Official Report: Minutes of Evidence

The Chairperson (Ms Ferguson): I refer members to their meeting packs. At last week's meeting, the Committee heard evidence from officials from the Department of Agriculture, Environment and Rural Affairs and the Department for Infrastructure.

Following the decision to hold an inquiry, officials were asked to provide trade statistics on local businesses that trade car parts and used vehicles into the EU market, share the Committee's Citizen Space survey with stakeholders that were previously consulted and provide further information on any questions that were not fully addressed in last week's evidence session.

A response from the Department of Agriculture, Environment and Rural Affairs is in your tabled papers, members. It advises that the British Government are engaging with HMRC to obtain the relevant trade statistics and that it has shared the Committee's consultation with approximately 50 local businesses, including a substantial number of small to medium-sized enterprises. That Department has also provided further comments on the export of used vehicles and shipments of end-of-life vehicles (ELVs). Additionally, the Department for Infrastructure has provided written information on vehicles that are covered by the EU act. That can be found in the tabled papers. The responses will be published and included in any part of the inquiry report.

Following last week's meeting, the Committee also wrote to the British Government to request views on the EU act and its impact on communities here, as well as details of the position in England, Scotland and Wales. A response is due on Monday 17 August.

I welcome from the Department of Agriculture, Environment and Rural Affairs Shane Doris, director of environmental resources policy division, and Tony McNamara, policy lead on end-of-life vehicles regulation. I also welcome Roy Kennedy, vehicle policy branch lead for the Department for Infrastructure. You are very welcome, gentlemen. When you are ready, I will ask you to brief the Committee.

Mr Shane Doris (Department of Agriculture, Environment and Rural Affairs): Thank you, Chair and members, for inviting us this morning to further discuss regulation (EU) 2026/1738 on circularity requirements for vehicle design and management of end-of-life vehicles. I am grateful to the Committee for allowing us time to present our initial assessment last week. I acknowledge the Committee's decision to hold an inquiry and the specific asks of officials following those deliberations. At that time, we presented DAERA's assessment as being cautious, noting that, on the evidence that is currently available, there is potential for significant and persistent impacts but that further information is needed to assess their scale, likelihood and distribution. I am sure that members will not be surprised to hear that that position has not changed in the past seven days.

I am conscious of the fact that the specific asks were covered in your introduction, Chair. Thank you for that, so I will not cover those again. The Citizen Space consultation, which, as you mentioned, we circulated to approximately 50 Northern Ireland businesses, included a substantial number of small to medium-sized enterprises. That prompted some direct responses, with substantive feedback received from three companies that had not previously engaged in the process. One was a car dealership, and the other two were vehicle dismantlers.

It is likely that those companies will have responded to the online survey, so the feedback that we have may duplicate that which the Committee has already seen. However, DAERA provided assurance that their views were shared, so we will submit the detail of those responses as soon as possible. It is worthwhile at this stage, however, to note some of the points that were raised in order to allow members to consider the comments and take the opportunity to clarify some areas.

It is possible that there may be misinterpretation of the regulation in the industry, which is perfectly understandable at this time. However, the UK Government have noted in their explanatory memorandum (EM) that:

and that the intention is:

The car dealership that responded highlighted the fact that approximately 10% of its vehicle sales involve cars without a valid MOT certificate, noting that those vehicles are not currently assessed, as they are sold exclusively to other traders rather than to members of the public. It further stated that requiring an MOT or independent assessment prior to sale would have a significant impact on the business, potentially leading to more vehicles being scrapped and reducing the willingness of dealers to accept non-MOT vehicles as trade-ins. At this point, it is important to make clear that the UK Government's EM states that the requirement for independent assessment would not apply to business-to-business transactions.

One of the vehicle dismantlers provided detail on its operation and the following views on impact. That business does not believe that it possesses the specialist expertise, facilities or equipment that are required to assess parts and components removed from ELVs for reuse, remanufacturing, refurbishment or recycling. Technical assessments may be labour-intensive, and, in some cases, the cost of assessment may exceed the value of the item. The business also noted that all parts and components are supplied with a three-day guarantee, which it considers to be of greater value to customers. The business was concerned that implementation of the regulation could increase the costs of used parts and components, resulting in higher prices for customers.

The other vehicle dismantler raised the following concerns, some of which are similar. The provisions relating to the assessment of removed parts were considered overly burdensome and, in some instances, impractical to implement. The examples that were provided included the fact that parts removed from non-operational vehicles cannot always be adequately assessed unless they are installed in a functioning vehicle, such as engines or fuel injectors. Dismantling a vehicle can result in the removal of more than 50 parts. Requiring a technical assessment of each part would place a disproportionate administrative and operational burden on its business. The associated costs and resource requirements could discourage the removal of parts for reuse, remanufacture, refurbishment, recycling or other recovery activities where the costs could outweigh the potential returns. It also noted that any increased operating costs would likely be passed on to consumers through higher prices.

