavy burden in terms of the impact on their business.

Mr McCabe

  193.  Could I ask a point on that because I am appalled at what Mr Norris is saying, but it sounds to me as if you are saying to the Committee that we should have some sympathy for the predicament that the people are in that leads them to behave like this and I am wondering who these people are, because earlier we heard that none of the members of your Associations would take part in this kind of activity, it is only small hauliers, according to Mr Archer, who do it. I am just wondering what number of hauliers are we talking about? How many people is it that we should have sympathy for who are clearly breaking the law? They may well be doing it to keep their businesses afloat but if it is none of the reputable hauliers and none of the members of your Associations there seems to be a contradiction there between telling the Committee that the reputable hauliers do not do this, members of your Associations do not do it, and at the same time Mr Norris is saying, "Of course, you should have sympathy and understanding because these people are in financial difficulty and they have to turn a blind eye to it all and we should not be criticising or tackling them on this." I do not know if I am hearing this differently from other Members of the Committee but that sounds to me like a simple contradictory message.
  (Mr Norris)  It is certainly not intended to be. As a matter of fact, there are many small operators who are not, as both I and Bob Armstrong have pointed out, members of either Association, so there is no contradiction in suggesting that those who are actually prepared to join a trade association and, as Bob said, pay a fee for doing so are much less likely to be tempted into illegal activity. Secondly, I am not for one moment talking in terms of sympathy and understanding as if we were talking of somehow condoning illegality. What I am expressing—and it is better almost that this comes from a trade association rather than from any individual operator—is a real sense of frustration because in the real world I am sure you, Mr McCabe, appreciate that it is tough enough to make a living in this business and when you are exposed to the kind of competition which buys the basic product you are trading in, namely, the fuel for your vehicles, at such a hugely lower price, then the pressure to get even in that particular respect is enormous and it is not a pressure to which any industry ought reasonably to be exposed, and bearing in mind our opening statement, which is that all of this is a reflection of the disparity in duty levels between the two sides of the land border, one really has to suggest that fundamentally this is an issue for HM Government.
  (Mr Armstrong)  Just one sentence in response to Mr McCabe's question. I would simply say the people that we need to be sympathetic towards are those legitimate operators who are paying these enormously high prices.
  (Mr Norris)  Yes, exactly.

Mr Beggs

  194.  You have clearly assessed that there is under-provision of Customs and Excise officials in Northern Ireland. May I put it to you that in order to assist further Customs and Excise, since your members are travelling throughout Northern Ireland, have you organised them to feed in centrally their suspicions about the location of "hole-in-the-wall" operations so that pressure can be exerted on Customs and Excise quickly to put them out of business?
  (Ms Smith)  I think it is fair to say that our members are aware that through the offices of the RHA and FTA, if they have information, that information can be put through those channels and that, in effect, is fed, and has been fed, to Customs and Excise when appropriate, and I feel that if Customs and Excise were here they would verify that, that we have worked very closely with them over the years and we support them in what they are doing and want to be seen to be supportive of them. I think it is also fair to say that when we talked about red diesel, red diesel has been a problem in Northern Ireland for years. The people who have used red diesel in the past are still using it. The problem that we are facing now is legal diesel which has been smuggled and that is actually adding to and escalating the problem we have already had with red diesel, and what we are saying here today is that there are many ways of smuggling diesel. It is not just tanker loads which are being offered now from the South into the North and, as you said, in films you have obviously seen it. It is northern drivers going down south and picking up a load and coming back, but there are lorries which go down south which have extra tanks on board which are used for the purpose of bringing that diesel back up over the border and pumping it out. There are lorries which go over the border and which fill up legally with diesel in the South but use that diesel for their own use in the North. That is not smuggling but if you pump out of that vehicle to put it into another tank, then it is illegal. That is happening and because of the differential in the price of diesel North and South, hauliers are more and more being pushed into looking at where they can save a penny, and if you are a small haulier you will take whatever advantage you can and a lot of people would not look upon the pumping out of one tank into another as a series of events of using red diesel or bringing a tanker-load of diesel up from the South into the North and filling their tanks with it.

