RATES OF TOBACCO PRODUCTS DUTY

HC Deb 28 April 1998 vol 311 cc206-21

Mr. Heathcoat-Amory

I beg to move amendment No. 13, in page 5, leave out lines 24 to 30 and insert—

'1. Cigarettes	An amount equal to 22 per cent. of the retail price plus £75.46 per thousand cigarettes.
2. Cigars	£112.62 per kilogram
3. Hand Rolling tobacco	£87.74 per kilogram
4. Other tobacco products	£49.52 per kilogram.'.

Tobacco is subject to wholly unnecessary extra taxation in this massive tax-raising Finance Bill. Many of the arguments that I might deploy are similar to those that we used in the earlier debate on beer duty, so I shall not go into them in detail, but I shall allude to them.

The same phenomenon of cross-border shopping, combined with escalating illegality, occurs in the smuggling of both alcohol and tobacco. Again, there is evidence of increasing illegality, which is of great concern to the trade in general and smaller tobacconists in particular. All hon. Members who are in touch with trading interests in their constituencies will have been approached in recent weeks by representatives of the legitimate trade. Traders feel threatened and their businesses are undermined by an escalating tide of illegally supplied tobacco goods.

Estimates are inevitably somewhat speculative. The trade quotes a Customs and Excise figure of £690 million having been lost last year to tobacco smugglers. That figure comes from a written reply in Hansard on 17 February 1998 at column 528, so it has certainly been quoted by Ministers. The trade points out that the true figure could be a great deal higher, but, by definition, what is illegal is difficult to measure.

Evidence comes not only from cigarette sales, but from the prevalence on our streets of brands of hand-rolling tobacco that are not legally on sale in this country. There is a brand called Drum, as I recollect from my time in the Treasury, which, as far as I know, is not retailed under that name in this country. Of course, it is possible that smokers legally and legitimately buy it overseas and bring it back, but I am afraid that the bulk of it comes in illegally, as it is easy to compress, hide and smuggle, and it is then resold as contraband.

Another feature of the tobacco tax is that it is not just a matter of known smuggling at ports and airports. There is also a worrying persistence of large-scale duty frauds. That does not involve people stuffing a few packets of cigarettes or hand-rolling tobacco pouches down their trousers and walking through customs; it involves sophisticated gangs who are manipulating a product, the cost of which, when it is legitimately sold, is more than three quarters duty. When the majority of the retail price is made up of duty, that is an invitation to people to take advantage of the situation fraudulently.

That can take the form of cigarettes or tobacco designated for export, on which duty is therefore not paid, finding their way back on to the home market.

Recently The Times reported a haul of 18 million cigarettes, which was intercepted by Customs and Excise investigators at Heathrow. According to the report:

The cigarettes were originally bought for export without duty being paid. Instead the smugglers planned to use the European Union's liberal freight transit controls and a paperwork fraud to divert them on to the domestic market… The result would have been a loss of more than £2.5 million in taxes… Customs intelligence officers say that gangs have abandoned smuggling drugs such as cannabis and started cigarette operations, because the penalties if they are caught are far lower and the profits are still good. The trade is therefore characterised by two features: smuggling by individuals and small gangs in vans, and large-scale fraudulent operations by sophisticated gangs. Together, they cost the Revenue large sums and undermine the legitimate trade. The position is getting worse. Not only are the Government putting up duty, but, as noted in our previous debates today, the strong pound has made it that much cheaper to buy abroad.

The trade not only affects the legitimate business, particularly small, high street traders, but has a damaging effect on children. When the cigarettes and tobacco are sold in an uncontrolled market, there is, by definition, no control over who buys them.

Sir Michael Spicer (West Worcestershire)

Before my right hon. Friend leaves the subject of smuggling, is he aware of what is happening in other countries? In Sweden, smuggling has become so bad that, having tried massive indirect taxation on tobacco, the Government have now reduced taxation by 27 per cent. as a direct response to smuggling. I understand that Denmark is thinking of following suit. I hope that my hon. Friend will ask why the Government are not contemplating that, instead of the minor action that they are taking to stop smuggling.

8 pm

Mr. Heathcoat-Amory

My hon. Friend is right. He may have seen the report in the Financial Times on 15 April that Sweden has cut its excise duty on tobacco products by 27 per cent., precisely because it is threatened by cheap imports from its neighbours. We cannot realistically expect other European countries to increase their tobacco duties and close the gap between their rates and ours, as they are threatened by even cheaper supplies, typically from eastern Europe or the Mediterranean countries.

British Ministers sometimes ask countries with lower tobacco duties, such as Germany, to raise them for health reasons and as a useful source of revenue if, for instance, they are trying to comply with the requirements of the Maastricht treaty on the single European currency. They get the response, "We would like to, but we can't, as it would create in our country exactly the same problems that you face from smuggling and cross-border shopping."

There are severe constraints on member states and other countries caused by cross-border shopping and the prevalence of smuggling across what are increasingly open borders. Those who understand market economics realise—and even welcome—the discipline imposed by those constraints. The penalty that is borne by high-tax countries is much more effective than enforced harmonisation by the European Commission or anyone else. If we step out of line, we pay a penalty through loss of revenue caused by cross-border shopping and increased illegality through smuggling. That is what is happening in Britain. The Government are making a bad situation worse by ratcheting up the duties in pursuit of revenue, despite the evidence of the damage that is being caused.