For labelling, the business currently marks removed parts with details of the source vehicle and considers that sufficient. The business noted that some parts are too small to be labelled effectively. Compliance with the additional requirements may necessitate the recruitment of an additional staff member, resulting in a significant financial burden. Licensed vehicle dismantlers must compete with unlicensed operators who work unlawfully from domestic premises. The respondent considers that increased regulatory requirements could place compliant businesses at a competitive disadvantage, potentially encouraging some operators to leave the regulated sector and operate unlawfully.

Picking up on some of those points, I again refer to the UK Government's EM, in which they highlighted the fact that the regulation is not fully prescriptive about the manner in which assessments must take place. Expensive equipment and processes are not always necessary for all assessments, and, in many cases, visual or other proportionate assessments may be suitable. For balance, it is also worth noting that the industry's views do not consider the enhanced protection for consumers when purchasing used parts.

The flexibility in the regulation for businesses to adopt proportionate, risk-based and appropriate means of assessing parts, including through basic visual inspection where appropriate, could address the majority of concerns raised, but, at this stage, I cannot comment on the extent of that flexibility or on any specific points or particular scenarios. In addition to the three substantive responses, one further vehicle dismantler simply commented that the proposal would represent another "nail in the coffin" of small operators. While it would be easy to dismiss that comment as not being based in evidence, we are cognisant of the pressures facing SMEs relating to a number of different factors, which emphasises the need to increase efforts to further engage with industry to improve understanding of the regulation's requirements and allow businesses to make a more accurate assessment of the potential impact and adjust accordingly.

While there is a transition period of two to six years, we will liaise with UK Government counterparts with a view to commencing that engagement as soon as possible.

In summary, this was a very small sample, and we cannot confirm the extent to which it represents wider industry. I am also conscious that there may be other areas of concern that have not been captured today. However, hopefully, by going through those points in some detail, I have been able to address some of your queries. Of course, we are happy to take any further questions.

The Chairperson (Ms Ferguson): Tommy and Roy, you —.

Mr Roy Kennedy (Department for Infrastructure): We are good.

The Chairperson (Ms Ferguson): You are good. Thank you.

Mr Buckley: Thank you very much for your introductory remarks. They were detailed and comprehensive and enabled us to hear some of the feedback. Your comments at the very start were interesting: it is still your position that DAERA is unable to assess the impact — positive, negative or otherwise — of the regulation based on the information that it has. That has not changed in the period of a week. Hopefully, as more information comes in, we will start to gather a bit more evidence and information on what its potential impact may be.

Thanks very much for clarifying the points regarding the types of vehicles. That is very interesting. It clears that up substantially for me. You have released some of the trade statistics. Exports to the EU from wholesale and retail trade in the motor vehicles and motorcycle sector, including both new and used vehicles, are estimated at £3·96 billion. You say that it is impossible to distinguish between new and used there. Have we any ability to try to get those figures? I know that you have requested them from HMRC. It would certainly be important for the Committee to ascertain the differential that we are talking about.

Mr Tommy McNamara (Department of Agriculture, Environment and Rural Affairs): Those figures are publicly available from the Northern Ireland Statistics and Research Agency (NISRA). That is all that we could get in advance of the meeting. The UK Government are seeking a more comprehensive breakdown from HMRC on used vehicles and spare parts. We have also requested information from DVLA, if it can provide it, on the number of used vehicles that have transferred ownership outside Northern Ireland to the EU. To date, we have not got it. However, if we do receive any additional data, we will make it available to the Committee as soon as possible.

Mr Buckley: OK. It would certainly be helpful.

For the purpose of understanding the regulation: obviously, vehicles that do not have an MOT certificate are classified, by means of this regulation, as "end-of-life" vehicles. Such a vehicle cannot be sold because it does not have that certificate. Is that correct?

Mr McNamara: Yes. That is right.

Mr Buckley: The comments from one of your respondents were interesting. While it may have come as a shock to some Committee members to think about why somebody would be selling a vehicle that did not have an MOT certificate, that is quite common. One of the businesses that you mentioned was able to highlight what percentage that was of its own particular business model. I would love to know whether we could get further detail on that, particularly on how it affects other used car dealers across Northern Ireland and what sort of scale we are talking about, because, time and time again, the same theme came out in the evidence: that over-regulation is what will really hamper those smaller businesses that I am probably particularly concerned about when it comes to that regulation. Can there be an attempt, or are we able, to gather that information in any cohesive way quickly in order to ascertain how many vehicles that accounts for?

