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Last Updated: Wednesday, 9 June, 2004, 09:32 GMT 10:32 UK
Blackmarket Britain: Fake Fuel
In the first programme in a three-part special on Britain's black economy The Money Programme investigates the illegal trade in fuel.

Fuel fraud is one of the fastest growing parts of the black market - costing UK taxpayers up to a billion pounds a year. Now it has become one of the major sources of money for the paramilitaries in Northern Ireland. Illegal fuel is all about evading duty, and most of the fraud is on diesel. In the UK over two thirds of the price of a litre of diesel - around 46 pence - is tax. But there are other fuels on which the tax is lower.

Agricultural fuel

Red diesel, which is supposed to be used only by tractors and other off-road vehicles, has a tax rate of only 3.5p per litre. Kerosene - supposedly only for use as heating fuel - has no duty at all. Anyone using those low tax fuels on the road stands to save a lot of money. And if you can smuggle in fuel from a country such as Ireland where tax on diesel is around a third of the UK rate, that too can be a money spinner. It's all highly illegal, but nowadays it's all too common.

It's in Northern Ireland that the problem is most acute. There, around two thirds of garages are selling illegal fuel, and for those not wanting to go down the illegal route it can be hard to survive. One in six garages have closed in Northern Ireland in the last eight years.

John Harkin used to run a garage near Derry, only a few miles from the Irish border. As fuel taxes rose in the North he found more and more of his customers making the short trip across the border to buy cheaper fuel in the Irish Republic. Two years ago with his garage under threat a man turned up out of the blue offering to supply him with cheap fuel. It could have been a way to save his garage.

"The man was able to offer me a product that would let me survive in business" he said. "I knew by the price he was offering that it was illegal fuel." The man wasn't someone he recognised, but John Harkin knew that the man wouldn't be operating alone. "I have no doubt that he was operating certainly with the approval of paramilitaries."

Scale of problem

Earlier this year there was evidence of the scale of illegal fuel operations in Northern Ireland. In March, in an innocuous looking barn outside the border town of Newry customs found an illegal factory to launder the red dye out of agricultural diesel.

The end product looks just like regular diesel and is easier to sell on to an unsuspecting public. This laundering plant was capable of removing the dye from 12 million litres of fuel per year - costing taxpayers around 6 million pounds. It was the biggest laundering plant ever discovered in the UK. There's little doubt that this size of operation can only be undertaken by serious criminal gangs.

Reg Empey, Minister for Finance Economics and Investment, agrees "Paramilitary organisations are involved in this because they have the natural expertise in the field." And he goes further "I believe there is co-operation between loyalist and republican paramilitaries in this trade. Hitherto they might have been shooting at each other, and now they are helping each other because they each have their own territories and their own distribution networks."

Growth in cases

This is a fast-growing problem. The number of illegal factories seized throughout the UK by customs has increased dramatically in the last few years. Three years ago three laundering plants were seized, two years ago it was twenty, and last year the total was up to thirty eight.

As Customs Minister John Healey says "These are serious criminal organisations with the capacity to produce vast volumes of illegal fuel."

For the government illegal fuel presents a real dilemma. They have announced a crackdown with extra officers involved in fuel testing programmes, but it's too early to say exactly what effect that will have. Some people believe that the only way of solving the illegal fuel problem is to cut the level of tax on ordinary road diesel, and thus remove the incentive. But so far that appears to be a nettle which the government is unwilling or unable to grasp.

This programme was first transmitted on Wednesday 30 October 2002.




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