HC Deb 02 May 2000 vol 349 cc41-86 4.40 pm
Mr. David Heathcoat-Amory (Wells)

I beg to move amendment No. 1, in page 1, line 19, at end add 'but shall cease to have effect on 1st August 2000 unless the Treasury has published an independent report setting out the effect of the present alcohol liquor duties on smuggling.'.

The Chairman of Ways and Means (Sir Alan Haselhurst)

With this it will be convenient to discuss the following: Amendment No. 8, in clause 12, page 7, leave out lines 7 to 15 and insert—

1. Cigarettes An amount equal to 20 per cent. of the Retail price plus £55.95 per thousand cigarettes.
2. Cigars £50.95 per kilogram.
3. Hand-rolling tobacco £21.95 per kilogram.
4. Other smoking tobacco and chewing tobacco £21.95 per kilogram.'.

Amendment No. 2, in clause 12, page 7, line 17, at end add 'but shall cease to have effect on 1st August 2000 unless the Treasury has published an independent report setting out the effect of the present tobacco products duty on smuggling.'.

Clause 12 stand part.

Mr. Heathcoat-Amory

The amendments deal with excise duties, on which the Government have an unsustainable and self-defeating policy. It creates rather than solves social problems, encourages criminality and sometimes leads to a fall in revenue.

Alcohol and road fuel duties increased by a further 3.4 per cent. in the Budget. That is something of a fiddle. The Chancellor said in the Budget speech that those duties would increase only in line with inflation; the figure of 3.4 per cent. appears nowhere in the Budget document.

Furthermore, the Government have changed the rules for calculating inflation. Contrary to what the Paymaster General told my hon. Friend the Member for Arundel and South Downs (Mr. Flight) on Second Reading, the rule was not inherited from the previous Government. They introduced the rule not to take the actual rate of inflation—or the historic rate—up to the date of the Budget but to predict an inflation rate. The arithmetic that is currently before the Committee is massively to the advantage of the Treasury.

It is interesting that the Government have applied the figure of 3.4 per cent. only to uprating excise duties. When it suits the Treasury, the Government have used a lower inflation rate. All personal allowances have therefore been uprated not by 3.4 per cent. but by 1.1 per cent. The idea of applying an overall indexation figure across the board has given way to an elastic concept of taking the inflation rate that suits the Treasury. That has netted the Government an extra £750 million. That is the difference between the actual inflation rate and that which the Government use when it suits them to uprate the indirect taxes that we are considering.

There is also a more serious issue. To put it bluntly, the Government are up a gum tree on their excise duty strategy. The gap between United Kingdom and continental duty rates on road fuels, alcohol and tobacco products is wide and increasing in every Budget. In a single market, that is unsustainable. It leads to smuggling and a loss of revenue.

Dr. Nick Palmer (Broxtowe)

I agree with the right hon. Gentleman that the widening gap is not sustainable in a single market. Does he agree that greater efforts should be made to promote tax harmonisation in the European Union?

4.45 pm
Mr. Heathcoat-Amory

Tax harmonisation through the European Commission is not necessary; all the Government need do is listen to what the market is telling them. Unlike the Labour party, we are in favour not of a bureaucratically imposed harmonisation policy, but of a market-driven single market. I think that the hon. Gentleman agrees that the market is clearly telling the Government that the present duty differential is unsustainable. However, he is right in that there is something truly bizarre about a Government who pursue tax harmonisation in Europe except for excise duties, which they are disharmonising. They are making the wide duty differential between ourselves and the continent worse. He would agree that that is the prime cause of the smuggling, criminality and loss of revenue.

Dr. Palmer


Mr. Nigel Beard (Bexleyheath and Crayford)


Mr. Heathcoat-Amory

I give way to the hon. Member for Bexleyheath and Crayford (Mr. Beard).

Mr. Beard

If the Government were to take note of what the right hon. Gentleman says and reduce duties to the level of those on the continent so that no such gap existed, how should they make good the loss of revenue?

Mr. Heathcoat-Amory

That cannot be done all at once, but we faced up to the issue. We are not telling the Government to act on a problem that we did not recognise and do something about. When we faced a similar situation with the smuggling of beer and other alcohol products, we froze alcohol duties in our last two Budgets. We cut them in real terms precisely to start the long march downwards to a more sustainable indirect tax policy.

We cut the duty on spirits, especially whisky, in our last two Budgets, despite the fact that we had to contend with a Budget deficit, and we responded in the only way in which a Government should: we considered the causes of the problem rather than simply dealing with the symptoms. Regrettably, this Government ignored all the warnings and made a serious problem much worse.

Mr. John Bercow (Buckingham)

Does my right hon. Friend agree that Ministers are ignoring not only the warnings that he and others gave before the election, but their own statements? Does he recall that on 23 January 1995, the hon. Member for Bristol, South (Dawn Primarolo), now the Paymaster General, opposed swingeing increases in tobacco duty precisely on the ground that such increases would play into the hands of the smugglers? Clearly, she has committed a tergivisation. Should not we be told why that is so?

