Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



  220.  I just want to get the order of your priorities.
  (Mr Norris)  That is it.
  (Mr Armstrong)  Chairman, I would agree with that as an approach. The word "harmonisation" does tend to mean we want exactly the same as the figure on the other side of the border, but I think we would be happy to see a significant move towards that even. We have a very good reputation in the United Kingdom and in Northern Ireland in particular of being pretty effective at distribution and logistics in general and we can stand competition with any Continental competitors, but the differential being paid in fuel duty terms is so wide now that it is extremely difficult to maintain competition.

  221.  To avoid any possibility of misunderstanding, there is no other solution you are putting forward other than the ones which I have summarised?
  (Mr Archer)  The problem will get worse because of the fuel escalator. This is going to recur at next year's Budget.
  (Mr Norris)  It is important to point out that our proper order of priority, recognising that harmonisation, even if it were to be accepted by the Government, would be difficult to achieve in the short term, would be to stop the use of the escalator and to review the overall Exchequer demand on fuel. Without boring this Committee or moving outside its terms, there would need to be a comprehensive review of the application of fuel duty generally.

  222.  I understand that and of course I appreciate its place in the exchange, but were the escalator to continue and assuming you had not got harmonisation of taxation, you would still be back to the user rebate?
  (Mr Norris)  It is the only alternative on offer. It is true to say, of course, we ought not to exclude an interest in seeing better levels of enforcement as far as Customs & Excise are concerned. We do find it slightly perverse that when it is abundantly clear that more Customs & Excise officers would amply pay their own way in terms of offences detected and duty recovered, that those officers are not in place. I stress we now think the problem is probably of such proportions they would not be able to deal with the totality of it, and they certainly cannot deal with the quasi-legitimate and entirely legitimate aspects of this but then they are not for this precise inquiry. As smuggling is central to your inquiry today, it does defy logic that where an officer could recover many times a multiple of his or her salary, and where it is clear the numbers employed by Customs in this area are extremely small (we understand less than a dozen, I do not know the exact number) but, certainly as far as fuel operatives are concerned, that is surely something that Government ought to examine, if only on good housekeeping grounds.

  223.  To revert to your own observations, and I am speaking to Mr Norris' observations, that, if you are seeking to secure harmonisation, there is going to be perhaps a difference of opinion between those who are harmonising upwards and those who are harmonising downwards, and given the nature of EU rules concerning harmonisation, do you actually think there is a sensible prospect of securing unanimity in order to achieve that harmonisation?
  (Mr Norris)  I do not think there is any doubt, Chairman, that, over the long term, within a single market duty rates generally harmonise. But there is equally no doubt that it is quite impractical for a Government to contemplate immediate harmonisation when the fiscal consequences are so serious, because fuel duty is now a major earner for the Government. Motoring taxes generally in the United Kingdom raise currently in excess of £33 billion and it would be unreal to expect therefore any immediate move of a substantial impact on harmonisation. But, over time, if a national government does not harmonise in this way, then the consequences in terms of job loss and revenue loss are precisely the consequences that we are seeing in Northern Ireland. We believe there is therefore a considerable incentive on governments to consider whether the game of keeping your own duty rates extremely high but seeing business haemorrhaging away is not better played on a different wicket where you accept the reality of the single market's duty rates and thus allow your own indigenous business to flourish.

  224.  Given the immediate nature of the problem, which is what in principle prompted this inquiry, we really ought to be looking beyond harmonisation of tax, on the grounds that is a long-term issue, towards the fuel escalator, on the one hand, and the user rebate, on the other?
  (Mr Norris)  Yes.

