Examination of Witnesses (Questions 460-479)|
WEDNESDAY 12 JUNE 2002
460. Some of us have a feeling that the Treasury
have been ignoring us in Northern Ireland considerably because
this is just three per cent of the United Kingdom population.
Its particular interests cannot therefore distort what is to be
a general pattern; yet when that general pattern helps to undermine
a lot of activity that takes place within the province, that is
a big political problem. It affects all the operation of the peace
process. What occurs is that illegitimate forms of activity, sometimes
involving paramilitary organisations, become something that is
regular and acceptable in Northern Ireland and therefore I think
it is a matter that the Treasury should pay greater attention
to in its policies as far as Northern Ireland is concerned. Is
this not relevant to the position as far as laundered fuel is
concerned because, if we could develop a pattern in which there
was no longer the legitimate trade and smuggling of petrol across
the border and we reduced therefore the involvement of paramilitaries
and other illegal forces in that, the question of laundered fuel
would then begin to be more similar to the question of laundered
(John Healey) I think it is important to consider
both types of illicit fuel and clamp down on those. I would suggest
that changes to the duty regime would not help and may exacerbate
the problem of laundered fuel. The best way, in my view, of trying
to tackle the question of both together and to stamp out the involvement
of the sort of organised networks that you mention is to try and
clamp down on the retail network, because that is where at the
moment there is an organised network of outlets which allow a
reach to the mass market of illicit fuel, whether that is laundered
in the first place or indeed smuggled. It is a very significant
problem in Northern Ireland to a degree which simply is not comparable
to mainland UK, where we have a situation of about 750 filling
stations in the province, a third of which our best judgment and
experience suggests are heavily into selling illicit fuel, both
laundered and smuggled.
(Jane Kennedy) You will recall what it was like being
a spending minister. May I, as a spending minister, rise to the
defence of the Treasury minister and say it would be unjust, in
my view, to say that Her Majesty's Treasury ignores Northern Ireland,
particularly given the description earlier in the Committee of
the more than significant increase in resources that Customs and
Excise have put into their operations in Northern Ireland. It
would also miss the very real impact that that has had and the
fact that we have see an estimated seven per cent growth in the
sale of legitimate fuel, which indicates that the work of the
Task Force, particularly driven by Customs and Excise, is beginning
to have an effect. I think we would make a mistake if we concluded
that to simply tinker with the tax regime would remove the problem
of these organised criminal networks who exploit at this moment
in time a particular commodity which is very profitable to them.
If the tax regime changed, I would argue very strongly we would
continue to need that level of investment from the different law
enforcement agencies to tackle the organised criminals, who unless
we continue to focus upon all of their activities, will simply
shift from smuggling diesel to other commodities. I think there
is some pattern of increasing laundering of fuel and if you took
the last success, 16 May, not that long ago, in a joint operation
Customs and police uncovered the largest ever laundering plant
that was engaged in laundering over a million litres of fuel a
month. That is clearly an area where the organised criminals engaged
in this are thinking, "Where is the next, easiest way to
make money?" There has already been a slight diminution of
the tax differential. The Republic has slightly raised taxes.
Our taxes have remained the same. Organised criminals are interested
in profit. At the moment, they are making a profit out of fuel
tax evasion and we need to be very alert to how they will try
and keep ahead of us in the steps that we take to combat their
(John Healey) I am grateful for that assistance. In
respect of the taxation regime, it is not the case that it will
not recognise the specific problems that the province faces. On
the aggregates levy that we are introducing, there will be a transitional
period of five years specifically for Northern Ireland. I know
this Committee has played a part in the discussions that have
led up to that. The same applies also to the climate change levy,
with a transition of five years to allow Northern Ireland's fledgling
gas industry to develop. Both adaptations of a nationally designed
and applied tax regime nevertheless recognise the particular problems
and circumstances in Northern Ireland.
Chairman: It is particularly good, if I may
say so, to hear the new Economic Secretary speaking like this
because there have been problems in the past and if you are starting
your job as you are now with Northern Ireland firmly in mind that
will be a significant improvement because your predecessor had
to acknowledge to us that, when they were bringing in the aggregates
levy, they did not consider Northern Ireland separately. That
is why, under some pressure, the interim arrangements were made.