Mr. Heathcoat-Amory

I wish the Paymaster General were here to answer that question. I strongly suspect that the Government have no answer. They recognised the problem in opposition; in government they have not only failed to deal with it, but have made it worse.

Tobacco presents perhaps the most serious problem, but they have increased the price of legal cigarettes by 25 per cent. I refer to legal cigarettes because they cannot increase the price of illegal tobacco. They have piled the increases on to legally sold cigarettes and tobacco products so people have increasingly switched to illegal tobacco products. The average price of cigarettes bought in this country has probably fallen during that time. That has benefited not Treasury revenue and the legitimate trade, but the smugglers and criminal gangs. The result is more smuggling and more smoking. We face not only a failed law and order policy, but a failed health policy.

The Financial Secretary to the Treasury (Mr. Stephen Timms)

The shadow Secretary of State for Health, the hon. Member for Woodspring (Dr. Fox), has rightly said that tobacco duty increases send out the correct health message. Given the different view that the right hon. Gentleman has expressed, can he tell the Committee what discussions he has had with his hon. Friend?

Mr. Heathcoat-Amory

I have just answered that point. I said that the Government had increased the duty, but that the average price of cigarettes had probably fallen because people were switching to illegally sold tobacco products. If it were somehow magically true that the Treasury could increase the price of all tobacco products, that might have a beneficial health effect, but it is not what is happening. An increasing number of people are obtaining cigarettes and hand-rolling tobacco from illegal, cheap sources. It is now estimated that 5 million smokers in this country routinely supply their everyday needs from the illegitimate market, in which the price has fallen rather than risen.

Not only is that a failed health policy, because more people are taking up smoking, it is a policy which cheats the Revenue. The Government's own figures show that the revenue losses on tobacco alone as a result of smuggling amount to £2.5 billion a year. Moreover, the policy is massively regressive. In so far as people do buy illegal cigarettes, they tend to be members of lower-income groups. I do not think that Labour Members have given up caring about the regressive nature of their Budgets, but they ought to listen to their constituents. In my area, certainly, I find that it is those who can least afford to buy cigarettes who appear to be smoking. I exempt my hon. Friend the Member for Arundel and South Downs, who is the only member of the shadow Treasury team who smokes. He is something of an exception: I think it is common knowledge that, in general, the poorer income groups smoke the most.

We have a policy that hits the legitimate market and boosts the illegal market—and this from a Government who came to office boasting that they would be tough not only on crime, but on the causes of crime. In this instance, the cause of crime is a completely unsustainable tax and duty policy.

Mr. Christopher Leslie (Shipley)

Instead of trying to justify and make excuses for smuggling and criminality, why does the right hon. Gentleman not commit himself to, say, spending more on Customs and Excise?

Mr. Heathcoat-Amory

Because that will not work. I shall say more in a moment about the Government's failed policies. They are launching an initiative this year—it is not the first; they have launched others in the past—to do precisely what the hon. Gentleman suggests, and recruit more Customs and Excise officers and civil servants. Meanwhile, the situation continues to get worse because the Government are not dealing with the cause of the crime. Instead, they have come up with a new wheeze: they are trying to sound responsible and respectable by saying that the extra revenue from the tobacco tax will be spent on the national health service.

Here again, the Government are in something of a muddle over exactly what sums they are talking about. The Chancellor of the Exchequer said that the increased revenue would amount to £300 million in the coming year. Not to be outdone, the Prime Minister said a few weeks later that it would amount to £400 million. Two weeks after that, the Chief Secretary to the Treasury said that it would amount to only £235 million. It is not surprising that the Government do not know how much extra revenue the policy will give them. Last year, the revenue from tobacco duty actually fell by £2.5 billion. It was lucky that the NHS was not dependent on that revenue.

A report published by the Government at the time of the Budget refers to the huge number of people now engaged in illegal trade. Page 6 of that report states that the numbers of people involved in the buying and selling of smuggled goods has risen to many thousands, possibly millions. The report also says that smuggling is on a strong upward trend.

Mr. Desmond Swayne (New Forest, West)

Over the weekend, I enjoyed the company of a house guest. On Sunday lunchtime, he went to the pub in a very prosperous part of Hampshire. Having expressed an interest in buying some cigarettes over the counter, he was approached by two potential salesmen offering to sell him 200. That was in rural Hampshire.

Mr. Heathcoat-Amory

My hon. Friend is right. The problem is no longer confined to the channel ports and to the south coast, it is nationwide.

