TOBACCO AND ALCOHOL

HC Deb 16 May 1980 vol 984 cc1973-82

Motion made, and Question proposed, That this House do now adjourn.—[Mr. MacGregor.]

1.32 pm

Mr. Tristan Garel-Jones (Watford)

I am grateful for the opportunity of raising this important subject. My purpose is not to discuss the merits of the case against smoking and drinking but simply to underline the fact that most reasonable people accept that abuse of tobacco and alcohol causes serious damage to health, not to mention the economic and social side effects.

It is also common ground that it is legitimate for the State to seek to discourage the abuse of those drugs and that one of the weapons in its armoury is the imposition of duties. It is an open secret that my right hon. and learned Friend the Chancellor of the Exchequer wished to place heavier duties on tobacco and alcohol in his recent Budget but was inhibited from doing so by the effect it would have on the retail price index. Suffice it to say that a 10 per cent. increase in the price of alcoholic drink and tobacco would increase the index by 1.22 per cent.

The fact that this inhibition has had an effect on successive Chancellors of the Exchequer can best be illustrated by taking the price of a bottle of whisky and a packet of 20 cigarettes as a percentage of gross earnings in October 1945 and October 1979. For whisky, the figure was 21.3 per cent. in 1945 and 4.9 per cent. in 1979. For a packet of 20 cigarettes, it was 1½7 per cent. of gross earnings in 1945 and 0.7 per cent. in 1979. For those items to have maintained the same cost in relation to gross earnings, the price of a bottle of whisky today should be £20.60 and a packet of cigarettes £1.60. That is the effect over the years of the inhibition.

Support is growing for the Chancellor and his successors to be given a free hand to tax these drugs as severely as they deserve. Suggestions have been put forward to give Chancellors more freedom of action. I shall outline the main suggestions in the hope that my hon. and learned Friend will give the House an indication of which suggestion, if any, the Government feel merits further consideration.

The first, and superficially the most attractive, is to remove alcohol and tobacco from the RPI. Referring only to tobacco, that suggestion was made first by my right hon. Friend the Member for Worthing (Mr. Higgins). Support has come from both sides of the House. However, at the end of the day, my hon. Friend the Financial Secretary may prove to have been right in saying that the purpose of the RPI is to measure what happens to the retail prices of the items that people buy. People buy cigarettes, tobacco and alcohol, although some of us may regret that. An index that excluded them would not be regarded as properly measuring retail prices. The Financial Secretary is merely saying that the RPI is the RPI is the RPI. Blunt and crude instrument though it may be, I suspect that it will remain the RPI for some time to come.

Another suggestion mooted is an alter native index, which would not take account of the cost of dying, to borrow the expression of my right hon. Friend the Member for Worthing. Few hon. Members have a more honourable and consistent record in the fight to raise the levels of assistance given to poor families than my hon. Friend the Member for Kensington (Sir B. Rhys Williams), who had hoped to be present today. He points out that those of us who hope that the Government are committed to regular uprating of child benefit, linked to the RPI, cannot argue that that linkage should take place with the RPI as it stands. I have already pointed out that a 10 per cent. increase in the costs of alcohol and tobacco would push up the RPI by over a point and add £33 million to the cost of child benefit. None of us could argue that an increase in the cost of alcohol and tobacco would add one penny to the cost of supporting children.

When arguments about the effect of a rise in prices on needy families are advanced, the RPI is quoted. However, it takes no account of family size and makes no distinction—nor should it—between essential and non-essential items. What are the Minister's views on setting up a family budget index which would include only those items essential to the budget of poor families with children? I do not advocate such an index as a challenge or alternative to the RPI, but it would give us a clearer and more accurate picture of the problems facing the poor.

The third possibility is to index-link the duties on alcohol and tobacco to the RPI and increase them quarterly by at least the amount shown in the RPI. That would have several advantages. First, it would stop dead the trend over the past 30 years for those drugs to become steadily cheaper. At the least, their prices would keep pace with other prices. Secondly, by uprating on a quarterly basis, the increases would not have such a direct step effect on the RPI. Thirdly, the Chancellor would retain the option to increase the duties by more than the figure indicated in the RPI.

I cannot end without referring in general terms to the general knock-on effect that the RPI figures have on the wage bargaining process and on the most important role that the trade union movement could play in this area, although I recognise, of course, that to do so goes beyond the area of responsibility of my hon. and learned Friend the Minister of State.

The trade unions are in business to get the best wage bargains that they can for their members. In the conduct of their negotiations, it is obvious that they will use the RPI as a marker and a bargaining counter. The trade unions are also rightly proud of the role that they have played in ensuring the health and safety of their members.

I draw attention to some recent remarks by Mr. John Ellis, the national welfare officer of the Civil and Public Services Association, Britain's biggest Civil Service union. He said: There is growing danger to health from alcohol throughout our society. Alcohol ought to be treated in the same way as soft drugs. He went on to talk about the growing trend of midday drinking and the danger that this posed to workers in industry in control of machinery, and so on.