Before the Government took office, they were apparently aware of that. In an earlier debate, I referred to the Prime Minister's pledge, as Leader of the Opposition, to conduct an urgent, independent and comprehensive study of the issue. However, the Government have not honoured that pledge. Customs and Excise has conducted a review, which the Government are keeping secret, on tobacco and alcohol smuggling, but it has not been published; so it is not the urgent, independent and comprehensive study that was promised; it is a serious broken promise by the Prime Minister.

Will the Financial Secretary make available the report by Customs and Excise? If she is unwilling to do so, will she say why, as it flies in the face of all the assurances from the Government on taking office that they wished to be open and give the public a right to know, that they had nothing to hide and wished to generate a well informed public debate? If they are sincere about that, the very least that they can do if they are not prepared to keep their pre-election promise of an independent review is to publish the one that has already been conducted by part of the Minister's Department.

Who will pay for the extra taxation on tobacco? An interesting ' study has been carried out by London Economics, a group of economists who have taken evidence, assembled information and published a review on the incidence of tobacco duty. It reveals a marked regressivity about the tax.

The report comments on the fact that increasing tax has a deterrent effect on smokers. I always knew that, but I had not realised the extent of it. That is intuitively rather obvious. It points out:

It is mainly the better off (the top thirty per cent of householders by income) who have given up tobacco"— presumably for other social reasons and pressures. The less well-off have not done so. The report comments that the tax is "extremely regressive" and

becomes more so with each increase in duty. The report includes research based on the family expenditure surveys for 1995–96 and 1996–97, and reveals that, in the latter of those two financial years,

the poorest ten per cent of United Kingdom households spent almost 14 per cent. of their income on tobacco taxes whilst the richest 10 per cent. spent less than half per cent. The survey includes non-smokers. If one concentrates entirely on those who smoke, the figures are rather startling. The data suggest that

the poorest ten per cent of smoking households spend as much as a quarter of their income on tobacco compared to a little more than one per cent for the richest. The report estimates that

savings to consumers from the one-off reduction in VAT on fuel, from eight per cent to five per cent"— we hear about that constantly from Labour Members—

may have been cancelled out by the first of the planned five per cent real annual increases in tobacco duty. Not only are the Government taking back what they have given, but they will do so every year, while the reduction in VAT on fuel was a one-off measure.

Perversely, they are encouraging smuggling in a way that does the most damage to the poorest people we represent.

Presumably that worried the Financial Secretary in opposition when she said on 23 January 1995:

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."—[Official Report, 23 January 1995; Vol. 253, c. 106.] At that time, she did not feel that ratcheting up taxation on tobacco was a good way of achieving a health objective.

Mr. Leslie

During that debate on 23 January 1995, the right hon. Member for Wells (Mr. Heathcoat-Amory) said:

"Price rises are an effective way in which to reduce consumption"—[Official Report, 23 January 1995; Vol. 253, c. 113.]

Mr. Heathcoat-Amory

That is exactly what I said a few moments ago. Had the hon. Gentleman been listening, he would have heard me quote from a report that reached exactly that conclusion, although it pointed out that price rises had a much greater effect in deterring smoking in better-off households than in poorer households. I am willing to repeat what I said when the hon. Gentleman was nodding off: it is obvious that, if one increases the price of something, people will buy less of it. That is not a particularly remarkable observation. However, the increase does the most damage to poorer households. I am sure that the hon. Gentleman must have constituents on very low incomes who are hit in precisely the way that I described. The measure is flying in the teeth of a serious law and order issue, whereby smuggled tobacco is resulting in uncontrolled sales to minors, in pubs and clubs and on street corners, and illegally to small tobacconists who sometimes cannot resist the opportunity to buy cheap supplies. All that must worry the Government, who, at least nominally, are committed to law and order. Our amendment reduces the increases back to 3 per cent. in real terms. I am fully aware that the difference between 3 and 5 per cent. will not cause the difficulties that I have outlined to evaporate, but we are approaching breaking point, and that is why a review is important and why it is disappointing that the Prime Minister's promised review has not taken place. Meanwhile, I urge that the Committee revert to the previous escalator, which will at least avoid the more damaging implications of the Government's present policy.

Mr. Leslie

Listening to the right hon. Member for Wells (Mr. Heathcoat- Amory), one might forget that smoking kills people and that the rate of death and disease from smoking is far too high and needs to come down. It is essential that people, particularly young people, are deterred from smoking, and we must try to find ways of ensuring that tobacco consumption is reduced.

The new Government's commitment to the 5 per cent. escalator annually is extremely welcome. In 1993, the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke) said that the tobacco duty escalator

is the most effective way to reduce smoking."—[Official Report, 30 November 1993; Vol. 233, c. 939.] The higher tobacco duty escalator is widely accepted, certainly in my constituency—I have had no representations opposed to the 5 per cent. escalator—as necessary in the wider public interest for health and public protection.

If we can stop people smoking, we can consider redirecting resources currently used within the NHS for treating tobacco-related illnesses to other health care priorities. This fiscal measure is central to the Government's approach to public health and protection. In 1994, the then Minister of State, Department of Health, the right hon. Member for North-West Cambridgeshire (Sir B. Mawhinney), pointed out:

every 10 per cent. increase in price— of tobacco—

produces about a 3 per cent. to 6 per cent. decrease in consumption."—[Official Report, 11 February 1994; Vol. 237, c. 617.] That is an important example of cause and effect. One cannot compare VAT on fuel with tobacco duty, because heating is good for people and tobacco consumption is bad. The right hon. Member for Wells was wrong in that regard.

The annual escalator is a serious and strong deterrent. It is not an astronomical amount. It is a fair but firm amount, and it strikes the right balance in preventing the smuggling of excessive amounts of tobacco. There are more effective ways of dealing with that issue. In particular, the Government can reinforce the work of Customs and Excise and its officers while discouraging people from this harmful habit.