An alarming development—to which perhaps my hon. Friend alludes—is that people are beginning to think that they are not doing anything wrong in buying smuggled goods. Indeed, they are not committing a crime—there is nothing illegal about buying smuggled cigarettes; the illegality is only in selling them. Respectable and responsible people are increasingly saying that if the Government are so stupid as to defy common sense in that way, making a bad situation worse, is it really a crime? That is a worrying development.

In addition, the Government's whole policy undermines the legitimate trade. Small shopkeepers are constantly being harassed by the police for selling cigarettes to under-age smokers. They are fined for selling cigarettes to people under the age of 16, but meanwhile the Government are implementing a policy that encourages under-age smoking because of the vast and growing illicit market operating throughout the country through uncontrolled outlets. Is it any wonder that smoking among young people is increasing again? The only response that the Government have to that very serious problem—the epidemic of smuggling—is to launch yet another campaign.

Mr. Barry Gardiner (Brent, North)

Will the right hon. Gentleman confirm that the Government are looking at the practice of forestalling in the industry, which has been responsible for a large amount of the drop in revenue? That practice by the manufacturers, whereby they clear a large amount of their product through pre-Budget prices and then only a very small amount of their product after the Budget, is one of reasons why there has been a loss to the Revenue and why an even greater loss is predicated for next year. It has little to do with smuggling. The Government are seeking to tackle that industry problem.

Mr. Heathcoat-Amory

Again, the Government are tackling the wrong end of the problem. They are dealing not with the cause of the problem, but with its symptoms. Simply fiddling around with the forestalling problem will do nothing to stop the underlying illegality and smuggling. If the hon. Gentleman really thinks that some changes in the way in which tobacco manufacturers pay their tax will deal with the issue that I have described, he fails to understand not only the issue, but the Government's literature. Their own report described in graphic terms the scale of the problem facing the country because of smuggling.

I was about to describe a previous Government initiative. They have just launched a new proposal to recruit and deploy almost 1,000 extra civil servants, but they have done all that before. On page 73 of the pre-Budget report of November 1998, they set out a great new initiative called the alcohol and tobacco fraud review, including extra resources, recruitment of new staff, tougher policies on the prosecution of offenders and on seized vehicles, the introduction of sentencing guidelines and the revocation of licences from businesses caught smuggling. What happened? The situation went on getting worse.

I shall give perhaps the most eloquent example of that. Based on that previous initiative, the Government supposed that their revenue for 1999–2000 from tobacco products would be £8.9 billion. In fact, it was £5.7 billion. That is a staggering undershoot. They lost more than £3 billion because of the failure of their initiative to halt smuggling, so that is the answer to the hon. Member for Shipley (Mr. Leslie).

One can have all the anti-smuggling initiatives in the world, but they will not work until one tackles the root cause of smuggling. Exactly that point applies to the initiative that the Government are launching on the back of their just-published report. The seeds of the Government's failure is written into that report, in which their own figures show that smuggling will worsen in the next three years. Even Ministers say that the initiative will not solve the problem and that, indeed, the problem will worsen. If Ministers say that it will get worse, I think that we are entitled to believe them on that point.

5 pm

The Government are dealing with the symptoms of smuggling, not with its causes. Today, we should like to hear from Ministers a real report on the real causes of smuggling. They asked Mr. Martin Taylor, who is a distinguished business man, to do a report on that very issue. He reported to the Government, but that report is secret. We have previously heard from Ministers much waffle and windy rhetoric about openness, the public's right to know and accountability, and that everything would be published and in the open—but, although they have commissioned a report from an outside business man into the very issue of the causes and consequences of smuggling and what to do about it, that report is secret.

Mr. Michael Fallon (Sevenoaks)

My right hon. Friend has described the report as secret, but is he aware that Ministers, in their reply to the Treasury Committee's report, described the Taylor report as "personal"? How can a report commissioned by the Chancellor of the Exchequer be described as his personal property?

Mr. Heathcoat-Amory

My hon. Friend is absolutely right—taxpayers paid for that report, and it is not personal at all. The report was not going to be personal until Ministers read it and realised that it was rather embarrassing. Suddenly, the report has become very personal and secret.

It is widely known in the trade that Mr. Martin Taylor, being a man of common sense, included in a letter attached to the report the commonsense observation that if we really wants to do something about smuggling, we have to do something about the duty differential between the United Kingdom and the continent. As publication of that observation would be too embarrassing for the Government, they have suppressed it.

There is a similar situation in the alcohol products market. I shall not repeat the points that I have already made, but they apply in very much the same way in that market—in which, for example, the licensed trade is being undermined by the Government. It took several hundred years to build up a responsible, licensed trade in the United Kingdom, so that people could drink in responsible surroundings in which alcoholic drinks should not be sold to minors. It is quite a considerable achievement. The Government, however, are putting at risk and undermining entirely that achievement by presiding over a disorderly market in which drink is sold in uncontrolled outlets to minors and others.