To hear you starting in this job by recognising that there are
some very firm and different circumstances in Northern Ireland,
not least because it is the only part of the United Kingdom with
a land border, is very encouraging indeed. Please do not forget
it and please do not let him forget it!
461. I would like to endorse what you have said
and perhaps cast the boat out a bit further towards the Treasury's
attitude. Under the original question from Mr Barnes regarding
derogation from the European Union, has the Treasury, apart from
the environmental and duty aspect, made an assessment of the social
impact that the fuel duty differential as opposed to the currency
differential is making to the fabric of people in Northern Ireland?
Does the Treasury take on board the social consequences when they
are making decisions? That is, the criminalisation of distributors,
the criminalisation of retailers, the criminalisation of everyone
found guilty of purchasing illegal fuels and the ordinary customer
and the dramatic effect that is having and the job losses and
the retail outlet losses which are taking place in a wide swathe
of territory around the border of Northern Ireland. Is that a
factor in the Treasury's assessment of the impact of their duty
in Northern Ireland because I think that the case for derogation
would be very strong indeed. I wonder if that case has been made
to the Treasury by the Northern Ireland Office.
(John Healey) In framing any legislation social consequences
are part of the considerations given to decisions about what to
introduce and how to do it. Getting a measure of the social impact
in particular of the cross-border flows that come from the desire
to shop south of the border because of the duty differential is
quite difficult and returns us to the point where we started this
hearing, which is that we have very imprecise methods of being
able to assess the degree of cross-border shopping therefore disaggregated
from the loss of revenue from fraud. In terms of the criminalisation,
I may not have understood you correctly but it is surely not the
fiscal regime that imposes the fuel duties that is responsible
for the significant criminalisation. That is surely more a product
of 30 years of struggle and some of the organised criminal networks
462. I was not referring to the criminalisation
of criminals who are already criminalised; I was referring to
the enforced circumstances where retailers, in order to survive,
are forced into the black market regime. Their customers in turn,
being human beings, are filling up if they can with cheaper fuel.
That is a natural human reaction but they are acting illegally
in doing that and there is a social impact as a consequence of
that. For instance, the Northern Ireland Executive in their submission
to us said that the only meaningful and immediate impact that
could be made on the situation is by the lowering of duty. There
have been differentials in levies and taxes within the United
Kingdom for many people already. Surely, it is not beyond the
realms of the Treasury and the government to seek a derogation
at least in the short term, until some measure of relief is obtained?
We have seen how the pursuit of the criminals is or is not achieving
the desired aim. As the Minister of the Northern Ireland Office
has said, they will switch to other activities but we cannot deal
with those yet. We can only deal with what we have in front of
us at the moment.
(John Healey) I have explained why I do not accept
the case that a differential duty derogation for Northern Ireland
would solve the problem or is the right thing to do. On the question
of ordinary citizens acting illegally, in crossing the border
to shop they are behaving entirely legitimately. If they are knowingly,
within the province, buying fuel that they know to be laundered
or smuggled, they are not doing so. In a sense, I slightly hesitate
to suggest this to such a distinguished Committee. That is less
to do with technicalities of what is legal and what is not and
more to do with the fact that it is a society that is coming out
of 30 years of intense conflict. There is a significant culture
of non-compliance, whether that is over fuel duty or TV licences,
in some areas. In part, restoring the proper conduct of civil
society and governance is part and parcel of trying to extinguish
the sort of wide scale activities of these criminal networks that
we just do not see in the same way in mainland UK.
(Jane Kennedy) I met on Monday of this week the Road
Haulage Association who I understand have given evidence recently
to you. They did say to me that in their opinion the number of
what they call huxter stations that set up that are probably not
licensed has reduced. I have not got a great deal of sympathy
for traders who get involved in trading either smuggled or particularly
laundered fuel because in selling laundered fuel they are ripping
off the public, not just through the way in which they are defrauding
the Exchequer, but they are selling to people a product which
is guaranteed to damage their engine. I have many anecdotes of
people who have quite unknowingly purchased laundered fuel from
what appears to be a legitimate trader and found, after a very
short period, that their car has completely seized up and is unable
to be driven. These people have a very damaging impact upon their
customers. Whilst I know there is pressure to bear, it is the
pressure from extortion upon some people in certain circumstances.
