To be published as HC 556-i

House of COMMONS



Northern Ireland Affairs Committee

Fuel laundering and smuggling in Northern Ireland

Wednesday 5 September 2012

Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

Evidence heard in Public Questions 1 - 64



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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 5 September 2012

Members present:

Mr Laurence Robertson (Chair)

Mr David Anderson

Mr Joe Benton

Oliver Colvile

Mr Stephen Hepburn

Kate Hoey

Kris Hopkins

Naomi Long

Jack Lopresti

Dr Alasdair McDonnell

Nigel Mills

Ian Paisley

David Simpson


Examination of Witnesses

Witnesses: Mike Norgrove, Director, Excise, Customs, Stamps and Money, HMRC, Sarah Harlen, Deputy Director, Environmental and Transport Taxes, HMRC, John Whiting, Assistant Director, Criminal Investigation, HMRC, and Pat Curtis, National Oils Lead, Specialist Investigations, HMRC, gave evidence.

Q1 Chair: Thank you very much for joining us. It is good to see you again. As you know, we produced our report some while ago now, but at that time we expressed a concern about the apparent slowness, as we felt, in developing the technology to counter fuel fraud. You very kindly offered to come back. We hoped to get you back in the summer but the programme was so congested we could not do that. We are delighted that you are with us again now: thank you for coming. Could I ask you perhaps to give us an update on where you are with the development of the new marker, please?

Mike Norgrove: Thank you, Chairman; thanks for your welcome. Could I perhaps ask my colleagues to introduce themselves before we kick off?

Sarah Harlen: I am Sarah Harlen; I am Deputy Director for Environmental and Transport Taxes, HMRC.

Pat Curtis: I am Pat Curtis, the National Oils Lead for Specialist Investigations, HMRC.

John Whiting: John Whiting, Assistant Director, Criminal Investigation, Northern Ireland.

Mike Norgrove: Thank you; thank you for the opportunity to update the Committee too. I will begin by bringing the Committee right up to date on an important element of our strategy before we get on to the marker itself, which is what has been happening north and south of the border in the last seven days. Pat, John and their teams, with the help of the PSNI, have seized fuel and dismantled three plants capable of producing 25,000 litres of laundered fuel a day. It has been a tremendous week for the teams in Northern Ireland. Some of that fuel-we will get on to this; it will be highly relevant to the Committee’s deliberations-had been laundered eight times in an attempt to remove all traces, but our existing marker, the SET, the silica extraction test, has stood the test of all eight launderings. On one of those plant dismantlings, on one of those seizures of fuel, the fuel that resulted even from eight launderings has been found still to contain one of our markers.

That is an important bit of context, first of all because of the success of our teams on the ground. While I was in Dublin Port just last week, a seizure was made of 20,000 litres of fuel on its way to Liverpool. All of that is relevant in the context of your deliberations about future markers, either developments of the current one or brand new markers.

Thank you for your report too, Chairman. I am sorry that you were disappointed and expressed your disappointment in the progress that we have been making. We have a lot of detail to give you today about the progress we have been making. The process of improving or replacing markers is a very important but complex one. We cannot wish those complexities away. For us to replace or amend the marker that we are using at the moment-which is continually being refined and improved by Pat and his team-imposes costs on businesses. We need to check the stability of the fuel that has been marked in a different way and its volatility. We are talking about a highly dangerous product: the corrosive effect of it, the effect of the marker when put in a new plastic container or metal container and so on. I do not think we have ever hidden from you the difficulty of finding a marker that we are sure is both safe and an improvement on the present one. Although we understand your disappointment at the progress, we think we are making real progress. The intervening time since your report has meant we have been able to make further progress that we can report today.

Perhaps Sarah, who is my expert in this field, can bring us up to date.

Sarah Harlen: Thank you very much. It might be helpful if I separate out first of all the progress we have made on the new marker from that we have made on the enhancements to the existing marker, which are two completely separate projects. Taking the new marker first, we have made a lot of progress since we last came before you back in January. The first thing we did was to sign a memorandum of understanding with our colleagues in the Irish Revenue Commissioners at the end of May. Following that, at the end of June, we issued a formal invitation to make submissions, which went out widely to attract industry interest and to invite them to participate in the process of finding a new marker. We held a briefing presentation for interested companies on 24 July; 15 companies were able to attend. As well as talking them through the detailed process we were going through and what we were looking for from them, we had specialists from the State Laboratory and also from LGC Forensics, which Revenue and Customs use, to explain the technicalities both of the existing marker and testing that we do, and in terms of what we would be looking for in the future.

We have had an iterative exchange with companies since then, in that they have come back to us with supplementary questions that we have been able to field. We are answering those individually as quickly as we can, but we are also trying to pull together a composite set of questions and answers that we can share widely with the whole of the industry. We then asked for firm expressions of interest by the end of September from those companies that wish to make a formal submission to us. We have already had four formal indications of interest, and we have asked for the final submissions to be with us by the end of November. After that we will be going through the evaluation process, which is in two stages. The preliminary evaluation, which will be set against a set of defined criteria, which are set out in the invitation to make submissions, will be done-we hope-by the end of January, followed by the end of February for the first preliminary evaluation, and the end of May for the secondary final evaluation.

I have to say, these timescales are indicative, partly because we do not know at this stage exactly how many formal submissions we will have to deal with, but also we recognise this is very much an iterative process. As the companies provide us with information, we need to be able to go back and discuss with them and to refine some of the information they have given us. We have built into the timetable the opportunity to have presentations and briefings with the companies. Again, we cannot give an absolute guarantee of how quickly those will take place, but we have set out very clearly through the invitation to make submissions the timetable we are aiming to adopt.

The other area we have been working on is the enhancements to the existing marker. We were probably overoptimistic in what we could achieve there. I know we said in the response we put through to your report we hoped to have a pilot in place by the end of July. The timetable for that has slipped, in part because we have had to negotiate with the companies involved in the pilot how we get the new enhanced marker into the supply chain and through to their customers. They made one big supply at the end of July; we understand that supply will not have run its course through the systems with the petrol companies until October, but they have given us as firm a commitment as they can that we can start the new pilot in Northern Ireland from the beginning of October. We expect that pilot to run for three months. We will be evaluating it throughout the process of the pilot. We will be looking on a monthly basis to see whether we can detect the new ingredient we are putting into the recipe for the marker, both in laundered and nonlaundered products, so we can assess how well it is achieving its objectives. We intend to do the evaluation of the new, enhanced marker certainly by early new year, and of course by that stage we will be able to start looking across at how that plays into the invitation to make submissions and our search for a new marker, and how it affects your benchmark in terms of what a new marker might look like.

Chair: Thank you for that update.

Q2 Dr McDonnell: The memorandum of understanding with the Irish Republic was set for May 2013 for a full evaluation: is that still on track? Where are we with that?

Sarah Harlen: The memorandum was signed in May 2012 with the aim of completing the final evaluation by May 2013. We are still on track for that, but as I have just explained we cannot give an absolute guarantee that we can stick to that timetable.

Q3 Dr McDonnell: How much of a delay do you think there might be?

Sarah Harlen: It really depends on when we get the final submissions in for the proposals for new markers, which will not be until November. We do not know how many of those we will be looking at and need to test and assess, and we also do not know how complete the information will be or how difficult the testing by the State Laboratory and LGC will be. Again, experience has shown-certainly with the work the Irish have already done on these products-the testing can be a very iterative process, whereby the first set of tests may reveal a particular issue or concern that can then be dealt with through a slight change to the recipe. Another period of testing then has to take place.

