Examination of Witnesses (Questions 180
- 199)
WEDNESDAY 14 APRIL 1999
MS VAL
SMITH, MR
STEVEN NORRIS,
MR PAUL
D ARCHER and MR
ROBERT M ARMSTRONG
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.
Chairman
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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