The cause of that situation is staring the Government in the face: it is, again, a large and growing duty differential. The difference in beer duty between the United Kingdom and France, for example, is about 30p. Other European countries have faced exactly the same problem. Historically, all of the Nordic countries and Ireland have, like the United Kingdom, had high alcohol duties. However, when those countries joined the single market and faced the demands that it imposed, all of them cut their duties on alcoholic products. Only the United Kingdom Government are defying logic and common sense by increasing duties in every Budget, making a serious problem worse.

Mr. Dale Campbell-Savours (Workington)

If Conservative Members believe that those duties should be cut, how would they compensate for the lost revenue?

Mr. Heathcoat-Amory

If the hon. Gentleman had been listening, he would know that no compensation is necessary as the policy is costing the Government money. Last year, the duties received on tobacco products decreased. If he really wants to understand the issue, he should read the Government's own documents on the matter. The situation is crazy, undermining not only health and crime policies, but revenue policy.

Of course, there are winners from the policy. They include the criminal gangs—which may well be operating in the hon. Gentleman's constituency—and the smugglers. There is a Treasury that benefits from the policy, but it is the French Treasury. There is a retail industry that benefits as well, but it is based in Calais. The losers are the legitimate outlets, including the retailers and traders and, when it comes to alcohol, the brewers and their suppliers—as well, of course, as the British taxpayer. We want to put an end to that.

We are faced with the policy of a madhouse. We want an unvarnished independent review that sets out the link between the level of duty and the level of smuggling. If the Government believe that the high level of duty is not the cause of the criminality, let them show it by commissioning an independent report and being brave enough to publish the results.

Mr. Bercow

Given that on average more than 80 per cent. of the cost of a packet of cigarettes finds its way to Treasury coffers, does my right hon. Friend agree that if Ministers regard that as a harmless phenomenon, they owe it to the House to tell us for what proportion of the total cost of a packet of cigarettes excise duties should ultimately account?

Mr. Heathcoat-Amory

My hon. Friend is right. That could well be included in the report for which we are calling. We want a comprehensive look at the entire structure of alcohol and tobacco duties and the link between prices and smuggling. There are many examples from around the world on which to draw. Canada faced a similar problem and successfully stopped the smuggling by cutting its duties. The Nordic countries have done the same. There are plenty of examples and information available, but the Government are too scared to put the issue to the test of an independent review that they would then publish. Unless and until the Government come forward with the information that we want, we shall vote against the duty increases.

Dr. Palmer

I was interested by the comments of the right hon. Member for Wells (Mr. Heathcoat-Amory). I have not yet fully understood whether the Conservatives are opposed to the duty levels because they feel that they are conducive to smuggling—that was the only argument that he advanced—or whether they wish for lower duties per se. If the Government's new initiatives with the tobacco industry on clearer labelling for duty-paid cigarettes succeed in reducing smuggling, will the Conservatives accept the health argument for high levels of taxation, or will they adopt the populist argument—a tactic that they seem to be flirting with in other policy areas—that cigarettes ought to be cheap?

That goes to the heart of the amendment. If it stands or falls on the issue of smuggling alone, the Opposition are saying that they have no objection in principle to high rates of duty. It would be helpful if that could be clarified.

Sir Michael Spicer (West Worcestershire)

Another pertinent question might be whether the hon. Gentleman accepts and approves of the regressive nature of the taxes.

Dr. Palmer

I am grateful for that intervention. Rather than looking at single taxes, where arguments could weigh one way or the other, we should consider the overall impact of direct and indirect taxation. One of the most welcome features of the current Government has been the substantial redistributive impact of taxation as a whole. I would be surprised to hear the hon. Gentleman welcome that, but if he wishes to join those favouring redistribution, he will be welcome on this side of the House.

I was curious about the suggestion by the right hon. Member for Wells that taxation is set by a free market. That is an interesting concept, because there is no market in the usual sense of buying and selling. However, there is a good deal of international debate about the tendency of international free trade to encourage a movement of taxation to the lowest possible level that any country may choose to impose, just as there is a tendency to encourage movement to the lowest possible standards.

When I lived in Switzerland, I saw embarrassing advertisements by the British Council, encouraging companies to move to Britain on the grounds that wages, taxes and Government interference were lower. I remember asking Swiss employers whether that was significant for them. They said that it was nice to pay less money, but that the primary factor for them was the relatively low level of education and infrastructure in Britain.

The right hon. Member for Wells is attempting simultaneously to satisfy the more populist elements of his constituency, which favour low levels of indirect taxation, while attempting to remain on this side of respectability by disguising it as an attack on smuggling. He said that small shopkeepers are constantly harassed to prevent under-age smoking. Is he saying that he would prefer that small shopkeepers were not approached—I will not use the word harassed—to discourage under-age smoking? Is he saying that under-age smoking should be left to the free market? Is he saying that because there is a difficulty in discouraging under-age smoking when those concerned buy from smugglers, we should give up on attempting to persuade shopkeepers not to supply under-age smokers?

