EUROPEAN COMMUNITY (CIGARETTES EXCISE DUTY) (Hansard, 14 November 1977)

§ Mr. Speaker
Mr. Robert Sheldon.

§ The Financial Secretary to the Treasury (Mr. Robert Sheldon)
rose—

§ Mr. J. Enoch Powell (Down, South)
On a point of order, Mr. Speaker. My point of order relates to the Orders of the Day.
It will be within your recollection that on previous occasions where it has appeared that the document before the House is not the document in the form in which it is at present being considered in the EEC institutions, it has been agreed that the document should not be considered at the time until the latest form is available in the House. I understand that that applies to the document specified on the Order Paper.
214 I wonder whether, should my apprehension be correct, you would ascertain whether we could proceed in that way this evening.

§ Mr. Speaker
I think that what has usually happened, as the House will remember, is that someone from the Front Bench has said something about it. I must confess that I do not know whether it is the same document. I follow the Order Paper.

§ Mr. Robert Sheldon
I might be able to help the House. The actual document is the Fifth Directive, dated 10th February 1976. This is the proposal that has been before the Council and is the subject for the debate here today.

§ Mr. Powell
Further to the point of order, Mr. Speaker. Will the Financial Secretary indicate whether this document has not been substantially altered into the form in which it is now before or will come before the next Council of Ministers? That is the information which some of us have received.

§ Mr. Robert Sheldon
This was the proposal as of 10th February 1976. The House will be aware that, following the publication of any of the Commission documents, a great deal of discussion takes place. If there is to be any amendment of the views of the Commission, information and representations having been received from the various member countries, then of course this does not preclude further documents being placed before the Council of Ministers in due course.

§ Mr. Peter Rees (Dover and Deal)
Further to the point of order, Mr. Speaker. Will the Financial Secretary state unequivocally whether there has been a fresh proposal considered by the Council and, if so, in what regard it differs materially from the proposal dated 10th February 1976 to which the right hon. Member for Down, South (Mr. Powell) has drawn attention?

§ Mr. Robert Sheldon
This is the document due to be discussed here today, and any further representations that member countries may wish to make can always result in further documentation which is not before us here today.

§ Mr. Laurie Pavitt (Brent, South)
Further to the point of order, Mr. Speaker. I understand that there is a kind of Mark II document now going the rounds. In view of the fact that there is now a second document which substantially alters the first, is it not a waste of time for the House to discuss Mark I when we should be saving our fire until such time as we can have Mark II?

§ Mr. Michael English (Nottingham, West)
Further to the point of order, Mr. Speaker. Will the Financial Secretary give us an assurance that if there is any document subsequent to this one of 1976, it will be debated in this House?

§ Mr. Robert Sheldon
I might be able to help the House. I am sure you will know, Mr. Speaker, that it is not for me to give assurances about any further debates. That is a matter for the Leader of the House. But there are no other documents at this time.

§ Mr. Peter Rees
Further to the point of order, Mr. Speaker. We are aware that the only document in the Vote Office is the proposal dated 10th February, and I am very happy indeed to accept that from the Financial Secretary, but will he give an assurance to the House that there is no later proposal which differs in any marked degree from that which we are being asked to debate tonight?

§ Mr. Powell
Further to the point of order, Mr. Speaker. The Financial Secretary will be aware that in previous cases where the only available document for the House is known to have been already superseded in substantial respects in the course of the work of the Community, the Government have been agreeable to the matter being put forward until a time when the House could have the latest form of the proposal before it. Will he not, through you, Mr. Speaker, give consideration to following that course on this occasion?

§ Mr. Kenneth Lewis (Rutland and Stamford)
Further to the point of order, Mr. Speaker. If there is not another 216 document superseding this one, will the Financial Secretary arrange that there should be, so that the British interests in this matter may be put forward much more clearly than in the present document?

§ Mr. Pavitt
Further to the point of order, Mr. Speaker. We are now quite clear that there are and can be amendments to the document which is now before the House, and that it can be substantially altered in due course. The document that we are about to discuss was considered on the 28th Report of the Select Committee on European Legislation; therefore, we have before us some guidance upon how we are to discuss this particular document. If, however, there is to be a further amendment to this document, does that mean that the Committee will then be sitting again and that we shall be receiving further advice and will then have to discuss it all over again on the advice that we receive from our Select Committee?

§ Mr. Speaker
The House knows that am very jealous of the rights of the House where the European Commission is concerned. I believe that we have to guard the rights of the House. But I have no control over the Order Paper of the House. I can only listen to the discussion, and if I am wise I shall not say any more. However, I believe that if there is another document the House is entitled to have it. In any case, I must call the Minister to move the motion concerning excise duty on cigarettes.

Several Hon. Members
rose—

§ Mr. Douglas Jay (Battersea, North)
Further to that point of order, Mr. Speaker. If the Minister is unaware whether or not there is another document, surely that leaves us in a very unsatisfactory position. After all, we are dealing here with legislation. It is not just a motion. Surely the House cannot debate and approve or disapprove of legislation when it has not got the text of that legislation before it. In those circumstances, is there not a clear alternative? The alternative is to defer the debate until we at least know whether there is another document.

§ Mr. Norman Tebbit (Chingford)
It would be helpful if you, Mr. Speaker, with your authority, were to inquire 217 whether there is a document which postdates that which is before us, which is one year and nine months old now. If there is no such new document, we could get on with the business. If the Minister does not know whether there is a new document, that leaves us in some difficulty. However, many of us suspect that the Minister knows perfectly well that there is a new document and that he is choosing to prevaricate over this issue to conceal the fact that there is one. This puts the Chair in a grave difficulty over this matter. Could you not, Mr. Speaker, lean gently upon the Minister to say clearly, one way or the other, whether he knows whether there is another document?

§ Mr. Neil Marten (Banbury)
Clearly there is another document. The Minister ought to make that absolutely clear. When a similar situation arose on a previous occasion—I think that it concerned motor vehicles—the then Minister on the Front Bench had the courtesy to say that he was not quite sure about the matter and would not like to move his motion but that we could take it on another day. I have great respect for the Financial Secretary. I ask him to do the same thing as one of his colleagues did on a previous occasion.

§ Mr. Nicholas Winterton (Macclesfield)
You, Mr. Speaker, are a zealous guardian of the rights of the House and you have done your best to ascertain from the Minister whether there is a second paper which is much more up to date and which perhaps the House ought to be debating tonight. However, in the absence of that second paper and at such a late hour, and as the House will have to sit very late tomorrow night, is it right that the House should be subjected to a debate that will have to be repeated on a more up-to-date basis in a few weeks' time?

§ Mr. Anthony Kershaw (Stroud)
The Explanatory Memorandum on European Communities Legislation, which we have over the signature of the Financial Secretary, is dated 30th June. We know, nevertheless, that negotiations about this important matter are continuing in Brussels and have been going on very vigorously, especially in the last few weeks. If there is not another document, or another conclusion that has been reached when 218 the situation is obviously different from what it was on 30th June, it would be right for the Minister to put the House in the position of knowing the latest situation before we debate this matter.

§ Mr. Nigel Spearing (Newham, South)
Further to that point of order, Mr. Speaker. I should like to enquire of the Minister whether there has been a material change from the document of 10th February 1976 to the contents of his memorandum of 30th June, whatever might have happened subsequently. If that is so, clearly there is—or there may not be—some discrepancy between these two documents.
I also draw your attention, Mr. Speaker, and that of the Minister, to a situation which arose on the taxation of motor vehicles when dissatisfaction was expressed by hon. Members relating to a second document which was known to exist. On that occasion the Minister withdrew, or at least did not proceed with, the motion. I think that was to the general satisfaction of the House and, in the end, to the Minister.