I appreciate that this is outside the scope of the Treasury's responsibilities, but I ask my hon. and learned Friend to comment on and speculate about the possibility of the Government and the TUC agreeing to disregard the alcohol and tobacco input in the RPI in wage bargaining. If the TUC was prepared to move with the Government on that front, I believe that it would make perhaps the most significant contribution to the health, welfare and safety of its members that it has made for many years.

I believe that the widespread concern expressed from both sides of the House about the impact made by alcohol and tobacco on the RPI and its effect on the capacity to levy duties thereon cannot and should not be ignored any longer. I hope that my hon. and learned Friend will be able to give some intimation that the Government are now considering seriously ways of resolving this problem.

1.42 pm

The Minister of State, Treasury (Mr. Peter Rees)

I offer my congratulations to my hon. Friend the Member for Watford (Mr. Garel-Jones) on raising an issue of prime importance which we have touched on only cursorily in our debates of late.

The matter was raised during the Budget debate, and the House will recall that my right hon. and learned Friend the Chancellor of the Exchequer said on 1 April, when winding up the Budget debate, that he was willing to listen to arguments that tobacco and alcohol should be removed from the RPI, which is one of the prime suggestions of my hon. Friend the Member for Watford.

However, my hon. Friend will recall that during the Second Reading of the Finance Bill, as recently as 8 May, in answer to my right hon. Friend the Member for Worthing (Mr. Higgins) to whose contribution in this area J pay tribute, my right hon. Friend the Chief Secretary said that this might be a matter for consideration by the Treasury and Civil Service Select Committee. Indeed, there may be competition between the various Select Committees about which should take on board this prize, if it is a prize, but, as I am charged only with certain limited responsibilities, it would be inappropriate for me to commend it to any other Select Committee. I am not sure that it is altogether appropriate for me to recommend it to the Treasury and Civil Service Select Committee, which is appropriately at arm's length with the great Department with which I am associated.

The comments of my right hon. Friend the Chief Secretary were endorsed enthusiastically the next day by my right hon. Friend the Secretary of State for Social Services.

It is right to observe that the retail price index has become in our society and in public life a yardstick of importance. I need not go over the ground which has been covered so eloquently by my hon. Friend the Member for Watford. In the fiscal area, it governs the threshold to a degree. In the area of social security, various benefits ultimately, directly or indirectly, are determined by it. As my hon. Friend has pointed out, wage negotiations are considerably, if not explicitly, affected by the retail price index.

It is fair to observe that successive Chancellors of the Exchequer, judged by their public utterances and not from any indiscretions at the Treasury, when considering fiscal changes, have been affected by the impact of what they might be doing on the retail price index. It might interest the House to know the weighting of the particular ingredients in the retail price index at 1980. Tobacco represents 4 per cent., beer 4.9 per cent., spirits 2.2 per cent. and wines 1.3 per cent. That is a fairly considerable element. As my hon Friend has pointed out, this means that the RPI cannot really be regarded as an absolutely accurate indicator of what the average family consumes.

The impact of this year's proposals on the RPI, as reflected in this month's increase, is 1.1 per cent. That covers the whole raft of indirect tax measures. The duties on alcohol represent about 0.4 per cent. and tobacco 0.3 per cent. It is fair to observe that the increases this year represent only one year's revalorisation and do not take us back to 1977, the last occasion when there was a substantial increase.

My hon. Friend has properly and relevantly put the case on health grounds. It would not be appropriate for me to analyse the evidence; my hon. Friend and the House have it well in mind. It would probably be a more appropriate subject for a Minister from the Department of Health and Social Security. If, however, I may be permitted one observation, I feel that possibly the health case against tobacco is slightly stronger than that against alcohol. I do not know whether I am expected to develop that theme or set any personal example. I do not see myself as the Mendes-France of the Treasury team, confining myself to milk. It is not perhaps for me to draw attention to the stern puritan approach of my hon. Friend, limited though that approach may be.

My hon. Friend has raised several practical proposals, the first being that alcohol and tobacco should be removed from the RPI altogether. The House will know that the Government do not have direct responsibility for the RPI. An advisory committee reports to my right hon. Friend the Secretary of State for Employment. The difficulty is practical. If one constructs an alternative index, how long will it take to command the interest and respect of those who have to determine their actions, in any degree, by reference to it? That is a matter of speculation, but it could and should be considered.

To get the problem in perspective, may I say that I had an analysis prepared of the difference it would have made if alcohol and tobacco had been excluded from the RPI at January 1980 and preceding years. The percentage change in the RPI in 1980 over the previous January was 18.4 per cent. If alcoholic drink and tobacco had been excluded, the increase would have been 18.2 per cent., a difference of only 0.2 per cent. That was obviously before any considerable alterations in duties had taken effect, leaving aside perhaps VAT, the full effect of which had not worked through. It is interesting that there was not a very considerable difference.