  195.  To go beyond the Northern Ireland situation, which we recognise as being serious, what information do you have of the extent to which smuggled fuel of Republic of Ireland origin is now showing up on the Great Britain mainland and do you expect this to become a growing problem?
  (Mr Norris)  There are one or two reports, Chairman, as the Committee will no doubt know, of tankers turning up on the mainland in the North of England. There have been a couple of prosecutions, I think, in the last month. Whether it would ever have been widespread is difficult to say but it is worth pointing out that the profit—actually, to be fair, Mr Archer made the point—on a tanker-load is ostensibly of the order of £7-8,000, so it massively exceeds the cost of the ferry fare and the problems for United Kingdom hauliers are certainly of the same order in terms of foreign competition and certainly fuel is as great a proportion of their costs. So I suspect that the wider the differential between United Kingdom fuel duty rates and Continental fuel duty rates, including those in the South of Ireland, the greater the amount of traffic.
  (Mr Armstrong)  Chairman, I do not believe that smuggling to Great Britain mainland is widespread yet but it could well become an issue if the fuel price escalator policy continues because it is going to be very attractive for people to start up in the illegal trade. I know one operator, however, who perfectly legally sends multiple numbers of tractor units over on a ferry on a Friday evening to fill up with diesel in Dublin and ferries them back again. I think in terms of doing that it is a perfectly legal operation but quite an extraordinary situation.

  196.  Are the shipping companies doing enough to identify hazardous loads?
  (Ms Smith)  It is not a hazardous load if the diesel is in the tank of your own unit. That is natural because any haulier going out with a unit on the road will have a tank filled with diesel, so they are not doing anything illegal or that is not good practice for the shipping companies.
  (Mr Archer)  Chairman, that is a perfectly legitimate operation that has just been described. It is similar to hauliers from Northern Ireland fuelling up in Southern Ireland except that they are travelling the Irish Sea in this instance quite legitimately.

Mr Barnes

  197.  I want to pursue some questions about legitimate shopping, about people moving from Northern Ireland to the Republic and filling up. Have you any idea of the extent of this or the extent amongst your own members?
  (Mr Archer)  Again it is difficult to quantify. Perhaps the relevant people who could quantify that would be the Customs and Excise because they can relate the reduction in what they should normally be getting and is now, in fact, being paid as fuel tax to the Republic of Ireland. I cannot quantify it but again from my contacts on the ground with the industry in Northern Ireland I know it is very extensive now, particularly since the last Budget, because the difference is enormous. I quoted earlier the difference is as much as 26-27p, perhaps 28p, per litre, and in my own operation we find it cost-effective to make a round trip of 30 miles to fuel up south of the border, as well as our normal cross-border operations. So I would argue that it is now a very extensive operation and it is exacerbated by the point that Val Smith made, that there are operators who are sending tractor units only into the Republic to fuel, coming back and taking fuel out of that tank and putting it into other vehicles. So they are cross-pumping and effectively running a shunting operation all through the day.

  198.  Is the 30 miles that you mentioned the sort of economic limit to the advantage by size of the vehicle's capacity?
  (Mr Archer)  Chairman, it actually depends on the size of the fuel tank in your vehicle. If you could get a fuel tank or fuel tanks legitimately piped up to hold, say, 1,500 litres of fuel, then the cut-off round trip distance would be much further.
  (Ms Smith)  Mr Chairman, if you are delivering goods to Strabane, for instance, you only have a few hundred yards to go over the border where you can diesel up, so it is costing you nothing, so every haulier in Northern Ireland would be an absolute fool if they did not send their vehicles across the border to diesel up wherever necessary and wherever possible, and that is what is happening.
  (Mr Archer)  If you are actually travelling or doing your deliveries or collections to border areas, but I am making the point that for those who are restricted to local operations it is now cost-effective to do a round trip of 30 or perhaps more miles to obtain lower-price fuel.
  (Mr Armstrong)  Chairman, I may perhaps help on this point. We did a calculation earlier on based on the largest vehicle type with the normal tanks fitted to that vehicle, and, generally speaking, if you are talking about 40 miles as the cut-off point—I think that is what you are asking, what the cut-off point is—40 miles on an ordinary tank load is going to be the distance that would make it cost-effective to go and fill up. But again we come back to the fundamental point, because as this differential widens then the distance you want to travel gets that much further.
  (Mr Archer)  And there are not many places in Northern Ireland that are further than 40 miles from the border. Even Belfast is less than 40 miles from the border.

  199.  Is the 40 miles merely taking into account the differential in the price of the fuel?
  (Mr Archer)  Yes.

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