§ Mr. Robert Sheldon
Perhaps I might repeat what I thought I said at the outset. This is the last formal document that is required by the Scrutiny Committee. There are, of course, a whole multitude of working papers by various member Governments as they make their representations. But, clearly, these are not matters which normally go to the Scrutiny Committee. This is the last formal document of the kind which goes to the Scrutiny Committee. This is the one which has been made available and this is the one which we ought to be debating this evening.

§ Mr. Peter Rees
The Financial Secretary is still shirking the essential issue, which is not whether this is the document before the Scrutiny Committee. I am quite happy to accept that, as I am sure the House is. The issue is whether there is a later draft proposal—not a working paper—which would be a more proper basis for a debate in this House on the tobacco question. [Hon. Members: "Answer."]

§ Mr. Graham Page (Crosby)
Perhaps I might help the Minister. He said just now that this was the last document asked for by the Scrutiny Committee. [Hon. 219 Members: "He did not."] Well, the Scrutiny Committee does not "require" documents; it relies on the Minister to supply them. The fact that this is the last document to come before the Scrutiny Committee is no answer to the point of order. We are asking whether there is another document. Indeed, it is unfortunate that this House is called upon to debate a document as old as February 1976. It is incredible that there are no other documents bringing the whole matter more up to date. In those circumstances, ought we not to ask the Minister to apply for an adjournment?

§ Mr. English
Will not the Minister just give us a simple statement that to his knowledge no other proposal is going before the Council of Ministers? If it turns out that that is incorrect, then that other proposal will be debated in this House. That is all we want.

§ Mr. Robert Sheldon
We are making heavy weather, but we frequently do with regard to these matters. The position is clear; this is the formal document available for the Scrutiny Committee and there are no others. Of course, everyone knows that the whole point of this debate is to influence the kind of negotiations that are eventually going to take place. The whole purpose of having this debate is to enable the Minister responsible to listen to the arguments put forward and take them into account when it comes to the negotiations.
Clearly, at the time of the negotiations member Governments put proposals to each other. This goes on all the time. We would be foolish if we did not understand that this is the normal way these things happen. The purpose of this debate—if it is to be well timed—is to take place on such an occasion when these working papers are going around. What I and the Government want to hear are the views of hon. Members on this matter so that we can take these into account when we come to the negotiating position.
With regard to the documents proposed by the Commission, this is the last formal document available to the Scrutiny Committee, and it is the one which we should be discussing this evening.

§ Mr. Speaker
Might I now comment? It is quite clear that we are to have a 220 very wide debate on all aspects of Community policy with regard to harmonising duty on cigarettes. We have had our points of order, and views have been expressed strongly. I now suggest that we proceed with the discussion, and that we should time the debate not from the beginning of the points of order, when I called the Minister, but from the time when he moves the motion.

§ Mr. Robert Sheldon
rose—

§ Mr. Peter Rees
Further to that point of order, Mr. Speaker. On the Minister's own analysis, we shall be having a slightly sterile debate. As he has conceded that the purpose of this debate is to influence the course of negotiations, should it turn out—we still have not had a plain and unequivocal answer from him—that there is a draft proposal of a later date, whether it has been before the Scrutiny Committee or not, we shall not know in what measure and in what direction we are to influence these negotiations. I really think that the Financial Secretary should be a little more candid. I hope that he is being completely candid, but he has left me with the unworthy suspicion that there is another draft proposal, and we cannot have a meaningful debate until that proposal is before us so that we can know in what direction the negotiations are currently moving.

§ Mr. Powell
Further to that point of order, Mr. Speaker, and for clarification with the Financial Secretary. In the Explanatory Note before the House, there is a reference to minima and maxima of 15 per cent. and 50 per cent. relating to the specific component. Is the right hon. Gentleman aware that it is a fact that those figures have since been altered and that the agreed alteration is 5 per cent. and 55 per cent. respectively? Surely there is some instrument in which that agreement has been recorded and on which any comment of this House should go forward.

§ Mr. Marten
I wonder whether I can make a helpful suggestion. Will the Minister give an assurance that, if he listens to the views of this House and then goes off to negotiate, he will not give agreement to anything until he has returned to this House and we have debated what he has negotiated? That is the key of the control of this House. Unless he does that, we lose control by 221 this House. The right hon. Gentleman's own Prime Minister said clearly in his letter to the General Secretary of the Labour Party that this Parliament must regain control of the legislation of this House. Will the right hon. Gentleman give that assurance?

§ Mr. Robert Sheldon
The points which have been raised can be suitably injected into the debate, and perhaps I can answer them during the course of the debate.
I beg to move, That this House takes note of Commission Document No. R/414/76 on excise duty on cigarettes. The purpose of this debate is to allow just that kind of comment to be made, on which the Government will be making decisions about their negotiating stance.
Clearly, the range of specific duties is an important aspect which we shall have to put in our own proposals to the Community countries involved in these matters. But the whole purpose of this debate really concerns the harmonisation of excise duties, especially the first of those duties which we are attempting to harmonise, which is the tobacco duty. This is because an attempt was made earlier to harmonise alcohol duties, and there is another suggestion about the harmonisation of hydrocarbon duties. But these have not come before the House and are not likely to for some time because little progress has been made so far.
But tobacco offers a number of opportunities, not least because there are a number of member countries which have State monopolies clearly designed to minimise the possibilities of competition. It was felt that progress here might be more readily achieved.
The First Directive concerning manufactured tobacco was adopted in 1972 and came into force on 1st July 1973. Following our entry into the Community, there was a five-year derogation period to us which was extended to 1st January 1978. Prior to January 1978 we have had in the past a specific duty on the actual tobacco. Now there will be two elements. In fact, we have already achieved part of this. There will be a specific duty—specific not on the value of the tobacco but specific relating to the number of cigarettes. So there is a duty based on 222 each cigarette, and that is the specific duty. In addition, there is an ad valorem tax which is based on the retail price. The intention in the harmonisation is to narrow the gap between specific duties—those based on the price of cigarettes—and the ad valorem tax based on retail price.
The first stage, which we have now almost wholly implemented, concerns the first directive, where the specific element is applied between the ranges of 5 and 75 per cent. of the total excise duties. We are now talking about the second stage, which follows from the Fifth Directive, where the specific element is to be defined not by reference to the total excise duty but to the total duty, from whatever source it may be. Otherwise, it would be simple and easy to avoid the responsibility of implementing this directive by means of changing value added tax and the duty, and so distort the calculations. So the Fifth Directive deals with the specific duty element defined by reference to the total taxation.
In his Budget speech last April, my right hon. Friend the Chancellor of the Exchequer expected to apply the duty on cigarettes predominantly ad valorem. It is not possible to state what proportion of the tax at the moment is ad valorem. That is because so much will depend, as any tax of this kind will depend, on the tax on cigarettes at the beginning of 1978. We expect it to be under the specific element—a little under 50 per cent.—and, therefore, we are at present within the proposals of the Fifth Directive.
One thing is clear. The narrowing of the specific element limit from 5 to 75 per cent., as it was in the first stage, to the suggestion of 15 to 50 per cent., or whatever it might be, is going to be unacceptable to all member States. The discussions we have had exemplify the problem one has, because in making one's representations paper goes backwards and forwards to an amount that would overwhelm the resources of any Government in making all the papers available to this House. But we have expressed concern that the EEC does not allow for rates of tax to be varied to discourage the very dangerous types of cigarette.
We have put forward that view, based on discussions which the Department of 223 Health and Social Security has been having with its own medical advisers. On 8th March, my right hon. Friend the Secretary of State for Social Services pointed out the particular problems. He said: We have proposed in the EEC that a health element should be introduced as part of the process of tax harmonisation. What we want is a supplementary tax on those cigarettes with the highest tar yield, scientifically measured. If this is accepted in the EEC, we will have a very powerful financial incentive throughout Europe for smokers to buy the less dangerous brands.