People who get engaged should think first about what the police
could do for them or what Customs and Excise could do for them
in terms of combatting the kind of pressures that they face as
463. Do you seriously believe that a retailer
or outlet is going to depend on police protection if they give
evidence about a purchase being made of illegal fuels?
(Jane Kennedy) Where there is illegal activity going
on, I would encourage all citizens to bring forward evidence.
Where there are consequent problems for them, they need to be
dealt with by the appropriate authorities and perhaps police protection
would be necessary but in most cases, certainly in some of the
successes that we have had, they are founded upon individuals
coming forward with information for the law enforcement agencies.
It is as a result of that cooperation that we have the successes
that we see.
(Mr Gerrard) I meet with the Petrol Retailers' Association
on a fairly regular basis. I am well aware of the pressures that
they are under but equally we do get information from the Petrol
Retailers' Association and other individuals who are not petrol
retailers. That information is gold dust to us because it allows
us to pinpoint exactly when, where and how fuel is being delivered.
With that information, we can take action. We have taken action
on retail sites on several occasions in the last 18 months. A
lot of that action will have been led through intelligence provided
by individuals. People are under pressure and I understand that
pressure but many of them are also providing information.
464. I welcome the initiatives that are being
taken in terms of licensing and the Organised Crime Task Force
and multi-agency approach and so on in tackling this problem.
What concerns meI hope my recollection is correct; fellow
Members may correct me if I am wrongis we had evidence
I think from the Petrol Retailers' Association that on at least
one occasion a pirate retailer of fuel set up a temporary retailing
unit in the middle of a traffic island and absolutely nothing
was done about it whatsoever. This is important because there
is obviously a credibility issue here if we are talking about
taking action through a licensing regime; whereas at the moment
there is a very public, prominent flaunting of existing regulations
and nothing is done. There is going to be no public confidence
in the strategy that the government is implementing. I would welcome
(Mr Gerrard) I do not know the detail of the case
but huxter sites are not licensed. If it is licensed, that is
for the local authority. If it is a huxter site, we take action.
If we had received information, it is a very easy pick up for
us because we can seize all the product, equipment and so on.
I can look into the details of the case.
465. We would have to trawl through the minutes
of the evidence that was given to us but I think my memory is
correct. Somebody actually operated for several days quite flagrantly
and no action was taken. I would have thought that operating on
a traffic island would be fairly easily identifiable and something
could be done about it, but it was not.
(Jane Kennedy) Precisely because we recognise that
there are some parts of Northern Ireland in which it is more difficult
for Customs and the police to work and to enforce the law, and
because we recognise that in those areas there are significant
proportions of the community who do not accept the role that the
police and Customs have to play, we have invited Professor Ron
Goldstock to have a look at the problem, bringing in an international
perspective, and to lend us his expertise and advice in terms
of how we would go about encouraging law abiding citizens within
those communities to accept the role of the police and the role
of Customs and Excise officers and to win cross-community support
from those people for the kind of operations that we see take
466. Is there not a risk that we under-estimate
the problem both geographically and numerically? Surely the evidence
that we have had before the Committee would suggest to us that
as high as 70 per cent of retailers are dealing in illicit and/or
illegal fuel, not just in those areas that are hard to police
but across the whole province. Customers, in many cases, even
if they wish to abide by the law, would find it very difficult
to do so because the number of petrol retailers has decreased,
leaving the choice open to them within their area, particularly
in rural areas, often very limited. Do you not think, given the
size and scale of the problem, it does cause a continuing problem
with people seeing the purchase of illicit and illegal fuel as
a victimless crime; yet it extends the principle of the level
of lawlessness that already exists and it continues to be paramilitary
groups. It is not just isolated incidents in some parts of South
Armagh. Customers, even if they wish to abide by the law, would
not be able to.
(John Healey) I do not think we are under-estimating
the scale and size of the problem. It is not 70 per cent. Our
best information suggests that of 750 retail outlets in Northern
Ireland between 200 and 250, about a third, are heavy distributors
of illicit fuel. There is also a group who, from time to time,
our intelligence and assessment suggest, will sell illicit fuel,
but the significant ones constitute about a third. When you add
the occasional ones, it constitutes about two-thirds, rather than
70 per cent. The conclusion that I draw from what I think is a
very accurate analysis, the problem of lawlessness that you suggested,
is that we may have taken the first steps in getting the commitment
of the different agencies and aligning the different agencies
to work together, to tackle together the problems, because they
have different powers and resources to bring to the problem. We
are not yet there in terms of translating that into consistent,
very concerted action by those agencies together. That is despite
the ministerial lead that Jane Kennedy has given and the work
of the Organised Crime Task Force . That is the next stage. That
needs some leadership, not just from the agencies but also from
the political community leaders and agency leaders across Northern
Ireland, to reinforce the importance of this and the commitment
to tackling it together.
