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Mr. Jonathan Sayeed (Mid-Bedfordshire): Smuggling is not necessary. The problem is that people can go to France, Holland or another country perfectly legally and buy cigarettes for their own personal consumption at such a dramatically low price that it is worth undertaking that journey. That is one of the problems with a high tax.

Mr. Ross: Of course, the hon. Gentleman is correct. I understand that one can now bring in 800 cigarettes for one's own use. A man, his wife and his non-smoking grown-up children can take a day trip to France and come back with enough to do them for several months and still make a considerable profit on their visit. Rather than raising the tax, the Government would be wise to freeze it at the very least. If the increased resources for the Revenue fail to prove effective against smuggling, a cut in tobacco duty must be seriously considered.

Such a cut is not unheard of, as that step has been taken in other European states and Canada to combat the type of smuggling that currently plagues the United Kingdom. The current policy of morality taxation--as it has been christened--has failed miserably to decrease the number of smokers in the United Kingdom and has damaged the moral fabric of society by precipitating general criminality--smuggling--in the population.

Other options must be considered. Decreasing duty would increase total Government revenues; as the profits from smuggling decreased, the extent of smuggling would diminish, and a far greater number of taxable products would be sold in the UK, thereby compensating for a lower percentage in duty. Consequently, additional investment to combat mass smuggling would become unnecessary, and there would be savings in the cost of Revenue officers if the incentive to smuggle were removed. The size of that incentive is evident, as has been said, in the difference in the cost of tobacco products retailed here and elsewhere.

I have, given to me by trade union visitors from the Gallagher factory in Ballymena last week, a packet of one particular brand which is sold in the United Kingdom at £4.27, in Spain at £1.47, in Luxembourg at £1.66 and in Belgium at £1.95. I also have two packets of Old Holborn which, as I do not smoke, I will eventually return to the factory of origin. One packet is printed in English and states:

The other shows the Luxembourg duty paid: £1.95.

The stuff all comes out of the same factory in Ballymena, in County Antrim. It goes across to Europe and back it comes. The House will agree that, with an incentive of that size, the idea that smuggling can be stopped, other than by the harshest and most repressive measures, is nonsense. It just will not happen.

That illustrates more clearly than anything the real problem that we face. The House will be aware that with a land frontier between Northern Ireland and another

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European state, tobacco smuggling is not the only problem that we have. We have road fuel smuggling--not only diesel, but all road fuels. Many petrol stations along the northern side of the frontier have been closed and are derelict, and their counterparts in the Republic are thriving, as are many little stations set up along the roadside.

The grapevine tells one things which it is sometimes impossible to trace back to source, but they are revealing. I heard of one gentleman who was invited to allow some people to sell fuel on the forecourt of his closed petrol station. He refused for a few days, then he allowed it. The reasons for that I leave to the imagination of hon. Members who are listening.

Who is profiting from that trade? Who owns the closed Northern Ireland outlets? What will the situation be when the system reverts, as it inevitably will? Some time in the future, the relative value of the pound and the punt may change, and even with the difference in taxation, the trade may start to flow the other way. We will then find that many dozens of decent, hard-working people who built up their business have been ruined; they are gone, and their establishments are run on either side of the border by paramilitary organisations.

Mr. Forth: I am grateful, again, to my hon. Friend. Does he agree that it is highly likely that one of the reasons why the Republic of Ireland can keep its tax levels lower than ours in matters such as the one being discussed is that money is flowing from the European Union into the Republic, thus saving the Government of the Republic a great deal of money? Some of that is our money, which has gone from Britain to the European Union and thence to Ireland, thus allowing the Irish to keep their taxes lower. The position is even worse than my hon. Friend describes. Not only are the Republic's taxes lower, causing the problems described, but it is happening because of our money going via Europe to Ireland.

Mr. Ross: The House debated a Bill yesterday to help development in the poorer nations of the world, so I suppose we have done the same for a former part of the United Kingdom. However, the situation is changing rapidly. Instead of receiving money, the Republic of Ireland will start to have to pay it out. It has also, as the right hon. Gentleman knows, signed up to the euro, and is now being told to toe the line.

There was one blooming awful row recently between the Republic's Finance Minister and the European authorities, because the Republic refused to toe the line. It was wonderful to see that nation, which was so pro-European that it made one sick, coming to understand the consequences of being in the euro system. Hon. Members who did not read the reports in The Irish Times, which is the best paper for such stuff, should go back a few weeks and read it. It is extremely revealing.

I digress, however. The right hon. Member for Bromley and Chislehurst (Mr. Forth) has a habit of taking me away from the subject of the debate. The night is moving on and I want to hear what he has to say, so I shall return to my own remarks.

The effectiveness of the Government's countermeasures against fuel smuggling has been, at best, questionable. In response to an oral question that I asked last year, the Minister of State, Northern Ireland Office informed me that

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13 illegal fuel processing plants had been closed, and an estimated 40 million litres of illicit fuel had been prevented from reaching the Northern Ireland regional economy. I welcome that success, as every right-thinking person would.