§ Mr. Kenneth Lewis
West Germany, for example, considers that nicotine is the most dangerous thing. We consider tar to be. Therefore, the duty the hon. Gentleman proposes on cigarettes would be on high-tar content, whereas West Germany might take a different view.

§ Mr. Sheldon
What we are seeking would enable us to introduce a health-related tax. We believe that individual Member States ought to be allowed to impose health-related taxation. The criteria should be whatever the particular Government wished to impose. We seek to achieve a situaton whereby, although there was an increasing move toward harmonisation, nevertheless such action would be permitted to each of the member States. In putting this point, we have received a great deal of sympathy, but a number of difficulties remain.

§ Mr. English
My right hon. Friend has startled us all by apparently saying that we are proposing that each State could apply a health-related tax based on whatever criteria it chose. For example, if the French said that long tarry cigarettes full of nicotine were the least dangerous to health, presumably they could tax cigarettes of the opposite sort rather than the ones which we might tax or the Germans might tax.

§ Mr. Sheldon
This would be for a limited period, during which time evidence would mount as to the effectiveness or otherwise or such a health-related tax. We are the country which is pursuing this point because we feel that there is need for further examination of the matter. As a result of our representations, there is to be some consideration of the possibility of a limited period for imposing such a health-related tax, and, in 224 addition, there is to be a study by the Commission of tobacco taxation for health purposes.
I am in close touch with the Tobacco Advisory Committee. This is an important industry, and it is necessary that its possibilities for exporting, as well as the dangers of excessive imports of kinds of cigarettes which could put us in a difficult position, should be looked at closely. Because this is an important industry, it is necessary also to take its views fully into account, and I have been in close contact with the industry for that reason. There is the need to preserve the revenue as well as the need to ensure that any changes we make take account of the health of our people, and these are the factors which ought to decide our own negotiating position in the further discussions we shall be having on the Fifth Directive.

§ Mr. J. Enoch Powell (Down, South)
Anyone who had absorbed the assurances which used to be given that our own domestic taxation system would be unaffected by membership of the European Economic Community must have had a severe shock on addressing his mind to this whole subject, for here we see how the most minute and domestic details, matters which ought to correspond to our own policy in this country, are not merely subject to direct surveillance, permission or refusal of permission by the Community but tied up as bargaining counters with other considerations which enter into the same negotiation. This really is evidence of the correctness of those of us who said that in 1972 we were surrendering the power of the House to control the domestic taxation of this country. That is what this argument is about.
The Financial Secretary showed himself aware—the House will be glad of it—of the impact upon the industry and upon employment in this country of the eventual form which these regulations take. He will not be surprised at the intervention of a Northern Ireland Member, since there are at least two important branches of the industry in Northern Ireland, and our sensitivity on the matter of employment is well understood.
For the purposes of the British industry, the specific element of the taxation is of special importance, since the British 225 industry, at least in part, relies upon the quality of its product, and, clearly, a specific duty protects quality, giving it a competitive chance, whereas an ad valorem duty operates in the opposite direction by placing a premium upon competition in price alone and not in quality. It is to be hoped, therefore, that in the pursuit of these negotiations the Government will endeavour to ensure that the specific element of the taxation is not further reduced below what is proposed at present, and, indeed, that the limits within which other countries—particularly the monopoly countries, France and Italy—can resort to ad valorem taxation are as narrowly drawn as we can secure.
Hoping that the Financial Secretary is, as I am sure he is, seized of those objectives, I ask him to avoid, if he can, entangling the health purposes with the negotiation of the levels of specific and ad valorem taxation, whatever be the arguments for or against a health-related element in the taxation, and certainly he would have the support of most right hon. and hon. Members in seeking to retain the judgment in that matter in the hands of national authorities.
Whatever justification there is for it, it is not a matter that is connected with the other question as between specific and ad valorem duties. What the right hon. Gentleman must not do is trade off a damaging concession on the form of the duties in order to secure his way over the health-related element. As he said, the health-related element as at present being discussed is a brief and grudging concession that we may get. It would be a great pity if, to obtain that, we were to lose the central purpose of these negotiations, which is to protect the British industry and the characteristics and export opportunities of the British industry, which are closely bound up with the specific element in the new form of duties.

§ Mr. Eric Ogden (Liverpool, West Derby)
I have listened to the right hon. Member for Down, South (Mr. Powell) on many occasions in this House. He has persuaded me of one thing, and that is that it requires either a clever man or a foolish one to try to challenge him on the argument that he makes at any time.
I think that I detected what the right hon. Gentleman was trying to say. I think 226 that I might be able to detect some flaws in his argument after I have read it in Hansard. But tonight I am not going to claim that I am either so wise or so foolish that I shall start arguing about them. It is no disrespect to the right hon. Gentleman or to my right hon. Friend if I try to have my argument with my right hon. Friend on safer ground from my point of view, rather than deal with the argument from the other side of the House. I assure my right hon. Friend that I am on his side, though when he hears what I have to say he might not think so.
My first point is about interest, or financial interest. So far as I know, the fact that I am a taxpayer and consumer of tobacco products does not put me into the category of having a special financial interest that ought to be declared. That does not apply to every hon. Member The House knows that on this occasion, as on others, hon. Members who have a special relationship with the tobacco companies are present and have been showing their concern.
My concern, as in the past when tobacco has been discussed, is that the interest of those I had hoped would have been helping the House with the special knowledge that has come to them from their association with a tobacco company is declared. Too often, by accident or design, they seem to keep their heads below the parapet when the flak is flying. They are active outside the Chamber, but not so active inside.
I hope that tonight, either because of, or in spite of, what I have to say, some of those hon. Members with a special self-interest will try to take part in this debate. If they do not, those by whom they are employed will know of the concern of one hon. Member. It might be a good trade unionist argument. I do not like to be thought to be doing for nothing what other people are to be paid to do, or are being paid to do.
I ask my right hon. Friend to look at the 23-page document about which there was some argument before, and also at his own four-page Explanatory Memorandum. I think that I understood that eventually, but I suggest that there is a need for a one-page explanatory document to explain the four-page explanatory document that my right hon Friend put 227 it. I know that my right hon. Friend does not write in that terminology to his constituents, and that he does not talk in that kind of terminology to his constituents in Aston-under-Lyne. If he looks at that document and tries to make a simple man's version of what is coming, I shall be much happier.
It seems that my right hon. Friend and other Treasury Ministers are in the delightful position—

§ Mr. Pavitt
rose—

§ Mr. Ogden
May I continue?

§ Mr. Pavitt
I apologise. I thought my hon. Friend was about to sit down.