Mr McNamara: We contacted approximately 50 businesses. I would say, as a rough estimate, that at least 12 to 15 of those were what I would term "small car dealers". However, that respondent was the only car dealer who actually came back to us. As it happens, because he disposes of his vehicles to trade, so it is a trade-to-trade transaction, as I said, the UK Government's explanatory memorandum makes clear that he will actually not be affected. At the minute, however, we cannot begin to guess how other smaller businesses will be affected, because we have not had feedback. We did share the Citizen Space consultation. We do not know whether anybody responded to that from the car dealership side. If we get any additional information, we are quite happy to —.

Mr Buckley: I have two points. On shipment of end-of-life vehicles, you are pretty much indicating that the requirement maintains the current regulatory position, both for GB and for NI, and that therefore you do not anticipate any challenges on that part of the regulation. Is that correct?

Mr McNamara: That is correct.

Mr Buckley: And on controls and regulations on the export of used vehicles, again, there will be regulatory divergence that ultimately could potentially result in friction between GB and NI, particularly on the movement of used end-of-life vehicles.

Mr McNamara: There will not be any friction between GB and NI because, under the United Kingdom Internal Market Act 2020, the UK internal market is protected. That is also reflected in the Windsor framework, under, I think, article 6. Vehicles without an MOT can still move between GB and NI and vice versa, because those are intra-UK movements, if that is the correct phrase. The requirement to have an MOT will only apply to export to any other country.

Mr Brooks: Jonathan was fairly comprehensive there and covered most of the points. The one point that I want to raise is a general thing, and this is not to be hostile to the comments. Thank you for your presentation. During it, you said that it would be easy to dismiss comments as not having evidence. That is a bit of a backhanded way of saying. "It is all very well saying this, but there is no evidence to back it up". Do you agree that, in all of this, while saying that there is no evidence to make the comment that it would be the final nail in the coffin for some of the small operators, they are operating, as we are, in an area where there is not an awful lot of evidence to go round, whether to reassure them or on the things that are causing them fear? We are not seeing that evidence, and we have had testimony here today and last week that that evidence is not there.

Mr Doris: First, the way it was presented was probably the opposite of that. It is certainly not, in a backhanded way, to dismiss it. It is probably more to make the point to those have really stressed the need to make that point clear that we are not dismissing it. We are very aware that there are gaps in their knowledge and everyone's knowledge on this in many ways and that there could be potential impacts of which they are not yet fully aware. In everything that we do, we are always conscious of the pressures that SMEs are under, so we do not take that lightly in any way.

Mr Brooks: Thank you very much for that clarification. That lack of information continues to concern me. The EM highlights ways in which the Government may manage that risk without providing any clarity to those operators going forward as to what the system will look like. I think that everyone is operating in an area where nobody appears to be able to offer any clarification on the fears that they have.

The Chairperson (Ms Ferguson): No other members have questions, so I thank Shane, Tommy and Roy —.

Mr Frew: Can I come in, Ciara?

The Chairperson (Ms Ferguson): Yes, Paul.

Mr Frew: I was slow to unmute myself. The Department's submission states that it is not yet clear on the full impact of this. Given that you have the regulations in writing, why is there still that gap in understanding?

Mr McNamara: Essentially, the gap is because none of us are, or are anywhere near, being automotive experts. We need the feedback and the assistance of the industry to tell us how the regulations would impact it. We are very grateful for the feedback that we have received and the engagement from industry members who have talked to us, but that is still a very small sample. That is why, as Shane outlined in his opening remarks, we remain cautious. We are not in a position to come down one way or the other. We know that there will be an impact, but we cannot be committed on the significance of that impact.

Mr Frew: Thank you very much for that. I hear loud and clear what you say about movement between GB and NI and between NI and GB and that there will be no further friction either way. Is there a different process either way?

Mr McNamara: No, not to the best of my knowledge. There is no different process. Things will continue as is under the UK system.

Mr Frew: Maybe we do not know the answer to this question yet. How will this impact on the statutory off road notification (SORN), which is where people self-regulate when their car is off the road?

Mr McNamara: There is a provision in the regulation that, if a car has a SORN or is bought without an MOT and if you have an assessment to say that it is not an end-of-life vehicle, you have approximately — off the top of my head — five years to make that car roadworthy again, or else it will be deemed to be an ELV.

Mr Frew: OK. So you can see the two systems aligning or at least being compatible with each other?

Mr McNamara: Yes, that is a fair assessment.

Mr Frew: OK. Thank you very much for your answers.

The Chairperson (Ms Ferguson): I thank Shane, Tommy and Roy. The Committee will meet again next week to finalise the report, so, if you come across any further trade statistics, you can forward them to the Committee. That would be much appreciated. Thank you.