  225.  I do not think there is disagreement between us on that. You did stress the issue was a European-wide one and not purely one across the Irish border, but is it not a fact that the Irish Government were given a dispensation under the Kyoto rules which means that they are actually operating under different pressures from other countries in Europe on the petroleum duty or diesel duty issue?
  (Mr Norris)  It is technically true that they have a derogation, but if you look across the other countries of the European Union, the Irish Republic has by no means the lowest duty rate. As I said earlier, no other country actually employs the fuel duty escalator. So the practical consequence is that they actually do not appear to be at variance with pretty much every other country in Europe in relation to their duty price. It is only the United Kingdom that stands out as being so different in its application of fuel duty policy.
  (Mr Armstrong)  In the Republic of Ireland, the fuel duty level is just under 26p. The equivalent duty level in Belgium is just over 10p, in France it is nearly 26p, almost the same as in Ireland, Germany 22p, Italy 27p, Netherlands 23p, Spain 18p and Britain 50p.
  (Mr Archer)  For the record, in the Republic of Ireland it is 26 Irish pence, which equates to about 22p sterling.
  (Mr Norris)  There is an issue around Kyoto. It essentially is a commitment to reducing CO2 levels and levels of other pollutants, our industry has long argued that the major impact the UK Government could have generally is to cut down on the amount of coal burned in power stations. If you look at the totality of CO2 which we produce, a relatively small proportion of it is produced by diesel road transport, so to apply the escalator as logic for meeting the Kyoto targets we think is disingenuous.

  226.  How much use is there of Northern Ireland hauliers to take goods into Great Britain?
  (Ms Smith)  Substantial.

  227.  Assuming there was a user rebate in relation to the Irish border, how would you handle in terms of competition with hauliers in Great Britain the fact that you were operating on a lower cost basis than they were?
  (Mr Norris)  We would see the rebate operating throughout the United Kingdom. In other words, because, precisely as Mr Armstrong says, there are even greater duty differentials with France, Belgium, Luxembourg and so on, the same logic applies there. So there would not a problem of traffic between Northern Ireland and the mainland.

  228.  So your user rebate proposal is somewhat unlike the Dutch example?
  (Mr Norris)  Yes. The Dutch creation of a kind of buffer zone is not one that we think is terribly practical in this particular case.

  229.  So the earlier discussion about 30 km was, while important, not actually related to the user rebate?
  (Mr Norris)  No, not to the user rebate.

  230.  Finally a question which does not relate to your solutions but to what you regard as the consequences, if you were to flag out, which you were describing as a potential consequence, the whole of the Northern Ireland industry in the Republic, would you actually be able to conduct your steady business in the north using Republic plates if you were not engaged on international journeys?
  (Ms Smith)  If you want to register your PSV vehicle in the South of Ireland and if you are doing international journeys, at present you can put that vehicle on your Northern Ireland operators' licence. As long as you use it for international journeys, you can do that already. Flagging out is where you want to flag out your fleet in Southern Ireland to enable you to do UK-Northern Ireland based work solely. But if you want to do international journeys you can currently go down, pay your vehicle excise duty in the South of Ireland, put your new number plates on your vehicle and register that vehicle in the North on your operators' licence, and you can do that legally.

  231.  Maybe others on the Committee have got the slight difficulty I have in following exactly what is being said to us in terms of change of plates.
  (Mr Norris)  First of all, I ought to point out that cabotage restrictions, in other words restrictions on the ability of a haulier registered in Country A within the European Union to do work in Country B, other than literally just delivering there and leaving, were abolished in July of last year. Since then, it has been open to a haulier from the Republic of Ireland to bring a vehicle to the North delivering goods and then subsequently not return to the South immediately but act in effect as if it were a Northern Ireland vehicle and ferry goods around Northern Ireland for a period which can probably be up to 60 days at least without any need to return south. The current best legal advice we have is that it is probably under European Union cabotage rules necessary to make about half a dozen journeys a year back to the country in which you were registered. However, to take your example, if you are a Northern Ireland haulier, it is extremely unlikely you will not make at least half a dozen journeys south of the border, bearing in mind the sort of geography we are talking about. So it is perfectly open to you to be a Republic of Ireland haulier, who is essentially doing 80 per cent of his work in the North perfectly legitimately under cabotage arrangements, rather than a Northern Ireland haulier doing 20 per cent of his business in the South. I hope that is clear, Chairman.