§ Mr. Ogden
It is not often that I speak in the House. I am not an instant expert on everything, so I hope that my hon. Friend will not try to rush me. It seems that my right hon. Friend and other Treasury Ministers are in the delightful position of always trying to encourage us to do good by taxation. In the Budget before last the Chancellor claimed that he could raise revenue and at the same time do good for our health by increasing the duty on cigarettes.
Yet Ministers surely must know that although a temporary increase in taxation on tobacco and tobacco products has an immediate effect, in that all smokers decide to give up smoking, over a period consumption increases and almost returns to where it was before. The only benefit is that the Treasury has more money. I am not suggesting that Treasury Ministers are hypocritical, but they must know that the argument that they increase taxation on tobacco products for our own good is very weak.
Paragraph 6 in the Explanatory Memorandum which was made available at the Vote Office says: The United Kingdom has taken the opportunity of the consideration of second stage harmonisation"— that is a word that only an estate-agent mentality could use— to propose that Member States should be free to impose a supplementary duty on cigarettes with a high yield of noxious substances. There was a suggestion in earlier exchanges that every country should be able to charge whatever supplementary duty on whichever kind of tobacco product it thought fit. It would be ridiculous if the 228 Government's advisers—the scientific and the health advisers—were not able to decide which substances were safer or safest and which were more dangerous or most dangerous. The only suggestion in this four-page document is that we should not hold taxes as they are but that the duty should be increased on those tobacco products which are thought to have a high yield of noxious substances. There is no mention in the Explanatory Memorandum or in anything that my right hon. Friend said tonight of the alternative—that we should reduce taxation on those tobacco products which are thought to be safer than others, those with very low tar content or NSM—new smoking material.
It was unfortunate that there was no suggestion in my right hon. Friend's statement—it might have been a mistake, though I doubt it—that one way of persuading people to use a safer smoking material would be to reduce the tax on a particular type or brand. If he can assure me that this is not excluded in his negotiations and that he will actively pursue the possibility, I shall be reasonably satisfied with this debate. I am thinking in terms of a reduction in duty of 5p on a packet of 20 cigarettes if there is to be any significant contribution to health. If the NSM is to make a real contribution to health, the reduction in duty must be 10p per packet of 20.
I should like my right hon. Friend to say that it was a mistake that he spoke only of increasing taxation on tobacco productions and that the other way forward is by reducing taxation on the tobacco products which are at present infinitely safer than the ordinary tobacco.

§ Sir Stephen McAdden (Southend, East)
I had no intention of making a speech tonight, and now that I have heard my right hon. Friend the Member for Down, South (Mr. Powell) I realise that there is no need for me to speak, as he has made exactly the points that I wanted to make. Nevertheless, I must say that reading the explanatory memorandum left me in some doubt. I am not sure that the Financial Secretary has had the fullest possible consultation with the tobacco industry. For a long time the dispute has been over whether we should have an ad valorem tax, as in France, or a specific tax, as in Germany and this country.
229 I hope that in his negotiations the right hon. Gentleman will take into consideration the tobacco industry's importance to this country. It is a large and important element in our export trade. I hope that the Minister realises that and will do nothing to handicap its great performance in export markets. It makes that contribution to our export trade because we sell high-quality cigarettes. I hope that the right hon. Gentleman will not undermine the industry's position by persuading France and other countries to export cheap cigarettes, as against quality cigarettes, to this country and so destroy the home trade on which the industry relies if it is to do an export trade. I also hope that the right hon Gentleman will closely consult the tobacco industry in this country before he takes any further steps in this direction.

§ Mr. Laurie Pavitt (Brent, South)
I apologise to my right hon. Friend the Financial Secretary because I felt it necessary to express my doubts about the whole question of this debate on the technical issues. I appreciate what my right hon. Friend has done to meet me on the matters to which I wish to refer. I am interested not in exports but in the consequences to health of smoking.
However, I believe that in these debates at this time of night we are going through a charade. We are now discussing an ancient document that we know will be very much amended. We also know that at the end of the day we shall not take note of it. After the Select Committee has spent a considerable time on it and we in this House have spent time on it, the outcome is negligible. The matter goes through the Commission, whatever we say or the Select Committee says, and not matter how long we continue after midnight.
The problem is that in our changing the way in which we maintain competition between the EEC countries on a fair basis the whole discussion on this legislation has been devoted to commercial considerations. All the interests, including the multinational companies, have been consulted, except the health interests, though I believe that in this country we have looked a little at the Hunter Committee in examing some of the proposals.
230 My hon. Friend's undertaking that it will be possible for differential taxes to be inserted by each country, according to the weight of importance it attaches to the health hazards of different products, makes nonsense of the whole matter of trying to equalise the competitive value between the countries. Having harmonised fiscal and other arrangements, each of us can say that we are prepared to impose a tax because we wish to discourage young people from smoking a certain kind of cigarette. The exercise that we are undertaking for commercial reasons is entirely negated by the other provisions that can be made.

§ Mr. English
My hon. Friend will recall that matters relating to health are specifically exempted from the Treaty of Rome. On the other hand, excise taxes must be harmonised. I should think that only the European Court of Justice could reconcile the two provisions.

§ Mr. Pavitt
My right hon. Friend has been most helpful on the question of differential taxes. Years ago the Government tried to make cigars 10 a penny and cigarettes £1 each. My hon. Friend the hon. Member for Nottingham, West (Mr. English) has always tried to defend his constituency interests, and I respect him for it.
The directive fails to recognise that once one changes from the weight of tobacco to the individual cigarette the assumption is that all cigarettes are equal. One is reminded of the Orwellian dictum that some are more equal than others. Some cigarettes are more equal than others.
One of the results of the directive, as I see it, will be to give king-size and "heavy" cigarettes an advantage over smaller and filter cigarettes.
We have been trying to persuade people to smoke cigarettes with less tar content and to put more filter between themselves and the stuff that they inhale into their lungs. This directive will be counter-productive to the efforts that have been made by the Health Education Council, upon which taxpayers' money has been spent.
Carcinoma of the lung is the noxious consequence of smoking. Most cardiac failures in people who are under 65 would not take place if it were not for smoking. If we were discussing the competitive arrangements for the selling of marijuana 231 between member countries we would feel differently. We accept a large public expenditure by the health service provided that we can have an equally large revenue from the Customs and Excise Department.
Some interesting material has come from an Australian Parliamentary Select Committee which shows that, although the Customs and Excise helps to pay public expenditure bills in this respect, the consequent health service bill is weighty. We must consider the consequent charge upon the health services.
I ask that before we come to Mark II of this legislation, before the Government make up their mind and give their opinion to the Commission, full consultation takes place with the Department of Health, the Hunter Committee and the Health Education Council. If there is to a differential on health grounds, it is nonsense not to take the opinion of experts into consideration. We should not forget that, apart from the fiscal returns, tobacco creates a large health debit on the other side.