Q4 Dr McDonnell: On a side issue, when you test roadsidewise for diesel or whatever, are you picking up much, if you like, clear diesel with markers in it? How often does that occur? The question that springs to my mind is what is the outworking of this? How much are you picking up in cars, vans, lorries?

Mike Norgrove: We have good, healthy, recent experience of those sorts of figures. They are not figures we have published in the past, I do not think.

Q5 Dr McDonnell: They are not figures I have found anywhere. We tend to concentrate here on getting a laundering plant somewhere or we get news of that. That is one issue-if you like, one link in the chain. The link in the chain I am wondering about is how useful a marker is in terms of end product and in terms of finding somebody with what appears to be white diesel in their car, or a van or a lorry, but in fact is contaminated.

Mike Norgrove: Perhaps I will start and Pat confirm with some figures. The purpose of our roadside tests-stopping vehicles, commercial and private and so on-is really threefold. The first is to stop wrongdoing, so people who are using fuel for which it was not intended. In other words, red for road fuel usage, for example. It is to stop that. Secondly, the intelligence we pick up from those sorts of seizures is very valuable for the sort of work you were also mentioning. For example, we might find out where that driver had acquired the fuel, which could lead us on to the next stage of something bigger: a major operation, for example. Thirdly, it is important-and you will understand this better than I-to have the deterrent factor of our people being out there and being seen to be out there around the north of Ireland, enforcing the law and checking for the good of the community as a whole. It is those three objectives. We make many more seizures of illegal fuel from vehicles than we dismantle plants. This year, for example, we have dismantled 10, three in the last week, but of course they are very small compared with the number of seizures we make from vehicles.

Q6 Dr McDonnell: If I can put my question again, Chair-I am sorry for labouring-because I think other members might share the same question, looking at your illicit market shares there in terms of diesel, you are somewhere in the region of 40%, you estimate. What is the risk of me getting stopped, having purchased fuel at full value in any one of half a dozen different fuel stations, petrol stations, with illicit diesel?

Mike Norgrove: On your statistic, I do not recognise the 40%. Last time we were able to give evidence to the Committee we had the new set of tax gap estimates, as it were, which put the figure more like 12%.

Q7 Dr McDonnell: Sorry, I am looking back at 2004.

Mike Norgrove: We have come down a long way since then. The year before I was last here it was 27%; it went down to 12% in the most recently published figures. There will be more out next month. It is a very much smaller percentage than it was.

Q8 Dr McDonnell: But am I susceptible to prosecution if I am found with laundered fuel in my tank, even though I may very well be innocent?

John Whiting: We have a number of measures, but it would not be proportionate for HMRC to prosecute you as a single individual for having laundered diesel in your car. There is a process by which Pat’s officers-in fact I have a number of these officers too-would deal with it on the spot, essentially, by seizing your vehicle and then offering you to buy it back, effectively for a restoration amount, which is normally £500 plus the value of the duty you have evaded. We are looking to increase that amount to make it more prohibitive. You asked if you are likely to be caught: the answer is yes, and in fact I can give you one anecdote of my officers seeing an individual approach a huckster site and drive away. They established where that individual lived; they went to his house the next day and seized the car on his driveway. Yes, if you are using laundered fuel, you are potentially going to be caught.

Q9 Dr McDonnell: My question is about if I am not intentionally using laundered fuel. If I am buying it out of a filling station along a dual carriageway-and there are many of them across Northern Ireland-and I innocently go in there, it is obvious from these figures that some proper stations are taking deliveries of counterfeit fuel. I go in there innocently; I pay the £60, £70, even £80 it can take now to fill a car. The next day one of your guys dips me on the way up to Stormont-they have a habit on Belmont Road there-and says, "Sorry, it is contaminated." I have seen fuel go into my car; it looks white, it looks clean. I have paid the full money for it, including the equivalent of tax. What is the comeback there?

Pat Curtis: Dr McDonnell, I can give you some hard figures here and then I will come and answer your question. We do make roadside checks and we are relatively successful. The hit rate is round about 5%: of the 100 vehicles we check on the roadside, we roughly get a 5% to 6% hit rate on it. Last year the figures that were published showed we did 56,000 roadside stops of different variations and we had just under 3,500 detections. We are making detections. If you take the 3,500, you are talking a substantial amount on a daily basis. Year to date, while the figures are not published, we are still heading on the same thing: we have made just under 1,200 detections from 1 April from these roadside stops and other challenges.

If we stop somebody and it fails our test, we have an obligation to listen to the story that the driver tells us, and if they tell us they bought the fuel at the ABC retail site, the staff are informed that they must stand down the roadside operation there, if there is only one team out with the police, and they must pay a visit to that supplier within that period of time, within that day, to verify the story from the motorist. If our tests are of a standard that makes the detection at the roadside, we have no problem making the detection at the supplier’s yard if he has the product in it. We have to balance that out, but everybody tells us the same story: everybody is innocent out there; everybody says that they bought it. That is our safeguard for the motorists. We do advise them-although we cannot insist on it-that it is beneficial to have the receipt for your fuel purchase to prove that you bought it from ABC garage. We cannot impose that, but we give it out as a piece of advice. On every occasion we catch somebody, most of them are not willing to tell us where they bought the supply, so they have to take our enforcement action on the chin. If they tell us where they bought it, I can assure you we visit that retailer or supplier immediately within that day before we take any other action against the motorist.

Dr McDonnell: Thank you. That is the answer to the question.

Chair: It is a very interesting point that we probably could pursue further, but we have to press on a bit now.

Q10 David Simpson: You are very welcome, by the way; it is good to have you here. I think the opening comment from Mike was that he was disappointed to hear that the Committee was disappointed.

Mike Norgrove: I was sorry to hear.

Q11 David Simpson: Yes, sorry to hear that we had basically said that three years was too long. I think this delay in time is scandalous; I have been straight and honest about that. I am not being personal; I just feel it is unacceptable that three years down the road we are still looking at this. Sarah gave a very telling statement that these timeframes are indicative-they could change-and we are looking at a situation where we still do not have a marker. I am no scientist, but in reading the IMS document it seems to me that there are no specific details of exactly what your requirement is for a marker. I am no scientist; maybe you could shed a bit of light on that to show me where it is in the document, but it does not give the specific requirements. We are looking at a pilot scheme next October-I think that is what Sarah said-in relation to Northern Ireland. The whole thing is so openended. Our understanding is-and we have taken evidence over the number of months-that there is technology out there that has been proven in Brazil and other places and has been working now for a decade. If there is evidence that there is technology out there that can do this job, why can it not be fasttracked? Why can it not be brought to the fore and tested immediately? If it works, bring it.

I have to come back to this Chair: I made a comment some months ago that there seems to me, for some reason, to be an acceptable level of this carrying on. I have said it before and I am saying it again, because three years down the road, with the millions that have been lost by the Exchequer, when we have the Irish Republic and we have the British Government in such dire straits for money, we are still sitting today looking at this and we may get a pilot scheme into Northern Ireland by October 2013, and that is an indicative timeframe. It is unacceptable. That is not being personal with anyone. It is unacceptable. What can we do to speed this up, and why are there no specific details-maybe there are and you can point them out to me-within the IMS document of exactly what the requirement is?

Mike Norgrove: Can I just start with one correction, which is that the pilot will start next month, October 2012, which is the pilot of the improved current marker.

David Simpson: Okay.

