Examination of Witnesses (Questions 200
- 219)
WEDNESDAY 14 APRIL 1999
MS VAL
SMITH, MR
STEVEN NORRIS,
MR PAUL
D ARCHER and MR
ROBERT M ARMSTRONG
200. It does not take into account labour
costs?
(Mr Norris) No.
(Mr Archer) If we want to go into the detail,
if you take a small operator, a single operator, who then would
not be pricing in his own labour, yes, we worked out that it would
be cost-effective for him to travel 40 miles to the border, in
other words, an 80-mile round trip, and that is about the cut-off
point, but for a large operator employing labour, I go back to
what I said before about a 30-mile round trip, in other words,
15 miles, perhaps a little further; it depends on the size of
the fuel tank that you have, it depends on the exchange rate,
how attractive it is.
201. Ms Smith mentioned the problem of people
legitimately filling up tanks and bringing them back to Northern
Ireland and then it being transferred, but the only problem arises
at the stage where it is transferred? This is where the illegality
takes place?
(Ms Smith) That is right.
202. If numbers of your members are involved
in the initial legitimate activity, then it is not very easy to
gauge whether they then on some occasions fall over into the illegal
activity, is it?
(Ms Smith) That is right.
203. So when you are insisting to us that
your members are beyond reproach, there is no means of catching
them given the complexities involved.
(Mr Armstrong) It is not at all clear to us that
is actually an illegal activity. It is if you believe what Customs
& Excise say in the Province, but I am not sure. If you transfer
petrol from a car you own to another car you own, is that an illegal
activity? It is an issue which needs further questioning.
204. But there would be an illegality if
it was sold on elsewhere?
(Mr Armstrong) Absolutely, yes.
205. Do any of your members based in Northern
Ireland have dedicated service refuelling depots in the Republic
so they can take advantage of fuel that is legally available?
(Ms Smith) Most hauliers will operate with fuel
cards, which means there would be garages in the South of Ireland
where they go and fuel up at a rate which would be set on a daily
basis.
206. But it is not involving your organisations?
What is happening is that people are establishing refuelling points
near the border?
(Mr Norris) Generally speaking, the fuel market
is a very fine market and as it happens in the mainland the RHA
does have a fuel card scheme which offers a special price to members
who operate under the RHA umbrella. As Ms Smith said, for the
overwhelming majority of people in Northern Ireland that scheme
is really irrelevant when compared with the implications of simply
travelling south of the border. If you do that with one of the
many fuel cards which every fuel company operates, it is not necessary
actually to have a dedicated arrangement in order to take advantage
of the lower price.
(Mr Armstrong) It is fair to say that quite a
number of the larger operators in Northern Ireland actually have
depots already in the South of Ireland. It is nothing to do with
this issue, they just already have depots in the South of Ireland
anyway. Clearly where they have normal cross-border operations
they would be fuelling-up while down south. There is another issue
which is called flagging out, which is taking place as we speak.
As a result of the combination of high vehicle excise duty, which
is the other issue, many of these companies are either actively
considering or actively engaging in flagging out activity or,
at the very least, transferring the bulk of the fleet to operate
in the Republic and perhaps maintaining only a smaller proportion
of the total fleet in the North of Ireland.
Mr Hunter
207. I think, Chairman, our witnesses may
feel that they have well and truly exhausted the theme I intended
to raise, but in case they want to say anything more or say anything
again I will give them the opportunity. I wanted to talk specifically
about the recent Budget duty changes and the significance of those
changes and their impact on the level of cross-border fuel purchases.
You may feel there has not yet been sufficient time to turn perception
into evidence but would you say there has been a discernible impact
of that Budget? Perhaps you would like to talk on that and any
more Budget-related points.
(Ms Smith) I would certainly say that the diesel
increase in the last Budget, along with VED rates—which
are currently for 40 tonnes £1,300 in the South of Ireland
and £5,750 in the North of Ireland—was really the last
straw for hauliers and it has really now forced every haulier
to look at their operations. Bob has mentioned flagging-out, if
the majority of hauliers move their operations south of the border,
even smuggling is going to be irrelevant because there will not
be any hauliers left in Northern Ireland, they will all have gone
south with their operations.
