5 Tackling oils fraud
73. This report has concentrated on tobacco smuggling
and alcohol duty fraud. We received little evidence on oils fraud
and accordingly make only limited observations on this issue.
74. In Great Britain, losses from oils fraud are
principally the result of rebated fuels fraud—the laundering,
mixing and misuse of red diesel and kerosene, and some oils used
for industrial processes. The key fuels are:
- Red diesel, which carries a
lower rate of duty (4.22 pence per litre, compared to 47.1 pence
per litre for ultra low sulphur diesel) and is for use in heating
and off road vehicles, such as farm machinery. It is chemically
marked and dyed red.
- Kerosene, also known as paraffin, which carries
no tax when it is used for running domestic heating systems. It
is chemically marked and dyed yellow.
- 'Tied oils' also known as technical oils or base
oils, which carry no tax when used for specific industrial purposes
such as anti-rusting agents or lubrication oils.[78]
75. There are three main types of fraud. Laundering
is the treatment of rebated and duty-free fuels with chemicals
to remove their markers and dyes to make identification of its
use as a road fuel harder. Mixing involves combining rebated and
duty-free oils to make an illegal road fuel or to dilute road
diesel. Misuse is illegally using unadulterated rebated and duty-free
fuels in road vehicles. In addition to these fraud types, Northern
Ireland has the problem of cross-border smuggling, where duty-paid
fuel purchased in the Republic of Ireland is brought into Northern
Ireland for re-sale, exploiting cross-border price differentials.[79]
Estimating and tackling oils
fraud
76. Customs produce estimates of the revenue lost
through fraud for diesel, and the corresponding illicit market
share, in Great Britain. These are shown in Table 5 below. Customs
also publish estimates for non-UK duty paid consumption in Great
Britain, but as this is very small (under 2%) and there is no
operational evidence of a petrol fraud problem, Customs do not
attempt to disaggregate this figure between fraud and legitimate
cross-border purchases. Because of the difficulties in conducting
a survey around the Irish land border, which is some 350 miles
long and has over 500 crossing points, it is not possible to estimate
the quantity of oils legitimately supplied into vehicles in the
republic and driven into Northern Ireland for consumption in those
vehicles (cross-border shopping). Therefore, rather than reporting
the illicit share, Customs report the proportion of the market
that is non-UK duty paid, without distinguishing between illicit
and legitimate cross-border shopping. For Northern Ireland, Customs'
latest published estimates suggests £350 million is lost
annually due to diesel and petrol consumption which is non-UK
duty paid.[80] Table
5: GB Diesel revenue evaded through fraud and smuggling and illicit
market share (%)
| 1999
| 2000 | 2001
| 2002 | 2003
|
| PBR2001 | £200m 2%
| £450m 4% | -
| - | -
|
| PBR 2002 | £700m 6%
| £950m 7% | £600m 5%
| - | -
|
| PBR2003 |
| £1,000m 8% |
£850m 7% | £650m 5%
| - |
| PBR 2004 |
| £1,000m 8% |
£950m 7% | £750m 6%
| £850m 6% |
Source: HM Customs and Excise, annual publication
on Measuring (and Tackling) Indirect Tax Losses, November 2001,
November 2002, December 2003, December 2004
77. Customs' strategy for tackling oils fraud is
focused on stopping large-scale criminal and commercial fraud
by combining law enforcement action, centred on the large-scale
supply and use of illicit fuel, with a better control of the sale
and distribution of red diesel, kerosene and 'tied oils'. Customs
have introduced a control regime for suppliers of rebated fuels
which required all businesses selling them to be authorised by
Customs, to exercise a duty of care when selling those fuels,
and to record information on their sales and provide that data
to Customs monthly. Additional resources have been provided for
extra staff and investment in new testing technology to prevent
and identify fraud more easily, coupled with a national publicity
campaign, and tougher sanctions. The strategy also introduced
a new 'Euromarker' to be applied to all rebated gas oils and kerosene
in the EU to help identify fraud.[81]
78. We received
little evidence on oils fraud during our inquiry. Customs' estimates
of the level of fraud do not appear to be a matter of dispute
with the industry, but we are concerned that proper figures for
Northern Ireland are not available.
79. We note Customs'
evidence that oil frauds in Great Britain are principally the
result of rebated fuels fraud—the laundering, mixing and
misuse of red diesel, kerosene, and oils used for industrial processes.
We are concerned at the scale of fraud in this area, currently
estimated to be some £850 million a year, and we are struck
by the fact that there has been a consistent pattern of estimates
for a given year being subsequently revised upward. We cannot
consider Customs' strategy for tackling oils fraud to be working
satisfactorily when losses continue at this level. We therefore
recommend that this strategy and the resources devoted to tackling
oils fraud be reviewed if there is not a significant improvement
when the next figures are produced with the Pre-Budget Report
2005.
78 Ev 85, para 42 Back
79
Ev 85, paras 43, 44 Back
80
Ev 85, paras 39, 41, and Measuring and Tackling Indirect Tax
Losses - 2004, Dec 2004, Tables 3.16 and 3.18 Back
81
Ev 86, paras 48-51 Back
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