Q12 Ian Paisley: Can I ask for clarity on that exact point, because this is very important to us: are you talking about a dye improved marker, or are you talking about a new technology marker that will start next month? Are we going to have more of the same but with more dye, effectively, from October? Is that going to be your pilot?

Mike Norgrove: Yes.

Q13 Ian Paisley: Right, so you are not actually doing what the Committee asked, which was to bring forward a pilot-recommendation 15-as soon as possible on new technology. You are just chucking more dye into what is effectively there.

Mike Norgrove: No, we are going to pilot, as soon as possible, a new marker if one is required by then.

Q14 Ian Paisley: But in October this year you are just putting more dye in. Is that right?

Sarah Harlen: It is that, essentially.

Ian Paisley: Thank you.

Sarah Harlen: But essentially what the new dye will do is to double the effectiveness of the existing marker.

Q15 Ian Paisley: I will just say that the sales of cat litter and bleach will increase, because they will just move it; they will just remove it.

Sarah Harlen: Yes, I understand that, but effectively what it does is make it more expensive for the launderers. It makes it twice as difficult and twice as expensive. We are not suggesting for a moment that this is the perfect solution, but it is a step forward.

David Simpson: Sorry for cutting across, Chair, but realistically, when you say that it makes it more expensive, it does not mean that, because they are getting so much money out of it-millions. Unbelievable; unbelievable.

Chair: Let Mr Norgrove answer a little bit further and then we can certainly come back in.

Mike Norgrove: I would like to pick up Mr Simpson’s point about the deficiency, as he saw it, in the IMS that we were not asking for something specific. Obviously we are not going to name a chemical that will be the new marker, if that is what you are looking for-or have I misunderstood your question?

David Simpson: Yes.

Mike Norgrove: We are asking industry to provide us with something that will improve, enhance-maybe radically improve-our current effectiveness. We are not stipulating exactly what that should be, otherwise you would not have to ask. We want to know what is out there.

Q16 David Simpson: That is fine. Okay, that is a good point that you have raised, Mike. The Committee received evidence of technology that is supposed to be out there that can do this job. Why is HMRC not bringing it forward, fast tracking it, dealing with it-and ruling it out. If it is not right, rule it out.

Mike Norgrove: Can I put it back to you? I have been in this Department for 35 years or so now. If there were a marker out there, if there were new technology that would solve this problem for us, do you really believe that I would not have had it in like that? I will just put it back to you that way. Our job is to be as effective as we possibly can, using any new technology, markers, roadside tests, criminal investigation techniques-whatever we can. I would grab it with both hands if someone could demonstrate to me that there was something out there that solved our problems. Of course I would.

Q17 Kate Hoey: Are you saying that there is not?

Mike Norgrove: I am saying we have not had anything like that demonstrated to us yet. I am hoping I will be proved wrong-not wrong, as at the moment I am right, but there is not something that has been proven to us as being that effective. Why would we turn our faces against it if there was such technology? There is, I believe, no silver bullet.

Let me just add one thing. We used to use that expression when we talked about a strategy on anything: it could be on beer or VAT fraud. This question of a marker is only one element of our strategy, because not only do we have people at the roadside testing vehicles and going to retail sites; not only do we have people making life difficult at filling stations that we know to be receiving laundered fuel; not only do we have-for the first time ever-an agreement with the Republic of Ireland on a joint approach to marking; not only do we have fantastic crossborder co-operation with them and Garda Síochána and so on; not only do we have a fully joined up set of agencies under David Ford, but we also have a marker that we think is very effective. The example I gave you right at the beginning demonstrated its resilience even after eight launderings. I do not know how much cat litter or bleaching agent that involved, but even after eight goes they had failed to beat this marker. This is a fully joined up strategy. It is not perfect. We are always looking for improvements, but believe me: if there were a proven technology or marker out there, I am happy to go anywhere in the world to see it, but it has not been presented to us yet. Let us hope by November we get some really encouraging news.

Q18 Oliver Colvile: First, thank you very much indeed for coming. Can I ask you what other parts of the world suffer from this problem too, and how much co-ordination do you have with other countries that are trying to do it? Are you claiming that you are in the vanguard of this activity and, frankly, we are the best here in this bit of Northern Ireland at delivering this? Is that what you are claiming?

Mike Norgrove: I would not make a claim. One of your earlier witnesses would not want to be a champion of his own selfrighteousness, I think he said. I would not claim anything. This is a problem that is now being experienced by more and more countries as the emphasis on excise receipts gets greater and greater with the recession and austerity and so on. Last time Pat was here he mentioned to you a European event, a Fiscalis event as they call it, where we invited colleagues to come to Brussels to discuss-in fact, where was it held, Pat?

Pat Curtis: Belfast.

Mike Norgrove: It was in Belfast. So European, EU colleagues came together. I think 17 member states attended, all interested to know what we were doing, none of them claiming to have technology that they wanted to sell us or tell us about, I am afraid. It was good to be able to share our knowledge with them, but we did not get any silver bullets from them, if I can put it that way. As far as I know, and I have discussed this with Hungarian, Spanish, French, Irish colleagues obviously, Dutch colleagues, we are pretty much at the cutting edge. Our experience is of course founded on years of trying to solve this problem, or to keep a lid on it. We are still in the market for new ideas from our colleagues overseas, but at the moment we are telling more than we are learning.

John Whiting: I think I am correct in saying there were 24 countries there; we had 65 delegates in Belfast. We began the conference on the day that you launched your report, which somewhat trumped us in terms of press, and we were gagged, shall I say, in terms of making any comment about the report, and that is what the media wanted us to respond to. The timing, I would have to say, was unfortunate, but what we did discover was that our European partners do not use the additional markers we use in the UK. They simply use what is called a Euromarker, which is in our fuel, but we have a supplementary marker on top of that. That is almost certainly the reason why our European partners are not making the detections we are. It was an education for our colleagues.

Q19 Oliver Colvile: Forgive me for being very boring, but we are not just part of Europe; we are also part of the wide world, and so what is happening elsewhere in the world, like in the United States of America and other places?

Mike Norgrove: The first response we have had since that event was I think from British Columbia, Pat.

Pat Curtis: The Minister of Finance in British Columbia put in an official request because they had heard of the SET test that Belfast had piloted and rolled out to the UK. We have sent samples of them over there because they are experiencing the same problems we are having.

Q20 Oliver Colvile: At some stage what would be incredibly helpful is for us to have a physical demonstration of it, rather than just always talking about all this. Maybe we can set that up.

Mike Norgrove: You would be very welcome.

Q21 Naomi Long: The question I was going to ask has by and large been answered, but you mentioned the impact of your ability to raise public awareness of what you were doing at the conference in March being slightly hampered. Since March have you found that there has been more industry interest in your call for a new marker? You have indicated there was not a lot of interest prior to that. Has that had any impact? Has the Committee report been seen to have any impact in terms of people coming forward with new ideas or new technology or new suggestions? Certainly it was given to the Committee that there were other ideas out there that were feasible and viable. I know there was some dispute about whether that was the case, but have you detected whether there is an active interest out there, not just in the UK but maybe further afield?

Sarah Harlen: I can say for certain that we had four or five expressions of interest in the original RFI, the request for information we originally put out. Fifteen companies attended the briefing we held on 24 July this year in response to the IMS, and we have had four strong expressions of interest since then. We have not yet reached the deadline for all the expressions of interest. I am quite sure that the work the Committee has done to raise the profile has helped, as well as certainly the greater emphasis we have put on trying to progress the project.

