Examination of Witnesses (Questions 280
WEDNESDAY 23 JUNE 1999
HEWITT MP, MR
280 The local air quality issue is clearly important
to the Government and I am sure the Committee understands that
and Kyoto is an important issue for us all. What assessment has
been made of the effects of fuel smuggling on the Government's
commitments to the Kyoto agreement and what is the effect?
(Ms Hewitt) We have not assessed that.
I will see whether we can give you any broad-brush indication,
but if you look at what I was saying about the revenue loss, £100
million in the context of £21 billion overall from fuel duties
as a whole is really a very, very small part of the overall picture.
That is as far as revenue goes, but clearly the equivalent would
be true when it comes to looking at Kyoto objectives and the constraint
that the fuel duty escalator places by forcing drivers to reflect
upon the real costs of what they are doing.
281 First of all, I would like to put on record
my appreciation to the Economic Secretary for the meeting of the
10th May and her open door and sympathetic understanding of our
problem, but man does not live by sympathy alone and I would like
to harden it down to the practicality. Chairman, I am talking
about the legitimate trade of the petrol retailer and his associated
grocery store, I am talking about the transport business, I am
talking about the haulage business, which are all suffering greatly.
That is what I want to address rather than the smuggling and illegal
trade. I have mentioned to you in the House the question of applying
the Dutch scheme to the Northern Ireland situation and the good
Lord Dubs, in answering part of that, talked about the difficulties
of administration. If the Dutch Government can administer the
scheme it should not be beyond the ability of the British Government
to administer the scheme, so administration does not concern me.
What I am concerned about is that there seems to be an attitude
that Article 8(4) on derogations is absolutely sacrosanct. It
has been proved that it is not. For some years now the Dutch Government,
quite rightly, has a very simple scheme ten miles from the border
with Germany. They have allowed a rebate equal to the differential
between the German and the Dutch rates. Between 11 and 20 kilometres
from the border they allow half of the differential as a rebate.
That is what we are talking about in terms of saving family businesses
and the businesses of transport haulage. Why is it that we cannot
address this in a positive way? This scheme has been going for
some time in the Netherlands and the European Competition Agency
has not intervened in any way.
(Ms Hewitt) I am very grateful to you
for the remarks you made about our meeting. One of the things
I undertook to do following our meeting was to look in more detail
at the Dutch scheme and also to discuss it with Northern Ireland
colleagues and I have done that. The European Commission has now
started infraction proceedings against the Dutch Government because
they have formed the view that the scheme that is operating in
Holland is an illegal state aid. I should just qualify your description
of it. Technically, as I think we discussed in our meeting, it
is not a rebate on the duty, it is a grant that is paid not to
each petrol station but to each company that is operating petrol
stations, although certainly the basis of the grant is the one
you describe. But the Commission have formed the view they are
going against the Dutch Government on this point and certainly
we find it very hard to see how you could design a scheme that
did not fall foul of those state aid rules. As I also said when
we met and as I said earlier to the Committee, because the scheme
is a subsidy or a grant scheme in policy terms it absolutely is
a responsibility for Lord Dubs and his fellow Northern Ireland
(Lord Dubs) We believe the Dutch scheme is incredibly
complicated even if one accepts the point of principle which at
the moment we do not. The difficulty is that ten kilometres from
the border there is a level of subsidy and between ten and 20
kilometres there is a level of subsidy which is half that for
those nearer the border. How could we do that in Northern Ireland?
It seems to me that the problem we are discussing may well have
a much wider impact on Northern Ireland, that is to say the petrol
prices and the diesel prices within 20 kilometres of the border.
I would have thought that if we drew the line there we would have
bitter complaints from people 25 or 30 kilometres from the border
who would say that they were equally affected. I believe it would
be a very difficult scheme to work. I am certainly prepared to
look further into the Dutch scheme to learn more about it, but
I would be very doubtful as to whether there would be a fair and
proper way of applying such a complex scheme, added to which,
it is based upon certain amounts of sales and we have to audit
the various petrol pumps to see whether they conform with the
different levels of usage. I see the difficulty as a very powerful
argument against doing it, to say nothing of the argument of principle.
282 I subscribe and people in Northern Ireland
subscribe to the Kyoto Convention and the requirements for addressing
the problem of global warming, but what I would say to both Ministers
is that the people in the industries that I have referred to on
the borders of Northern Ireland are paying a grossly disproportionate
share of the UK's contribution to the resolution of that problem
in that their family businesses, their trade, their jobs are being
sacrificed, whereas that is not the position in any other part
of the United Kingdom and it is that disparity, if you like almost
injustice, which I am asking the Department to address. In answer
to Lord Dubs' problem, you have to draw a line under any scheme
at some point for some people. I think the Dutch scheme is reasonably
amicable to Northern Ireland and it should be pursued more vigorously.
