RATES OF DUTY

HC Deb 23 January 1995 vol 253 cc105-14

Question proposed, That the clause stand part of the Bill.

The Chairman

With this it will be convenient to discuss Government new clause 4—Tobacco rates: further provisions.

Mr. Heathcoat-Amory

The clause raises the duty on tobacco by between 5 and 6.4 per cent. It adds 10p to the price of a packet of cigarettes, including VAT. It fulfils a commitment given in the previous Budget to raise tobacco taxes by at least 3 per cent. in real terms. That is for revenue purposes and health reasons, since evidence shows that price is an important factor in persuading people to give up smoking. The increase came into effect from 6 pm on Budget day.

New clause 4 increases tobacco duties by 3.7 per cent., other than for hand-rolling tobacco. The sole reason for that increase is that it will recoup some of the revenue lost by dropping the second stage of VAT on domestic fuel and power.

The increase will yield £205 million in 1995–96, and will increase the cost of a packet of cigarettes by 6p, including VAT.

Ms Primarolo

In new clause 4, the Government propose a 4 per cent. increase in tobacco duties, which will mean an extra 6p on the price of a packet of cigarettes, on top of the 1 Op increase announced In the main Budget.

While the Opposition accept that increasing duties is one way to reduce smoking, we cannot close our minds to the distributional effect, especially as the increase will hit low-income earners hardest, as they smoke most. A recent analysis by the Policy Studies Institute concluded: Smoking is greatest among the most disadvantaged families: nearly three quarters of council tenants receiving means-tested benefits smoke, spending £16 a week or £1 in every £7 of their net disposable incomes. The children of poor families who smoke are three times more likely to be going without essential items than the children of similar poor families who do not smoke. For that reason, a ban on tobacco advertising is the most effective educational and preventive measure and a crucial aspect of any anti-smoking campaign.

This evening, the Minister tried to hide behind a health priority to justify the increase in tax. Smoking-related diseases account for about 110,000 premature or avoidable deaths a year. It is estimated that 50 million working days are lost annually through smoking. Recent evidence shows that about one non-smoker a day dies as a consequence of inhaling other people's tobacco smoke.

During the Second Reading debate on the Tobacco Advertising Bill, the then Minister for Health said: We are taking action on price because we know that there is a good, solid evidence that price influences consumption."—[Official Report, 11 February 1994; Vol. 237, c. 611.] As they did during the debate on alcohol, the Government completely close their eyes to the implications of their tobacco taxation policy and the way in which it will provide opportunities for tobacco smuggling. Smuggling not only undermines the industry here, and therefore will eventually weaken what tax base there is, but undermines the Government's health policy, because the contraband goods are unregulated and available to the very groups for whom the Government's health policy, "The Health of the Nation", sets targets to reduce smoking—the 11 to 15-year-old age range.

By pursuing the tobacco industry, through taxation, the Government are undermining that. We have made clear our views on the health aspects, on curtailing smoking and encouraging people not to smoke, but taxation is not the way to do that.

Dr. Godman

My hon. Friend will recall that the Minister suggested that an increase in tobacco tax led to a reduction in the consumption of cigarettes and other tobacco-related products. Is it the older smoker who is deterred by such increases or the younger, newer smoker?

Ms Primarolo

There is not sufficient detailed evidence available on that subject. Clearly, what my hon. Friend calls the older smoker may be deterred by the increase in taxation. Our concern is also to prevent young people starting to smoke in the first place. The problem is that, because of the Government's taxation policy, smuggled tobacco goods are being sucked into the country, undermining the industry and, through the sales networks, providing access to smoking for young people.

Other countries have experienced similar effects. I shall use the example of Canada especially, which sought to use simply taxation on tobacco products as its method of introducing and policing a health policy to encourage people not to smoke. Two things happened. First, there was massive importation across the United States border into Canada and, secondly, Canadian-produced cigarettes were exported to the US and smuggled back in and sold. It undermined the health policy and proved to be totally ineffective. In the end, the Canadian Government had to reassess their position on imposing high taxation on tobacco products.

In this country, apart from the smuggling, mail order cigarette companies are emerging. I should correct myself. They are not cigarette companies, they are sellers of tobacco products through mail order, which thereby avoid taxation and undercut the existing industry. As yet, the Government have not come up with any proposals to deal with that. Several other problems are being experienced too, such as the smuggling of huge quantities of hand-rolling tobacco, especially the product Drum. Of all detected smuggling, 67 per cent. is of tobacco.