Q22 Naomi Long: In terms of the conference itself, in terms of having that discussion with European counterparts and so on, has that sparked any interest that you are aware of in those countries, from people coming forward with new ideas or suggestions, or is the situation more the reverse-that they are looking to us to take a lead on these things?

Mike Norgrove: We are ever hopeful.

John Whiting: We have had an approach from some of our partners to help them with some of their problems. It has worked in the reverse, in that we are being seen as perhaps being in the lead.

Naomi Long: Thank you very much.

Mike Norgrove: Sorry, Chair, could I interrupt-I am sorry to intervene-just to complete an answer to Mr Colville, if I may? You asked, "That is the EU, fine; what about the rest of the world?" The UK chaired a conference of the World Customs Organization recently with 160 delegates from all over the world, and an especially strong contingent from Africa and the Far East. This was on the agenda. In fact, two of the people sitting here today gave a joint presentation on this very subject with our Republic of Ireland colleagues, which went down extremely well. It got a lot of interest, but so far-I do not say this provocatively-we have not been assailed with lots of intelligence and information and help from other quarters to us, but we are hopeful. The co-operation is now beginning in earnest.

Q23 Mr Benton: I hate to labour it, but I want to go back to new markers again. I know you have answered many questions; you have already referred to the ones I was proposing to put to you. Perhaps you can enlighten me somewhat, but if I have understood your remarks correctly, you are using the best technology that is available to you at the moment-I accept your point that, if there was anything better out there, you would use it. The confusion in my mind is that this socalled new marker that you are seeking or looking for would be used only if it was to your advantage; in other words, it would be a quicker method, if you like, of identifying illicit fuel. It would still demand road stops and examinations of vehicles and eventually analysis.

What all this suggests to me is that, even if you had a much better, shall we say, marker, you would still be highly dependent upon sufficient manpower and resources to enable more extensive controls, examinations, analysis, so on and so forth. I am not pouring scorn on or trying to hold up to ridicule the emphasis on a new marker, but it still seems to me that there are other factors as well that must be brought into play if you are going to successfully make any progress at all on it. Progress will not be entirely dependent on the new marker. Before you came in, in our preamble, I had to ask the question: what do we mean by the new marker? What is the marker? Does it immediately identify the falsity in the fuel, the illicitness of the fuel? What does it do? How does it do it? I do not know, so I am genuinely asking how it is done. It seems to me that, even if you got this refined or improved new marker, there would still be a demand for a more extensive, if you like, investigation and overall watching of the situation if you are going to achieve any marked success. I wonder if you would care to comment on that.

The other thing I was going to ask about was your response to our recommendation 15. The phrase you used was that there have been "new technical issues". Again, I am not pouring scorn on the phrase, but I would like to know what the "new technical issues" are, if that is possible.

Mike Norgrove: Can I start with that last one, just while it is fresh in my mind? Before we unleash on an unsuspecting market any new requirement on business to apply a marker, for example, we have to be pretty sure that the product is safe and can be used effectively and so on. At the 11th hour-Pat or Sarah will give us more detail-questions were raised as to whether the enhancement of the current marker we were planning was going to destabilise the fuel. Some suppliers had raised that as a question. We could not ignore that. That is the classic example of what can cause delay. Here we were, about to go out with a revised marker and doubts were raised. We had to pursue those. In practice that fear turned out to be unfounded. The technical issues we had been led to believe could have destabilised the fuel turned out to be easily solved; it was not a problem. We are going ahead with those revisions next month. That was to your third question.

On your main point, you are absolutely right that, in a way, all these separate components of a strategy may be necessary but none of them in themselves is sufficient. We have a fantastic marker, which, let us say, putting it simply, is some colouring, some dye, so that you can see whether something is white diesel or not: red in our case; green in the Republic. That is essentially what a marker does. What we are looking for is a dye that, even when criminals try to take out that dye, leaves a trace there. They are pretty clever at removing it and we are getting cleverer at spotting it when they have left even a tiny proportion in it.

As to the question of whether we will still need investigation and compliance work even with a fantastic new marker, the answer is yes, we would. We would still need to be testing. As long as criminals have access to fuel to which they are not entitled or as long as retailers are availing themselves of fuel and using it for purposes that it is not intended for, you will need a compliance effort to keep people on the straight and narrow and to check. You are right. We have discussed alternatives to such a system-where you did not dye anything and you did not have to check whether something was dyed or not-here in this Committee before, and I know you have thought about that and you have discussed it with other witnesses, which would be a completely different system, where there was no rebate at the point of dispatch, as it were, and there was not a fuel that was 11p a litre and another one that was 57p. Everyone would pay it at the same rate-let’s say 57p. If you are a farmer trying to run your tractors then you would have to claim that money back, the difference between the two. Attractive though that would be in some lights, that would give us, we believe, even more problems than we have at the moment. In other words, what we have got at the moment is the worst of all systems except for all the alternatives, I am afraid. It is something the Republic has thought about and had a parliamentary debate about recently. They have decided that, regretfully, they do not think an alternative to a marker is the right solution at the moment.

Pat Curtis: The marker consists of two constituents. The dye is for a member of Joe Public to identify that this fuel is not for road use. What we test for is a hidden chemical marker. Unfortunately we use the same term: it is the chemical marker that is the offence. Mr Paisley has mentioned-and he is possibly quite correct-that there may be a chemical out there supplied by a company that is more resistant to laundering than the chemical we currently have. We are tweaking the recipe for the current chemical to run alongside this project to allow us to make better detections.

The dye is easily removed; as I say, the dye is really only for me and you to identify fairly easily: "this fuel should not go into my car." The test we carry out on the road is to look for this chemical that is in the fuel. The problem was, when we floated this project of enhancing this chemical, a couple of the companies said, "This may be unstable in the fuel and will not remain in the same proportions throughout a certain quantity of fuel, as it should." That delayed us for maybe a month, but we found out it was the production techniques of some companies as opposed to other ones. There was a production technique out there that would easily add this chemical without any problems with its stability, but it did cause us a problem for a while. I have to emphasise: the colour is incidental to this. It is the chemical marker that we are after in the fuel. Under the new project it is a new chemical-type marker that we are after-one that is more resistant to everything that is currently being used to launder fuel.

Q24 Ian Paisley: Why do you not do what we have requested, and that is pilot that other technology as well as what you are doing? Pilot it in the field. Let us see how it operates and corresponds and responds in the field. I must ask you this: what is the acceptable level of loss that the Exchequer and HMRC is prepared to take each quarter? Is it another £3 billion between now and 2014?

Mike Norgrove: Can I answer, because the answer is simple? Zero is the acceptable level.

Q25 Ian Paisley: I am glad you said it is zero, Mike, because if you are saying that the acceptable level of loss is zero, then I do not know how you explain the goslow from 2009 until now on this process and this search, and how you explain the intended goslow from now until 2013 for this other process. We have said to you as a Committee of this Parliament, "Here is another technology; in the name of all that is decent, try it. At least test it." And you come back to us today and say, "No."

Oliver Colvile: Can I go a bit further: why won’t you?

Mike Norgrove: To run two simultaneous pilots when you are a roadside fuel officer would put you in a pickle, for a start. For example, you are dipping the tank and you do not know whether you are testing one that has been dyed with one or chemically marked with one or the other. You would have to shelve any thought that we might amend and pilot the current marker. That would be a reversal of strategy, for a start. As a civil servant, I could not justify piloting one manufacturer’s apparently successful fuel over anyone else you would like to supply into that market and who is in business to do so, without going to some tendering or IMS process. It is impossible to conceive of our advising our Ministers, "Forget everyone else who might be out there, we have heard this company is really good. We are going to pilot this one." Inconceivable.

