Letter to the Chairman of the Committee from Mr Thomas Palmer, Chairman, Petrol Retailers Association, NI Region
I have read the C&AG's Report (HC 614) and feel it necessary to make the following observations which may be of passing interest to you and your colleagues on the Public Accounts Committee.
Cross-Border fuel has been a vexatious issue for petrol retailers in Northern Ireland for over five years. The enclosed table indicates the decline in fuel deliveries into Northern Ireland since 1994, the last year when excise duty rates on both sides of the border were running approximately at level pegging. The year ended December 1997 saw the first real impact on the figures, especially in the second half of that year (Annex A). Given the developing trend the PRA decided to call a meeting of "interested" parties in an attempt to stem the flood of cross border fuel and protect legitimate petrol retailers from financial ruin.
I enclose a copy of the "invitation list" to that meeting (Annex B). It is comprehensive and if the political will had been there this problem could have been nipped in the bud. I regret to say that this attempt to organise a broad front assault on the problem was allowed to wither on the vine due to a failure by the various participants to get their act together.
What has happened subsequently to the retail fuel market in Northern Ireland since that meeting of 8 April 1998 can only be described as a disaster. The government in the form of various government departments and political parties (Conservative and Labour) have washed their hands of the issueover 140 petrol retailers in Northern Ireland have gone out of business. Many have lost not only their businesses but also their homes, which were collateral for their businesses. If terrorists had bombed these people out of business they would have been compensated. But because it was a result of government policy they didn't get a single penny in compensation. All other legitimate petrol retailers have suffered varying levels of financial loss as a result of this Pontius Pilate act by government. I would therefore ask for your and your committee's assistance in compelling government to fund a compensation scheme for petrol retailers in Northern Ireland.
Government has been negligent in discharging its obligations yet has never flinched from collecting PAYE, VAT and excise duty from petrol retailers. We demand compensation for this negligence, given that if we had been negligent in completing our VAT returns or Tax returns we would have suffered financial penalties. Taxpayers only have 10 months to submit tax returns after the tax year-end date before they suffer a £100 penalty, and still have to submit a tax return and pay the tax due.
MEETING OF 8 APRIL 1998
The invitation list to the meeting of 8 April 1998 included four petrol retailers (Annex B).
Of these four prominent fuel retailers only one still retails fuel. One sold his site at a knock down price to get out and the other two have leased their sites, one of which is now "unbranded" ie a "smuggler". The one who still retails fuel was the one farthest from the border35 miles.
These were people who had a long-term commitment to the industry, all of whom I have known for a considerable number of years. They did not leave petrol retailing of their own free willthey were forced to leave it as a direct result of inappropriate financial measures (excise duty) and a lack of government will to enforce inappropriate financial measures. These people have to be compensated.
EXCISE DUTY AND THE FUEL ESCALATOR
It was a Conservative Chancellor of the Exchequer who introduced the fuel escalator but when Labour came to power they also found it a useful mechanism for raising revenue. What the Treasury did not consider was the impact a fuel escalator would have on that part of the UK which had a 300 mile land border with another EEC StateNorthern Ireland. Nor did the Treasury concern itself with the excise duty levels ruling in that other EEC Statethe Republic of Ireland. Perhaps the Treasury should have read Garret Fitzgerald's article of Saturday 7 March 1998 (not printed here). Writing from personal experience he encapsulates the dangers of divergent excise duty strategies being pursued by two neighbouring countries.
Enclosed is a table (Annex C), which shows the rates of duty ruling on petrol and diesel in both jurisdictions since 1992. Given the increasing gap in excise duties it was not long before trade began diverting from north to south, the excise duty gap being reflected in the final pump price. Today we have a price gap of some 30 pence per litre in diesel, 25 pence in petrol. It doesn't take a computer to work out where people will buy their fuel, especially since fuel is the most price conscious item in the economypeople will shift brand allegiance for as little as one pence per litre price differential.
Despite writing to the Treasury before several budgets warning them of the increasing seriousness of the problem our pleas were ignored and excise duty rates were punitively applied. With each successive budget the "fuel border" moved inlandthere are now few retail fuel outlets within 25 miles of the border.
DR KIM HOWELLS
In January 2000 petrol retailers experienced a glimmer of hope when Dr Kim Howells, Competition Minister at DTI, gave an undertaking at a debate in the House of Commons to come to Northern Ireland and see the problem at first hand for himself. He duly came. He duly went. He duly forgot the petrol retailers of Northern Ireland, having been told to do so by someone higher up the political ladder either within Treasury or possibly by Gordon Brown himself. In preparation for Dr Howells' visit to Northern Ireland, Seamus Murphy, Vice Chairman PRA Northern Ireland, and I enlisted the help of several other petrol retailers and made a video of the problems we were facing. I am enclosing a copy of this video for viewing by your committeeit is not of good quality and it is a very amateur production. What I can tell you however, is that the "smuggler" sites on that tape have operated with almost total impunity since that videotape was made.
If you wish to come over to Northern Ireland I will take you on a conducted tour of the sites which are still trading briskly at the expense of legitimate petrol retailers.
NORTHERN IRELAND AFFAIRS SELECT COMMITTEE REPORT
In July 1999 the NIASC published the results of its inquiry into the Impact in Northern Ireland of Cross-Border Road Fuel Price Differentials. Numerous recommendations were made to the government. Suffice to say few, if any, of the recommendations made by this parliamentary watchdog were implemented. In effect their sterling work was effectively ignored by government. Recently the NIASC announced a revisitation of the problem. The NAO report is a timely reminder of the extent to which the problem has grown. It is not unrealistic to say that at present the entire legal fuel sector of the Northern Ireland economy is in danger of collapse. Will the Public Accounts Committee ensure that the recommendation it makes to government are implemented in full, or will the PAC be treated as a toothless wonder in the same way that the government treated the NIASC?