Conspicuous by its absence from the contribution of the right hon. Member for Wells was the cost to the Exchequer of the Opposition's amendment. The House of Commons Library tells me that £180 million would have to be found from public finances if the amendment were accepted. We hear nothing about where that money will come from. Would the Opposition cut public services, or raise taxes in another way?

Mr. Heathcoat-Amory

I am a little disappointed that the hon. Gentleman is raising this matter again, because I answered him earlier. The amendment simply marginally reduces the impending surplus, which is beyond what even the Government expected in the current financial year. Therefore, there is no need to find expenditure from elsewhere in the Government's programme.

Mr. Leslie

The right hon. Gentleman is effectively saying that he would borrow more money.

Mr. Heathcoat-Amory

No, it will come from the surplus.

Mr. Leslie

If we get into surplus we can consider that, but effectively the Opposition are looking at putting that amount on the PSBR. We have heard nothing from the Opposition about how they will make up that lost revenue. The amendment is poorly thought out and, moreover, it is not in the interests of public health and the wider need to protect people's health throughout Britain.

Mr. Edward Davey (Kingston and Surbiton)

The hon. Member for Shipley (Mr. Leslie) makes a telling point. Conservatives call for reductions in taxes on tobacco and beer. When they produce a costed set of accounts to put before the country, we shall be interested to see whether they include these policies—and to know the British people's reactions to those priorities.

The Liberal Democrats were highly critical of the Government during the previous debate, but the Government have got clause 10 about right. The right hon. Member for Wells (Mr. Heathcoat-Amory) talked about smuggling, and we heard about that in an earlier debate. It is clear from the figures for revenue lost and revenue evaded that one of the major problems is the smuggling of hand-rolling tobacco.

8.15 pm

The right hon. Member for Wells did not discuss the Government's proposals in that regard, but the Government have, rightly, frozen duties on hand-rolling tobacco, and that is pertinent to our earlier debate when the hon. Member for Beckenham (Mrs. Lait) questioned the source of my figures. I can give the detailed reference for them. They were from a press notice issued by HM Customs and Excise on 26 September 1997 entitled "Smuggling of alcohol and tobacco".

The breakdown of those figures makes it clear where the real problem lies for Customs and Excise. The £950 million that has been referred to today is made up primarily of losses on smuggled hand-rolling tobacco. In 1997, £540 million of revenue was evaded and £540 million lost. Of £950 million, more than half is accounted for by the smuggling of hand-rolling tobacco. Contrary to what we have heard from Conservative Members, the Government are freezing duty and cutting in real terms the excise duties on the products that are the focus of smuggling activity. I applaud the Government, therefore, because they have got the measure about right.

In comparison, the loss resulting from the smuggling of cigarettes and other tobacco products is £145 million. That is a significant amount; it is a worry and Customs and Excise needs to be more effective in tackling that loss. If one compares that loss of £145 million, however, with the loss of £540 million from hand-rolling tobacco, it is clear that the Government have analysed the problem and put forward a sensible solution. Therefore, the Liberal Democrats will support clause 10 and oppose the amendment. However, we hope that the Government will rigorously analyse the workings of Customs and Excise. I shall not detain the Committee by repeating my earlier argument, but it is probably even more important with regard to tobacco than to alcohol products.

The hon. Member for Shipley referred to the link between tobacco duties, and health. If anything, we would have supported the Government in further increasing tobacco duties with the one caveat that the resources thereby raised should be earmarked to go directly into the health service. That might have breached the spending limits inherited from the previous Government, but my constituents, and the constituents of many Labour Members, would not have worried about that. They would have welcomed extra cash for the health service, because it would have brought down waiting lists.

Every week, I receive letters from constituents, many of them elderly, who are being told by Kingston hospital that they will have to wait a little longer for their operation. The staff at Kingston hospital are working their hardest to reduce those waiting lists—and I congratulate them on their hard work—but, despite their best efforts, the lack of cash and the cuts, inherited from the previous Government but nevertheless severe, are affecting the standard of living of my constituents who are having to wait many months for operations for conditions that are causing them great pain.

If the Government had proposed to increase tobacco duty even more than they have done, and had put the money straight into the health service to tackle waiting lists, they would have had even more support than we are prepared to give them. Their overall strategy is right, but if they want to find other measures to solve public spending problems—although, with the massive war chest that they are amassing, there cannot be too many such problems, and they could have found resources elsewhere—they could use that route to try to sort out the mess in which the Conservatives left the national health service.

Mrs. Lait

I am somewhat uneasy in this debate on tobacco because I am not a smoker—I loathe smoking—and I believe that the most effective policy is a high tax policy. The problem is that the level of smuggling and bootlegging means that we do not have a high tax policy. Trying to get organisations such as Action on Smoking and Health, and the Government, to recognise that we do not have such a policy is a bit like beating one's head against a brick wall, but I will continue to do so in the hope that eventually the penny will drop.

I am concerned that the Treasury does not grasp the scale of the problem. The Financial Secretary is aware, because she answered them, that I have tabled a series of questions on tobacco and alcohol smuggling and bootlegging. I was chilled by the apparent lack of interest in grasping the problem.

I have asked questions about what action the Government are taking in their EU presidency to try to end the subsidy to tobacco farmers and what progress they are hoping to make in ECOFIN. I have also asked Departments to estimate the number of people whose benefits have been withdrawn because they were found to be smuggling and bootlegging. I have asked the Driver and Vehicle Licensing Agency what has happened to licences, and cars and vans involved in smuggling and bootlegging. I have asked how many licences have been withdrawn from licensed premises because they were retailing smuggled and bootlegged goods.