§ Mr. Anthony Kershaw (Stroud)
I must declare an interest in this matter. I agree with the hon. Member for Brent, South (Mr. Pavitt) that these EEC matters go through the House irrespective of what is said by us. But I hope that what is said here tonight will be taken note of by Ministers and our negotiators in Brussels.
The proposals in the document are concerned with harmonisation. The United Kingdom and Ireland use a system of taxation of cigarettes different from that which obtains in the rest of Europe. Any change will mean a great deal to us. Our consumption of cigarettes is the highest in the EEC. We smoke 140 billion cigarettes a year. Germany is hard behind us, with 130 billion, while the others are down the list with 90 billion and 80 billion. Any system of taxation of cigarettes must mean a great deal for us.
Our system is based on taxation of raw tobacco. The proposed system combines a specific tax and an ad valorem tax which holds great dangers for us. If the ad valorem tax is used to any great extent it distorts the market, since it places a premium on cheap tobacco and, 232 hence, low-quality cigarettes. Not only are such cigarettes cheap; they are probably more harmful than others which have been developed. Such a system of taxation ought to be regarded as deleterious to the interest of our country.
We have always placed much emphasis upon the quality of our cigarettes. It is upon high quality cigarettes that our export capability is based. We export £200 million worth of cigarettes a year. They are of the expensive variety. If cheapness becomes a criterion, not only shall we lose our exports but we shall lose revenue, to some extent, and the possibility of adequate research into producing safe cigarettes. In addition, we shall probably have to sacrifice employment.
It may be said that the other EEC countries which had different systems of taxation have not found these difficulties. However, their case is not ours. In France and Italy there is a State monopoly. with no obligation to make a profit. In the other countries there is close control of quality and price in a manner utterly hostile to the declared aims of harmonisation, which are that there should be free competition between all countries of the Common Market in the selling of cigarettes.
If this requirement is to be changed to allow free competition the position will be quite different because the system of taxation will make cheapness the criterion most to be desired. I dare say that the result will be pretty nasty cigarettes. I urge the Minister to take note of what has been said and not to agree to a specific duty as low as 5 per cent. or 6 per cent., as, I understand, has been proposed. That will cause great damage to our industry.
I take the point made by others that it is deplorable that advantage should be taken of the negotiations which are about to take place, about which we wish to be informed, to make a tax differential between cigarettes which are alleged to be better on health grounds and others. We have heard that different countries have differing views. Some countries consider nicotine to be harmful. Others do not. Some take different views about specifics. It is a matter still, to some extent, of specification. We may be satisfied with our proposals. With the proposed alterations we may find that the 233 19 million people in this country who smoke cigarettes are put into a special category. They ought to have their interests noted. They should not be overlooked as a result of the enthusiasm of those who concern themselves with health hazards. These proposals concern fiscal matters. It is fundamentally unsound to insert into them other considerations which may not have been fully argued. Any moves to make outcasts of cigarette smokers must be of doubtful value, and in any case are inappropriate to fiscal measures such as this.
I also believe that a differential tax combined with harmonisation is almost impossible to achieve when one country may wish to tax in one way the cigarettes that it considers most harmful and another country may not consider them to be harmful. To try to have harmonisation and health control at the same time will get us into a great muddle.
I hope that the health aspect—which is a very important one—will not be included in the negotiations which are about to take place. Certainly it will be difficult to include it, because health matters are not matters which should concern the EEC. I therefore hope that the Government will free their minds of this extraneous matter that is sought to be introduced and will consider the position of this country from the revenue and fiscal point of view in its approach to these important negotiations, about which I hope they will keep the House very closely informed.

§ Sir George Young (Ealing, Acton)
My hon. Friend the Member for Stroud (Mr. Kershaw) will forgive me if I adopt a different approach from the one he took.
The very important documents before the House deal with the harmonisation of the tax on cigarettes. It seems to me that the Commission will have to adopt one of two different approaches. The first is to treat tobacco like any other product sold in the EEC and to seek an administratively convenient solution to the problem of different tax structures in different member countries. Such a solution would cause the minimum disruption or dislocation to trade and to the preferences of the manufacturers and others engaged in the tobacco industry.
234 The second approach would be to treat tobacco as a lethal and addictive drug, whose damage to the health of the Community might be minimised by a totally different strategy—one which might be administratively less convenient, which might not be wholly acceptable to the tobacco trade and which might reduce consumption of the more dangerous cigarettes.
The Commission has unashamedly adopted the first approach, and now Members have put forward reasons why this is the right approach. The documents mention not once the impact of the tobacco duty on consumption and, therefore, on health. The key to the Commission's approach is to be seen on page 4 of its document which says: The consultants received a high level of co-operation and much data from tobacco producers throughout the Community. They also discussed their estimates of the probable effects of each of the three alternatives —that is, the alternative tax structures— with the major cigarette producers. This is a dangerous, one-sided approach, since the producers will wish to maximise the consumption of tobacco whereas the Governments of the member countries are anxious to minimise consumption.
One's worst fears are confirmed by the next sentence on page 4: The report on the study concluded, inter alia, that over the Community as a whole, harmonisation on a predominantly ad valorem structure seemed likely to produce less disturbance in the short term to existing market patterns than would either of the other two alternatives examined. Convenience to the trade, not the impact on health, is the criterion for harmonisation. It is clear from page 5 that the Commission is anxious to promote product and investment planning over a lengthy period", whereas many other commentators on this subject would like to see as many obstacles as possible placed on the longterm investment of the tobacco industry.
I hope that my quotations will make quite clear the basis of the Commission's approach to the subject. I believe that it should have adopted a totally different approach inspired by different considerations—namely, a desire to promote a tax structure that minimises the damage done to the health of the community by tobacco. I believe that such an approach 235 would have the support of many hon. Members and would yield totally different conclusions.
I refer briefly to the speech of the Foreign Secretary, who was Minister of State, Department of Health and Social Security in January last year. He said: As I have said, we are dealing with a complex problem and a major public health hazard. Approximately 19 million people in this country—that is, nearly half the adult population—smoke cigarettes. It is estimated that cigarette smoking is responsible for at least 50,000 premature deaths annually and a great deal of consequential ill health and suffering."—[Official Report, 16th January 1976; Vol. 903, c. 802–803.] I draw on support from the First Report from the Expenditure Committee, Session 1976–77, which is entitled "Preventive Medicine". Volume 1, paragraph 161(1), states: we accept that any degree of cigarette-smoking is likely to harm the individual. Sub-paragraph (5) states: there is evidence that price increases are a factor in encouraging people to give up smoking. The report goes on to make some strong recommendations aimed at minimising tobacco consumption. Paragraph 161 (13)(iii) recommends that: an increase in duty to achieve a price increase sufficient to reduce cigarette consumption should be imposed annually. The approach adopted by the Health Minister and hon. Members in a unanimous Select Committee report is totally different from the approach adopted by the EEC. One approach is aimed at maximising consumption and the other is aimed at minimising it.
The collective approach of hon. Members is supported by the Royal College of Physicians in its publication entitled "Smoking Or Health". At page 119 it states: These are strong arguments for using increases of taxation to raise the price of cigarettes and thus reduce the amount of cigarette smoking. At page 120 it makes a recommendation of great relevance to the debate as it deals with differential tax—namely: A differential tax could be useful if it encouraged types of smoking which are likely to be less harmful and less addictive. Thus cigarettes with higher tar yields … might well be subject to a higher tax than cigarettes with lower tar and nicotine yields … If our 236 conclusion that nicotine is the basis for tobacco dependence is correct, a trend to smoking cheaper cigarettes with a lower nicotine content might reduce the degree of dependence in established smokers and make it less likely that those starting to smoke would become dependent. We note the Chancellor's intention to introduce a tax differential in relation to different types of tobacco. We hope that this precedent heralds the progressive introduction of differential taxation of tobacco products related to the latest information on health risks. Unfortunately, it heralds no such thing. The EEC proposes to decrease the differential between the cheaper and more expensive cigarettes. In my view, the EEC starts with the wrong objective and ends up with recommendations that are diametrically opposed to the wishes of many hon. Members.
The EEC has also ignored the report of the World Health Organisation entitled "Smoking and its Effects on Health", which at pages 31 and 32 makes similar recommendations to those of the Royal College of Physicians. It states: Legislative action should be considered for the following purposes … (d) to adopt a system of differential taxation so as to discourage the smoking of cigarettes with a relatively high tar, nicotine, and carbon monoxide yield. The impact of what we are discussing is to have an opposite effect to that wished by everyone whom I have quoted.
In The Guardian on 22nd May 1976, it is said that: The first change will mean that the difference in price between small and large cigarettes will be narrowed—possibly to as little as 3p or 4p a packet, compared with the 16p difference before the Budget. That is bad news because most larger cigarettes are not in the low-tar range. That will be the impact of the Commission's recommendations, as confirmed by the Financial Secretary to the Treasury on 27th January when he said: This second step is likely to involve a further reduction in the range of cigarette prices in the United Kingdom."—[Official Report, 27th January 1977; Vol 924, c. 762.] The Financial Times said on 10th May last year: At present king size cigarettes account for only 9.5 per cent. of all cigarette sales compared with 11.3 per cent. three years ago. But, according to Player's, the changes to EEC duty methods will not only reverse the decline but could push the sector's market share up to 25 per cent. 237 The Economist on 20th March last year said: Hands up all Britons smoking small cigarettes because they seem a better bargain than bigger ones. EEC membership may soon put a stop to that, causing a big switch among the 40 per cent. who smoke 'small' in Britain. The unanimous verdict of all the commentators on this EEC proposal is that the switch will increase the relative attractiveness of the more dangerous cigarettes.
There is a further impact in that under the existing system of taxation the manufacturers have to find the duty when the leaf leaves bond right at the beginning of the process. Under the EEC "end product" system they will not have to find the duty until much later, until they have most of the money in from the retailers. This will mean a tremendous bonus in terms of cash flow. They may use that bonus to make cigarettes more cheaply at a time when many are trying to make them more expensive.