Northern Ireland is category one or whatever the transitional
status is going to be and there is a derogation possible to assist
small and medium sized businesses in such designated areas and
that is frequently given within the European Union. Could we not
be a little bit more positive in trying to address this problem
because the answers I have heard today are that you are not going
to provide an answer to this very serious problem, nor are you
going to provide assistance for it, in which case I am extremely
and bitterly disappointed?
(Ms Hewitt) I know how very strongly
you feel reflecting the views of particularly the family businesses
that you have described this afternoon and you described to me
when we met. The difficulty for us as a Government and for both
the Departments is that we do have to look at the whole picture,
which is not simply the environmental objectives and that context
of policy, it is also the competing demands on public resources
within Northern Ireland and the overall economic and jobs context
there. That is certainly a matter for Lord Dubs and his colleagues.
Although we may not be able to satisfy you on this point, I would
not want you to think that we do not understand or sympathise
with the problem because of course we do.
(Lord Dubs) I am aware of the difficulties and I see
small petrol stations, some of them near the border and a small
grocery shop attached and I can sense their difficulties and I
know that somebody only has to drive five or six miles down the
road and they can go into the Republic and they can fill up their
car with cheaper petrol. I do understand the difficulties. It
is not a lack of sensitivity to those concerns. It is simply that
I do not believe that the Dutch scheme, even if we modified it,
would be workable or practicable in Northern Ireland as things
are. Of course we will keep looking at it, of course we will keep
thinking about it and we will look with interest at the Committee's
report when it comes forward to see what we can learn from your
wider deliberations, but it is hard to see at this stage how we
can adopt such a scheme. My sense is that there will be a demand
for such a scheme Northern Ireland-wide. I do not believe there
will be an acceptance that only certain areas should benefit and
others should not, given the nature of the problem that I have
heard is the way it is sensed in Northern Ireland. My feeling
is that if we could have a Northern Ireland-wide scheme, if we
had one at all, it would be pretty costly and there would be immediate
demands from other industries equally affected who would say,
"Well, if the petrol industry is going to get this sort of
concession, what about my industry?"
283 We are not talking about exchange rates,
we are not talking about the normal traffic of commerce. Let me
illustrate it this way. Over the past ten years levies in the
Republic of Ireland have increased by something like 12 to 14
per cent. In the United Kingdom it has increased 246 per cent,
20 times. That is where the problem is. It is not to do with exchange
rates, it is not to do with normal commerce, it is to do with
the gross disparity in the levies. What the people of Northern
Ireland and their representatives are asking is that, in these
exceptional and unusual cases, the Government applies their best
endeavours that they go and examine the Dutch scheme. As I understand
it there are about 200 Dutch stations involved. There are not
so many talked about in Northern Ireland, a fraction of that,
so it is not an administrative nightmare and I think it could
be readily and easily done. One thing we have learned this afternoon
is that the Treasury, or sadly the Northern Ireland block grant,
is the one with the problem, but I would suggest that that also
is unfair in that it is a Treasury decision which has caused the
problem, not the people of Northern Ireland.
(Ms Hewitt) The fuel duty escalator has
been in place for a very long time now and of course it was in
place when we undertook the Comprehensive Spending Review and
settled upon a pretty generous, if I may say so, determination
of resources for Northern Ireland. On the issue of how far the
duties have gone up over the last ten years or so, perhaps I could
just make sure that we give the Committee detailed figures on
that. I have not got them with me, but the figures you have quoted
for the United Kingdom are certainly too high, so I will send
you accurate figures on that.
(Lord Dubs) I appreciate the point that is being made
is not to do with exchange rates but to do with duties. I suspect
a similar argument could be used on behalf of the tobacco industry
as has been used on behalf of the oil and petrol industry.
284 Chairman, could I make a final plea to both
Departments in the interests of saving small businesses and jobs
in Northern Ireland, which is that they do look and make an examination
in some detail of the Dutch scheme and see if it has amicable
merit to Northern Ireland. Secondly, could I ask that a possible
scheme be costed because it is almost self-evident that it would
be self-financing, although I am not sure of that.
