Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 280 - 299)



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.

Mr McGrady

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 ministers.
  (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.

Mr Hunter

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 of fuel.

  (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 the Republic?

  (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 that.
  (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 arisen?

  (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 co-ordination.
  (Ms Hewitt) As we have demonstrated today, I would have hoped!


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.

Mr McWalter

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 economy.

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 bespeak—we 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 the industry.

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 transport—and that is a bit of a wider definition than the road haulage industry—and 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.

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