Differences in road fuel prices between the Republic and the North are such that there is a "substantial incentive" for Northern residents to purchase petrol and diesel - legally and illegally - south of the Border, the Northern Ireland Economic Council has said.

Citing a report earlier this year by the Northern Ireland Affairs Committee, the council said the price differential is costing the British Treasury at least £100 million sterling annually.

The independent advisory body, whose members include academics and industry and trade union representatives, said the price differential was 21.6p sterling per litre of unleaded petrol and 27.6p per litre of diesel. "Fuel suppliers on the Northern side of the Border are at a big disadvantage and are struggling not just to compete but to survive."

While the council said a number of petrol stations had closed in both Border and non-Border areas, the greater number was in Border areas.

In a critique of the 1999 UK Budget, published today in the council's 1998-99 annual report, it said the largest impact of a 6 per cent rise in excise duties on fuel would be in the North.

Citing the committee's findings, it said smuggling appeared to have become a means of funding for paramilitaries and racketeers.

It continued: "There are already signs of that this (price differential) is encouraging `flagging out', a term used to describe the practice of registering vehicles in another member-state", i.e. the Republic.

The council repeated that targets for economic development in the North's Department of Economic Development Strategy 2010 report are unlikely to be met and the document suffered from a number of "major shortcomings".

In a letter to the Secretary of State, Mr Peter Mandelson, which accompanies its annual report, the council's chairman, Ms Janet Trewsdale, said the strategy should be revised following a period of formal consultation.