(Ms Hewitt) I can certainly say on behalf
of the two of us that we will certainly undertake, without giving
a commitment on the principle, to have a closer look at the details
of such a scheme and see whether we can give you any costings,
but there are some difficult technical issues there. I am sorry
that we do keep saying that to you. One of the issues involved
in trying to cost such a scheme is one would have to look at what
level of subsidy would be required in order to attract back a
sufficient level of trade in order that the revenues payable on
that trade do justify the costs of the scheme in the first place,
but we will certainly look at that and see what further information
we can provide you and other colleagues with.
285 Thank you very much.
(Mr Gibson) I assume it would also be
difficult to know what sales of petrol would fall within the areas
that Lord Dubs referred to because we do not conduct individual
audits of petrol stations.
286 There are various ways of assessing that,
either wholesale distribution or retail distribution.
(Ms Hewitt) I think what we will have
to do is look at the data that we have got and see what we can
work up without engaging in an enormous research exercise.
(Lord Dubs) We will certainly be happy to look at
it but without any suggestion there is a commitment on our part
to be able to bring it into effect, but to meet the question we
will certainly look at the details and what the financial implications
are, but we do it without prejudice.
287 If Lord Dubs is suggesting, as I think he
did, that a devolved administration in Northern Ireland could
do it, why could he not do it in the absence of a devolved administration?
(Lord Dubs) I was not suggesting that.
When I made my point about the British-Irish Council what I was
saying was that if that Council felt able and wanted to discuss
environmental policies across both Northern Ireland and various
parts of Britain and the Channel Islands and the Isle of Man then
that would be the context in which these issues could be discussed,
but I was pegging it on getting broader agreement on environmental
policies and achieving environmental objectives, not in the way
you put it just then.
288 An earlier statement regarded the devolved
Assembly in Northern Ireland.
(Lord Dubs) I think we should be clear
on this. Ministers from the devolved Assembly would take part
in the British-Irish Council and it is in that sense that a devolved
Assembly would be able to have an input into the deliberations
of that Council on environmental or other issues. I was not suggesting
that there could be a different tax position in Northern Ireland.
Emphatically that is not the case.
289 Chairman, can I return to a theme that Martin
Salter raised and perhaps address this to Lord Dubs. What evidence
does the Government have, if any, that some of those involved
in the smuggling and laundering of fuel have a paramilitary history?
(Lord Dubs) I do not think we have any
clear-cut evidence as such, but clearly the RUC will have an understanding
of some of the people involved and, as I said earlier, it would
be surprising if there was no paramilitary involvement in at least
some of these activities. I do not think I have any such clear-cut
information and I suspect even if I had, it would not be proper
for me to go public on it. I can assure you that the RUC are well
aware that there may be some paramilitary involvement in this
and in other activities, not just smuggling and the RUC are aware
of what the situation is and their co-operation with Customs &
Excise is close. I do not think the evidence is so clear-cut that
I could say here and now this is the scale of it. We do not know.
290 Following on from what you have just said,
would you feel in a position to comment on the proposition that
any paramilitary linkage might be inhibiting investigation or
again you would feel that is not an area you could comment on?
(Lord Dubs) I shall certainly comment
on it. A crime is a crime and if people are smuggling, whether
they are paramilitary organisations or otherwise, it is the job
of the RUC and Customs & Excise to deal with it.
291 I used the word "inhibiting" because
it is a matter of public record that other agencies have found
it extremely difficult to operate in particular in parts of South
Armagh and I personally have been told of trouble, for instance,
in meter reading and that the agencies of government have in the
past often found it hard to operate in various parts of Northern
Ireland. The question I was putting to you was whether this has
been the experience also with regard to the smuggling and laundering
(Lord Dubs) Not as I am aware. It might
be there are certain parts of Northern Ireland where the situation
is a bit more difficult, but I am not aware that it is a particular
problem as regards tackling the smuggling of petrol.
(Ms Hewitt) Chairman, perhaps I could ask my colleague
from Customs and Excise just to comment on that.
(Ms Massie) If I could just remind the Committee that
when I gave evidence together with my colleagues, Mr Norgrove
and Mr Logan several months ago, the Committee asked a number
of questions about this and my colleague Mr Logan, who is the
Collector in Belfast, gave you assurances that we do not back
off from investigations. Sometimes it may take a little bit longer
for reasons of safety, but he certainly gave the assurance that
we do not back off.