The industry itself has produced substantial and convincing arguments. I say that as a committed anti-smoker. The information provided by the tobacco industry shows only too clearly the disastrous route down which the Government's taxation policy is taking us. We will lose control of tax. We will lose control, through tobacco products, of our health policy and we will undermine considerably the country's industry.

We always return to the same arguments. There is no proper commitment, through the Government's policy on Customs and Excise, to preventing illegal importing of products. There is no clear commitment to balancing a health policy of taxation, education and banning of advertising as a way in which to pursue our health needs. The Government's taxation policy will undermine their own woefully inadequate health policy, which demonstrates clearly, yet again, that the Government have a series of Departments contradicting and working against each other, rather than collaborating and taking the country forward.

Mr. Harry Greenway (Ealing, North)

I cannot go down the same road as the hon. Member for Bristol, South (Ms Primarolo). Hon. Members are well aware that Labour Front-Bench Members have in their sights punitive levels of taxation on tobacco. They have always wanted higher taxation than the Government have ever proposed, including the measures in the current Budget; 10p and 6p is not as much as Labour would like to see and the industry is aware of that. The 600 people in my constituency who work for Gallaher Tobacco in Northolt are aware of that—[Interruption.] It is no good the hon. Member for Bristol, South trying to interrupt me from a sedentary position.

My constituents are aware that the Labour party is completely illiberal in the sector that I have described. Labour Members do not accept people's right to choose whether to smoke. We are a responsible society. I am not a smoker, but I defend the right to choose.

The hon. Member for Bristol, South and her Opposition Front-Bench colleagues might care to reflect that, whether we like it or not, some people are comforted by smoking. To hide behind the smokescreen of a call for a ban on tobacco advertising is the most obviously crude tactic that I have seen. It will not convince anyone. The hon. Member for Bristol, South should be ashamed of what she said.

9.30 pm

Dr. Godman

I can understand the hon. Gentleman's desire to defend the interests of his 600 constituents who are employed in the industry. However, how would he campaign for a dramatic reduction in the consumption of cigarettes and other related products?

Mr. Greenway

Certainly not in the way that the Labour party is campaigning for it. As a result of Labour's pressure, cigarettes are being imported from such countries as France and Germany. That is undermining the sales of companies in this country and it led a few weeks ago to the loss of 209 jobs in my constituency. Those jobs have been exported to France and Germany. It is not that people are smoking less, it is that they are smoking differently. Our people are losing their jobs and Labour Members think that that is clever. They should think again.

My constituents and others who work in the industry are good, honest and honourable people. They are not pleased—I am not pleased—with the double whammy that they have received in the Budget—[Interruption.] The Labour party has aided and abetted such a policy for many years and it continues to do that. People in my constituency and elsewhere will not be deceived by the hypocrisy that we have heard this evening from the hon. Member for Bristol, South.

In 1995, the United Kingdom tobacco industry will lose sales to the continent as a result of high UK tobacco taxes. Excise duties on the continent are markedly lower. The United Kingdom is at a serious competitive disadvantage and the Government are losing revenue. Since 1993, there has been a significant increase in the level of legal, and more noticeably illegal, cross-border shopping for tobacco products. That must be noted.

The Chancellor's decision to increase tobacco duties twice in a fortnight—in his 1994 Budget and subsequent mini-Budget—has significantly widened the tax-induced price differentials between UK tobacco products and their European Union equivalents. That policy will exacerbate the problems caused by legal and illegal cross—border tobacco trading in 1995.

The Treasury and Civil Service Select Committee, in its cross-border shopping inquiry last year, and the Government, have acknowledged that cross-border trading for tobacco, particularly for hand-rolling tobacco, is a major cause for concern. The United Kingdom tax burdens on tobacco are among the highest in the European Union. United Kingdom tax on hand-rolling tobacco—HRT—is the highest in the European Union while UK tax on cigarettes is the second highest.

Tax levels are the prime determinant of price and the tax incidence on UK cigarettes is more than 76 per cent. of the retail price. Large savings can be made by shoppers travelling to low-tax European Union countries and stocking up on duty-paid tobacco goods, particularly cigarettes and HRT. Opportunities for bargains have attracted shoppers for the savings and bootleggers for the profits.

The latest official estimates of revenue loss from tobacco goods—[Interruption.] My constituents will note that the hon. Member for Bristol, South and Opposition Front-Bench Members are laughing. They think that it is funny, but my constituents are not amused. The latest official estimates of revenue loss from tobacco goods, relating to 1993, totalled £120 million. That comprised £100 million from shopping and £20 million from bootlegging, no less, based on an assumed 5 per cent. detection rate. Revenue losses from tobacco bootlegging were about 65 per cent. of the total revenue loss on all excise goods.