467. No one would believe that this is a simple
issue to solve. It is not unique to Northern Ireland because in
Scotland they reckon £450 million was lost to the Treasury
last year and there have been three laundering plants closed in
Scotland. What is unique is the difference in price of fuel in
Southern Ireland and Northern Ireland. That is the major issue.
What discussions have you had with the government in the south
on the question of the rate of duty on fuel in order to try and
solve the problemthe other side of the coin? Instead of
the UK Treasury reducing the price of fuel, for us to bring up
the price of fuel. Have you had any discussions on that to try
to resolve it?
(John Healey) The short answer for me, effectively
in my third day, is no. I am happy to undertake to let the Committee
have a note of any discussions that might have taken place bilaterally.
I suspect the discussions have been in the context of the European-wide
moves towards greater harmonisation and consistency. However,
that is about fuel duty, it is not the related fuel problem which,
Mr Tynan, you have introduced. The rebated fuel problemyou
are right it is a problem on the UK mainland. The £450 million
loss to the Treasury is our estimate for the mainland UK diesel
market including Scotland, rather than just Scotland, and represents
about 4 per cent, in our judgement, of the market penetration
on the UK mainland. It is almost certainly significantly higher
in Northern Ireland. In a sense, it is a recognition that this
a problem apart that has led to the confirmation of the Chancellor
in the budget programme to try and tackle this, to which I referred
468. I well accept the point about rebated fuel
but I understood it was in Scotland. In Northern Ireland at the
present time it was said that criminals would find something else
to exploit. I am a bit concerned about that statement because
we have obviously had tobacco, alcohol and drugs but I do not
think that would prevent us from tackling the problem that retailers
in Northern Ireland on the border find themselves going out of
business in special circumstances because of the cheap fuel on
the other side of the border. We have had evidence from the Road
Hauliers' Association who said very clearly that they fill up
their lorries in the south and they do not fill them up in the
north. That is legitimate, as far as you are concerned. To solve
that kind of problem, to be in a position where we help the economy
of Northern Irelandbecause that is what the Road Hauliers'
Association told us they were interested in, even though they
were filling up in the southhow best can we deal with that
unless we have discussion with the government in the south in
order to try and find some mechanism for equalising the duty that
is on fuel? If we do not do that then along the length of the
border with the expertise that is growing rapidly as regards criminals
and organisations that are very adept at doing what they are doing,
then I think they are pushing a snowball up a hill.
(John Healey) I do accept, it is a statement of fact,
that where you have differential prices, whether those are derived
from differential dutiesand the differences sometimes varyyou
are going to get incentives for legitimate, cross-border shopping,
as is the case elsewhere as well. With the concern for economic
issues, I understand that raises difficulties, particularly for
those communities that are on the border. In terms of the problem
we are addressing here, which is the degree to which illicit,
illegal fuel sales can be tackled simply by the notion of equalising
duties, we have to come back to the arguments I made before. It
is attractive, notionally, but it would be impartial in its impact
and it would breach some very important, established approaches
and principles for taxation that we have in the UK.
469. You misunderstand me because what I did
not suggest was that Northern Ireland should have a different
duty from the rest of the UK. What I suggested was that we have
discussions with the government in the south in order for them
to bring it up. So it is a question of examining how best we deal
with it from the other side of the coin on this issue.
(John Healey) You may be right that the government
south of the border in Ireland may be prepared to adjust its fiscal
regime in order to try and help some of our oil fuel problems
in Northern Ireland
Chairman: On the other hand they may not.
470. The question I asked was regarding discussions
you have had.
(John Healey) I will undertake to check that out for
471. Whether there has been discussion at the
present time, or the result of that discussion?
(John Healey) I will, if I may, check that out for
you and let the Committee have a note.