I welcome any success in the war against criminality, but 40 million litres is like a drop in an oil well, compared with what is going on. A comparative analysis of the legitimate third quarter fuel deliveries into Northern Ireland since 1994 provides a far more accurate indication of how widespread and how massive the Northern Ireland fuel smuggling crisis was and continues to be. Since 1994, fuel deliveries into Northern Ireland have fallen by a staggering 55 per cent. Between 1994 and 1996, third quarter deliveries dropped slightly, by more than 10,000 tonnes--that is, 6 per cent. of the total fuel delivered. By 1997, a sharp decline had begun, and by the third quarter of last year the total fuel delivery into Northern Ireland was just over 100,000 tonnes--less than half the equivalent delivery for 1996. Unfortunately, that amazing decrease has only one possible explanation. It must be remembered that over the same period there was an increase of almost 20 per cent. in the number of vehicles licensed in Northern Ireland.

One aspect of the Chancellor's Budget today that I particularly welcome is the change in the road vehicle excise duty, which will be extremely beneficial to the road haulage industry in Northern Ireland. Some firms are transferring their vehicles to the Irish Republic because of the very much lower taxation on heavy lorries there. That incentive, at least, will now be removed.

I return to the subject of fuel. With 20 per cent. more vehicles, 50 per cent. less fuel delivered and Northern Ireland having no indigenous resources of road fuel, the figures just do not add up. The estimated revenue lost to the Treasury is astronomical, although when one starts asking questions, the Treasury keeps going round in circles and one never gets an answer. The causes of those astounding figures are simple: diesel smuggling, petrol smuggling, mass blatant smuggling across the frontier every day, plus, of course, the thousands of people who drive across every day and fill up.

The problem must be dealt with in the same way as cigarette smuggling--by reducing duty and consequently removing the incentive for smuggling. I am disappointed that a pragmatic solution to fuel smuggling has yet to be considered by Government. I admit that, unlike cigarette smuggling, fuel smuggling is primarily a regional problem for us. It should not be forgotten where the smuggling profits end up. The profits of cross-border fuel smuggling fill to overflowing the coffers of the republican terrorist organisations. They go to the IRA which, as we all know, controls the whole trade.

The scale of the smuggling, not only in fuel and cigarettes but in farm livestock, has become abundantly clear in recent days. Only recently did the public learn how foot and mouth disease reached Northern Ireland from Carlisle. In The Irish Times yesterday there was an article to the effect that some 8,000 sheep had been taken illegally from the United Kingdom into the Irish Republic over the past two months--that is a lot of sheep.

Let us remember what happened to the lorry. It went in and dumped off the sheep, some in South Armagh and some at the slaughterhouse in the Republic, then it was used to transport livestock all round the island of Ireland

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and maybe on the mainland--heaven knows where. I hope that it was well cleaned down and disinfected. It is beginning to look as though it was, because if it had not been, there would be foot and mouth from one end of the island of Ireland to the other by this time. That could not have been avoided.

It is estimated that a third of the filling stations in Northern Ireland are now controlled by paramilitary terrorist organisations, which use these businesses to launder the proceeds of their criminality.

The fuel differential has far greater implications than merely cross-border smuggling. The taxation of aggregates is another significant matter that is impinged upon by the cost of fuel. Transportation is an important factor in the distribution of aggregates and the downstream products in which they are used. Northern Ireland's aggregates industry differs greatly in character from that of its mainland counterparts. The Province has a rural industry with a wide distribution of small quarries and sand and gravel pits. Most of those quarries process the aggregates on site into concrete and other downstream products. They generally supply them within a relatively small radius, although that could include the whole of Northern Ireland.

The tax will apply to both raw and refined aggregates and to imported aggregates, but not to imported downstream products. That means that concrete building materials--whether they are beams, pipes, bricks or anything else--can be made in the Republic of Ireland and then imported, which creates the potential to swamp the Northern Ireland market with much cheaper products. Another comparison might be pertinent in that respect. In Northern Ireland, the average value of raw aggregates is £2.60 a tonne. On the mainland, the average value is £6.50, which is a very large difference. The tax per tonne in Northern Ireland will, therefore, be 60 per cent. of the product's value; on the mainland, it is 25 per cent. of the current aggregates value. Consequently, there is a massive difference between the burden that the tax places on the quarries in each region. An unfair burden is imposed on the industry in Northern Ireland, and there is no value in taxing industry in the Province in that manner. It can only result in a substantial economic and job loss.

In 1999, total aggregates production in Northern Ireland was 23 million tonnes. With exemptions taken into account, 22 million tonnes would be taxable under the new tax, so the total revenue for the Treasury would be a mere £35 million. The estimated consequences for the industry of the new tax include the loss of up to 4,000 jobs, which is more than 70 per cent. of the total number of jobs in the industry in Northern Ireland. The estimated cost to the Treasury is some £60 million.

There was an obvious and simple solution to that potential disaster for the region's aggregates industry. The tax could have been disapplied in respect of Northern Ireland, with a saving for the Treasury. At the very least, it could have been applied to the value of the product and not per tonne. Taxing the value by 25 per cent. in Northern Ireland, as on the mainland, would provide a pragmatic solution to a salient regional problem.

Those in the industry point out that their products are heavy and not easy to transport. There is one manufacturer who manages to sell bridge beams in England. All his

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competitors would like to know how on earth he manages to make them in Northern Ireland, put them on a boat to south-west Scotland or Heysham, cart them half way across England to be used to build a bridge--and still make a profit. He is a neighbour of mine and apparently he gets on very well. There are also certain products that are not made elsewhere in the United Kingdom, such as concrete pipes of a particular size, so Northern Ireland is the only source of supply. However, the reduction of the tax in Northern Ireland on a percentage basis would not hurt manufacturers in the mainland, as the materials are generally too heavy to transport and the cost of doing so would be too great.

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