Sarah Harlen: Could I just add one further point, Mike? Even if we decided we wanted to run a pilot, we would still need to go through the full testing of that product before we could even pilot it. This is a product that is going to go out onto the streets; there are health and safety issues, and potential issues about how it interacts with car engines or heating systems or whatever it might be used for. I do not see that trying to run a second pilot would really speed up this process. Essentially what we have done through the IMS process is try to get the full information in terms of the technical specification of the new product that is available and then put it through the kind of rigorous testing that has to be done for any product before it can be rolled out either nationally as a pilot.

Q26 Ian Paisley: If the ambition is zero, as Mike has said, surely you could use all of your genius to get over the obstacles you have just identified-i.e. some sort of procurement, some sort of industrial advantage to a chemical company, the delays it might cause. I do not believe your ambition is zero. I am sorry to say that, Mike, I am really sorry to say it, because I have a great respect for your people on the border and your people on the ground, but I just do not believe your ambition is zero.

John Whiting: The last time we were giving evidence, none of the companies who were interested, which I believe includes the company that you suggest has the answer for us, had actually seen how we conduct a roadside test. The first thing I would like to say is we do not have a problem in testing fuel when we get it to LGC Forensics. There is nothing that beats our examination. There is a whole load of scientific testing that is done in the laboratory that will identify and confirm that the fuel has been laundered. Where we have some problems is around the roadside test. At the moment we have to be able to do a roadside test, and I would have to say and suggest I do not think this is available to us yet; I will stand corrected if my colleagues tell me differently. None of the companies who are proposing to come forward have the ability to conduct a roadside test. I am prepared to be corrected on that, but I do not think they have done that. We may have a perfect marker, but if we cannot conduct a roadside test, we are no further forward than we are with the current product.

Q27 Ian Paisley: Can you not take it and do a roadside test yourself? I am looking for you to have some ingenious answer to this. You have £900 million: do something about it.

Pat Curtis: It is highly likely there is a marker out there that is far, far better than the one we currently have. One of the difficulties John has expressed is that none of the companies has given us a roadside test that is capable of identifying the silver bullet marker. There might be a really good marker out there that we are still looking for, but we need it in conjunction with the ability to stop somebody or visit a retail site and say, "You are wrong." At the moment, if the marker is out there, we are hindered by the fact it has to be sent through a laboratory process that might take a number of days. That is quite difficult because, if it is a retail site, the product will be disposed of in the meantime.

Q28 Kris Hopkins: There are a couple of things I want to get some clarification on and to add to some of the comments that have been made so far. Somebody mentioned 40% was the original strike rate at some point in the past; you have now got to 12%. Apparently the figures that Pat gave suggest you have another figure coming out in the near future. I would just like to know, is that a fall in scale-in other words, an understanding of what that is about? Is that because you are now effective at finding people, or is it because you have now produced a deterrent so people therefore do not participate as much? Understanding that, if it is a lesser amount this time round, you must get to a point where, although your ambition might be zero, the cost of generating another marker may exceed what your potential revenue saving is-in other words that figure. I am just wondering what your contemplations are about that.

Before you go there, I will give you the second bit. I have to say, on the point you made about one company and not recommending something to a Minister, I do understand the dramas around procurement, particularly in the public sector, but at the same time I have worked for companies, and there are R and D departments that want to go out into the field and want to explore the potential of a product. You do not have to do a fullscale, sidebyside piece; you can do an exploration, at their cost. Also, at the same time, my experience in local government was if they entered the arena they might need to recognise they might prejudice any future participation in any procurement process. There are ways of addressing that. Ian has enthusiasm for getting it into the market. This is an extreme situation, but if you wanted to save a soldier’s life and there is a product on the market you would not say, "I am sorry, but there is a procurement process"-perhaps we did actually-"that I would not like to jeopardise here, even though I may have found a product that saves a soldier’s life." You would solve the problem about buying it and introduce it into the field. I know this is petrol rather than a human life-revenue, in fact-but there has to be some way of addressing the bureaucracy and also putting the safeguards in. There are a lot of questions there, but anyway.

Oliver Colvile: Why do you not talk to the manufacturers of the oil products and get them to physically pay for it? Frankly, I do not want my constituents to have to spend a lot of money on this, ideally. Therefore, to my mind the manufacturers of the oil and the petrol should be making a contribution. It would be helpful to know whether you have had any conversations with them.

Mike Norgrove: I will start on those, I think, four questions. First, let us be clear about our logic here. There is a sort of syllogism here somewhere: is our ambition zero, or is there something between 12% and zero that we would be satisfied with? If it is zero, then why not go for this marker? This is Mr Benton’s point: even if we had the best marker ever invented anywhere in the world, that would not take us to zero. All that would do is give us-if it worked at roadside tests as well-a fractional advantage when we are at the Laboratory of the Government Chemist in testing something that we had already seized as being suspect fuel, and it would give us greater certainty. I would not say this focus on a new marker is a distraction, but it is a tiny potential improvement in our effectiveness. If I was to guess what difference it would make between 12% and zero, I would not say more than a percentage point or two.

We must not equate a radical, effective improvement in our performance with, "Let’s get the new marker in"; those two things are completely separate. To get down from 12% we have got to do a lot more of the same and come up with new ideas in investigation, on criminal assets, on working with our overseas partners and across government agencies. The marker is just one point in that. It is not the silver bullet, even if there were one out there that we could buy tomorrow. That is the first thing: please do not equate massive improvements with a new marker.

The development of the current marker, even before it is enhanced-today’s one that I reported to you about the eight-times-laundered product where our marker was still traceable using our new techniques-is a really high benchmark this new one now has to beat. Let us not equate radical improvements with a new marker.

Mr Hopkins, on your point about strike rates, do you mean the level of illicit market penetration? It was 40%; we thought that was the share of the total diesel market that criminals, as it were, were responsible for. That is the one that has come down to 12%. It is not a strike rate; it is the percentage of illicit versus legitimate.

Sarah Harlen: It is nonUK duty paid, actually, which again can be skewed by crossborder shopping, which will depend on differentials with the Irish Republic.

Q29 Kris Hopkins: So it has come down to 12%: is that about poor detection or is it about deterrent?

Mike Norgrove: It is a complex question. The first thing to say is crossborder shopping has reduced in its attractiveness during that time. In that time the pound was weakening; we are talking about 2009-10 here. With the weakening of the pound and a big drop in the number of journeys abroad, even around the EU, the availability of that cheap fuel for crossborder shoppers was reduced. That suggests that, however big our improvement on the criminal component of it, it was not the whole amount. Some of that reduction from 40% and then from 27% to 12% is accounted for by the reduction in crossborder shopping. We do not know how much; we cannot measure those two things separately.

In answer to your question, there is a deterrent. I do not think we have had a better period of publicity; there has been some fantastic press coverage recently, on the mainland on Panorama, and I was in Newry last week, where there was tremendous local coverage of the seizures there, and on Ulster television and so on. That deterrent is discernable. We would like to be better at measuring the effect of our work on the public’s attitude, but it also comes down to the straight effective improvements in our performance that Pat, John and their teams have performed.