Mr. Heathcoat-Amory

Before the hon. Gentleman wastes any more of the House's time by distorting my argument, may I remind him that I was making the point that it is no good simply harassing small shopkeepers to prevent under-age smoking when it is the Government who ought to be addressing the problem? The Government should stop running a policy that encourages the distribution of tobacco products in uncontrolled outlets, which has increased and is increasing the incidence of under-age smoking. The Government should start by taking action themselves, rather than putting the problem on to small shopkeepers.

Dr. Palmer

I am still struck by the repeated use of the word "harassment". The right hon. Gentleman is using his criticism of the rate of duty to side with the less responsible small shopkeepers who object to the police keeping an eye on them to discourage their sale of cigarettes to under-age purchasers. Is he willing to state clearly that the Opposition are strongly in favour of small shopkeepers being discouraged from selling to under-age children?

Mr. Heathcoat-Amory

Of course we are, but the Government must play their part. It is no good simply expecting the legitimate trade to bear the full burden of preventing under-age smoking when the Government are pulling in the opposite direction—and hypocritically urging action against small shopkeepers—when the Government themselves are responsible for a policy that is increasing the incidence of under-age smoking, as is shown by the regrettable statistic that the number of people in the younger age brackets who are taking up smoking is increasing.

5.15 pm
Dr. Palmer

We may understand then that Conservative policy is to support what the right hon. Gentleman earlier called the harassment of small shopkeepers to prevent them from selling to under-age smokers, as long as the Government also take the action that he wishes to see.

Mr. Gardiner

Does my hon. Friend agree that the right hon. Member for Wells (Mr. Heathcoat-Amory) has just undermined his own argument? He stated that the increased duties have caused an increase in illegal sales, which means that children are increasingly buying tobacco and cigarettes, but he also argues that that is cause for harassing legitimate outfits. If under-age consumers of tobacco are buying it on the black market, it makes no sense for him to urge the harassment of shopkeepers with legitimate businesses.

Dr. Palmer

I am grateful to my hon. Friend for his well-expressed point, which shows the basic weakness of the Opposition's position. I do not wish to take up the House's time too much—

Mr. Eric Forth (Bromley and Chislehurst)

Go on.

Dr. Palmer

I knew that that would please the right hon. Gentleman.

As a Nottingham Member, I share the concerns of other hon. Members who represent cigarette producing areas about smuggling. We need to do more to eliminate the similarity of smuggled goods to legitimately produced goods, and I welcome the joint Government-industry initiative on that, which the right hon. Member for Wells failed to mention. Tax harmonisation with the European Union on tobacco also makes sense, and the industry has repeatedly said that it would welcome that.

The amendment is totally one-sided. It is selective and looks only at one aspect of the problem. As such, it is not a serious alternative to clause 1.

Mr. Forth

This debate is rapidly becoming a combination of political correctness, economic illiteracy, wishful thinking and nanny-statism, all wrapped up into one bizarre package. We have what would appear to most people to be an obvious argument that, for reasons that I hope the Minister will explain when he replies to the debate, the Government are unable or unwilling to grasp. It is obvious to the Opposition, and to almost everybody outside the House. Smokers and non-smokers, people who buy legitimate or smuggled cigarettes, and small and large shopkeepers all know what is going on, and they cannot see the point of the exercise. However, the Government persist with their sterile and damaging policy. The Minister must give us a thorough explanation of what the Government think that they are doing, whether they accept what is happening, and where the Government think that their policy is leading.

There is a peculiar analogy to be made for this debate, because it is all bound up in the politically correct policies that we have become more and more accustomed to from the Government. For example, an environmental argument is introduced when they seek to justify their swingeing increases in vehicle petrol duties. At the same time, they have reduced taxation on domestic fuel, which produces even more pollution than vehicle emissions. The Government have failed to justify that. In this case, taxation is allegedly used as part of health policy, but it is patently failing. Not only is it not yielding the revenues, but—as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out—the incidence of smoking is increasing. On every possible count, the policy is failing.

We need a full explanation from the Government of whether they will accept amendment No. 8 and if not, why not.

Mr. Beard

Is not there a paradox in the right hon. Gentleman's argument? He complains that the incidence of smoking is increasing, and especially among young people, yet Conservative policy is that the markets would somehow harmonise prices on the continent and in Britain. Is not that essentially the same as saying that we ought to harmonise taxes? However, if taxes were harmonised, the price of cigarettes would fall further. As a result, even more people would smoke, and even more children would acquire the habit. Does not that run totally contrary to any sensible health or revenue policy?

Likewise, the right hon. Gentleman—

The Chairman

Order. This is developing into a mini-speech. The hon. Gentleman should ration his remarks.