(Mr Norris) I do not think it can be said enough,
Chairman, that all smuggling is a function of price differentials,
that is a statement of the blindingly obvious. In this particular
case, every time you pay a £1 for fuel 85p of it, one way
or another, goes to the Chancellor of the Exchequer. So this is
a commodity whose price is overwhelmingly determined by fiscal
policy and the effect of the escalator at this time, which effectively
raised fuel prices by 11 per cent, was to widen the gap between
the price which continental operators pay and UK operators pay
to a degree that means that even where there is a sea crossing
involved—and I am referring of course to cross-Channel activity—there
is evidence of 40 per cent more foreign trucks working across
that sea crossing into the United Kingdom over the last two years
than pre-existing. I have to say, and I accept Mr Hunter's invitation
with enthusiasm to make this point, that the Treasury does seem
to forget that there is one European Union member with whom we
have a land border. Where there is no ferry cost, where there
is no toll to pay in passing from north to south, where it literally
is as easy as Ms Smith said as moving just a few hundred yards
on occasions in order to go south of the border to buy fuel, it
is absolutely as plain as a pikestaff that there is an enormous
imperative to do so when the fuel that you buy, representing let
us say 30 per cent of costs, is bought at 50 per cent of its price
north of the border. Thus you are 15 per cent of your operating
costs better off. In an industry where margins are, as I indicated
earlier, around 3 per cent on turnover, that is the difference
between operating profitably and frankly not being able to operate
at all. So the trade associations have indicated to their members
that they will help them to flag out their operations to countries
which have a more benevolent and attractive regime, that would
certainly include the Republic, and also of course, as we have
acknowledged, the problem of cross-border shopping is simply going
to get greater and greater. The one point we would make to the
Committee, Mr Chairman, and it is germane to your precise investigation,
is that there is a slight irony in that as the gap between legitimate
prices north and south of the border widens, the extent of traditional
smuggling is probably slightly diminished, not greatly but slightly.
If you add to the already horrendous gap the further price advantage
which derives from buying illegal marked fuel, whether it is green
south of the border or red north of the border, then obviously
the attractions are even greater. We think it is a position which
is simply unsustainable in the longer term. When Ms Smith talks
of the entire industry effectively being registered as companies
south of the border, using therefore Republic of Ireland plates
on their vehicles and buying all their essential fuel south of
the border, that is not a reductio ad absurdum, on the
contrary that is a very practical proposition, we would be surprised
if it was not the case.
208. A few minutes ago you said something
like, "the Treasury appear to have overlooked the land border
with the Republic", that prompts me to ask what dialogue,
if any, your respective organisations have been able to establish
with Government. Have you succeeded here? Have you found it satisfactory?
What sort of response or reaction have you met with?
(Mr Norris) I think I ought to say that in my
experience the Treasury has never been noted for its willingness
to extend the warm hand of tolerance and friendship to business,
industry or for that matter other spending departments of Government.
Chairman
209. I must remind you, Mr Norris, I served
for four years as a Treasury Minister!
(Mr Norris) Well, I need not remind you, Mr Chairman,
I served for four years as a spending Minister and therefore our
views on these matters are likely to be somewhat at variance!
Bearing in mind your own good nature in these matters, I suspect
your better judgment would tell you that the Treasury has not
been historically particularly prone to this argument. It is arguable
that several years ago, for example, when sterling was weaker
vis-a-vis both the punt and other near-European currencies, and
when the effects of the escalator were not really evident—it
was introduced about six years ago by the last Government at 3
per cent plus inflation—these differences were perhaps less
remarkable. Our view is that they are now getting to the level
where they are extremely remarkable. The direct answer to your
question is that since this Government came into office, the two
trade associations have repeatedly asked to see a Treasury Minister
and the first occasion on which we did so was last week when my
opposite number, David Green, the Director General of the FTA,
and I met with a Treasury Minister in the company of the Minister
of Transport under the aegis of the new Industry Forum which he
has recently agreed to establish. But prior to that we have had
very little dialogue.