§ Mr. Ogden
May I risk another commercial? The hon. Gentleman has given the impression that the king-size cigarette is more dangerous than the normal size cigarette, which is getting smaller and smaller. He must know that there are many brands on the market of a normal size which a contain exactly the same tobacco content as king-size cigarettes. It is surely safer to have a longer cigarette and to leave a large filter and stub on that longer cigarette than to smoke some of the smaller cigarettes.

§ Sir G. Young
The hon. Gentleman obviously has professional experience. Since I do not smoke, I cannot compete with him.
I quote the Deputy Director of ASH as set out in The Guardian of 22nd May 1976: If people transfer to king size, it will be damaging because most king-size brands are not in the low tar range. I believe what ASH says on the subject, and I cannot develop the point further.
The key question is: what are we to do now? In one sense there is no use crying over spilt milk, but one must try to inject the health considerations into the EEC so that it considers broad issues of social policy when making administrative 238 decisions. That injection is needed. Secondly, we must campaign on the health education side so that the damaging consequences of EEC proposals are minimised by greater public awareness of the risks of smoking.
We must then support, but without much enthusiasm, the Treasury initiative on health grounds to impose extra tax on cigarettes. My view is that this is most unlikely to be adopted by other member countries. A prerequisite of such action is a tar table, which is not available in many member countries. I do not see them reorganising their whole system merely to accommodate a relatively late entrant to the EEC.
I believe that we should press for high ad valorem duties and low specific duties to make more dangerous cigarettes more expensive. We need to debate the Select Committee's report so that the House may express its view on the role of taxation in this respect. I have the impression that we are debating this subject somewhat in a vacuum. Some people believe that excise duty on tobacco is a legitimate health weapon, and others do not. But unless we have some policy towards cigarettes we shall never be able to influence decisions by the EEC in a unanimous way.
I know that the Financial Secretary is not without sympathy for this case because in Opposition he was associated with the health lobby. I ask him to put some pressure on his colleagues so that we may debate the subject of health in relation to smoking and resolve the matter once and for all.

§ Mr. Jerry Wiggin (Weston-super-Mare)
I do not propose to follow my hon. Friend the Member for Ealing, Acton (Sir G. Young) down the path on which he has led the House, because I believe it is a highly complicated diversion from the subject we are trying to debate tonight, and that is complex enough.
If my hon. Friend were to pursue his philosophy on extra taxes on cigarettes to other products—and I do not dispute that there is good evidence that cigarette smoking is harmful—we should be taxing sugar, butter and certainly all alcohol on an enormously increased scale, and also many other products which can be proved to be damaging to health.
239 We have to decide whether taxation is for raising revenue to pay the Government's bills or whether it is for quite different and other social purposes. So far, I believe rightly, it has been largely for raising revenue. Indeed, cigarette revenue is enormously important—over £2,250 million a year in this country, running to, say, one-fifth of all indirect taxation. Therefore, while I do not dispute my hon. Friend's concern, I believe that we would make a great mistake if we started arguing about taxation for health reasons, because it would cover such a very wide field.
The problem that we are debating tonight is a result of the very different methods of taxing tobacco in the various Community countries. As has been said, we have so far had a tax on the weight of the tobacco. The French have always had an ad valorem duty and the Italians the same, while the Germans have chosen to put a level specific financial burden on each individual cigarette. The Community is rightly, I think, attempting to come to a level method of taxing right across the board. But this presents a difficulty because of the distortion in the various markets.
I think that in this country we have always gone for a relatively high-quality product. By this I mean good tobacco, packed properly and produced on a duty basis calculated on the weight of the tobacco. This has established for us an export trade running to some £200 million a year, and we must be very cautious about what we do to disturb the home market which backs that export trade.
It is true to say that there will be a telescoping of prices and that, as a result of this change in the way in which duty is levied, there will be a narrowing of the band of prices. In the whole 18-month period during which this has been going on, a small packet of Player's No. 6 will have gone from, say, 34p up to 47p, whereas Rothmans King Size cigarettes in the same period have gone up from, say, 47p to 56p. The gap which was originally 13p is now only 9p, and perhaps on 1st January it will be as little as 6p between the king-size brand and the smaller brand.
The tobacco companies have altered their own profit margins and, therefore, 240 the figures I have given are to some extent prejudiced by their activities to try to maintain their share of the market. What concerns me is how hard our officials in Brussels are pressing the case for the British tobacco industry. I believe that there has been considerable co-operation, but there is little evidence that the arguments are gaining ground. For example, the French, who have raised their specific duty from zero to 5 per cent., will still acknowledge only a 5 per cent. duty, whereas we have dropped our specific duty from 100 per cent. to 75 per cent. and now to 55 per cent. In these proposals it will be only 52 per cent., according to the last Finance Act. We have therefore given away a great deal so far, and there is no evidence that the French are yet moving as substantially.
It seems to me—as I think it must to anyone who has studied this, however remotely—that a 50 per cent. compromise, 50 per cent. ad valorem and 50 per cent. specific, is probably the right answer Community-wide and one for which we should hold out very firmly.
My hon. Friend will be interested to know that the Secretary of State for Social Services has so prevailed upon the Treasury that it has proposed, to the Community, without previous consultation with the industry, that there shall be a specific derogation to the United Kingdom for a health tax. There is a suspicion that this might be allowed by Brussels if we were to make less fuss about going for a fifty-fifty compromise on duty. I am not giving that as more than a suggestion, but it must occur to those interested in the welfare of the industry that this is happening. I have a considerable number of constituents involved in the tobacco industry, which is one of the main employers of labour in Bristol.
We are the only country of the Community that is asking for a health tax. The Minister owes us an explanation of what has occurred. Because we are not debating the most up-to-date document, this matter has not come before us in the formal way in which, perhaps, it should have been presented.
When is the final stage of this harmonisation likely to take place? According to the original directive it should take place by 1980, but it seems to be well accepted that that date is unlikely to be met. Perhaps our Treasury has some 241 idea of when this matter will come finally to fruition.
Finally, I remind the Minister that a matter of importance to the British tobacco industry is for the Government not to leave any meeting in Brussels or any meeting of the Council of Ministers in any doubt about the interests of this country, the British tobacco industry, the export of British tobacco and above all perhaps, the British consumer. It was very easy for one of my hon. Friends to speak as he did a few minutes ago about the tobacco industry. It is the consuming public who demand the product and who continue to smoke despite the propaganda and the weight of medical opinion. Therefore, to some extent their requirements must be supplied. With those interests in mind, I hope that the Minister will answer the points I have raised.