Taking the position in January 1979 against the position in 1978, if alcohol and tobacco had been excluded, there would have been an increase, curiously enough, in RPI. The increase over the preceding year on the existing RPI was 9.3 per cent. If alcohol and tobacco had been excluded, the increase would have been 10½1 per cent. That is a curiosity that reflects on the indirect taxation policies of the previous Administration. We know from their published utterances that they were deeply concerned about the impact on wage bargaining and other similar matters.

In 1978 the increase over the previous year's RPI was 9.9 per cent. If alcohol and tobacco had been excluded, it would have been 9.8 per cent. I could take the House back to 1975, but I merely say that the pattern remained the same. The impact is not as considerable as my hon. Friend might have supposed. I know that he has undertaken considerable research. He could argue that if my right hon. and learned Friend the Chancellor of the Exchequer were to introduce the increases that he is canvassing the difference might be much more considerable. He could also argue that only minor discrepancies have been revealed because we were in an era when Chancellors were rather more sensitive to the possible impact of such increases.

Could we construct an alternative index for specific purposes? Should we have a family budget index? My hon. Friend takes a close interest in child benefits, and, as he has fairly said, the RPI is not an accurate measure of the cost of bringing up children. The general observation may be made that, whatever alternative or specialised index were to be constructed, it would have to command approval and understanding in the areas in which it was to be used. To a degree, we have a pensioner index. There are measurements of how price changes or fiscal charges have an effect on pensioners.

My hon. Friend asked whether duties being index-linked and revalorised quarterly. Some duties are ad valorem. We know that VAT, which is one of the biggest revenue raisers in the Chancellor's bag, is ad valorem. My hon. Friend's proposition would mean restructuring many of our indirect taxes. I agree that we should not shrink from that, although the administrative upheaval would be fairly considerable. We should never be oppressed by that, although it is a factor that should be taken into account.

As my hon. Friend will be aware, it would probably be necessary to collect the duty on alcohol at an earlier stage. As I said briefly in my reply on Second Reading of the Finance Bill, it would probably mean shifting the alcohol duties to the retail outlets. I doubt whether that would be entirely welcomed by those outlets. However, if it were to be shown to be in the national interest, it would have to be contemplated. My hon. Friend's proposal might make calculating difficulties for the tobacco companies. It might be necessary to consider pushing collection forward and collecting at retail or wholesale outlets. There are difficulties—I do not pretend that they are insuperable—that have to be taken into account.

My hon. Friend suggests, perceptively, that revalorisation should be quarterly. There would be a considerable element of forestalling. For example, it would not be beyond the wit of the public to discover what the change in the RPI had been and to rush out before every quarter day to stock up their cellars or tobacco cabinets.

Mr. Garel-Jones

That happens before Budget day.

Mr. Rees

As my hon. Friend correctly says, the gloomy assumption is nearly always made that the Chancellor, of whatever party, will increase alcohol and tobacco duties. There is considerable forestalling in the week or month before the Budget. My hon. Friend's proposition would produce an interesting change in the pattern of retail sales.

My hon. Friend will not expect me to come to any firm conclusion at this stage. He has raised a far-reaching issue that requires careful examination. The side effects in areas for which I am not directly responsible may be considerable. That is why I commend the suggestion that one of the Select Committees should take the issue on board.

My hon. Friend raised the question of wage negotiations. I am not qualified to speak on that subject, but I am sure that certain members of the trade union movement would see the force of his observations. They are responsive to their own electorate—the people for whom they are negotiating. Though they may be impressed by the health argument advanced by my hon. Friend—for which I have a certain sympathy—equally those on whose behalf they are negotiating may be less responsive to that kind of argument. It is no good their negotiating for their members a deal that may be good for the health of their members but not so good for their pockets. We must take into account certain realities, and that is perhaps as far as we can take this interesting question today.

I congratulate my hon. Friend, who is right—dare I say it to him and to the House—to force this particular question upon our consciousness. It is a matter that we shall need to examine more widely and deeply. Whether that can more appropriately be done on the Floor of the House, before a Select Committee or before some outside body is no doubt a matter for debate.

We are grateful to my hon. Friend for having raised the matter, and if I have not given him an absolutely conclusive answer I hope at least to have demonstrated to him that we have not entirely neglected the question. We have reflected upon it, but it is a matter that will demand over the weeks, months and perhaps years to come considerably deeper examination than we have been able to give it today.

The more these problems are aired, the more our fellow countrymen will, I hope, come to realise that if a different yardstick is to be contructed by reference to which we are to determine fiscal, and indeed other, questions perhaps we should be more conscious of the health implications which my hon. Friend has raised today than we have been in the past.

Question put and agreed to.

Adjourned accordingly at four minutes to Two o'clock.