Examination of Witnesses (Questions 120-139)
MR RICHARD BROADBENT AND MR MIKE WELLS
MONDAY 25 FEBRUARY 2002
120. Is it true that the European Union is going to introduce a yellow marker scheme as well so you are going to have multicoloured diesel?
(Mr Broadbent) The Euro marker which comes in in August of this year, which is a yellow marker as you observe, has to replace one of our existing dyes or markers and we shall probably replace the marker and keep the dye so we will have the red colour but the European chemical. There are the two things: a chemical marker and a dye. We will take the European chemical and keep our red dye because a red is rather more spectacular.
Chairman
121. One of the problems, is it not, is that the equivalent of red diesel in the Republic is green, so they simply mix the red and the green and they come up with something colourless? If they have yellow now, it might become orange.
(Mr Broadbent) Yes, it is going to be yellow in August.
Mr Jenkins
122. May I refer back to the 44 per cent of traders visited in the North East who were found to be committing some sort of fraud? What percentage of the number visited does that represent of the whole region? Do you have an estimate?
(Mr Broadbent) Quite small I suspect. I do not know off hand what percentage of traders in that region were visited in that particular exercise. Obviously the aim of intelligence is to whittle down the number to the smallest number possible so you get the highest hit rate, but I should have to check to get the answer to that question.
123. Yes, but you do that and then you estimate the amount of fraud in the North East, because that was the area you looked at, and you come up with a figure. This shows that there is this level of fraud and intelligence backs this up. Do you not have a figure for the amount of fraud in the North East?
(Mr Broadbent) We have not measured levels of fraud statistically regionally, but I can tell you that there are certain regions where fraud is more prevalent and we do concentrate our activities there; I would point in particular to the North West, North Midlands and the North East. There is a regional concentration of the activity and we do follow that.
124. This is about hauliers, is it not? It is about the people who run the business. It is about taxi companies.
(Mr Broadbent) It is largely a business fraud; there is undoubtedly some private use. There are more diesel cars on the roads than there were five years ago.
125. Yes, but none of these people were private users. The 44 per cent were traders, were they not?
(Mr Broadbent) Most of them would have been traders. There might have been the odd individual.
126. Would you like to give us an estimate of what my chances are of being caught running on red diesel in this country? I do not have a diesel car, by the way, so it is no good trying to improve your chances. But if I did have a diesel car and was running this diesel car around, what chance do I have of actually being caught?
(Mr Broadbent) It would depend a little bit on how you undertook the activity, in what part of the country and when. I do not think we believe that our strategy for reducing fraud is based upon deterring the private user from misusing small quantities of red diesel. We do not want to encourage it. We do spend quite significant amounts of money still conducting roadside checks, 20,000 a year, to make sure that there is a chance of getting caught.
127. The Chairman lives in a rural area and he has access to red diesel and I do not, and half his farmers are running around on red diesel and mine are not. I actually get letters from the TV licence people every now and again saying that I do not have a TV licence and the answer is quite simple, I do not have a TV so I do not need to have a licence. They actually target me and if they come along and find I am operating a TV they fine me £1,000 or some quite horrendous amount. They do not fine me for that day, which would be one 365th of £104 for evasion of duty. That is one of the things which tends to come across in the report. We are merely clawing back the lost duty plus a savage fine of £250 which I should imagine the average trader would gain back in a day.
(Mr Broadbent) The way it works is that you get fined £250 twice: once for putting this stuff into your vehicle and a second one for using it, so we charge £500. We then charge the duty on the fuel. We then charge a restoration fee because we seized your vehicle, which might be £100+. So we are actually charging £700. I do accept you are right. It is not the leading edge of the strategies we are trying to develop to target the individual misuser. We are trying to target the commercial misuser with these much bigger assessments, £250,000 sometimes, to hit him where it hurts, in the pocket.
128. So you would use things like mileage travelled, tachographs, wage bills, turnover, VAT records, the complete package to get this trader to pay back at least what is due and then penalise him as well.