§ Mr. Kenneth Lewis (Rutland and Stamford)
I think that most of what can be said about this matter has been said. I have listened to all of it. I should like to add a few comments.
I have no particular connection with the tobacco industry. Some of my friends sponsor things in my constituency, and all are sponsors in the sporting sense from time to time. I have always been attracted to that. It is one good side-product of cigarettes. I think that I sponsor far too much of the Treasury and the tobacco manufacturers in what I spend on smoking.
The document before us goes way back to 1976. It is what one might call a long wait and now, presumably, a swift despatch. It is the kind of thing we should like to see concerning the Government. Having had a long wait, we should like them to have a swift despatch at a General Election. However, if the Minister does not soon come back to us with whatever other document is around, we shall have had the European Assembly elections before we have had a chance to discuss the second document.
Whenever we discuss taxation of tobacco, the House gets involved in a debate on tobacco and health. This debate really has nothing to do with health, except that if we found ourselves smoking rotten imported tobaccos the health of the nation might deteriorate even more. 242 That would be the concern of the hon. Member for Brent, South (Mr. Pavitt). The debate is about the weighting of taxation as it affects the industry.
I agree with what was said by the right hon. Member for Down, South (Mr. Powell). The industry generally takes the view that the special kind of taxation that we have now is to the industry's benefit. It is to the benefit of the industry itself in so far as it makes the industry profitable and enables it to provide employment. If that were changed too far in the other direction, we could find ourselves with an industry that was run down. Then the danger would be that right hon. Gentlemen on the Government Benches would nationalise it. That would really concern the hon. Member for Brent, South a good deal more, because with a nationalised cigarette industry the Government would be running it and selling cigarettes to the public. The point is that at the moment we have a successful industry. We have an industry which provides a great deal of revenue for the Government. We want to know whether the Minister will fight the corner for this industry when he goes to Brussels.
These things are discussed through the Commission, with presumably our civil servants and the ministerial voices making an impact. It may be a small or a big impact. We hope that the Minister will make a big enough impact to make clear to our friends in Europe that we do not wish to change our system of duty to any great extent and that there is no reason why it should be changed.
I do not know whether there is a law in the Common Market which says that everything has to be organised on exactly the same basis between countries. I therefore hope that the Minister will go back to Europe and make it clear that we do not want any change, or very little change at any rate—short of minimal horse trading—so that the industry can remain profitable, continue to employ people and spend money on research.
If the industry is not profitable, it will not be able to spend money on research. If it cannot do that, any extra attention to health will make no difference at all. We have a responsible tobacco industry in this country and we ought to support it. I hope that the Minister does just that when he goes to Brussels.

§ Mr. Peter Rees (Dover and Deal)
After the great constitutional issues which have been debated earlier this might seem a rather esoteric subject. The contributions from both sides of the House have demonstrated that it is a subject of considerable importance. The Select Committee should be congratulated on having singled out this proposal for closer consideration.
It is a matter of regret that there is considerable doubt about whether this is the latest proposal. It may well be that we shall have to press the Leader of the House for further time to debate this subject and its ramifications if it turns out that there is a later document.
This document, since it concerns a major industry which employs more than 33,000 people and has about 400,000 retail outlets, must be of importance. It must be important since tobacco is a major source of revenue, contributing something like £2 billion to the Exchequer. Tonight we are concerned only with the transitional period which is due to end on 31st December 1980. With his customary dexterity, the Minister has skated around the tricky problem posed by this whole question. He has left many questions unanswered. I shall briefly attempt to probe them. I hope that the right hon. Gentleman will be encouraged to return to them at the end of the debate.
The principal question is whether the right balance has been struck between the ad valorem element preferred by France, Italy and the Benelux countries and the specific element in the composite duty preferred by the free enterprise system of this country, Eire, Denmark and Germany. The Minister may say that this is too crude a contrast, but it contains an element of truth. Certainly that is the way I see it from this side of the House.
The principal question I wish to put to the Minister is this: Why has the specific element in the duty of the United Kingdom, which under the proposal could be fixed somewhere between 5 per cent. and 75 per cent., dropped to 48 per cent. while the specific element of the duty in France and Italy has only risen to 5 per cent.? It does not seem too insular to point out that those countries of the Common 244 Market have gone further from the median line than we have.
Then there is the important question of how far there should be a health element in this tax. My hon. Friend the Member for Ealing, Acton (Sir G. Young) made a powerful contribution, which I do not think found entire support on this side of the House. I hope that there can be another occasion when we can go into the matter a little further. If, however, there is to be a differential tax taking into account the question of health, and if the criteria are to be fixed by the individual countries, the ideal of fiscal harmonisation, at least in this area, may have to be jettisoned.
The question which I wish to put to the Financial Secretary concerns the further concessions which he has had to make. What concessions does he feel he may have to make to secure this health element for the Secretary of State for Social Services? What kind of concessions has he had to make over the specific element to secure this health element in the tax or to secure this leeway for his right hon. Friend to impose some kind of differential tax which will militate against the high-tar or high-nicotine type of cigarette?
Again I come back to whether the Financial Secretary really can reassure us that he is combating with sufficient vigour the State monopolies and controlled markets of France, Italy and Benelux.
The consequence of undue reliance on ad valorem duties will lead, as my hon. Friends have pointed out, to a premium on tobaccos and undue concentration on a cheaper cigarette. I suggest that this may lead ultimately to a diminution in the revenue from tobacco duties. I do not think that the Financial Secretary has addressed himself sufficiently to this rather important aspect of the problem.
Looking beyond the transitional period, we are entitled to ask the right hon. Gentleman when he envisages that it will end. The present date fixed is 1st January 1981. Does he envisage a little more slippage? Alas, in so many Common Market matters of late, there has been found to be a certain slippage. What about in this aspect?
I cannot ask the right hon. Gentleman to forecast the precise balance that will 245 be struck, but what balance do the Government aim for in their negotiations between the specific element and the ad valorem element in these tobacco duties? I am certain that the country and the tobacco industry are prepared to face and will welcome fiscal harmonisation, provided that the dice are not loaded against the British tobacco industry and that the range of choice for the consumer is not unduly restricted.