Mr Hunter
210. One small dimension of this big problem
which has been put to us is that the Northern Ireland Office sees
the issue as a Treasury issue, and in terms of the entirety of
the United Kingdom the Treasury appears to see it, as I understand
it, as a minor problem. So you have what is a major problem in
a small part of the United Kingdom not being recognised as such
by the Treasury. Is that a perception which your associations
would share?
(Mr Norris) Yes, indeed, precisely that.
(Mr Armstrong) It seems to me this is actually
a United Kingdom problem because the whole issue of the combination
of high fuel duty and high vehicle excise duty is causing quite
a number of people in England, particularly in the South of England,
to flag out parts of the fleet or indeed their entire fleet to
the Netherlands and other countries the other side of the water.
So the high level of taxation overall on the industry is a UK-wide
problem. While the fuel smuggling issue is purely a Northern Ireland
issue as we speak, although as I said earlier it might develop
elsewhere, the sheer level of taxation is a UK-wide problem.
(Mr Norris) But whatever the level of the problem
in the United Kingdom generally, it is much more acute in Northern
Ireland.
(Mr Archer) Chairman, the first part of Mr Hunter's
question was has this problem become worse as a result of the
last Budget. I would like to add that legitimate cross-border
shopping has been going on for some years but it has increased
enormously since the Budget because fuel can be purchased at almost
half the price it is in Northern Ireland. If at the next Budget
the escalator mechanism applies, the disparity is going to be
even more marked, and I would contend it will not be long before
none of the vehicles in Northern Ireland operating above 32 tonnes
will fuel in Northern Ireland, they will go south of the border.
(Mr Norris) It is also worth pointing out, as
I am sure the Committee is aware, the Dutch-German border situation
has forced the Dutch Government to recognise the need to build
in a kind of buffer zone in which a differential duty arrangement
exists. Translating those distances of 10 km, 20 km, into Northern
Ireland—which incidentally reinforces the point that our
operator colleagues have made—it does seem as if the logic
of what is happening in the North of Ireland is not being recognised
in the way other governments do recognise it. The French Government
has recently introduced an essential user rebate for its haulage
industry specifically to recognise the differential in fuel prices
between it and other countries in Europe, principally Luxembourg.
It is an irony they should be doing that when, of course, our
competition is principally from the Republic of Ireland and from
France.
211. So you would recommend to the Committee
to look carefully at how a comparable problem is being handled
elsewhere in the European Union?
(Mr Norris) Indeed, Chairman.
(Ms Smith) I think, Mr Chairman, it is also important
to realise that Northern Ireland cannot operate without the haulage
industry. Everything that is moved in Northern Ireland is moved
by road, we have virtually no rail network whatsoever, in fact
I think we have one goods train which runs from Belfast to Dublin
and on to seaports in the South of Ireland. Therefore we need
a haulage industry. What this Committee and what the Government
have to decide is, is the haulage industry in Northern Ireland
going to be run and operated by people from Northern Ireland or
is it going to be run and operated by people from other EU countries.
It is as simple as that.
(Mr Armstrong) One illustration, the vehicle excise
duty for a maximum sized 40 tonne vehicle in the Republic is about
£1,200, roughly, and it is now, post the Budget, £5,750
in the UK, so approximately £4,000 per vehicle differential.
Chairman: I am not
in any way seeking to clamp down on this discussion but that does
seem to be taking us back to the issue I raised at the beginning
of the meeting.
Mr McCabe
212. It is probably fair to say that we
have heard quite clear descriptions of the problems as you and
your members see them, and I think we have heard similar descriptions
from other witnesses before. I was conscious in response to Mr
Hunter, I think it was, Mr Norris said that you advocated looking
at the situation in other countries and you mentioned the French
and Dutch position. I understood the Dutch position was under
investigation at the moment, but is that your main suggestion
in terms of a solution to this problem, or do you have other specific
solutions which you think the Government should take on board?