Q30 Kate Hoey: Chair, just before we move on, can I just ask very clearly: have we asked the companies to involve themselves in roadside testing of new markers? Have we asked? Have formal letters gone out?

Sarah Harlen: We have not gone specifically to the oil producers. It was a general invitation issued through the IMS, which went out to business very, very widely, for those companies involved in producing markers to come to us with their ideas, both on the marker but also on the technology for testing.

Q31 Kate Hoey: Like roadside testing of the new marker?

Sarah Harlen: Yes.

Q32 Oliver Colvile: So you are saying to me you have not actually asked those people who are the producers of this petrol whether they could work with you on trying to make sure that we have a system that is going to sort this problem out?

Sarah Harlen: No.

Q33 Oliver Colvile: Why not?

Sarah Harlen: Part of the answer to that would be that, as far as I understand it, the producer of the actual marker that goes into a fuel is generally a different company from the actual oil producer, the refiner; it is the actual producers of the marker. Plus I assume-Pat may be able to help here-there may be other companies that are not current producers of markers but are still involved in research and development that may be interested.

Q34 Oliver Colvile: Is it in the interest of the producers, the manufacturers of this, to try to find a solution to it?

Sarah Harlen: To the extent of protecting legitimate business, yes.

Mike Norgrove: I would not want to give the impression we are not working from now on-especially once we get all the submissions in and so on-with everyone who makes a return to our expressions of interest exercise. From now on, there are negotiations, discussions and mutual understanding, with no options excluded from the start. Now is the time.

Oliver Colvile: I rather agree with Mr Paisley that we need to have a big overhaul of this, don’t we?

Kris Hopkins: Chair, can I just come back; I have one quick question.

Chair: Yes, Kris; I have a number of people queuing up, but please.

Q35 Kris Hopkins: On the procurement process again: the British Government buys lots of fuel, and one of the things it could do is put into its procurement process that it wants a particular product. Therefore, the development of the process is picked up by the fuel manufacturer rather than the individual company. It would be in their interest to go and then source the product, which solves your problem, because it would come premarket with hopefully the ultimate product already attached, if you set the specification.

Dr McDonnell: Surely government is buying white diesel; there is very, very little agricultural diesel. It is the agricultural red diesel or green diesel that is dyed, so if government’s getting dyed-

Kris Hopkins: I think you will find tanks do not run around on white diesel; I think they can run on aught.

Dr McDonnell: Well, they could probably.

Chair: Okay; could you come back?

Mike Norgrove: I do not think we answered Mr Hopkins’ third question-or Mr Colville’s-about the cost of the pilot and so on, and whether there are ingenious ways of getting one company to pay for it, and so on. I am happy to explore that and try to understand it better with you. I do not want to stand behind bureaucracy; it is not bureaucracy. If it was a dire emergency then we might consider anything, but, as I was saying, this is one small facet of a massive problem.

Q36 Naomi Long: Some of my questions have already been answered, but I do have one and it is a very simple one: do you have a research budget of your own to initiate research, for example with universities-more primary research that you would be able to look at-or are you entirely reliant on companies to do research on a commercial basis to fulfil a particular brief? How does that work? There are two ways of tackling this: there is the commercial side where somebody goes off and produces the dye and the roadside test, but there is also exploratory work that is done on a regular basis and universities will tackle other things. It can often be much cheaper and can come across quite innovative solutions. Do you have a research budget to look at things like that, or are you completely reliant on commercial research?

Mike Norgrove: The IMS that went out did go to academic institutions as well. That is the shortest answer to your question. We do have a research budget that we use across a range of functions in HMRC, especially in the economic area. We make a lot of use of economic institutions, including for the measurement of the tax gap and so on. On this occasion, this particular invitation to make submissions was extended to academic institutions.

Q37 Naomi Long: Can I just follow up: was there any interest from academic institutions?

Mike Norgrove: We are still waiting to hear.

Sarah Harlen: I am not aware of any.

Mike Norgrove: Nothing yet.

Naomi Long: That is interesting, thank you.

Pat Curtis: Can I just say that Queen’s University have come on board? At the Fiscalis they were invited to the panEuropean event, and Dr Charles Gillan from Queen’s University believes that he might have technology that could actually "sniff out" the problem, for want of a better term. He is exploring that for us.

Q38 Mr Anderson: Just in relation to the last point, I would hope that, if this can be developed through research, it is better research than some of the stuff that the HMRC has based some of its calculations on over the last few years in terms of economic development etc. The point I was going to make is what people over there have been talking about-the commercial side. It seems to me you are getting a lot of hassle here. It is part of the whole frustration we have shared for many years on this Committee. To me, unless the commercial side want to play ball with you, you are not going to be able to produce a marker; it is really down to them. Are they up for it, or are they not up for it?

Mike Norgrove: The proof of the pudding will come in the eating in November when we see the quality of the responses we get to this IMS; I am hopeful. We do come up with markers and variants and so on of our own. Pat’s team is very ingenious, but of course we want to go out to the market and see. Come November we will know. If there are products out there that are as good as they claim to be, then I am expecting to hear all about them.

Q39 Oliver Colvile: What evidence has HMRC got to prove that the downward trend of your figures is taking place on the ground? You are showing that there is a downward trend; in reality, how is that looking on the ground? How are you able to support that?

Mike Norgrove: The reduction from 27% to 12% is of the tax gap-it is an outcome, as it were. Outputs add up to outcomes. We have a range of indicators that we look at. Of course there is the number of arrests; this Committee has discussed sentencing policy before and confiscation of assets and so on, and we have those figures. We have the number of plants dismantled-30 last year, which was a big increase on the previous year, and 10 so far this year, dismantled and closed down. John, you were giving me up-to-date figures today of the sorts of effects of some of your criminal investigation work and the civil handling of crime. We have a host of indicators we believe are evidence of our effectiveness; are you after something specific, Mr Colville?

Q40 Oliver Colvile: Let me ask you this question: has it become more difficult or easier to obtain illicit diesel fuel in Northern Ireland in the last year?

Mike Norgrove: That is a good outcome test, isn’t it? Let me look first of all at the guys based in Northern Ireland: easier or harder?

Pat Curtis: Very difficult question to answer, which is why I am pausing. It is also biased by the very fact that we were aware that the launderers were becoming more professional, which is why we are here. What we are also trying to sell is the fact we have improved our technology. Is the technology identifying what was already there, or is it identifying more? That is very difficult for us to say. The figures are also twisted slightly. It makes it difficult for me to give you a figure because we have actively moved from doing not only roadside challenges but starting at the supply chain and working down. Therefore, the number of challenges and detections may look slightly different or may even be reduced, but the quality of the detections is a lot higher. So the figures and the hit rate are skewed; it would take someone to look at them really closely. What I can say is we have got more successful in detecting the suppliers and the retail sites than before. Is that because there are more of them, or is it because our technology is better? I am struggling to give you a straight answer on that. We would say that we have actively and successfully closed down more stations, and they have not opened up again, than we have done in previous years.

Q41 Oliver Colvile: Stations is one thing, but obtaining the stuff is the other. That is really the question I am trying to ask.

John Whiting: It is a terribly complex problem. In fact, one of the issues we have seen over the past two years is the volatility of sterling against the euro. When we were here last time we were saying that the nonUK duty paid figure was £70 million, and we would have had virtual parity with the euro at that point. If that was the figure, that was the figure for laundering, because there would not be any smuggling or crossborder shopping. That was a good litmus test of what the problem was with laundering.

