Penalties for misuse of kerosene (Hansard, 27 March 1996)

§ Madam Speaker
With this, it will be convenient to discuss the following: Government new clause 11—Mixing of rebated oil.

§ Ms Dawn Primarolo (Bristol, South)
I hoped that the Paymaster General would give a little more explanation of new clauses 11 and 12. They are anti-avoidance measures with regard to the mixing of fuels, in particular diesel.
I would be grateful if the Paymaster General explained when the avoidance was discovered, how much revenue was at risk, what the review procedure is to ensure that the measures work, and how the Treasury will monitor the practice of the mixing of fuels, to ensure that the illegal practice that is identified by the two new clauses is firmly dealt with. In the final paragraph of a letter to me on 20 March, the right hon. Gentleman explained that provisions would be enacted if the illegal practice continued and the penalties were not sufficient. I should therefore be grateful if he could answer those questions.

§ The Paymaster General (Mr. David Heathcoat-Amory)
I am happy to oblige the hon. Member for Bristol, South (Ms Primarolo).
I shall describe new clause 11 first. Its purpose is to allow Customs and Excise to charge duty under the Hydrocarbon Oil Duties Act 1979, when oils of different descriptions are mixed after the normal duty point and the duty liability of the resultant mixture exceeds that originally paid. The action has been made necessary by an increase in deliberate and accidental mixing of a variety of fuels, especially kerosene with diesel road fuel and kerosene with rebated gas oil, sometimes called red diesel.
That has highlighted the fact that, except in limited circumstances, there is no current provision to recover duty if mixing takes place after the normal duty point. Although that practice is not widespread and therefore—to answer the hon. Lady's question—major avoidance is not taking place, it is wise to anticipate a possible extension of the practice or similar schemes because, if unchecked, they could have a substantial effect on the revenue yield.
The purpose of new clause 12 is to impose a positive rate of duty on kerosene when it is used, not as heating oil—when it will continue to have, in effect, a zero rate of tax—but as motor fuel in off-road vehicles or in certain other excepted vehicles, such as those used for road construction. The new clause is intended to counter the 1049 increasing use of such kerosene as an extender or alternative to gas oil in those vehicles. Some oil distributors, especially in Northern Ireland, have been taking advantage of the fully rebated rate of duty on kerosene and have been adding it at a ratio of about 30 per cent. to gas oil. If that mixture is in such a proportion as to make the resulting liquid, effectively, kerosene, there is currently no charge to duty and recovery is not possible.
There is also another type of avoidance, whereby neat kerosene is mixed with small quantities of lubricating oil. Such practice is also not widespread and we estimate that the revenue loss is minimal, but unchecked it could become a major drain on the Revenue.
The reason why I did not volunteer those explanations is that, as the hon. Member for Bristol, South said, I wrote to her. The House will find the new clauses uncontentious and sensible measures to take in anticipation of a misuse, either of mixing fuels after the normal duty point or of kerosene in off-road vehicles and the like.

§ Sir James Molyneaux (Lagan Valley)
Although I have no wish to detain the House, the Minister's mention of Northern Ireland ought to be amplified a little further. The fact that Northern Ireland is singled out for some of those irregular and sometimes rather dubious practices arises mainly not from the basic dishonesty of the Northern Ireland population generally, but from all sorts of devices and practices that have been going on for years, in what we call the smuggling country on both sides of the land frontier of the UK. The fact that Northern Ireland has the only UK land frontier within its territory causes such malpractice. The Minister will be aware of the smuggling of oil and other commodities that takes place in that band of what is sometimes called, even by natives, bandit country. I know that he and his hon. Friends have in the past been very quick to identify such exploitation and cheating of the Revenue out of its rightful moneys.
There should not be any reluctance on the part of the sovereign Government on the other side of the kingdom's land frontier to do their best to tighten up their measures and assist the Minister's Customs and Excise officers in that region, because only this week the Irish Agriculture Minister was issuing strong threats to seal the frontier on account of mad cow disease. What can be done for one purpose can surely be done for all others. With that timely observation, I shall conclude.

§ Mr. Heathcoat-Amory
Although such practices occur not only in Northern Ireland, they are especially prevalent there, as the right hon. Member for Lagan Valley (Sir J. Molyneaux) acknowledged. I am afraid that it is true that, when we shut down one type of smuggling or excise abuse, the same people can exploit other loopholes. The Northern Ireland customs and excise service has generally productive discussions and interchanges with the parallel service in the Republic, where there is a common interest in preventing racketeering or excise abuse. I take it from the right hon. Gentleman's remarks that he nevertheless approves of our attempt to close a potential loophole, which might be exploited by paramilitary organisations or the criminal fraternity in general.