I accept that not all those issues are the responsibility of the Financial Secretary, but answers have come there none, so it is difficult for the Treasury, let alone the poor Back Bencher, officially and graphically to describe the effects of smuggling.

I found in the Red Book an interesting point, which I followed up with a question to the Financial Secretary, about the forecast excise receipts. They showed that, for both alcohol and tobacco duties, the Treasury was expecting a reduction in income of £100 million in each case. I sent the Financial Secretary a note asking whether she could explain that, and answer has come there none, so perhaps the Treasury does not understand what is happening.

Other organisations—for example, customs, which is on the front line—know exactly what is happening and are trying hard to cope. An incident in Dover in October was reported in the Sunday Mirror, which said that Customs made a raid in which

the bootleggers fled as £70,000 of illegal booze and cigarettes were seized. But after a heavy drinking session at a nearby pub, the gang returned … and tried to get their haul back. 'We were cataloguing everything we had seized, when the smugglers stormed the place,' said one Customs official. The history of smuggling and bootlegging immediately brought to mind a parallel situation in 1747, when smugglers tried to regain bootlegged goods in the Poole customs house. We are reverting to what happened 200 years ago, and there are strong parallels to show what should be the proper response.

The police have conducted an analysis of people involved in smuggling and bootlegging whom they have caught. They are not members of big gangs, but poor mules. The analysis shows that 90 per cent. of those involved are unemployed and drawing benefit, so the Department of Social Security should be able to answer my questions. Seventy per cent. of those involved have a criminal record; 40 per cent. are from outside Dover; 25 per cent. of crimes such as burglary and car theft in the Dover area—

The Chairman

Order. The amendment does not relate specifically to smuggling. The hon. Lady must relate her remarks specifically to the proposals in the amendment relating to the duty on tobacco.

Mrs. Lait

Indeed, Sir Alan, I will. I accept your guidance, but I am trying to build up a case to show why the amendment will help to reduce smuggling.

The Chairman

Perhaps the hon. Lady should accelerate the build-up.

Mrs. Lait

I will, with pleasure. The police have analysed the problem, and it cannot be beyond the wit of the Treasury to do so.

Another point of which the Government have made great play and with which I have great sympathy is the effect on health of increased smoking. High levels of duty mean that, when youngsters can get hold of cheap tobacco, they are likely to do so. I asked the Library for information about the worrying increase in the number of young smokers. We must remember that the single market started on 1 January 1993. The number of young smokers peaked in 1984 and dropped until 1988. Between 1988 and 1993, the figure was stable. In 1996, the level of smoking among youngsters was as high as it had been in 1984. I suggest that, although there are complex reasons why youngsters smoke, there is a clear correlation between the opening of the single market and the subsequent availability of cheap tobacco, and the number of youngsters who smoke.

All those factors show the need to deal with the problem caused by the high levels of taxation of tobacco. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said, the problem is worsening. There has been a noticeable increase in the smuggling and bootlegging not only of hand-rolling tobacco, which the hon. Member for Kingston and Surbiton (Mr. Davey) mentioned, but of cigarettes.

Dave West, who runs the Smoking Warehouse in Adinkerke in Belgium, said that before last December's rise in cigarette prices, he was selling a negligible number of cigarettes. He is now describing what happened on 1 December as a gold rush, and he is looking forward to his second gold rush this December.

Mr. Cranston

Can the hon. Lady explain the results of a 1996 MORI survey, which showed that the preferred cigarette brand among young people was Benson and Hedges—the most expensive—and that consumption by young people was attributable more to advertising than to smuggling, which was not even considered in the survey?

Mrs. Lait

The hon. Gentleman may care to know that the cost of UK cigarette brands from Dave West is £1.80. Compared with the cost in the UK, that has a much more significant effect on people's consumption of cigarettes than advertising. As I have already been called to order on the issue of smuggling, I dare not go down the route of the advertising debate.

I shall draw my remarks to a close in the hope that some of the information that I have provided to the Financial Secretary will bring home to her the scale of the problem of tobacco smuggling and bootlegging. We need a clear policy on reducing the profit from smuggling and bootlegging tobacco. The policy that affects duty on tobacco in this country comes from Belgium, not from the British Government, and we need to take that fact into account when thinking about how to deal with the problem of the nation's health.

I shall sum up by quoting Adam Smith, who was a customs commissioner. He said:

The high duties which have been imposed upon the importation of many different sorts of foreign goods, in order to discourage their consumption in Great Britain, have in many cases served only to encourage smuggling; and in all cases have reduced the revenue of the Customs below what more moderate duties would have afforded. I hope that the Financial Secretary will put in train some of the inquiries surrounding the broader issue of the health of the nation, which have been brought about by high tobacco duties, and look favourably on our amendment.

8.30 pm

Dawn Primarolo

The right hon. Member for Wells (Mr. Heathcoat-Amory) ignores all the health arguments and proposes that, to help the poor, the escalator on cigarettes should be reduced from 5 per cent. to 3 per cent.

As my hon. Friend the Member for Shipley (Mr. Leslie) said, the health consequences of smoking are at the heart—if hon. Members will excuse the pun—of our strategy. It is worth reminding the right hon. Member for Wells—who clearly needs reminding—of them. Some 80 per cent. of the 40,000 deaths from lung cancer each year are attributed to smoking, and 20 per cent. of the 180,000 deaths from heart disease each year and 80 per cent. of the 30,000 deaths from bronchitis, chronic obstructive airway diseases and other types of illness are attributed to smoking. There is a 20 per cent. higher risk of death to babies born to mothers who smoke. Women who smoke run a ten times higher risk of heart attack, stroke or cardio-vascular disease, and smoking may affect fertility.