What has happened? If somebody wants to get a cheap deal-to think they are a getting a bargain-they are no longer crossing the border to buy the cheap fuel; they are going to a huckster site or some other filling station that has a deal with laundered diesel, because the opportunity to get that cheap diesel by crossing the border has gone. In a sense there is perhaps a bigger market for laundered diesel than there might have been previously. So, in fact, the problem changes. The reality is that of course sterling is now stronger against the euro, so there is the potential for smuggling. That is back, but we still have a preponderance of laundering plants. The people to ask are the public, rather than us, as to whether it is easier or not.

Oliver Colvile: I am sure they will be very willing to own up to it.

Chair: We might not be able to do that.

John Whiting: They might indeed say it is easier, but we do have a very wide range of activity, especially around filling stations and suspect filling stations, which I would like to tell you about but not in this session, that is very successful in dealing with outlets the public would be going to.

Mike Norgrove: Could I pick up one point, which I think is another answer to Dr McDonnell’s earlier question? I believe it is harder for a member of the public to get illicit fuel from filling stations than it was-that is my subjective assessment-because of the effectiveness of the action against filling stations themselves. The proliferation of huckster sites or whatever they may be is always a problem, but to get laundered fuel unknowingly is a harder thing than it was. If people are buying laundered fuel they know it, by and large, from the price, for a start. If it is anything like the sort of reduction we were seeing before, then people are buying this stuff knowingly. I believe, in answer to your question, the best answer is that there will be an attractive smuggling or crossborder shopping element to this increasingly, as the pound is strong, but it is harder to get hold of laundered fuel through filling stations than it was because of this new element of John’s strategy to target filling stations. We can talk about that in a different session maybe.

Dr McDonnell: Chair, I do not mean to be neurotic: I am terrified of being accused of using laundered fuel. I am serious, because I believe that half the filling stations have been guilty in the past.

Chair: It is a good point, perhaps something we can further explore.

Q42 Ian Paisley: You say in your submission about Government resources that "HMRC is committed to ensuring that everyone pays their fair share", that you want to produce "robust estimates of tax gap", you want "better identification of the minority who seek to avoid and evade tax as well as those criminals who try to attack the systems". You list a series of issues, and you say that tackling oils fraud is "a joint top priority" with "tobacco fraud". What does that mean, apart from the obvious, or is it just a statement of the obvious: these are your two key priorities?

John Whiting: We have probably made you aware before that HMRC has responsibility for well over 100 different regimes, including national minimum wage on behalf of the Department for Business, Innovation and Skills, collection of the student loans, etc. We have a very wide range of taxes, duties and, in respect of that, from my perspective, criminality to deal with. In Northern Ireland the top priorities for me are fuel fraud and tobacco fraud.

Q43 Ian Paisley: Could you remind me then just what does the Exchequer lose in terms of specifically tobacco fraud, tobacco smuggling? What is the annual loss?

Mike Norgrove: It is a range that we publish, but it is around £2 billion a year for the UK as a whole, cigarettes and hand rolling.

Q44 Ian Paisley: You published figures last year, 2011, on the gap: I think it was about £2.1 billion in total per year because of tobacco fraud alone and tobacco smuggling. That is almost a quarter of Northern Ireland’s total annual budget. Mr Norgrove, I put it to you very sincerely: if that is not dire emergency, I do not know what is. We are losing almost a quarter of our local national budget on fraud, and I think that more has got to be done. This is just eating away at our budget, resources and economy, and I think the response we have got today has not been what it ought to be. I am sorry to say that, because that man beside you knows the efforts I put in to supporting your industry and your sector. I sat on the Organised Crime Task Force, I supported them, and I must say publicly I am bitterly disappointed with the responses that we have had today in terms of what we can do.

Mike Norgrove: I say equally sincerely that the conflation of £2 billion lost in the UK from tobacco fraud with your statistic relating to Northern Ireland is potentially misleading. I would not want that to remain in people’s minds.

Tobacco fraud in Northern Ireland is a big issue for us; it is joint top priority for John and his team. That represents about 10% of the UK’s cigarette market. At the beginning of this century, that figure was around about 26% and rising. It is not a question of this being the emergency you described and it not being tackled. We have gone down from 26% to 10%: again, it is an unacceptable figure, but it is one we at least publish, first of all-most countries do not do that. At least we measure it-most countries do not do that. Of course the most important thing to say is that, as you heard at the last hearing, the Government put aside £917 million for HMRC to put towards the countering of evasion, criminal attack and avoidance. We had to make our efficiency savings, along with other Departments, but we were almost alone in getting almost £1 billion back in order to tackle the very problems you are describing, Mr Paisley. There is no complacency on this side. Of course, not all of that money will go into countering oils fraud in Northern Ireland; some of it will go to tobacco.

Your original question was about the effect of having this as a joint top priority. It means that we are holding John and the Director of Criminal Investigation to account, if for nothing else, for those two things-not for VAT MTIC fraud or alcohol fraud, but for those as the top two. It is for those two that they are principally accountable. That is a significant decision for the Department to have made.

Q45 Chair: Has the estimate of the loss of tobacco itself gone down? You talked percentages, but then of course fewer people smoke so that could confuse it a bit.

Mike Norgrove: Ten per cent. of the total market, even if the total market has been reducing. Yes, the absolute numbers are well down too.

Q46 Kate Hoey: Can I just ask you about this £917 million? How much of it have you have spent, where is it going, how much has Northern Ireland got, and what elements of it in Northern Ireland are going specifically to oils visàvis tobacco?

Mike Norgrove: I have some uptodate figures I can give you; some of those I am afraid are not here because we do not separate some into Northern Ireland and the rest of the UK. So far we are on track on all the inputs and outputs. We have saved so far £400 million against the target of £392 million in HMRC. A big element of our budget was to save money as well, whether that is through IT or accommodation. We are on track, just above target on that. We have brought in additional revenue of £15 billion. The baseline was £13 billion; we have brought in that £13 billion and an additional £2 billion, which was our target in return in the first year for that £917 million. We have exceeded it by £167 million. In output terms and the revenue yield, the extra money-the sort of money Mr Paisley was talking about going missing-we have taken away that extra £2 billion and brought it back to the Exchequer.

Q47 Kate Hoey: How much of the extra £917 million do you estimate has been spent in Northern Ireland? We are the Northern Ireland Affairs Committee: I am trying to find out where the priority within the UK is of Northern Ireland and what seems to us a huge amount of money that is being lost to the Northern Ireland economy, as has been said by Mr Paisley.

Mike Norgrove: I am afraid we do not break down our expenditure figures around regions or even for Northern Ireland.

Q48 Kate Hoey: What about staffing? Presumably Northern Ireland has some extra staffing out of this: have we got them all in post now? How many have we got? Have they all been trained?

Mike Norgrove: If I may Chair, I do not know if you wanted to go into private session-

Q49 Kate Hoey: I do not know what is private about that; it is public money.

Mike Norgrove: We have never published details or given publicly details of how many people we have on the ground in Northern Ireland countering criminal attack. I do not think that would be a service to our side.

Q50 Kate Hoey: Do we have an overall figure for the number of people that are employed by your Department?

Mike Norgrove: Yes.

Q51 Kate Hoey: What is that?

Mike Norgrove: I think it stands round about the 60,000 mark at the moment; that is all the functions John described, from national minimum wage and the student loans through to the sort of work we are talking about there. That had to be reduced by 25% over the four years of the spending review. With that efficiency gain we were given back almost £1 billion. We do not make public details of how much of that is spent in this country.