TACKLING THE HYDROCARBON OIL PROBLEM IN THE UNITED KINGDOM
Great play is made of the increased resources devoted to tackling the fiscal problems associated with Hydrocarbon Oils in Northern Ireland. In this context I would refer you to my letter of 25 June 2000 to Paul Boateng, Financial Secretary to the Treasury. Since that letter was written 600,000 litres of suspect fuel was seized at a truck stop at Lymm, adjacent to the M6 west of Manchester. This represents 20 per cent of the total fuel seizures made by Customs and Excise in Northern Ireland for the year 2000-01. Are sufficient resources being deployed in NI? Are sufficient resources being deployed on the mainland? In 2001 Kevin MacNamara MP asked a question in the House regarding the number of successful prosecutions.
INDUSTRY VIEW POINT
Petrol retailers in Northern Ireland are bitterly disillusioned at the government's attempts to tackle the problem in recent years and feel they have been abandoned to their fate. Indeed many retailers have "fallen" to selling smuggled product as a direct consequence of neighbouring sites selling it for prolonged periods, undercutting them on price and taking trade away from them. The lack of activity by the authorities in relation to this blatant infringement of the law has led many retailers to believe government was actively turning a "blind eye" to the problem and accepting it in the same way as there was an "acceptable level" of violence some years ago. The attitude of some retailers was "If my neighbour can conduct his business in such a manner without penalty, then I also should do this before my business disappears altogether"the rest is history. Even if pole sign prices are almost identical, the "smuggler" sites can offer inducements to the motorist, which legitimate traders could not possibly offer eg Free weekly cash draw for £100, free colour television, and free holiday. Legitimate traders operating on a profit margin of two pence-three pence per litre could not possibly afford such lucrative offers yet smugglers operating on margins of 10 pence-15 pence per litre certainly can.
POLITICAL RESOLVEABSENT FROM THE BODY POLITIC!
On a Radio 4 interview on Friday 15 February Paul Boateng, Financial Secretary to the Treasury, indicated that "We've increased the number of Custom officers on the ground to over a 160". Petrol retailers in Northern Ireland would be interested in answers to the following questions:
When was the number increased to 160?
Are these 160 officers committed to hydrocarbon oils on a full time basis? If so, exactly from when? Are they based permanently in Northern Ireland?
Does this number include only personnel operating in the field or support staff as well? If both, please specify number of personnel in the field.
Many retailers provided Customs with information at various times and nothing was done about it. That is how Customs lost hearts and minds. What does Mr Boateng intend to do to win them back?
I now relate another recent event, which even now queries the level of government resolve on this issue. In September 2000 an advertisement appeared in the "Job Finder" section of the Belfast Telegraph for Anti Smuggling Assistant Officers. Closing date for application was 28 September 2001. Although not specified in the advert, there were 60 posts. Over 1,200 replies were received. Until Monday 11 February 2002 these replies lay unopened and unprocessed in a warehouse in Belfast18 weeks after the closing date. They are now in the hands of an agency for processing. Can one really conclude the Government is seriously interested in addressing this problem?
Furthermore, I attended a meeting with Jane Kennedy, Security Minister at NIO, on 22 September 2001 along with Ray Holloway, Director of the PRA, Robin Hulf, Political Adviser to the PRA and Seamus Murphy, Regional Vice Chairman of the PRA. The exchanges during the meeting were frank and cordial. Prior to the meeting I had sent the Minister a letter on 7 September 2001 specifying the issues I would like addressed. It was obvious from the meeting the Minister had not seen the letter nor had she been made aware of its contents. Is it any wonder that petrol retailers are sceptical when government announces that it takes cross-border fuel seriously? Is it because Ministers are being denied the opportunity to deal with the problem by their civil servants?
On 25 September 2001 I sent the Minister a follow-up letter by recorded delivery as well as taking the precaution of faxing it to the Minister's office. On 27 September 2001 I received a reply indicating "A reply will be forwarded as soon as possible". During the course of the meeting on 22 September the Minister indicated she would get back to me within seven days. As of Tuesday 19 February 2002 neither I nor the Director of the PRA, Ray Holloway, have received a response from the Minister. I think I need say no more.
It is extremely unlikely that increased enforcement will ever by itself eliminate the problem associated with cross-border fuel, given the current wide gap in excise duties. Certainly an increased Customs presence continued with support from other agencies (Petroleum Licensing, Trading Standards, Health and Safety etc) will assist legitimate petrol retailers. It will not however compensate them for the lost business of the last five years, nor will it compensate those who have lost their businesses and their homes. The case for compensation is unassailable. I would ask that you and your committee make this known to government.
Petrol Retailers Association
PS: The Treasury must carefully consider the consequences of its fiscal strategy especially with regard to Northern Ireland primarily because it has a 300 mile land border with another EEC State. Currently Treasury is proposing to levy a tax of £1.60 per tonne on all quarry aggregate in the UK, commencing 1 April 2002. There is to be no corresponding tax in the Republic of Ireland. What do you think is likely to happen? All quarries on the northern side of the border will go out of business as this will add approximately 25 per cent plus to the cost of material. It will be boom time on the ROI side of the border. How will the authorities police this? Will the stone be dyed? How will you differentiate between ROI stone and NI stone? What happens where the quarry straddles the border? I think it is time we had more apprporiate and better thought out taxes rather than present agencies such as Customs and Excise with taxes which are virtually impossible to police and monitor. Time for the folk at Treasury to open the blinds and let in some day light.