Q17 Mr. Dave Anderson: Secretary of State, you said in response to Rosie Cooper that what we want to see is people put away. Our information is that actually, nobody has been put away for fuel laundering and fuel smuggling charges. There have been convictions but nobody has served any time whatsoever. Can you confirm that and is that not showing that there is no real disincentive for these people? Yes, you might disrupt them but it is not really a disincentive in what we have heard evidence of is a £380 million business.

Mr Woodward: David, I share your view about this entirely and one of the issues I am looking at - and I cannot promise the Committee that there will in the end be such an offence - but one of the things I am very keen for us to look at is whether or not we might be able to create a specific offence of fuel laundering. That is going to involve quite a lot of work over the coming months and it may come to nothing. One of the problems, as you know, about seeking a conviction is that sometimes it is what you are trying to get a conviction for. One of the areas that I am anxious that we pursue while we have responsibility and continue to have responsibility for policing and criminal justice is to see whether or not we actually have all the means, both for the police and the criminal justice system, at their disposal to secure convictions of people involved in this. If it were the case that we could find a definition of fuel laundering as an offence which might allow us to actually secure more successful convictions - and I will say this all too readily - if I could replace the number of people who are serving sentences in prisons in Northern Ireland for fine defaulting with people who are fuel laundering, I think we would all be a lot happier.

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Q70 Mr. Dave Anderson: I want to move on to the Varney review, Secretary of State. In the various inquiries over the last three years it has constantly been raised about the disparity between the tax regimes in the south and the north and the impact that has on the economy. I have two questions. First, obviously, the result of the first review was negatively received in the north of Ireland. What has that done to relationships between the Treasury on this side of the water and the people over there? Secondly, I understand there is a second review that is supposed to be replying by May in terms of the US Investment Conference. Is that likely to be on time and do you have any input that you can tell us about what is happening?

Mr Woodward: The first Varney review that took place and that we published at the end of last year concluded that it would not be appropriate to cut the levels of corporation tax in Northern Ireland to match those of the Republic. Sir David did a considerable piece of work which I imagine the committee has had a chance to look at, but if anybody has not I would recommend closer study of it because I think what it demonstrated was that perhaps the premise on which the original proposition was made, namely, if Northern Ireland enjoyed the same level of corporation tax as the Republic it would enjoy the same kind of Celtic economy, did not follow through. Self-evidently, if it were the case that 12.5% corporation tax was the magic key then the Republic would attract all the foreign inward investment that is enjoyed elsewhere, and it begged the question why, even though we have a corporation tax rate of 30% (shortly to be 28%) we do so well with inward investment if after all the big difference is whether it is a 12.5% or 30% rate. What Sir David found, of course, was that the key factor which had inhibited investment in Northern Ireland had been instability and the Troubles, and that what was absolutely critical was to provide stability. Then what he found was that being part of the United Kingdom was extremely attractive to those who might want to make investments because it would offer access to markets both within the rest of the United Kingdom but also, because of sharing the island itself, within the Republic. Then what became important was issues around skills and retaining young people when they leave school or university. What was also important was start-up costs and what again he revealed was that the cost of opening an office in Dublin is around £42 a square foot whereas in Belfast it is around £15 a square foot, and therefore, if you could produce an environment which put together stability, low cost rental, plus skills, the question that was begged was were there other things that could make a really big difference? What he found was that cutting corporation tax would be a blunt instrument and it would not lead to a commensurate level of new investment in Northern Ireland from outside the United Kingdom, although it certainly might lead to a distortion of existing investment in GB to Northern Ireland where head offices would take advantage of relocation. What we therefore asked him to do was to look at the current Northern Ireland economy (and the current economy is transformed as a result of stability) and see whether or not in Varney II there were other measures that could be taken that would help in the short term to long term investment creating long term stability, long term job creation, and that is why we figured on a timescale of May, and we did that in co-operation with the Executive in Northern Ireland so that in Varney II (as it might be distinguished from Varney I) there is collaboration between officials in the Treasury and those working for Sir David Varney with those officials working for the Finance Minister and the Executive. I hope that the piece of work that will be produced in May of this year will be instructive, and I hope the timetable will not slip because I think it will be an excellent piece of work to have in time for the conference. The most important distinction that really emerged from Varney I was the size of the public sector in Northern Ireland and the Republic, and I think if there is any indication as to where real investment opportunity lies it is that in the Republic the size of the public sector is 34% and in the north it is in excess of 70%.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here

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