We know that babies born to mothers who smoke are lighter, and that paternal smoking also makes babies lighter through passive smoking once the baby is born. Smokers lose, on average, more than one day of their life each year. About half of all regular smokers in developed countries are eventually killed by cigarette smoking. The growth in smoking among teenagers and young adults has a dramatic impact on their life expectancy. The risk of dying from lung cancer is associated with the length of time a person smokes, as well as with the amount that he or she smokes. Even when a person has given up smoking, the consequences to his or her health remain higher than for those who have never smoked. That is the context in which the Government set their policy of raising the escalator on cigarettes and tobacco products excluding hand-rolling tobacco.

Opposition Members referred to smuggling. I take your guidance, Sir Alan—this is not the subject of the clause—and I do not intend to speak at length on it. The Government recently announced their intention to deal with persistent offenders, to ensure that more people face disqualification from driving and that the criminals who smuggle pay compensation for the revenue evaded through smuggling. Publicans and off-licence and restaurant owners could, after prosecution, find their liquor licences revoked.

I cannot give the hon. Member for Beckenham (Mrs. Lait) answers about the consequences of those actions, because the Conservative Government did not pursue such policies. I feel a little frustrated by today's debate because Conservative Members cannot, or perhaps will not, understand that this Government have a strategy that their Government failed to put in place. We should be clear about the scale of the problem. The right hon. Member for Wells pointed out that the Government of which he was a member were committed to using taxation as part of their health policy. The then Secretary of State for Health repeatedly referred to the importance of taxation in deterring people from smoking. I agree that it is important, but it should not be done in isolation. We need health education and strategies to ensure that not only tax but other methods are used to encourage people not to start smoking or, if they already smoke, to stop.

The hon. Member for Beckenham referred to reducing smoking among young people. We absolutely agree with her about the importance of that. The Government's strategy moves in parallel with our tax strategy to reduce smoking among young people. It is set out in detail in the tobacco control White Paper, which will be published later this year. Opposition Members complain that we have not done enough in 12 months, not that we are moving in the wrong direction. I presume that tonight's discussion is to fill up time on the Floor of the House rather than to make genuine suggestions about an alternative strategy.

I shall not be tempted to discuss whether Opposition Members care about the poor. It is an insult to poor people that, having been in power for 18 years, Conservative Members have only just noticed that they exist and that taxation policies have an impact on them. The right hon. Member for Wells was a Minister in both the Foreign Office and the Treasury. His sudden discovery that policies might impact on the poor is breathtaking. Where has he been, not to have noticed after all this time the impact that the Conservative Government's policies had on the poor?

The hon. Member for Kingston and Surbiton (Mr. Davey) spoke about the importance of freezing duty on hand-rolling tobacco. We are continuing to pursue our policy with regard to cigarettes, but recognise that, as part of the strategy that we are developing to tackle smuggling, there are special problems with hand-rolling tobacco.

May I say to the hon. Member for Beckenham that the idea that those engaged in smuggling are poor mules, feckless people or Jack the lads is ridiculous. People who buy goods from smugglers put money in the back pockets of criminals and deny revenue to the Treasury, which means that it cannot be spent on public services. Instead of advocating that the Treasury should cut moneys available to public services by cutting duty rates, the hon. Lady should join us in decrying the criminal activity of smuggling and encourage and support the Government's action.

Mrs. Lait

May I ask the Minister to add to her reading list some books about smuggling in the 18th and 19th centuries? That would indicate to her the solution to the problem. "The Albion Tree", one of the best, is available in the House of Commons Library.

Dawn Primarolo

If the hon. Lady is seriously telling me that smuggling has been around for a very long time, I must say that I agree with her. If she is saying that we need complex strategies to tackle it, I also have to agree with that. However, I would encourage her to find a solution in this century rather than seeking refuge in the past. She might pay a little more attention to the strategies that the Government are deploying rather than lamenting the fact that we are not behaving as if we were in the 17th century: I leave that to her hon. Friends.

Several points were made about the Swedish Government's announcement on 14 April that they intend to reduce duty on cigarettes by 27 per cent. in 1999. They will achieve that by reducing specific rates. I was asked why we do not take similar action in the United Kingdom. First, we would lose £2.4 billion in a full year, which is the equivalent of l½p on the basic rate of income tax. We are not prepared to countenance the loss of that revenue.

Secondly, I do not know the hon. Lady's position on Europe, but she seemed to imply that we should allow other member states to determine our duty rates. She prayed in aid the Swedes' activities in reducing their rates, as did the right hon. Member for Wells. That is a solution to their problem, but information from Customs and Excise and the tobacco industry suggests that the problem of smuggling in Sweden is much greater than the problem here, much as we regret our own. Customs and the Tobacco Manufacturers Association are discussing reliable methods of trying to estimate the overall scale of cigarette smuggling—a problem that, as the hon. Lady and others have said, is beginning to emerge.

In the light of our earlier debate on beer duty, it frankly beggars belief that the hon. Lady and others say that we have no enthusiasm for tackling smuggling and the problems that it causes. Imported cigarettes and smuggling are a problem not only for the UK and other European Union member states with high-duty regimes; they are also a problem for those with low-duty regimes. The hon. Lady's causal connection between duty and smuggling is not a fair representation of the complexity of the problem.