  232.  I am glad I asked the question.
  (Mr Norris)  You are in good company. Ms Smith then introduced a second gloss, which if I may say so is a slight complication, which is that under certain circumstances it is possible for a company in Country A to register vehicles in Country B but to use them on its operating licence in Country A. But that is only possible either for a temporary period or under very specific restrictions. The flagging out proposition is actually in a sense breath-takingly simple. You simply do what the merchant marine fleet did in this country when it faced a similar problem, you do not bother to register in the United Kingdom, you go to somewhere cheaper. So if you are a haulier in the United Kingdom and particularly in the Province, you move your company, you buy a company off the shelf in the Republic—you do not actually have to physically move premises to do that although you no doubt have to file an annual return once a year—you have to have a qualified person to supervise your fleet, you have to show you have the money under European rules to operate the truck and you have to be of good standing, but once you have satisfied those criteria you can become a Republic of Ireland operator, and then you simply operate all your vehicles north of the border perfectly legitimately.
  (Mr Archer)  I do not see any insurmountable difficulties at all in that procedure. Your vehicles would be PSV-ed in the Republic, I see no problem with that. You would have Republic of Ireland number plates on the vehicle, I do not see that a problem operating in Northern Ireland with a HGV fleet.

  233.  It has been explained and the further information given explained why it was not a problem. One concluding question which does not flow out of the evidence you have so far given, would a system of licensing of fuel suppliers by Customs & Excise help to reduce, if not eliminate, the problem?
  (Mr Norris)  I doubt it, Chairman. I offer this view only reflecting on what you have said, not having studied the issue. The abuse of the regular procedures is so widespread in the Province and now so endemic that I doubt that a system of licences does any more than, as we have often seen, license the legitimate, impose bureaucracy on the legitimate, but be ignored by those who are going to circumvent the rules in any event. So my reaction, and I have to say it is not a studied reaction just an instant reaction, is that I doubt any more licensing or regulation is going to deal with the problem.

Chairman:  We are considerably in your debt, in particular that you have given evidence together because we have had an almost full evidence session taking evidence from you both. It may well be that there are others beside myself who want to ask final questions arising out of what we have heard tonight.

Mr Hunter

  234.  Until seven or eight minutes ago I thought that the witnesses were arguing or recommending a buffer zone rebate system, but now we understand that is not the case. That raises a question of practicality in my mind. Are you meaning, therefore, you are advocating a rebate system for hauliers consuming diesel? How would you differentiate the various users of diesel who are outside haulage?
  (Mr Norris)  Yes, there are some slight complications in that the system of licensing in the Province is slightly different from that elsewhere in the United Kingdom, although there are extant proposals to bring the two systems into line. Broadly, the system in general in the United Kingdom works on the basis of identifying legitimate operators—and on the mainland that is by means of their possession of a valid operators' licence—and only paying rebate to operators who can show they have a pre-existing valid operators' licence and only pay against their legitimate tachograph discs, in other words therefore ensuring at the same time substantial road safety benefits. One of the issues for the citizen generally is the safety of the commercial vehicle fleet and naturally those sorts of criteria are routinely undermined by the present arrangements. We see the introduction of the rebate as being an opportunity for the Vehicle Inspectorate, the Traffic Commissioners and indeed for the regulatory authorities in the Province, to exercise greater control on the legitimate industry, because it suddenly becomes worthwhile to operate entirely legitimately if you can then take advantage of the rebate and no longer suffer the competitive disadvantage. We have researched the practicability of the scheme very thoroughly and I am happy to send to Mr Hunter, Chairman, and indeed other members of the Committee, a copy of our submission which explains in detail how this would be achieved.