Q52 Kate Hoey: But you can say there are more staff in Northern Ireland than there were?

Mike Norgrove: Yes, and we could go into details of how many have been trained and so on, but not in a public session I am afraid.

Q53 Kate Hoey: The recent seizure of cigarettes that we have seen the coverage of-huge amounts of illicit cigarettes seized-some in June and some just recently; we always seem to get a big seizure just before our Committee. Perhaps we should meet more often.

Mike Norgrove: Daily, daily.

Q54 Kate Hoey: Seriously, it is a very, very good result for you, but is there a particular reason for this recently?

Mike Norgrove: There is, but it is not one that I can disclose in this Committee, I am afraid. Of course we rely on all sorts of things for tobacco seizures, but the days of the cold find, as it were, are just about over. All our tobacco operations are driven, essentially, by intelligence; sometimes intelligence is especially good. That is from the countries in which these cigarettes are produced and all intervening points from China and Dubai through Europe to the UK. Seizure figures are good; they are always a worry to us, because if you were to seize none, is that an indication that there is no longer a problem? The more you seize, is that the better you are doing, or the worse you are doing? The indication we have got is that there is no reduction in the volume of cigarettes targeted on the UK, but there is a big increase in the volume of cigarettes targeted on other countries, including Ireland.

Q55 Kate Hoey: Do you think there would be an increase, or what would you see as the effect, if this country was to follow the Australian line of going down plain packaging?

Chair: Let us not go too deeply into this.

Kate Hoey: And the effects on Gallaher, for example, in Northern Ireland.

Mike Norgrove: The Department has made representations, as everyone else has, on the consultation about the possible effects of plain packaging.

Q56 Kate Hoey: Did you put in a submission?

Mike Norgrove: We did.

Q57 Kate Hoey: Is that public?

Mike Norgrove: No, it was not a public submission.

Q58 Kate Hoey: Right, okay; so you are not going to tell us.

Mike Norgrove: I can say that the obvious danger from our point of view is that the ability to detect counterfeit or illicit material would be made more difficult by a system where there was no difference between one packet and another.

Kate Hoey: Thank you; that is all I needed. Thank you very much.

Chair: Very interesting.

Q59 Jack Lopresti: Mr Norgrove, you answered one of my questions already by confirming you have dismantled 10 laundering plants this year. Is that from March this year?

Mike Norgrove: From April.

Q60 Jack Lopresti: Can you provide any evidence on the aims and outcomes of Operation Razorwire? I will ask my next question to save time: are you broadly satisfied with your level of cooperation with the Irish Revenue Commissioners and the Garda, for instance?

Mike Norgrove: Can I do the last one first? I will pass over to John for Razorwire. I can honestly say that the relationship with the Republic of Ireland, with both the Revenue Commissioners and the Garda, is superb. I saw it for myself just last week on the ground. I was in a text exchange this morning with Josephine Feehily, the Chairman of the Revenue Commissioners. I do not think it could be better, honestly, and I am not being complacent about that. We have worked very hard on it. Sarah’s description of the joint agreement, the MoU and so on, I think is unprecedented with a foreign country. At that level and on the ground, every time I go I see great examples of that. On Razorwire, I will hand over to John.

John Whiting: Can I first add to Mike’s answer about crossborder cooperation? If I had not been here today I would have been chairing the crossborder fuel group this morning and this afternoon we had the crossborder excise group, which basically covers tax and alcohol issues as well. That meeting was held in Belfast with colleagues from the Garda and the Revenue Commissioners. Cooperation on the ground is alive and well.

Operation Razorwire is an ongoing operation. It is one that we now work with the Irish on. It is something that we started ourselves, an idea that came from a cross-border conference and essentially it is one where we have all the agencies available in Northern Ireland and we will target a ferry, inbound or outbound, from Scotland or from Heysham, and we will look to use all the agencies and effectively say, "Right, stop whichever vehicles or container traffic you want to and see if you can find something wrong." It has been more successful, I would say, for the police in terms of their finding road traffic offences than it has been for us, but we have had seizures of laundered fuel and some cash seizures. It is successful.

It is something akin to what is called the west coast ports project, but it is much easier for us to effect as we can literally drive up from Belfast to a number of ports and be there very quickly. We can target one vessel out and one vessel in, and of course the vehicles are committed to that particular ferry. If they try to do that in England or Scotland they have 100 miles or so to travel from their base and of course usually they have additional travel costs. Anybody who is a criminal is then able to alert other criminals by Twitter and Facebook. I have to say that social networking is used by criminal elements to alert others that law enforcement is active. Our presence at those ports is exposed and, of course, the next ferry, there will be nobody there to target. It is quite useful for us to head out, quick activity and pull away again.

Q61 Jack Lopresti: Would you say you select the vessels completely randomly or through prior intelligence or both?

John Whiting: We use both.

Q62 Jack Lopresti: And are the results markedly different between intelligence or random?

John Whiting: Effectively, in advertising the fact we are doing this, it is-

Jack Lopresti: It is a deterrent?

John Whiting: It is a deterrent effect, but clearly on those occasions where we have specific intelligence that there is a dirty load on its way we can effectively hide the fact there is intelligence by saying it is Operation Razorwire.

Q63 Nigel Mills: One of our other recommendations in our report was, where there were good news stories about seizures or plant closures, to involve Northern Ireland Ministers in the publicity of those seizures. Is that something you have been able to take forward, or are ideas ongoing for that?

Mike Norgrove: It is going back to Ms Hoey’s point. As recently as this Monday David Ford was out on the ground with John. John, do you want to pick up the story?

John Whiting: Yes. I suppose I smiled wryly when it was suggested that we had perhaps choreographed success, because twice now we have had Mr Ford ready to present himself in front of a camera at a laundering plant, once in the spring when he spent most of the morning waiting in a police station-I think he had a great time speaking to local policemen. On Monday he started his work after his holidays in his car waiting in a layby for us to find a laundering plant that was not there. I think it demonstrated to him the difficulties that, even with intelligence-

Ian Paisley: It is good to know you are keeping tabs on the Justice Minister.

Naomi Long: I am just glad he is using his time so wisely.

John Whiting: I am aware he was working in the back of his car. It is very difficult to do this, but I know that we have had the launch of the Organised Crime Task Force annual report, where our figures were again advertised. There was some publicity around that-I think even Pat was in the papers. There have been some other projects; Alex Attwood and David Ford have had a meeting where they are interested in waste product from laundering plants as well. That is going to be taken forward. There is also a flyonthewall series that is being pushed forward through the Department of Justice and the Organised Crime Task Force where we are expecting cameras to follow us around with our activities. That is likely to be broadcast next year.

Q64 Mr Hepburn: How effective has the Government’s strategy, local to global, been in seizing financial assets in Northern Ireland?

Chair: There is a Division. Do we want to come back or do the Committee want to finish?

Mr Hepburn: May I suggest a written answer?

Chair: Just very, very quickly if you do not mind.

John Whiting: We have financial investigators in PSNI, SOCA and HMRC. For all our major organised crime cases we would have a parallel financial investigation. Unfortunately, some of the big cases are in the pipeline and are taking a considerable time to get through the courts. We will obviously look in terms of global assets, which are obviously put a long way away to get them out of our reach, but we are aiming to get those.

Jack Lopresti: Chair, are we coming back?

Chair: No, we will end the session there, with apologies to those who have questions they wanted to ask. Thank you very much for coming. The meeting is closed, thank you.

Prepared 13th September 2012