The Government have made it clear that, on health grounds, our policy is correct. We have given more money to the health service than we would have done by linking the escalator to money moved across to the health service, as the hon. Member for Kingston and Surbiton suggested we should. I remind him that the Government have already given an extra £2 billion to the national health service. Our commitment to funding health and education is clear, in terms of priorities.

I ask the Committee to reject the amendment, which would reduce duty to 3 per cent., and to support the duty of 5 per cent. and our phrasing on hand-rolled tobacco, as they are the best ways to deliver the Government's health policy. That would recognise that we are dealing vigorously with the problems of smuggling and will not allow that criminal activity to continue to undermine public expenditure and public revenue.

8.45 pm

Mr. Heathcoat-Amory

We have heard the Financial Secretary at her worst. She either could not or would not answer our questions. I remind her that she said in the House in 1995—I gave the quotation earlier—that increasing taxation is not the way to reduce consumption of tobacco or to deal with the health effects.

I asked the hon. Lady what had caused her to change to her mind. Switching from Opposition to Government has clearly had an extraordinary effect on her attitudes. Apparently she now thinks that there is no way of dealing with this problem other than by increasing prices and taxation.

It has occurred to my hon. Friends and me that the Government have changed their mind on another way of tackling tobacco consumption—through advertising. The Committee will remember that the Labour party won the election on a clear pledge to stop advertising on formula one racing cars. The Prime Minister changed his mind, and broke that pledge. It was later discovered that Bernie Ecclestone, who persuaded him to do so, had given £1 million to the Labour party. Lucky old Bernie got his bung back on that occasion, but we are left with a broken promise and the fact that the much heralded ban on tobacco advertising has not come into effect. Perhaps that is why the Government are relying more on increasing duty on tobacco.

My knowledgeable hon. Friend the Member for Beckenham (Mrs. Lait) has drawn attention to the seriousness of the smuggling or bootlegging problem and the culture of illegality to which it has led. The Financial Secretary said that she was concerned about that, but she clearly is not grappling with the problems. The proposed increases widen the gap between continental rates of duty and our own, which will make the situation worse.

The Financial Secretary said that there was a problem of young people taking up smoking, and, during our debate, other hon. Members have recognised the seriousness of that problem. If tobacco products are smuggled in, they are made available outside Government controls on the sale of tobacco to minors. It is an unruly and anarchic market, and it leads to young people taking up smoking. For that pure health reason alone, the Government ought to think twice before increasing the escalator to 5 per cent.

Opposition Members have shown how savagely regressive this policy is. The Financial Secretary appeared entirely ignorant of that. If she did recognise it, she seemed entirely uninfluenced by it. We conclude that the Government's concern about the poor and those on low incomes is entirely synthetic. The figures 1 quoted earlier showed that smoking households in the bottom decile spend up to a quarter of their income on tobacco products. That ought to worry members of a party that, until fairly recently, had at least a published concern for the needy and the disadvantaged.

My final point, which the Financial Secretary continues to avoid, is that the Prime Minister recognised, before the election, that there was a problem. He said so when he was looking for votes in the tobacco industry and related industries. He promised an independent, urgent and comprehensive study. He has broken that promise. When will the hon. Lady publish the substitute study, by Customs and Excise, to inform our debates, and the public, about the real facts behind the Government's taxation policy, which is driven entirely by revenue considerations? The health issue is purely a smokescreen; it is revenue that the Government are after. If they disagree, let them publish a report on the matter.

Mr. Patrick Hall (Bedford)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

The hon. Gentleman has not contributed to the debate, and I do not propose to give way to him. In any case, it is not from the hon. Gentleman that I shall get an answer to the following question, because he is not in a position to give one. When do the Government intend to fulfil their pre-election promise, on which the hon. Gentleman and others stood, to undertake an investigation of this issue and publish the results? Until that happens, we shall conclude that the clause is revenue-driven. I urge the Committee to accept our amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 106, Noes 303.

Division No. 260]	[8.50 pm
AYES
Ancram, Rt Hon Michael	Clarke, Rt Hon Kenneth
Arbuthnot, James	(Rushcliffe)
Atkinson, David (Bour'mth E)	Clifton—Brown, Geoffrey
Beggs, Roy	Collins, Tim
Bercow, John	Colvin, Michael
Blunt, Crispin	Cormack, Sir Patrick
Brazier, Julian	Cran, James
Browning, Mrs Angela	Curry, Rt Hon David
Burns, Simon	Davies, Quentin (Grantham)
Cash, William	Davis, Rt Hon David (Haltemprice)
Chapman, Sir Sydney	Dorrell, Rt Hon Stephen
(Chipping Barnet)	Duncan Smith, Iain
Chope, Christopher	Evans, Nigel
Clappison, James	Fabricant, Michael
Clark, Rt Hon Alan (Kensington)	Fallon, Michael
Clark, Dr Michael (Rayleigh)	Fox, Dr Liam