  235.  That would be useful.
  (Mr Norris)  I ought to have said that perhaps the introduction of the Dutch-German example was more misleading than helpful. It was actually simply a recognition of the fact that elsewhere in Europe, where there is evidence of a disparity in duty rates both sides of the national border, one country at least feels the need to do something about it. Although you choose a mechanism which may or may not prove to be effective, our view is a mechanism has to be in place.
  (Mr Armstrong)  I would add that I think it is an entirely practical one which is being suggested because the really close precedent is in the bus industry where it has been operating for a long number of years perfectly satisfactorily.

Mr Barnes

  236.  The rebate is what you might call your plausible solution to the situation, but you have an ideal solution above that, if you could get it, which is that of harmonisation. As Mr Armstrong indicated, that did not have to be exact harmonisation but could be sufficient harmonisation in order to allow things to work. What area are we talking about when we are talking about harmonisation? Ideally we are talking about throughout the European Union and that is a long-term objective, but then there is potential harmonisation which could be UK-Republic of Ireland harmonisation, or you could talk about an island of Ireland harmonisation taking place. Which is it that you would really want?
  (Mr Norris)  We think it is UK versus near competing economies. Taking Mr Barnes' earlier question about the distances which make this purchasing policy worthwhile, we do not believe for example the duty rate in Spain or Andorra, which is actually technically the cheapest in Europe, is desperately relevant in this particular context. But we do think the rebate ought to have in mind duty rates in the Republic of Ireland, France, Luxembourg, Belgium and Holland, because those are the countries in which fuel is currently purchased to be brought into the United Kingdom. You will note I specifically refer to the Republic of Ireland. If the rebate were to be applied only within the island of Ireland, then the difficulties which were hinted at earlier by Ms Smith in response to a question from, I think, the Chairman, would arise. Namely, you would then transfer the smuggling activity across the Irish Sea rather than over the land border, and I do not believe that is any more permanent a solution than the one to the problem we already have now.

  237.  But the smuggling activity across the Irish Sea might be an easier thing to contain than the smuggling activity which takes place between the Republic of Ireland and Northern Ireland. It might also be that in terms of some sort of short-term solution to try and handle the problem on harmonisation grounds, doing it on an all-Ireland basis and ring-fencing Northern Ireland is a possibility.
  (Mr Norris)  I think there is truth in what Mr Barnes says, Chairman, it is unquestionably easier to detect when we are talking about only a certain number of points of entry using ferries. Indeed on the basis that one should never let the perfect be the envy of the good, whilst we would like to see the rebate applied to users of fuel in England and Wales and Scotland, who currently face competition from other European countries, if it were to be practical within Northern Ireland as a kind of pilot, temporarily excluding the rest of the United Kingdom, then we would certainly warmly welcome that.
  (Mr Archer)  As a Northern Ireland operator, Chairman, I would endorse that, obviously!
  (Ms Smith)  I think we both would!


  238.  Before finally concluding, is there any question we have not asked you whose omission has surprised you?
  (Mr Norris)  I think your generosity in actually allowing us to slightly transgress across the border which you originally set has allowed us to explore the issue fully, Chairman. I would just stress in conclusion perhaps that you will have recognised this is not merely combating a particular form of crime and dealing with it in the way the haulage industry, for example, deals with Customs & Excise detecting drugs. If you had asked us about that, we would have told you about the drugs hotline, about the Anti-Drug Alliance in which the RHA and the FTA are both members with Customs & Excise, and about the enormous amount of covert information that we pass on those issues. We have a genuinely constructive relationship but this is not drug smuggling involving organised gangs, this is absolutely endemic in the Province and is only being exacerbated by the current widening gap in duty rates and it needs to be tackled at source rather than just have the occasional elastoplast applied.

  239.  I did say to my colleagues, Mr Norris, before you joined us that though I might set a border, I had very little doubt that you would find a way of crossing it! Thank you warmly for your patience in answering our questions, it has been a thoroughly worthwhile session from our point of view and we are much in your debt.
  (Mr Norris)  Thank you.

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