Industry data and market research demonstrate a steady growth in personal cross-border shopping. More significantly, there appears to be a rapid and worrying increase in smuggling or bootlegging, particularly for HRT. Evidence suggests that detection rates could be as low as only 1 per cent. for bootlegged goods. The retail value of United Kingdom sales losses on tobacco goods to continental companies is estimated to be £375 million in 1994. Revenue losses on tobacco have therefore been badly underestimated by Her Majesty's Government and could be as much as £275 million a year, comprising legal shopping at £100 million and bootlegging at £175 million.

It is now believed that more than 25 per cent. of the HRT market is sourced from the continent. Twelve per cent. of HRT smokers in the United Kingdom now say that Drum, which has been mentioned and which, for trademark reasons, is not sold in the United Kingdom, is the brand that they smoke most often. A further 6 per cent. smoke Drum regularly. A great many cross-channel van traders are now buying HRT because of its profitability, in addition to beer. Also, 67 per cent.. of all seizures by Customs in the 12 months to June 1994 were made up of tobacco products. HRT alone accounted for more than half of all seizures.

There is a wide discrepancy between a reduction in United Kingdom retail sales of HRT and an increase in sales of cigarette rolling papers. In fact, the HRT market may even be growing, despite official statistics showing a rapid fall in sales. Unless the Government moderate their tobacco excise policy, the significant growth in HRT cross-border trading will trigger similar activity for cigarettes, with associated serious social consequences from criminal activity.

Tobacco revenue accounts for 12 per cent. of all Government taxes on consumer goods. Any reduction in that revenue would have serious implications for the Treasury, which is already facing losses on cross-border trading. [Interruption.] We do not need the Opposition chorus to support the brief to which I am referring. I just wish that they actually believed in what I have been saying and supported it, but they do not. We know that, and the industry knows that. The 209 people in Northolt in my constituency whom I mentioned know that, in this matter, the Labour party is their bitter enemy, and so do I.

Mr. Michael J. Martin (Glasgow, Springburn)

When I first came to the House, 3,000 tobacco industry employees worked in Springburn. Only a few weeks ago, Gallaghers announced that the last 50 employees have left my constituency. It is interesting to note that my native city of Glasgow made its name during the industrial revolution. The tobacco lords, who made their money from the tobacco industry, were able to finance the industrial revolution in Glasgow. In a sense, Glasgow was made because of the tobacco industry.

This debate highlights the tobacco industry, but the Government could hammer another industry with tax tomorrow. I do not know how many people have been employed in the tobacco industry since the Government came to office. There must have been many thousands of employees, but the number is dwindling every day.

When the Government took over in 1979, I heard a lot about the Luddite attitude of workers. The Government could never say that about the workers in the tobacco industry. Tobacco firm owners— even the notorious Hanson— would be able to say that not one worker in the tobacco industry ever turned his back on the new technology that played a big part in those workers losing their jobs.

It is to the credit of the tobacco employers and the trade union movement that they were able to negotiate for the workers excellent wages and conditions and retirement for workers in their early 50s. The industry set an example in equal pay; in fact, there was equal pay in the industry before the Trades Union Congress and other wings of the trade union movement had begun their campaign for equal pay. Those who visited tobacco factories saw that the workers enjoyed excellent cafeteria facilities, pensions and other fringe benefits.

No one can defend the effects of tobacco on health. Anyone who has met a person suffering from emphysema or bronchitis must say that we should never have had cigarettes. If only we could have stopped cigarettes, we might have helped prevent the terrible lung cancer which— while I am not a medical man— I understand is a form of cancer that cannot be cured. No one can defend the health situation and if it means putting up taxation to stop someone smoking, I am all for that.

My hon. Friends mentioned that the smuggling that is going on across the channel has been helped because the Government have taken it upon themselves to sack Customs and Excise officers. Customs and Excise was a dedicated service, and it was considered to be a highly professional service in which a person could get a career, but morale now is terrible.

If people can smuggle tobacco across the channel, it must be the case that cocaine and heroin can also be smuggled. If the Government are getting more money from people who smoke, they should be reinforcing customs facilities, rather than breaking them down.

There are housing estates in poor areas—it always seems to be poor areas that are hit—where people turn to alcohol and tobacco because of despair. Many of the early socialists were teetotal or in favour of prohibition because they saw the terrible effect that alcohol and tobacco could have on ordinary working men and women. In those housing estates, the people who are smuggling beer are selling it from the back of a van and saying as an incentive that if a person buys two dozen cans of beer, he will get a free pack of hand-rolling tobacco. The people smuggling beer are also smuggling tobacco.