472. Closing the differential, closing the gap,
has to be desirable, whether it refers to the Republic, Northern
Ireland or, indeed, within the EU. Earlier, in answer to a question
by Mr Barnes, I think we were pretty dismissive of the need for
the minimum EU level of excise duty to be raised. Yet, surely,
even if it was raised slightly it would reduce the differential
and reduce the problem. The minimum level of excise duty was set
last in 1992, ten years ago. Surely, there must be some advantage
in the UK Government going back to the EU and seeing if the minimum
level could be raised. Could you inform the Committee as to what
negotiations or representations have been made to-date to raise
the minimum level? If there has not been any, will the UK Government
be doing so? If there have been any representations, what responses
have there been?
(John Healey) As I explained to the Committee earlier
on, attempts to update the 1992 Directive have been going on fitfully
over the last couple of years. The last significant discussions
at which, obviously, the UK Government played a part were in ECOFIN
on 4 June. The Spanish Presidency, at the moment, is pressing
this quite hard, and is keen to try and steer the fresh Directive
through. Therefore, at the moment, they have produced draft proposals
that would lead to a 25 per cent increase in the minimum rates
for road fuels and a 15 per cent increase in the minimum rate
for other oilsboth moves, by the way, which the UK Government
supports. Were those new levels to be set, the current duty rates,
both in Ireland and in the UK, are significantly above that and,
therefore, movement on the European front would not help the problem
that the Committee is concerned about.
473. It would not close the gap across the Union?
(John Healey) It may impact directly on some Member
States but it would have no effect either in Ireland or the UK.
The prospect of seeing those rates raise significantly further
to deal with the issue we are discussing this afternoon, I have
to suggest is unlikely. Tax issues are a matter of unanimity and,
therefore, an individual state, for whatever reasons they might
wish to bring to this particular issue, does have a right of veto.
So I think the prospect of those minimum rates being raised significantly
beyond the proposed draft at the present time is pretty slim.
This will be discussed again on the basis of the current Presidency
draft at the ECOFIN meeting next week.
474. To a certain extent, the area which I want
to cover has been answered but I think there are one or two things
that need to be teased out. First of all, Jane did mention some
of the projects being promoted to alert people to the dangers
of laundered fuel. However, in earlier evidence that we had, the
Legitimate Oil Pressure Group maintained that Government had not
done enough. Do you think there is anything else that you could
do over and above what has been done so far to publicise this
(Jane Kennedy) I think there is a lot more that we
do need to do and certainly we do need to raise public awareness
of the problem, not least the health and safety aspect of it.
One of the things that we talked about at the launch, we had a
very high impact display of a range of goods. We had, as I said,
the impounded wagon and we had on display all sorts of counterfeit
goods including a large pile of counterfeit money, which had a
very big impact upon those who attended the launch. It was our
intention to use that kind of image and go to different locations
around the province using those images and getting police officersfor
example, representatives of the drugs squadto talk about
drug use and the way in which organised criminals get engaged
in that, but, also, to use Customs and Excise officers and others
to come and talk directly to the public about the problems that
are caused to the environment and, also, to the legitimate business
in the province by the illegal trade and tax evasion on fuels.
So that is something that we will be taking forward and we do
acknowledge there is a lot more to be done. At the same time,
we have to maintain the enforcement pressure and the pressure
upon organised networks. We have had some success, which I hope
you have seen through the assessment of the risk and strategy
documents that we sent to you. We have had successes but we are
not complacent. This is a long road down which we are travelling.
We have to keep up the pressure, we have to maintain the commitment
of the law enforcement agencies to the joint agency approach,
and we do need, I think, to continue to see significant players
being put behind bars as a result of the activity of the Organised
Crime Task Force and the other agencies involved. So we need,
really, not to take our foot off the gasto use a relevant
475. Just following that up, given the impact
of television, have you used, shall we say, public information
adverts to demonstrate this, or would this be part of your strategy?
(Miss O'Mara) I think that is one of the issues because
it is quite an expensive thing to do. Actually, one of the things
that we have found through the Organised Crime Task Force, I think,
is that, as we mentioned with this launch that we did at Hillsborough
Castle, precisely because it was good and punchy and had lots
of visual aids and so on, we got a lot of free publicity for this
and the minister gets quite a lot of coverage when you speak about
this kind of thing because people are quite interested in it.