Mr. Forth

I am delighted to have the opportunity to answer at length the points raised by the hon. Member for Bexleyheath and Crayford (Mr. Beard). I shall seek to do so while—I hope—staying strictly in order.

I am sure that the hon. Gentleman was here a moment ago when my right hon. Friend the Member for Wells took great pains to explain the matter. I am not in favour of tax harmonisation, in the European Union or anywhere else. However, I have just returned from the United States of America, where there is a single market and a single currency. There is no single currency in the North American Free Trade Agreement: Canada and Mexico proudly retain their own currencies while taking part in a very satisfactory free trade arrangement.

As my right hon. Friend explained so eloquently a short time ago, there is in the United States a tendency for tax levels not to diverge so excessively as to give rise to a lot of cross-border smuggling between states. That is a perfectly natural, market-driven process, and it is worlds apart from the heavy-handed, bureaucratic, ideological process favoured by Labour Members. They want someone in Frankfurt or Brussels to impose tax rates and regimes on this country. We oppose that completely but, as my right hon. Friend said, we have no objection to the evolution of proper tax regimes in different parts of a single market, as long as that single market continues to function.

Worse, the hon. Member for Bexleyheath and Crayford has not grasped that we used to have a proper market in these products. They were sold through properly regulated and supervised outlets, and there was a perfectly reasonable regime governing sales to under-age people, and so on. However, now that a growing proportion of the market is attributed to smuggled goods, we have no chance of regulating or supervising the market in any way.

We want to find a way to restore an orderly market in these products. It is right that that market should be regulated with regard to under-age consumers, but I believe that the decision about using the product should be left to the mature judgment of people of a proper age, based on proper information from the Government.

Mr. Campbell-Savours

The right hon. Gentleman is almost a convert. He expresses support for the principle that there is a tendency to equalise taxation, as happens in the free trade area in the United States of America, but does he see Europe in the same way? Does he believe that there should be a tendency to equalise all forms of taxation in the European Union? How would he justify that?

Mr. Forth

Again, the hon. Gentleman must have fallen asleep temporarily when I drew my preferred analogy. I shall not use the analogy that he used, as I prefer my own, which concerns NAFTA. That arrangement is perfectly satisfactory to the Canadians, Americans and Mexicans, but has no single currency or overarching bureaucracy. However, I am watching you, Sir Alan, as I do not want to stray out of order.

Sir Michael Spicer

Will my right hon. Friend give way?

Mr. Forth

I will, but I hope that my hon. Friend will not tempt me much further down this line of argument. If he does, I shall blame him for what you might say, Sir Alan.

Sir Michael Spicer

I am most grateful to my right hon. Friend, who does not need my help to cope with mischievous questions from Labour Members. However, does he agree that, with cigarettes in particular, the differential between taxes in European Union countries and taxes in countries outside the EU is more important than tax differentials inside the EU?

Mr. Forth

My hon. Friend makes a very proper point. It is at the root of what we are disputing.

My right hon. Friend the Member for Wells eloquently set out these obvious and basic factors, and we await the Minister's reply. I have no doubt that he will want to set out in detail the Government's response to those points and explain whether they will accept amendment No. 8, which would be a significant contribution to solving the problem.

Mr. Roger Casale (Wimbledon)

At the start of his remarks, the right hon. Gentleman referred to economic literacy. The economics of his proposed changes to discourage smuggling—a freeze, as I understand it, on the level of tobacco duty—mean that the overall tax revenue from tobacco duty would either go up or down. It might go up because there would be less smuggling and more people would buy cigarettes legally. Equally, if the rate of revenue received goes down, the amount of overall revenue would probably go down. If tax revenue were to increase, would he commit to spending that extra money on the national health service, as the Government are doing? If it goes down, how would he replace that money, or would it be taken out of the NHS, resulting in cuts to the service? Where would the money be spent if the revenue were to increase as a result of his proposals, and where would it come from to compensate for any reduction?

The Chairman

Order. The hon. Gentleman is getting near to a peroration.

Mr. Forth

These are helpful interventions. I will reply briefly to the hon. Gentleman's question. I do not believe in hypothecation, which is a self-defeating exercise. I can see why the Government have done it—for their usual populist, trivial, short-term reasons. As I do not agree with hypothecation, I do not need to answer the hon. Gentleman's question in the way in which it was put.

My judgment is that were my amendment to be accepted, the reduction in tobacco product prices would regularise and restore the market to where it was some time ago. Revenues overall would probably go up, and products would be sold in a more orderly market rather than one which is becoming increasingly illegal and based on smuggling. That would have a number of consequences. At present, we cannot, as effectively as we would wish, seek to prevent under-age children from smoking. That purpose is shared across the House. I believe that we have a duty, as effectively as possible, to seek to prevent our young people from taking up smoking, but once they reach the age of, say, 18, our duty is properly to inform them of the dangers of consuming that product and then leave it to their judgment.