If anything can be learned from the tobacco industry, it is that the Government have killed the goose that laid the golden egg. They have destroyed the work force, but not the employers. Hanson will never be out of a job, but he went into the W.D. and H.O. Wills factory in my constituency and took every job there. That was a factory where people had worked loyally for generations, and they had built up the industry. He took away the tradition that the tobacco owners—the Mitchells and the Gallaghers—had. They had a reputation for doing good in the community.

The Mitchells built the Mitchell library in Glasgow. Gallaghers did a great deal, particularly during the troubles in Northern Ireland, to try to break down the sectarian problems, when it used its finance. But Hanson did not. He came into a factory, a list B building of special design and architecture, sacked the work force and moved the machinery down to Bristol. Then he had the brass neck to send some of his minions to see the local Member of Parliament—me—who said, "We would like to develop this building into a lovely office block, take away the offices from the centre of Glasgow and bring them into our new office block." I told them—I will not use the language here—where to go.

People such as Hanson and many others make such a lot of money. They can diversify, but the work force in Glasgow cannot. They cannot go into other industries. When I spoke to the tobacco owners, I said, "If you get into insurance, potato crisps or restaurants"—or many of the other things that the tobacco industry does—"take some of the new services in which you are investing and put them where you made your money: in Glasgow, Nottingham, Bristol and Liverpool." They would not do that.

9.45 pm

Therefore, my constituents feel bitter about some of the tobacco owners, but not Gallahers, which has been decent. Okay, there must be redundancies. We accept that the tobacco industry has had a difficult time, but keep putting up the taxes on it and we shall not be able to tax producers who are in Italy, France, Germany or even further afield, because the tobacco will be smuggled in. This country will have no tobacco industry. I know that the health people will say three cheers, but if Britain does not have a tobacco industry, that does not mean that we shall lose the health problems, because they will be brought in from somewhere else. We must tackle the problem through education and other things.

I despair that if the Paymaster General can do that to an industry in which the work force did not turn its back on new technology, were loyal and had excellent industrial relations, he can start on another industry and give it the same problems that he gave the tobacco industry.

Mr. Peter Griffiths (Portsmouth, North)

My hon. Friend the Paymaster General commended the measures to us tonight, I felt, without great enthusiasm. In his comments, he did not seek to analyse their likely fiscal effect. Rather, he made a simple statement that the Government needed more money because they do not have the tax on domestic fuel. He went on to say that there is a powerful health lobby outside, which would applaud what we are doing today. That is not a reason to develop the Budget of the nation.

Those arguments will probably carry the day. I do not know whether we will accept the measures, but I assume that we probably will. I ask my hon. Friend to give thought to what he is doing tonight. He may simply be speaking on behalf of others, but what he is doing is very serious. I do not wish to repeat what has been said, but mention has been made of employment, and if we simply buy tobacco that is processed overseas, we lose jobs in our tobacco industry. That cannot be to the advantage of our economy.

An important sector, although it has not been mentioned, is the retail tobacconists—the wholesalers, too, but the retailers in particular—very few of whom nowadays are the specialists they were in my youth. Nowadays, they are often part of a local social service that provides a range of products, sold during long hours throughout the day, of which tobacco profits are an essential factor. If those shops close, not only will the Government lose revenue, but local people will lose services. Surely that cannot be to the benefit of the economy, which is what the Budget should be about.

My hon. Friend the Minister prayed in aid the health factor. I was a teacher for 30 years. I do not smoke cigarettes and strongly believe that, as the hon. Member for Glasgow, Springburn (Mr. Martin) said, it would be wonderful if tobacco smoking had never been invented. But it has and millions of people in this country smoke, either by choice or because they are addicted. The measures that my hon. Friend the Minister has proposed will not protect their health, which can be dealt with only by a process of education. What is happening goes against all the principles of educating young people. Many young people smoke not because they like the taste of tobacco or are addicted to nicotine, but because they think that it makes them appear grown up and sophisticated and because smoking is not approved of by older people.

The taxation of tobacco products has reached the point where it is creating a massive flow of smuggled tobacco. I represent a south coast port, so I know about that problem. As far as we know, only 1 per cent. of the smuggled tobacco is being stopped and 99 per cent. is getting through. How else do we explain the fact that most tobacconists sell very little hand-rolling tobacco compared with five years ago, but 20 per cent. more tobacco papers? The Minister must deal carefully with that question between now and the next Budget, and ask whether his proposal assists the health education programme of other Departments.

I accept that the Government need money, but adding an excitement factor to smoking by making young people feel that they are getting hold of contraband goods makes smoking even more exciting. That is directly opposed to every part of health education.