§ Mr. Robert Sheldon
With the leave of the House, I should like to deal with some of the matters raised in this short debate, and I deal first with the main topics raised by the right hon. Member for Down, South (Mr. Powell), which found their echo in most of the sub-sequent speeches.
The right hon. Gentleman made an analysis of the main negotiating stances that the British Government will take up with the member countries of the Community. Those concern three issues: first, what weight we should place on seeking the ad valorem duties that we wish to see; secondly, what weight we should place on the specific duties; and thirdly, what weight we should place on the health element.
The specific and ad valorem duties and the relationship between them is the major subject for debate. The health element is an additional one. The right hon. Gentleman asked me not to make any trade-off in the ratio between the specific duties, the ad valorem duties and the health element. What we are discussing here is the stance that we are taking, and these are the aims that we are seeking to achieve.
I do not underrate the importance of the health element, without going as far as the hon. Member for Ealing, Acton (Sir G. Young). But certainly I go as far as my hon. Friend the Member for Brent, South (Mr. Pavitt) went. We are now in a position where the health risks are such that more than 50,000 premature deaths are occurring each year which are held to be attributable directly to smoking. The cost of this in terms of medical services, in earnings forgone and, consequently, in taxation not raised are very large. At this level they are so large that, quite apart from the correct emotional response that we all make, there is a financial response 246 which is also required to be observed when the figures get to this kind of level.
This is a matter for my right hon. Friend the Chancellor of the Exchequer to consider, in the same way as he has to consider other sources of revenue. I am not talking about any trade-off; I am trying to establish what should be our aims when we are discussing these matters further with the other member states.
It is held readily now that specific duties should be a major objective of the Government. But it must be remembered that when we moved towards specific duties there was a great deal of opposition—opposition which the House would recall to advantage—that led my right hon. Friend to talk about predominantly ad valorem duty. He was thinking then not of the shape of the tobacco industry but of wider considerations.
One of the most important aspects is that the higher the specific duties, the narrower the price range. This was one of the particular problems which emerged in the move towards king-size cigarettes. One of the great difficulties was that the tobacco industry saw that the narrowing of the range of price as a specific element, although we had worked out as long a transitional period as we could reasonably provide for, would mean a narrower margin between the king-size cigarette and the small cigarette, which was then the most common cigarette in use.
Thus, not only did the tobacco industry have the problem about machinery, but a price war of a kind that even the tobacco industry has rarely witnessed started once it was seen that the specific duty element would lead to an increase in the use of king-size cigarettes. The consequence was not only the price war but the health danger arising from people smoking much larger cigarettes. Whether people would discard a larger butt than previously was a difficult question to assess, if it could be assessed at all.
These problems led my right hon. Friend to decide that, over a long period, the relationship between the two should be predominantly ad valorem, but if we were to say a ratio of fifty-fifty we would not be too far from what might be the ultimate aim. But we have to consider not only the health aspect and the industry generally but the import and export position. I am pleased that a large 247 amount of the debate was taken up with consideration of how we would be able to meet the competition from abroad.
I would like to have heard a little more about some of the advantages we could obtain from selling our own products abroad. Our own products abroad are likely to be easier to sell in the other member countries when we have a high specific element. As far as we are concerned, it has meant that, having for imports into this country a lower ad valorem element and a higher specific element, we have been enabled to meet the competition of the generally cheaper cigarettes from abroad.
The problem about our exports is that a high specific duty not only makes it more attractive to sell abroad but the tobacco itself is more easily taxed. I give an example. If we have a high ad valorem duty on expensive cigarettes with very fancy packaging of a type which is common in this country and a type which we sell all over Europe, the high ad valorem duty will be a duty based largely on the packaging as well as on the rather more valuable contents. The other advantage for us is that a high specific element will enable us to sell our cigarettes more readily abroad. All in all, therefore, I think that the relationship which we tried to achieve was right.
May I say something now about the health element and how long it will last. What we have sought is only a derogation to enable us to carry out at some stage in the future a rise in tobacco taxation related to noxious substances. I apologise for that term, which my hon. Friend the Member for Liverpool, West Derby (Mr. Ogden) found an unhappy choice.

§ Mr. Ogden
"Harmonisation", not "noxious substance".

§ Mr. Sheldon
I am sorry. I shall try to correct the wording in future documents of this kind so far as I am able.
My hon. Friend asked why, instead of a supplementary duty, there could not be a reduction for other kinds of new smoking material. I think that that was the example which he had in mind. He will realise that one of the problems we have had—this concerns the House of Commons itself—is that, being a duty of a fixed amount, it has tended to reduce in real terms the yield of the revenue from 248 taxation. This is common to our taxes on alcohol and one or two other things. We saw what happened earlier this year when the Government tried to increase the hydrocarbon duty and found themselves unable to get a majority for that increase. The result has been that, over the years, the real revenue from these duties has been in decline. Therefore, when my hon. Friend talks about a reduction he must be aware that in order to maintain the real level of revenue one requires a rise simply to take that into account.

§ Mr. Ogden
Which is exactly what the Chancellor said to the House when he increased the duty on tobacco only six months ago. If my right hon. Friend is concerned only with the revenue, he will get exactly the same amount of revenue as he has now if he increases the duty on the high-tar, high-yield cigarettes and reduces it on the low-tar, low-yield type.

§ Mr. Sheldon
I note that my hon. Friend is anxious to reduce taxation on tobacco. I believe that over a period, with the effect of inflationary pressures, this is an aim which will lead to a reduction in revenue rather than an increase or even the steady maintenance of the revenue that he foresees.

§ Mr. R. C. Mitchell (Southampton, Itchen)
My right hon. Friend seems to be advancing a most peculiar argument. The Government appear to be saying "We shall pay a lot of attention to the health aspect so long as it does not reduce the total that we receive." Surely, if it is shown that the new smoking materials are less injurious to health than others are, there must be a strong case for reducing the taxation on them on the health grounds to which my right hon. Friend has referred.

§ Mr. Sheldon
This would be something quite new. The claim that new smoking material is less dangerous has not been proved to any of the competent authorities. In fact, the Hunter Committee itself made the assertion that the new smoking materials are not more dangerous than tobacco. It did not go further than that. If the matter were to go further than that, these would be new factors which successive Governments might wish to take into account in some way.
249 The position as we have it now is this. What we should require in order to maintain the revenue would be increases of a kind which has been obtained only with some difficulty through the House.
The hon. and learned Member for Dover and Deal (Mr. Rees) asked why the specific element was so low. I think I answered that when I said that the aim of the Chancellor of the Exchequer was to obtain this approximate balance, with slightly more revenue coming from ad valorem duties. I think I made clear that the concession for health, about which the hon. and learned Gentleman was uneasy, will not be made by itself, but we stand by the main objectives on the ratio as I have put it; the health aspect is additional.
The hon. and learned Gentleman also asked when the transitional period would end. It is true that the end is assumed to be 1980, but I see nothing but problems in trying to achieve harmonisation in anything like that kind of period. Whatever the final decision, the bracket between which specific duties in different countries is fixed will be so wide that to move from there to harmonisation in one go will require a great deal of optimism about the likely convergence of policies in a way that I do not see. But that is not for us to decide here at this stage.
That is something for the future. What we have to discuss here is our negotiating stance for the next stage that will be debated in the Commission before too long.

§ Mr. Hugh Dykes (Harrow, East)
Will the right hon. Gentleman clarify one point that he made just after the points of order were raised? I raise this because it is important to those who will follow Scrutiny Committee debates in the future. The right hon. Gentleman referred to negotiations and to this being a kind of negotiating document or a working paper, or he alluded to it as being like a working paper. Although the document might be substantially out of date and there might be a later document that will be presented on another occasion, this is a piece of draft legislation in the Community context. It is not negotiation on that document that is important. What is important is that the Minister has put the draft legislation to the House for 250 debate and the House has responded and made points on that draft legislation, not on working papers.

§ Mr. Sheldon
The hon. Gentleman must be a little confused. I was referring to the formal document required by the Scrutiny Committee for an examination of these matters. The whole purpose of these documents is to enable a debate to take place in the House so that the Government can learn of the concern of different parts of the House over the negotiations that are to take place. The documents have allowed an examination of the various views that are put forward. I do not think that working papers add anything to the argument about whether there should be more specific duties or more ad valorem duties, health-related or not health-related.
I think that we have had a wide-ranging debate. It has not been circumscribed, and I have found it useful in understanding the views of the House. I shall take full account of them and put them to the Commission during the arguments that lie ahead.