Mr. Casale

I am grateful to the right hon. Gentleman for giving way a second time. Is he saying that he would like more money to be raised for the Exchequer through the sale of tobacco?

Mr. Forth

I would be very happy if that were the case. That is the way it used to be, and I believe that my amendment would lead us in that direction. That is why I hope that the Minister will consider it sympathetically and perhaps give a positive response.

Mr. Bercow

If tax rises continue to depress revenues and to advance other countries' tobacco industries at the expense of our own, should we not be told by Ministers whether, on the strength of the evidence, they would be prepared to change policy, or whether they intend to continue with the existing foolhardy policy for fear otherwise of having the finger pointed at them by the politically correct fetishists?

5.30 pm
Mr. Forth

I am certain that that is uppermost in Ministers' minds, because these days it usually is. We know that the Government are driven almost solely by focus groups, opinion polls and probably by fetishists as well, as my hon. Friend suggests. The Government are not driven, regrettably, by economic literacy, cool analysis or a genuine desire to introduce policies that make sense. However, the Minister will have a chance to redeem himself and the Government when he seeks to catch your eye, Sir Alan, and we look forward to that very much.

I want to introduce some figures into the debate to illustrate the extent of the problem. I have been told, and have every reason to believe the figures reliable, that a typical pack of 20 king size cigarettes costs £4.17 in the UK at full retail and with full tax paid. On the continent, the price varies from as low as £1.25 in Greece to £1.84 in Belgium. That huge differential explains the enormous and increasing propensity for smuggling.

My hon. Friend the Member for New Forest, West (Mr. Swayne) described the kind of offer that most of us will have experienced. Smuggled tobacco and alcohol products are regularly and illegally, but temptingly, offered to people in every part of the United Kingdom. That explains the figures given earlier by my right hon. Friend the Member for Wells about the fall in revenue and the increasing proportion of the total market represented by smuggled product. Price differentials drive that process.

I have heard anecdotally of prices as low as £1 a pack for 20 cigarettes. The tobacco industry suggests that the going rate on the black market is about £2.50. Even that price tempts the consumer and makes smuggling profitable. The Government are losing an increasing amount of revenue as a result, as well as losing any possibility of exercising regulatory control, particularly over the sale of products to under-age children.

Mr. John Swinney (North Tayside)

Does the right hon. Gentleman recall from his experience in the previous Government whether debates about the growing disparity between duty in this country and that in some of our European neighbours ever influenced the decisions then taken to increase fuel duty sharply ahead of inflation? I seem to recall that the Conservatives did that during their period in office.

Mr. Forth

Many things happened during the glorious period of Conservative Government which I regretted at the time, or, frankly, regret with hindsight. As it happens, that policy was one of them. I never accepted the alleged environmental arguments or the effect that the policy was supposed to have on the product. I am not aware that swingeing increases in tax on petrol for vehicles has led to any diminution in the mileage travelled by individuals or the propensity to buy vehicles that consume a lot of petrol. The policy has been a successful revenue raiser, but it has done damn all for the environment.

Mr. Bercow

I can confirm the veracity of what my right hon. Friend has said about his attitude to excise duties. As long ago as 1989, at a conference in Nottingham, in an admirable speech made while he was a member of the Government, but in front of a private audience, he expressed his opposition to higher excise duties on tobacco and alcohol. I remember it well.

Mr. Forth

I am grateful to my hon. Friend, whose memory in these matters is legendary. I defer to him totally in what he says.

The Government's policy is disastrous from almost every conceivable point of view. Revenue is going down, smuggling is going up and our ability to regulate the product properly for youngsters is reducing.

Liz Blackman (Erewash)

Is the right hon. Gentleman aware that countries such as Spain and Italy have their own smuggling problems despite having considerably less excise duty on their tobacco products than we do? Is not the logic of his point that combating the problem would mean the complete removal of excise duty? Is that what he really proposes?

Mr. Forth

The countries mentioned by the hon. Lady must deal with their own markets and domestic policies in their own ways. That is a vital principle. However, as my right hon. Friend the Member for Wells said, they must, in doing so, have reasonable, sensible and proper regard to the effects of the single European market that allegedly exists. They would have to consider possible cross-border movements of products before they made up their minds. In fact, their problem is the reverse of ours. If, as the hon. Lady says, countries such as Spain believe that they have a health problem related to the consumption of tobacco, that is a matter for them.

Liz Blackman

I was trying to make the point that their problem with smuggled tobacco goes well beyond the EU. That tobacco is also coming into this country. Logically, combating the price differential would require removing excise duty altogether. Is the right hon. Gentleman seriously proposing that?