The bulk of tobacco that enters the country carries no health warning. Packets from overseas carry health warnings in foreign languages, and youngsters cannot necessarily understand them.

So this is not a health measure and it is not right for my hon. Friend the Minister to say that it is about health. It is intended to raise money, which is the Budget's purpose. I am prepared to accept that it is necessary for the Government to receive revenue, but we have now reached the position where marginal increases in the price of tobacco do not bring in proportionate increases in revenue. That is why, in his opening speech, my hon. Friend drew attention to the fact that he was making different arrangements for hand-rolling tobacco and cigarettes. He must recognise the effect that such measures have on the marketplace and realise that the great feature of this Budget was the public revolt against what was seen as an unfair tax. Tobacco smokers are unlikely to rise up against the tax, as old-age pensioners did against VAT on fuel. But they have a sense of what is fair and decent. There are millions of them and they have votes. They will remember whether they were treated unfairly.

I suggest that, in the next Budget, the Government carefully consider a reasonable and fair tobacco regime that is geared to persuading our colleagues on the other side of the channel to raise their taxes on tobacco, so that there is more equality to get rid of the smuggling that now takes place. My hon. Friend the Minister would then be able to tell the House that he would be able to collect his revenue. He would also be able to tell us, and look us in the eye as he did, that he was working in the interests of public health.

Dr. Godman

I wish to ask the Minister a couple of questions about new clause 4, to which I give a guarded welcome. I say "guarded" because I believe that the tax increase on tobacco products should have been much higher. I say that as someone who began smoking at the age of 12 and who, over time, became a 40-a-day man. I now speak as a convert. Just a few weeks ago, I was in the company of a young couple with a two-year-old son. I was horrified when those otherwise mature, sensible youngsters smoked in the company of their tiny son. I thought that that was disgraceful and told them so.

Can the Minister estimate—(Interruption.] I hope to ask him a couple of questions when he stops chatting to the Government Whip.

Mr. John Carlisle

Get on with it.

Dr. Godman

I shall get on with it for quite some time if I am pushed.

Is the Minister able to estimate the reduction in the number of smokers that results from an increase in the tax on tobacco products? Can he estimate what proportion of the tax increases will be used to invest in and support health education programmes designed specifically to dissuade youngsters from smoking cigarettes?

Mr. Heathcoat-Amory

The policy of the official Opposition is now apparently to resist tobacco duty increases—a reversal of their previous position. They now intend to rely, almost entirely, on supporting a total ban on tobacco advertising.

We should think long and hard before the House does something as illiberal as statutorily banning something that is legally on sale. The Government have, instead, pursued voluntary controls. A number of moves have recently been made to reduce the permitted level of outdoor advertising and to improve the size and impact of health warnings.

If anyone thinks that statutory controls are the answer, perhaps he could explain why the United Kingdom has a better record than Norway and Finland in reducing smoking in the very period since those countries introduced a statutory ban on advertising. The two European Community countries with the best record in reducing smoking—ourselves and the Netherlands—both operate voluntary controls on advertising.

Price rises are an effective way in which to reduce consumption when they are combined with voluntary controls on advertising. Since we took office in 1979, the consumption of tobacco has fallen by about 38 per cent.

I agree with my hon. Friend the Member for Ealing, North (Mr. Greenway) that we need take no lectures from the Labour party, which is no friend of the tobacco industry and which, until about an hour ago, has consistently, year by year, supported higher taxes on tobacco products. I take seriously the arguments about smuggling, particularly those put by my hon. Friends the Members for Portsmouth, North (Mr. Griffiths) and for Ealing, North. That is why we exempted hand-rolling tobacco from the secondary tax increase, which was necessitated by the decision of the House not to proceed with 17.5 per cent. VAT on domestic fuel and power.

To answer the hon. Member for Glasgow, Springburn (Mr. Martin), I can assure the House that the fundamental review of Customs and Excise and staffing levels in customs have not and will not affect the number of excise verification officers, who are deployed to counter smuggling. We are determined to take vigorous action against smoking, and nothing that we do in Customs will put those staffing levels at risk. Indeed, there has recently been a modest redeployment and enhancement of the number of such officers on duty, especially at the main port concerned, that of Dover.

Cross-border shopping is a feature that is a natural consequence of the single market, but it has not overwhelmed the legitimate trade. We know that from the duty take. The amount of excise duty that we receive from that sector has not been significantly affected by the advent of the single market. However, I shall examine and dwell on the other arguments made, especially by my hon. Friends, about the cross-border shopping and smuggling issue.

If I may, I shall write to the hon. Member for Greenock and Port Glasgow (Dr. Godman) about the final two questions that he asked.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.