292 Thank you. My next point is turning to the
differential in vehicle licensing costs. For many commercial operators
this is as negative a factor as the fuel price differential. Lord
Dubs, given the freedom there is under European Community law
to provide cabotage services and given the ease of international
journeys within the island of Ireland, what inhibitions are there
on a haulage company in the present economic climate moving into
(Lord Dubs) It is a fairly complicated
question, Chairman, if I may try and do justice to it. I think
there are two ways in which this might happen. It might be that
a haulage company would move its whole operations from, say, Northern
Ireland into the Republic. They would then have the freedom to
move freight as before. They would be subject to the constraint
that they had to operate under all the laws and taxes of the Republic
and I think they would find that if they took all the laws and
taxes into account there might well be significant advantages
to them staying within the UK tax regime than the Republic. To
all intents and purposes they would move, they would be subject
to all the laws and all the tax regime and other related matters
that would apply in the Republic. The other way is for individual
vehicles to be registered in the Republic. In that case they would
not be allowed to go on domestic freight journeys within the United
Kingdom. They could move internationally from where they are based
in the Republic, they could carry international freight throughout
the European Union, but they could not then move the vehicle back
into Northern Ireland and simply do internal journeys either within
Northern Ireland or between Northern Ireland and Britain. That
would be a constraint and it would be illegal for them to breach
(Ms Hewitt) Could I perhaps add one point on the overall
policy here. The VED rates for the vast majority of lorries were
frozen in this year's Budget, as they have been frozen for many
years past. For the majority of vehicles rates have not increased
since 1997 and they have therefore fallen in real terms. As far
as the smaller goods vehicles are concerned below 20 tonnes, the
VED rate is higher in the Republic than it is in the United Kingdom.
293 Thank you.
(Lord Dubs) May I just add one answer
following Patricia's comment. As far as we know, we estimate that
there are probably about 120 vehicles that are registered in Northern
Ireland in the 40-tonne category, that is all. There are 20,000
vehicles altogether. There are 1,450 in the 38-tonne category
where there would be no change. So it is really only those 120
vehicles who will find that there has been a substantial increase
in vehicle excise duty and even then, if they added a sixth axle
they could avoid doing it and get a lower rate. The numbers in
Northern Ireland are rather small and therefore I would think
that the incentive to move is not very great for the bulk of vehicles.
In fact, there might be no incentive at all, they might find it
much better to stay.
294 The last question I want to ask recalls the
experiences as relayed to us of the Petrol Retailers Association
and their perception, it may have been more than perception, when
they tried to discuss their concerns with Government, the Treasury
and the Northern Ireland Office; they felt that this was an area
where that laudable aim of joined-up government was proving rather
difficult to effect. Would you accept these difficulties have
(Ms Hewitt) My understanding is that
the Petrol Retailers Association have met with both Treasury and
Customs officials. They have met with Customs staff in Northern
Ireland. Indeed, my colleague indicated there has been a very
close working relationship there. I am very sorry if they felt
frustrated in their dealings with government departments but,
as I think has been indicated, I certainly very readily met the
two members of this House who wanted to discuss those concerns
with me and Lord Dubs and his colleagues in the Northern Ireland
Office have responded in a similar way.
295 So you would reject the suggestion that on
an issue which is important to the economy of Northern Ireland
the need has been demonstrated to improve co-ordination between
the Treasury and the Northern Ireland Office?
(Lord Dubs) I think we have very good
(Ms Hewitt) As we have demonstrated today, I would
296 I would not push that particular argument.
(Ms Hewitt) I will absolutely defer to
your wisdom on that, Chairman. I am not aware of a request for
a meeting with me or any other Treasury Minister from the Petrol
Retailers Association, but there have been meetings with officials.
Mr Hunter: Next time we meet them we can reassure
them. Thank you.
297 I think one of the things that has come out
from the question and answer session today is that the Committee
regard this as a very serious problem. It has created major disruption
in the Northern Ireland economy. There are flagrant illegalities.
You just drive along the road and there are huge signs patched
up saying "Cheap Petrol Here". The movement of the petrol
to those stations is sometimes interfered with, but the sanctions
are not that high. Most such vehicle movements are immensely successful
and the places with legal petrol stations which have got any customers
at all, particularly as you get close to the border, are the petrol
station equivalent of ghost trains. We are looking to see what
scope there is for a real initiative which will tackle this problem.
Most such transactions are carried out successfully. Seizure of
vehicles is simply not a deterrent. The quality of vehicles that
are used to conduct these shipments are such that if they were
seized their owners would probably regard themselves as having
been relieved of a burden. One way in which you can tell which
vehicles are conducting this trade is by the fact that the vehicles
are virtually worthless. On the whole there is a problem and there
does not seem to be any real mechanism for addressing it. In addition,
it does seem that Northern Ireland is really picking up a tab
for something else. The reason why the Republic has been treated
generously in the Kyoto targets is precisely because there is
relatively little pollution and it needs to have some growth potential.