Fraser, Christopher	Moss, Malcolm
Garnier, Edward	Norman, Archie
Gibb, Nick	Paice, James
Greenway, John	Prior, David
Grieve, Dominic	Randall, John
Hamilton, Rt Hon Sir Archie	Robathan, Andrew
Hammond, Philip	Robertson, Laurence (Tewk'b'ry)
Heald, Oliver	Roe, Mrs Marion (Broxbourne)
Heathcoat—Amory, Rt Hon David	Rowe, Andrew (Faversharn)
Hogg, Rt Hon Douglas	Ruffley, David
Horam, John	St Aubyn, Nick
Hunter, Andrew	Sayeed, Jonathan
Jackson, Robert (Wantage)	Simpson, Keith (Mid—Norfolk)
Jenkin, Bernard	Spelman, Mrs Caroline
Johnson Smith,	Spicer, Sir Michael
Rt Hon Sir Geoffrey	Spring, Richard
Key, Robert	Stanley, Rt Hon Sir John
King, Rt Hon Tom (Bridgwater)	Steen, Anthony
Kirkbride, Miss Julie	Streeter, Gary
Laing, Mrs Eleanor	Swayne, Desmond
Lait, Mrs Jacqui	Syms, Robert
Lansley, Andrew	Taylor, John M (Solihull)
Leigh, Edward	Taylor, Sir Teddy
Letwin, Oliver	Tredinnick, David
Lewis, Dr Julian (New Forest E)	Trend, Michael
Lidington, David	Tyrie, Andrew
Lilley, Rt Hon Peter	Viggers, Peter
Lloyd, Rt Hon Sir Peter (Fareham)	Wardle, Charles
Luff, Peter	Waterson, Nigel
Lyell, Rt Hon Sir Nicholas	Whitney, Sir Raymond
MacGregor, Rt Hon John	Widdecombe, Rt Hon Miss Ann
McIntosh, Miss Anne	Willetts, David
MacKay, Andrew	Wilshire, David
Maclean, Rt Hon David	Winterton, Mrs Ann (Congleton)
McLoughlin, Patrick	Woodward, Shaun
Madel, Sir David	Yeo, Tim
Malins, Humfrey	Young, Rt Hon Sir George
Mates, Michael	Tellers for the Ayes:
Maude, Rt Hon Francis	Mr. John Whittingdale and
Mawhinney, Rt Hon Sir Brian	Mr. Stephen Day.

NOES
Abbott, Ms Diane	Breed, Colin
Adams, Mrs Irene (Paisley N)	Brinton, Mrs Helen
Ainger, Nick	Brown, Rt Hon Nick (Newcastle E)
Ainsworth, Robert (Cov'try NE)	Brown, Russell (Dumfries)
Alexander, Douglas	Browne, Desmond
Allan, Richard	Bruce, Malcolm (Gordon)
Allen, Graham	Burden, Richard
Anderson, Donald (Swansea E)	Burgon, Colin
Anderson, Janet (Rossendale)	Burstow, Paul
Armstrong, Ms Hilary	Butler, Mrs Christine
Ashdown, Rt Hon Paddy	Byers, Stephen
Ashton, Joe	Cable, Dr Vincent
Atherton, Ms Candy	Caborn, Richard
Atkins, Charlotte	Campbell, Alan (Tynemouth)
Ballard, Mrs Jackie	Campbell, Mrs Anne (C'bridge)
Banks, Tony	Campbell, Menzies (NE Fife)
Barnes, Harry	Campbell, Ronnie (Blyth V)
Bayley, Hugh	Campbell—Savours, Dale
Beckett, Rt Hon Mrs Margaret	Canavan, Dennis
Begg, Miss Anne	Cann, Jamie
Beith, Rt Hon A J	Casale, Roger
Bell, Stuart (Middlesbrough)	Caton, Martin
Benn, Rt Hon Tony	Chapman, Ben (Wirral S)
Bennett, Andrew F	Chaytor, David
Benton, Joe	Chidgey, David
Bermingham, Gerald	Chisholm, Malcolm
Best, Harold	Clark, Dr Lynda
Blackman, Liz	(Edinburgh Pentlands)
Blizzard, Bob	Clark, Paul (Gillingham)
Boateng, Paul	Clarke, Charles (Norwich S)
Borrow, David	Clarke, Eric (Midlothian)
Bradley, Peter (The Wrekin)	Clarke, Rt Hon Tom (Coatbridge)
Bradshaw, Ben	Clelland, David