(Mr Broadbent) If we go into these exercises you are referring to now, and we find a user who is a serial misuser, we do exactly that. We go in there and take all the data, look at his books and try to raise the biggest possible assessment we can against him. Although we are, as is said in the PBR document, giving thought to it, my own personal view is that we probably need to go a little bit further. I mentioned vehicle seizure because vehicle seizure has proved to be a very effective deterrent in the case of tobacco, but I do have to tread carefully in relation to the tribunals who review our activities.
129. I noticed that cleaning up of red diesel caused some hilarity and you talked about having tankers running backwards and forwards and a lot of waste. It is not strictly correct, because a tanker would be running into the yard anyway, it is going to put it into one tank and it is going to be filtered out of that tank and the waste you can take away in the back of a van and disperse. So it is not a difficult operation to undertake and that is probably part of the problem. We have to estimate the usage at source and then deter them. It is all about deterring people surely. We should be looking at the demand side.
(Mr Broadbent) As far as the ease of removing the red dye is concerned, you are absolutely right, this is not a light hearted issue at all. We know that the number of serious laundering plants is increasing, so people find it worth doing. We know that they are only doing that because they can find a market for their fuel, they are selling it to people. It is a little bit harder to say whether the people they are selling it to really do or do not know whether the fuel is illegal. They may have a perfectly reputable front name, company name, VAT invoice. You can forge these things. You cannot assume. Maybe they do, maybe they do not. The problem you face is that it is difficult to prove it in court. Certainly if we come across laundering plants, we push. Those are cases where we do look at prosecuting, at the financial side, we do everything we can to deter them. Not just that, we are increasingly moving not just from trying to test red diesel but to increase the number of targeted investigations we do because ultimately the way in, as the organised criminals get involved in this, is to work through targeted investigations. Even intelligence-based hits are not enough: you need to start targeting investigations.
130. This is probably outside your remit, so I would not expect an answer, but it is to be logged. Has red diesel not had its day in society? All it does is contribute towards organised crime and a breakdown of law and order and there are better ways of subsidising the users in commercial activities than persisting with this antiquated outdated system of dyeing diesel.
(Mr Broadbent) I would just observe that it has proved to be quite effective and even now, although it is not a matter in any sense for complacency, the regime is still 96 per cent compliant. As a taxman, I do not say that is good enough, but it is not the worst problem we face. Having said that, clearly we need to review whether, if we are going to have a system which provides fuel for certain users at a lower tax rate, the system of physical controls through dye is the best possible control. I talked earlier about possibly improving those dyes, which is one way forward, to make it difficult to maintain the integrity of the fuel, and there is the other way which has been talked about, which the Chairman mentioned, which is the scheme in Denmark, which means that everyone pays duty but there are problems with that.
131. We have enough VAT fiddles now let alone adding to it with another clawback or reclaim system.
(Mr Broadbent) Of course farmers do not usually pay VAT net so they would have a net cost. So there are certain other issues which arise as well.
132. May I move onto one other area which fascinates me and that is the bringing in and decanting of fuel by lorries? I noticed in the report that 70 per cent of the lorries now arriving in this country, based in this country normally, have oversized or extra tanks; above normal tanks. Surely for this 70 per cent of vehicles that is the normal tank because now they have bolted on extra tanks and they are running on—you may take this as hypothetical but it could be that certain firms instruct their drivers, before they leave the continent, before they leave the mainland, to fill up with fuel. That lorry then runs into Britain. It runs to its depot on a Thursday night. It parks up and when it leaves and goes back to the dock on a Monday morning or Sunday night, the fuel is dramatically reduced. Although it may only have covered 200 miles, it has used something like 100 gallons of fuel doing it. Is there nobody at the other end on the docks thinking that it is strange because when this vehicle runs on the continent it does far more miles per gallon, there might be a problem here, they might be decanting from these vehicles. Do you actually check on these things?