That is also true of Northern Ireland, and while the Kyoto targets
are extremely suitable for my constituency of Hemel Hempstead
which is notorious for traffic jams and difficulties, it is clearly
much less suitable for a largely agricultural country with splendid
scenery and relatively low levels of pollution. The problem in
part is that the UK Government has agreed to some targets in a
context in which there is no way of reallocating that target within
the UK. I suppose all I can say is that I hope you will take very
seriously the representations made, particularly by Mr McGrady,
which are that, in a way, in the end derogation has to be the
answer because that is just and the pollution targets and the
economic growth targets and so on in Northern Ireland are much
closer to the Republic than they are to Greater London. I do think
that we want you to take that on board for the moment. Will you
give that further serious consideration, not in view of the anomalies
it will create or the difficulties it will create, but just simply
out of sheer justice? If the EU can have a target and then reorganise
that target to be differential, why cannot the UK have a target
and reorganise that target to be differential as well? I know
it is difficult, but we want you to take that proposition seriously.
(Ms Hewitt) Of course I will reflect
upon that, as I have done in the light of many other representations
made on this issue. We will certainly take extremely seriously
the recommendations that this Committee puts to us and look again
and continue to look at what we can do to try and deal with this
problem. Smuggling is an illegal activity that causes enormous
disruption. We have a very real problem of tobacco and alcohol
smuggling, as you will be aware, and again Customs & Excise
has been resourced up to deal with that. We have a problem of
drugs smuggling which affects many constituencies throughout the
United Kingdom. These are all problems that we are absolutely
determined to tackle, but I think the idea of trying to divide
up the environmental targets and break them down so that one would
have a different target in the case of my own constituency, for
Leicester and Leicestershire, would simply not be a practical
proposition, but of course we will reflect further upon the problem
and upon the recommendations that you decide to make to us.
(Lord Dubs) Chairman, I think a sign saying "Cheap
Petrol Here" is not proof that smuggling has taken place,
otherwise there would be a lot of shops and businesses all over
that might be regarded as being in breach. I think the more serious
issue is this, I think your phrase was a major disruption to the
298 These signs lack a certain quality. They
have a certain informality. The place where the petrol is stored
does not seem to be conforming to the normal standards and so
on. There is a large number of features of these sites which do
bespeakwe know where this trade is going.
(Lord Dubs) Chairman, of course it is
a possibility. All I wanted to say was there was no positive correlation
necessarily between such a sign and smuggling, but there may be
other indications. I think the more serious point is that it was
said just now that this situation we are talking about was causing
a major disruption to the economy. I would question that. I think
it is causing serious difficulties for people in a particular
industry and we have talked about that and I am concerned about
it and Patricia is concerned about that and the Government does
not say lightly there are difficulties, we realise it is a serious
point. Major disruption to the economy suggests that there is
a knock-on effect throughout the economy and I think it ought
to go on the record that the Northern Ireland economy is doing
pretty well. Our unemployment rate is well below that of the European
Union. Ours is 7.3 per cent; the European Union's is 9.6 per cent.
Our unemployment rate is way below that of a number of regions
in Britain. We have got more people in work than ever before.
All the economic indicators are very good for Northern Ireland.
So I would not like the Committee to have the impression that
this is such a serious problem for the wider economy. It is certainly
a serious problem for the people in the particular industry we
are talking about. Could I also endorse what Patricia said. Of
course we want to listen and take note of what the Committee come
up with and we want to consider very hard your proposals and recommendations
and to see how best we can respond both to Northern Ireland and
presumably with implications for the Treasury as well and I want
to make it clear that we are very sensitive to the concerns that
have been expressed and those that have been expressed to us by
299 Where we have a part of Europe that is at
the extreme fringe, transport arrangements are extremely important
for that economy and the health of the road haulage industry in
general is a very important part of that economy and it may well
be that the availability of cheap fuel is one of the things that
is creating a growth energy for that economy where if one seeks
to stamps it out and removes it there could actually be a knock-on
effect which would mean that Northern Ireland's capacity for taking
its full role in an export drive and other such economic activities
would actually be diminished by a factor which would be of some
concern to us as well.
(Lord Dubs) I understand the point being
made, but I do not think there is any evidence that this is happening.
The only figure I can quote is that we have some statistics showing
employment in land transportand that is a bit of a wider
definition than the road haulage industryand in the first
quarter of 1999 compared to the first quarter in 1998 employment
in that industry went up by six per cent. I do not think it is
having the effect that is suggested by the question.