Clwyd, Ann	Hopkins, Kelvin
Coaker, Vernon	Howarth, George (Knowsley N)
Coleman, Iain	Howells, Dr Kim
Cook, Frank (Stockton N)	Hoyle, Lindsay
Cotter, Brian	Humble, Mrs Joan
Cousins, Jim	Hurst, Alan
Cox, Torn	Hutton, John
Cranston, Ross	Iddon, Dr Brian
Cryer, Mrs Ann (Keighley)	Jackson, Helen (Hillsborough)
Cummings, John	Jamieson, David
Cunliffe, Lawrence	Jenkins, Brian
Cunningham, Rt Hon Dr John	Johnson, Alan (Hull W & Hessle)
(Copeland)	Johnson, Miss Melanie
Cunningham, Jim (Cov'try S)	(Welwyn Hatfield)
Cunningham, Ms Roseanna	Jones, Barry (Alyn & Deeside)
(Perth)	Jones, Helen (Warrington N)
Dafis, Cynog	Jones, leuan Wyn (Ynys MÖ)
Dalyell, Tam	Jones, Ms Jenny
Darling, Rt Hon Alistair	(Wolverh'ton SW)
Davey, Edward (Kingston)	Jones, Jon Owen (Cardiff C)
Davidson, Ian	Jones, Martyn (Clwyd S)
Davies, Rt Hon Denzil (Llanelli)	Keeble, Ms Sally
Davies, Geraint (Croydon C)	Keen, Ann (Brentford & Isleworth)
Dawson, Hilton	Kennedy, Charles (Ross Skye)
Dean, Mrs Janet	Kennedy, Jane (Wavertree)
Denham, John	Kidney, David
Dewar, Rt Hon Donald	Kilfoyle, Peter
Dobbin, Jim	King, Andy (Rugby & Kenilworth)
Dobson, Rt Hon Frank	Kingham, Ms Tess
Donohoe, Brian H	Kirkwood, Archy
Dowd, Jim	Kumar, Dr Ashok
Drew, David	Lawrence, Ms Jackie
Drown, Ms Julia	Laxton, Bob
Eagle, Angela (Wallasey)	Lepper, David
Eagle, Maria (L'pool Garston)	Leslie, Christopher
Edwards, Huw	Levitt, Tom
Ellman, Mrs Louise	Lewis, Ivan (Bury S)
Ewing, Mrs Margaret	Liddell, Mrs Helen
Fearn, Ronnie	Livsey, Richard
Flynn, Paul	Lloyd, Tony (Manchester C)
Follett, Barbara	Llwyd, Elfyn
Foster, Rt Hon Derek	Lock, David
Foster, Michael Jabez (Hastings)	Love, Andrew
Foster, Michael J (Worcester)	McAllion, John
Foulkes, George	McAvoy, Thomas
Fyfe, Maria	McCabe, Steve
Gardiner, Barry	McCafferty, Ms Chris
George, Andrew (St Ives)	McDonnell, John
George, Bruce (Walsall S)	McGuire, Mrs Anne
Gerrard, Neil	McIsaac, Shona
Gibson, Dr Ian	McKenna, Mrs Rosemary
Godman, Dr Norman A	Mackinlay, Andrew
Godsiff, Roger	McNamara, Kevin
Goggins, Paul	McNulty, Tony
Golding, Mrs Llin	McWalter, Tony
Griffiths, Jane (Reading E)	Mallaber, Judy
Griffiths, Nigel (Edinburgh S)	Mandelson, Peter
Griffiths, Win (Bridgend)	Marsden, Gordon (Blackpool S)
Gunnell, John	Marshall, David (Shettleston)
Hain, Peter	Marshall, Jim (Leicester S)
Hall, Mike (Weaver Vale)	Marshall—Andrews, Robert
Hall, Patrick (Bedford)	Maxton, John
Hancock, Mike	Michael, Alun
Hanson, David	Michie, Bill (Shef'ld Heeley)
Harvey, Nick	Milburn, Alan
Heal, Mrs Sylvia	Moffatt, Laura
Heath, David (Somerton & Frome)	Moonie, Dr Lewis
Henderson, Ivan (Harwich)	Moore, Michael
Hepburn, Stephen	Moran, Ms Margaret
Heppell, John	Morgan, Alasdair (Galloway)
Hesford, Stephen	Morgan, Ms Julie (Cardiff N)
Hinchliffe, David	Morgan, Rhodri (Cardiff W)
Hoey, Kate	Morley, Elliot
Home Robertson, John	Morris, Rt Hon John (Aberavon)
Hood, Jimmy	Mudie, George
Hoon, Geoffrey	Mullin, Chris

Murphy, Denis (Wansbeck)	Smith, John (Glamorgan)
Murphy, Jim (Eastwood)	Smith, Llew (Blaenau Gwent)
Oaten, Mark	Spellar, John
O'Brien, Bill (Normanton)	Squire, Ms Rachel
O'Brien, Mike (N Warks)	Steinberg, Gerry
O'Neill, Martin	Stevenson, George
Organ, Mrs Diana	Stewart, David (Inverness E)
Osborne, Ms Sandra	Stinchcombe, Paul
Palmer, Dr Nick	Stoate, Dr Howard
Pearson, Ian	Stott, Roger
Perham, Ms Linda	Strang, Rt Hon Dr Gavin
Pickthall, Colin	Stringer, Graham
Pike, Peter L	Swinney, John
Plaskitt, James	Taylor, Rt Hon Mrs Ann
Pope, Greg	(Dewsbury)
Pound, Stephen	Taylor, Ms Dari (Stockton S)
Powell, Sir Raymond	Taylor, Matthew (Truro)
Prentice, Ms Bridget (Lewisharn E)	Temple—Morris, Peter
Prentice, Gordon (Pendle)	Thomas, Gareth (Clwyd W)
Primarolo, Dawn	Thomas, Gareth R (Harrow W)
Prosser, Gwyn	Tipping, Paddy
Purchase, Ken	Touhig, Don
Quin, Ms Joyce	Trickett, Jon
Quinn, Lawrie	Truswell, Paul
Radice, Giles	Turner, Dennis (Wolverh'ton SE)
Rammell, Bill	Turner, Dr Desmond (Kemptown)
Rapson, Syd	Turner, Dr George (NW Norfolk)
Reed, Andrew (Loughborough)	Twigg, Derek (Halton)
Reid, Dr John (Hamilton N)	Tyler, Paul
Robinson, Geoffrey (Cov'try NW)	Wallace, James
Rogers, Allan	Walley, Ms Joan
Rooker, Jeff	Watts, David
Ross, Ernie (Dundee W)	Webb, Steve
Roy, Frank	Welsh, Andrew
Ruane, Chris	Wicks, Malcolm
Ruddock, Ms Joan	Williams, Rt Hon Alan
Russell, Bob (Colchester)	(Swansea W)
Sanders, Adrian	Williams, Alan W (E Carmarthen)
Savidge, Malcolm	Willis, Phil
Sawford, Phil	Wills, Michael
Shaw, Jonathan	Winnick, David
Sheerman, Barry	Wise, Audrey
Sheldon, Rt Hon Robert	Wood, Mike
Singh, Marsha	Worthington, Tony
Skinner, Dennis	Wray, Jarnes
Smith, Angela (Basildon)	Tellers for the Noes:
Smith, Miss Geraldine	Mr. Clive Betts and
(Morecambe & Lunesdale)	Mr. John McFall.

Question accordingly negatived.

Clause 10 ordered to stand part of the Bill.