(Mr Norris) I will perhaps start by making the
point that overall our industry believes that the Government has
to look at harmonisation of fiscal policy if it is to be a participating
member in a single market. There may be an argument about whether
that harmonisation is imposed by the European Commission or is
agreed to unilaterally by the Member States, I have no position
on that, nor does my Association. But the logic of harmonisation
of duty rates when you have a single market across Europe, and
we do have a single market in haulage since the abolition of cabotage
restrictions, we think is overwhelming. Setting that aside, there
are a number of things which we think would assist the situation
in Northern Ireland. The first is to review the application of
the fuel duty escalator. It is now very difficult, some six years
after its inception, to point to any real evidence of its environmental
benefit, but it is very easy to point to the adverse consequences
of its application in terms of jobs. I just make the point in
particular in relation to road haulage, the point Ms Smith made
must be borne in mind constantly whenever one is tempted to see
the application of the escalator as somehow having an environmental
benefit, because there is no opportunity to transfer freight,
for example, in Northern Ireland from road to rail, and there
is generally very little prospect of deliveries simply not happening.
The only consequence of the present policy therefore is (a) to
add costs to the consumer and (b) replace United Kingdom vehicles
and drivers with continental vehicles and drivers, and in this
case, generally speaking, those from the Republic of Ireland.
So we argue for (a) harmonisation (b) a recognition of the lack
of environmental logic in the present policy which was always
seen as its great rationale and (c) in relation to essential users
of diesel, that is to say particularly in the freight and public
transport industry, some recognition for the need for the freight
industry's purchase price to be on a par with the industry south
of the border. We have called this device an essential user rebate
and it effectively works by rebating to legitimate recognised
operators, in other words licensed operators and that in Northern
Ireland includes own-account operators who currently operate under
a slightly different regime, a specific rebate relating to the
difference in price between the cost of fuel north and south of
the border. We are not looking for feather-bedding, we are merely
looking at a level playing field. That is an idea, which I am
sure Mr McCabe knows, we put forward to the Government in relation
to the United Kingdom as a whole but it is particularly relevant
in the Province.
(Mr Archer) Chairman, every litre of fuel that
an operator legitimately purchases in the Republic of Ireland
means a reduction of 50.21p per litre that the UK Exchequer is
not getting and instead the Republic of Ireland is receiving the
equivalent of 22p sterling. There must be a cut-off point somewhere
where that purchase can be retained within the UK.
(Mr Norris) Our figures indicate that the cost
of providing the essential user rebate is very substantially offset
by the increased revenue to the Treasury which derives from precisely
the absence of this cross-border shopping which Mr Archer is referring
to.
(Mr Armstrong) Could I underline the point about
the inelasticity of demand for freight transport? We are the ones
who determine how much freight moves because we purchase things
in the shops and that demand has to be reacted to. Whether or
not the fuel price escalator policy would work in getting Sunday
drivers off the road is a different issue, it might do if the
price went on up for long enough, but it will not reduce the demand
for road freight transport because everything goes onto the back
of lorries to be delivered to the shops. I think this problem
would have emerged much sooner had it not been for the fact that
the world commodity price for oil has been at relatively low levels
over the last few years and indeed almost at an all-time low if
we go back about six months, but I noticed over the last couple
of weeks that is beginning to change and the commodity prices
are beginning to rise. Whether that will be sustained is another
matter but that is the way it looks. In which case, even your
average motorist might start to feel hit hard in the pocket by
the combination of the policy and the underlying commodity price
coming back.