That is one of the ways of getting it out that we can do without
putting a lot of public advertising directly into it.
476. I will accept there has got to be an element
of cost-benefit assessment there. In terms of funds for it, in
effect, do you feel that you are under-funded and do you think
central government should provide more, or should the Customs
budget, or what? What is your feeling?
(Miss O'Mara) It is a sensitive time of the year to
be asking this question.
477. That is what we are here to do.
(Jane Kennedy) I do not feel that we have necessarily
lost any opportunities for raising public awareness. The suggestion
you made is one that we would consider, and should that need to
be made available then we will work hard to make sure it is there.
I am satisfied that insofar as the Task Force has been working
so far we have been, as Margaret has said, pretty successful in
getting the agenciesand they have been very quick to volunteer
information and even to involve, for example, me in joint approaches
to raise public awareness. The media have been very interested
because it is a very dramatic business that we are engaged in.
Therefore the media, particularly TV and the newspapers, are very
interested in the work we are doing. But it is certainly an avenue
I would consider, Mr Bailey.
478. Can I just come to one other area. Again,
you have partly touched on it. It is not just the effects of laundering
etc but the whole range of illegal activities. In effect, there
will be a body of people in Northern Ireland who are law-abiding,
who will want to stick by the law and reinforce it and support
the efforts made to promote, if you like, a law-abiding culture
within Northern Ireland. Have you any views on a publicity strategy
designed to build upon that goodwill and, in effect, change the
culture of sort of criminality almost by default that exists in
some areas? I appreciate it is a very philosophical sort of question
but I do think it has some relevance.
(Jane Kennedy) There are two points in response to
that. First of all, we do have, as one of the sub-groups of the
Task Force, a group that specifically works to promote the work
of the agencies involved. As I say, they have had a lot of successes
and were responsible for the very immediate visual images that
we saw at the launch of the strategy and the threat assessment.
There was a second point I was going to make but it has gone.
(John Healey) Paul Gerrard has direct experience in
terms of the Customs and has been very concerned in trying to
have exactly the impact Jane was talking about.
(Mr Gerrard) I think we found with the tobacco strategy
in March 2000 that publicity can be very powerful and we certainly
have seen, in the tobacco campaigns, that we did have an impact
on raising people's awareness not just to the penalties they face
but, also, the impact that this activity has on the people involved
in it. Certainly we have seen that strategy as being very important
and in the discussions I have had with the Northern Ireland Office
and others we see that as a useful tool to raise awareness of
both the dangers and also the impact that these activities have.
We have seen it works in tobacco and we want to use the same kind
of strategy elsewhere.
The Reverend Martin Smyth
479. I would not want to minimise the successes
that have occurred, but I do not think you should maximise them.
The Minister said that significant numbers of personalities have
been apprehended, but I wonder how many have been apprehended
because I am getting a picture of most of the illegal processing
plants have nobody about them when they were raided. Therefore
I wonder just how many have been made amendable under the law.
Secondly, we have had evidence that the sentencing patterns would
not be sufficient to deter anybody. So I wonder have you anything
to say on that. The third point is, what co-operation has there
been between the departments here and the Northern Ireland Executive
for changing the law to bring it up-to-date to deal with the modern
phenomenon, because one has to bear in mind it was 1928 in Great
Britain and 1929 in Northern Ireland when the legislation came
(John Healey) Prosecutions are, of course, an element
of the armoury that the enforcement agencies have in tackling
the problem, but Paul Gerrard will be able to provide precise
figures on prosecutions.
(Mr Gerrard) The first point about prosecutions is
that the figures we have reflect historic activity as it can take
two to three years for prosecutions to come to court, and in relation
to the individual that was sentenced in February this year for
18 months the operation was actually in May 1999. So that gives
you an idea. The historic pattern we have seen is that individuals
are prosecuted for relatively low-level offences. That reflects
both the nature of the problem several years ago but, also, what
our capacity was in terms of the resources we had available. We
have seen that change. We described in February, when you came
to Belfast to see us, the kind of operations we are now embarking
on, which are aimed at the highest level of organisers. This morningand
I am conscious that, I think, Mr Barnes said that perhaps we were
trying to time our activity just as we appeared before you but
I assure you that is not the casewe uncovered a laundering
plant in Cookstown, which was not as a result of my appearance
here, I assure you. I am not that influential.