(Mr Broadbent) We do do some checking on decanting. As the report says, it is an area where there is some illicit activity, no doubt about that. The question is the scale of it and hence the risk it really poses in terms of trying to make an impact on the problem as a whole. The point about lorries is that it is not 70 per cent of all lorries, it is 70 per cent of the lorries going through Dover. By definition those are the lorries which are the longer international hauliers. The reason they have big tanks is largely because these are the lorries used by international hauliers travelling long distances. You are quite right, that is a perfectly valid reason for having it. Having said that, it is not easy to check when they get back whether they are decanting a bit of fuel out of their tank or not. If they were, then even if ten per cent were doing it, the total impact in the market would only be 0.3 of one per cent. I do not deny it happens and we do carry out regular checks to keep an eye on the problem, but it probably is not the leading edge of the problem.
133. It might not be the leading edge, but it is part of the culture of trying to evade the duty on this fuel.
(Mr Broadbent) The culture is interesting. One of the issues here is that it is not illegal to have a lorry with a larger than average tank and it is not illegal to come back with that tank absolutely full, having left the country with it empty. Many first do that because it is a perfectly legal way of keeping your costs down; it is cross-border shopping. The offence only occurs if that haulier happens to have both domestic as well as international operations and shifts fuel from one tank to another. That is the only point where an offence happens.
134. When you see the 70 per cent come back through Dover and then you have a look at 30 per cent, if you had done a survey on the 30 per cent would it surprise you to find that these do not have a domestic run, they normally have international runs?
(Mr Broadbent) I am sorry, I am not sure I follow that.
135. The 70 per cent of lorries coming back belong to companies who tend to have domestic lorries running as well in Britain.
(Mr Broadbent) Some do, some do not.
136. The 30 per cent which have smaller than usual tanks just come in and go out and do not have a large fleet, or any fleet at all, of domestic running lorries.
(Mr Broadbent) Some hauliers are purely international, some are mixed domestic and international. We have not surveyed the tanks of lorries which do not travel abroad, but my guess is that they probably do have smaller tanks because they travel shorter distances. I do not disagree with your point that decanting does happen and where it happens we should try to prevent it.
137. May I flag up something you said earlier on, "We had no knowledge of what was happening with regard to tax evasion in this country on fuel duty"? May I flag up for you now that you should go and investigate, because it is a growing and extensive problem?
(Mr Broadbent) We do investigate it and in the last exercise we carried out, which was very recently, we quite deliberately stopped a whole series of lorries coming through Dover—I forget the exact number we stopped but a very large number—and we only found seven with an inadequate explanation for their tanks. It happens, but it was not a large number, it was not an overwhelming problem. We do have to be careful. I am in a difficult position here because I absolutely agree with you and it is right to be aware of every form of fraud and act to prevent each form of fraud. However, if we are to make an impact on the problem over fraud, we must decide what is the most important area to act on and where to focus ourselves.
138. Yes, I am well aware of your resources and I am well aware that you have limited resources. Has a way of expanding those resources been discussed or considered? Is it not about time that we recognised that if we are going to make an impact on this problem, we have to start bringing in extra resources? Should we not consider bringing in some of the private sector and authorising them to conduct some of these investigations and pay them a percentage of what they collect? If we can use informers strategically and pay them a bounty, we should be able to fund a realistic programme to crack this once and for all.
(Mr Broadbent) We are developing a set of strategies and those strategies are being reviewed in the spending review because there are resource implications. I have no problem in using any means by which to collect the maximum amount of revenue most effectively. That would include using private sector skills, although the concept of paying a percentage of revenue collected has many pitfalls in terms of collection ethics. There may be other things we can be helped on.
139. It is called an incentive. It makes people get up and get out there and do the job.
(Mr Broadbent) It does, but historically regimes which have run tax collection through incentives based on the amount of tax you collect have tended to run into problems of perhaps over-zealous collection and in some cases fraud effectively based on doing deals. I just observe that incentivising people to collect tax on the basis of what they collect is quite dangerous. There are other ways one can use private sector skills without simply saying one will pay a percentage of the revenue collected. Tax collection does not just have issues through the revenue collection but a lot to do with equity; it also has a lot to do with the way in which you treat those difficult cases where you can collect the tax but perhaps you diminish your longer-term taxable capacity by collecting it now. There are some difficult judgements.
Mr Jenkins: We are a long time dead. I would like to collect the tax now.
The Committee suspended from 6.03 pm to 6.13 pm for a division in the House.
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