213. Can I just be clear about a couple
of quick points? In terms of duty harmonisation, I noticed Mr
Norris said he was not wishing to enter into the political debate
about where it is set, but the effect of this would be that the
duty for Northern Ireland would be determined by the duty rate
set in the Republic. That would be the effect of harmonisation
in this case. Am I right to assume your Associations would be
happy about that? I did notice earlier that I think it was Ms
Smith said she was concerned about retaining a Northern Ireland
haulage fleet rather than have one in another EU country. A different
aspect of that problem might be the question whether Northern
Ireland duty rates are determined via the Republic. I wondered
if I would be right to assume that both your Associations would
be happy with that position. I am not sure all other people in
Northern Ireland would necessarily share that view but I did wonder
if that was what you were saying.
(Mr Norris) It is extraordinary how keen one is
on harmonisation when it is harmonisation downwards and how indifferent
to the proposition one is when one is asked to increase duty rates.
My serious answer would be this, as it happens, the UK is unique
within the European Union in two respects in relation to fuel.
Firstly, it is the only country in Europe which has employed a
fuel duty escalator; no other country in Europe has employed a
fuel duty escalator. Secondly, it is the only country in Europe
which has the same rate of duty for diesel as it does for unleaded
petrol. So in both respects what you have is a situation in which
every other country in the European Union is driving down the
harmonised price of fuel and it would actually, I think, be genuinely
misleading to suggest that the only issue here is the price in
the Republic.
214. With respect, this whole debate has
centred on the effects of the hauliers you represent versus the
price in the Republic.
(Mr Norris) That is a perfectly fair point but
I think the response we were making was where you are looking
at harmonisation, if you were looking for example to harmonise
rates of corporation tax throughout the European Union, the United
Kingdom would find itself in the position where, if anything,
it had to raise rates. In relation to fuel duty the United Kingdom
has to lower its rate both vis-a-vis the French and other near-European
countries for the South of England and also vis-a-vis the Republic
of Ireland for the North of Ireland. So we do not see anything
in terms of territoriality about the proposition that harmonisation
would mean lowering UK fuel duty. If the Republic were required
to raise its fuel duty to the same level as that which prevailed
in the United Kingdom, whilst we would be left with an even bigger
issue in relation to the old-fashioned smuggling of red and green
diesel, we would certainly eliminate this enormous amount of what
we might call legitimate movement of cross-border purchasing and
of tankers coming north of the border and so on which we have
been spending so much time discussing.
(Mr Armstrong) The context of the discussions
has been on Northern Ireland because we are giving evidence to
yourselves, but we have been advocating the essential users rebate
UK-wide because this problem is not just a question of the North
and South of Ireland; it is increasingly a question of England
versus countries on the continent. The differences are enormous
and it is a fact we do have a single market for haulage, there
it is no question of being able to put up some sort of drawbridge
and say, "You cannot come in", we are in a single market,
people can bring their vehicles over here, carry out cabotage
journeys, spend several weeks at a time here if they want, and
they do so having the benefit of a lower cost base. Clearly if
they are here for several weeks they would be paying our higher
fuel duty but they would still come from a basically lower cost
base. So it is a UK-wide problem but it is much more acute in
Northern Ireland.
(Mr Archer) As a Northern Ireland operator I would
add to that. This is a specific problem, a practical problem which
applies to Northern Ireland today because we have a land border
with the Republic of Ireland. If we had a land border with France
or with Belgium, the problem would be occurring in the South East
of the UK as well, but it is a specific problem because of the
land border. The disparity of prices argument does apply in other
areas as well as Northern Ireland and the Republic of Ireland.
215. Can I pick up the question of harmonisation?
Assuming it was possible to harmonise the duty by whatever means,
you still face the currency differential. How would you propose
to address that?
(Mr Norris) We have worked on the basis that the
Treasury would take as its yardstick a periodic revaluation of
the real duty rate on both sides of whatever border was relevant.
So it would be true to say that provided there were different
currencies in operation either side of the border, there would
be the day-to-day fluctuation in their value which it would be
almost impossible in this context to avoid. But that has not been
a major impact and that is capable of being, in a sense, remedied
on a fairly regular basis, indeed it is one of the Chancellor's
macro-economic responsibilities to attempt to do that. Here it
has been the effect of the disparity in exchange rates that has
underlined and exacerbated the underlying problem of fuel duty.
