Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 460-479)



  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 fuel overall.
  (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 activity.
  (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!

Mr McGrady

  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 that exist.

  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 retailers.

  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.

Mr Bailey

  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 me—I hope my recollection is correct; fellow Members may correct me if I am wrong—is 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 your comments.
  (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 place.

Mr Clark

  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.

Mr Tynan

  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 problem—the 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 problem—you 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 earlier.

  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 Ireland—because that is what the Road Hauliers' Association told us they were interested in, even though they were filling up in the south—how 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 duties—and the differences sometimes vary—you 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.

Mr Tynan

  470. The question I asked was regarding discussions you have had.
  (John Healey) I will undertake to check that out for you.

  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.

Mr Clarke

  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 oils—both 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.

Mr Bailey

  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 particular problem?
  (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 officers—for example, representatives of the drugs squad—to 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 gas—to use a relevant pun.

  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 agencies—and 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 into being?
  (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 morning—and 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 case—we uncovered a laundering plant in Cookstown, which was not as a result of my appearance here, I assure you. I am not that influential.

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