Incidentally, as Bob Armstrong says, the change now in the real
price of landed fuel, in other words the spot price of fuel, is
now tending to add further exacerbation to the issue.
216. You mentioned your proposals for a
rebate system, I suppose I could reasonably call that a subsidy—I
do not want to get bogged down into the detail but I think it
amounts to roughly the same thing—have you given any thought
to the cost of what you regard the effects of subsidy to be before
it would really make a difference? What I am asking is, what size
of subsidy do you think would be necessary before it would have
a meaningful impact and what do you think that would cost?
(Mr Norris) The RHA commissioned research by the
Centre for Economic and Business Research, which is headed by
Professor Douglas McWilliams who is a leading economic analyst,
into the UK-wide implications of an essential user rebate which
would be fixed at the difference between the UK duty rate and
the near-European duty rate. I make the point about duty rates
because bearing in mind the actual cost per litre of the fuel
is around 8p—and going back to my earlier point, 85p in
every £1 is effectively duty—it is the duty rate that
is relevant. With that in mind, our calculation was that across
the whole UK, and we did not do a separate calculation for Northern
Ireland but we would be prepared to look at that if it would assist
the Committee, there would be something like this year, that is
to say 1999, a revenue loss of something like £4 to £500
million arising from the effect of shopping out. That is excluding
the effects of smuggling, that is simply the revenue effect of
legitimate shopping out. There would be around 10,000 job losses
this year, and a loss of GDP of around £900 million. So our
view is that those disadvantages to the UK economy, which are
a product of the absence of a rebate or subsidy—and I agree
it is not worth trading semantics—largely offset the costs
of the provision of the rebate. Our original view prior to the
Budget was that it would require an adjustment of less than 2p
a litre overall to the price of fuel, taking account of the re-collection
of fuel duty by the Chancellor under this regime, to entirely
balance the equation. So it does not have to be a remedy of enormous
cost to the Exchequer.
Chairman
217. I asked a general question at the beginning
which got us off the ground, let me ask one or two supplementary
questions arising out of the evidence you have given to myself
and my colleagues. You mentioned that you had your first meeting
with the Treasury within the last week, but that was obviously
on the general national problems, has there been any approach
by either of your associations to the Northern Ireland Office
to discuss these issues? I infer there has not been any contact
with the Treasury.
(Ms Smith) Certainly from the RHA position we
are currently trying to get a meeting set up with the Northern
Ireland Office to discuss this.
218. But have not had one so far?
(Ms Smith) No.
(Mr Norris) We have viewed this as a Treasury
issue, Chairman, because recognising the difference of opinion
between the Northern Ireland Office and the Treasury as to where
responsibility for this lies, we have been very clear that, certainly
on the mainland, the DETR has no effective responsibility in this
area, it is overwhelmingly a Treasury and duty-related issue.
We have a very good relationship with the Northern Ireland Office
and enjoy extremely cordial relations with them on all other matters
relating to road haulage, but this we have seen as a Treasury
issue.
(Mr Armstrong) Indirectly we have raised the issue
with the Northern Ireland Office through our membership of the
CBI.
(Mr Norris) Yes.
219. Can I clarify, in terms of the exchange
you have just had with Mr McCabe, the order of your solutions,
the prioritisation of your solutions, to use an ugly word? Am
I understanding it right that your first preference is for harmonisation
of taxes and only if you do not secure a harmonisation of taxes
do you want a user rebate?
(Mr Norris) I can speak for the Road Haulage Association,
Chairman, and we would assent to that proposition. Harmonisation
is ideal because it levels the playing field within a single market.
If we are not to have general harmonisation, then specifically
where an element of competition is relevant to a product, and
it clearly is in road haulage, you need to have the level playing
field by means of a specific industry rebate. Incidentally, there
is a precedent for that, of course, there is a thing called fuel
duty rebate which is paid to public transport operators. There
are other precedents in other countries, the French, as I say,
have a fuel duty rebate.
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