Mr. Forth

If the hon. Lady is saying that our European partners have lousy border controls and no grip on what goes into their countries from outside the EU, I should not dispute that for a moment. That is one of the factors that we should take into account when considering our relationship with the EU as a whole—whether on asylum and immigration or on the import of products from outside the EU. She and I probably do not disagree much on that. If she says that there is a huge problem, she is probably right. Let us discuss that, but not in the context of the amendment.

I should be interested in holding a debate with the hon. Lady on the EU market in general, on whether the single market functions effectively and, particularly, on whether that EU market is properly protected from products from outside that are harmful either to the health of our peoples or to our fiscal policies. Those are legitimate concerns, but not in relation to the arguments that I want to make today. I do not fear to make arguments on those interesting matters—countries would do well to consider them carefully.

I do not want to prolong the debate because the points almost make themselves. However, despite that fact and even though my right hon. Friend the Member for Wells has made them in his way—as I have in mine—there is no evidence that Labour Members are prepared to accept them at all, so perhaps my hon. Friends will have to ram them home much more effectively than I could possibly do.

I have a few questions for the Minister. I hope that he will answer them in his usual courteous, comprehensive and knowledgeable way. What is the Government's current estimate of the trend in smoking in this country, especially among young people? I should like that to be on record, so that we know what the Government believe the underlying trend to be.

What is the Government's estimate of the smuggling of tobacco products by volume and by value? It is important for us to hear officially from the Minister the Government's current estimates. What is their estimate of the loss of revenue that they are suffering as a result of that smuggling?

Those key questions face the Government and, indeed, all of us. Whether the money is hypothecated to health is an important factor, but it is not crucial. The crucial factor relates to the encouragement of illegal activities—widespread smuggling and purchase of smuggled goods. Many Labour Members have raised—legitimately—the loss of any control or regulation in the sale of those smuggled products, especially to under-age people. That is one of the key questions for the Government.

When the Minister replies, I hope that he will tell the House that he accepts my amendment; if not, he will have to give some jolly good reasons why not.

Mr. Campbell-Savours

I shall intervene only briefly; the right hon. Member for Bromley and Chislehurst (Mr. Forth) has provoked me into saying a few words.

The right hon. Gentleman has not answered the point made by my hon. Friend the Member for Erewash (Liz Blackman). He should think clearly about the implications of what she was saying. If there are different tax regimes within Europe, under which a packet of cigarettes might cost 8 francs in France and 3,300 lire in Italy—a differential of about 20 per cent.—and if, moving from France to Italy, there is still a market, even with such a tight differential, does that not show that the amendment would not deal with the problem? We are doing so through this year's Budget. The right hon. Gentleman is not addressing the problem.

If a differential of only 20 per cent. is enough to incite people to trade in cigarettes, because a profit can be made simply by walking through a frontier within the EU at night, or by driving across it in a van, the right hon. Gentleman's proposals will not work.

I lived in Milan as a boy. When we were in the countryside, we used to go up to Como in the evenings, and if one stood on a bridge late at night, where the rivers came down from the alpine villages, one could see men carrying sacks on their back—sacks of fags, coming in from Switzerland to Italy. The differential was very little, but it was sufficient. I remember vividly that, when I was a child, the differential was sufficient to ensure that street corners throughout the city of Milan, every day of every week of every year, were crowded with people selling cut-price cigarettes that had come in from other parts of what was then Europe, not the European Union. It is going on today. In Rome, one can find cigarettes that have come in from Greece. The differential is probably only 20 or 30 per cent.

Mr. Oliver Letwin (West Dorset)

Is the hon. Gentleman advancing the rather interesting argument that the size of the differential has no impact on the size of the smuggling market?

Mr. Campbell-Savours

Yes; I think that there is an argument that, as long as there is the potential to make a profit, people will trade. In the event that that is the motive—simply that there is sufficient differential to make a profit—the only way to deal with it is to take far greater measures to affect the trade.

Mr. Letwin

What reason does the hon. Gentleman advance for supposing that this is the unique case that disobeys the laws of economics and supply and demand in every other domain?

Mr. Campbell-Savours

My own experience—what I have seen and what tourists from anywhere in the United Kingdom will experience if they go on holiday anywhere within the European Union—is of fags, which invariably come from other parts of the European Union, being sold on street corners.

Sir Michael Spicer

How, then, does the hon. Gentleman explain the fact that when Canada, Switzerland and Sweden reduced their duties, smuggling fell dramatically?

Mr. Campbell-Savours

I do not know the answer to that, but I am sure that there is an explanation that is consistent with the case that we are advancing in the Chamber today. I have not studied the evidence. All I know is what I have experienced and witnessed, over most of my lifetime, within the European Union. The hon. Gentleman may talk in terms of what we are seeing today being a phenomenon of today, but it is not. It has been going on since I was a child, throughout Europe.

Mr. Swayne

I acknowledge that the hon. Gentleman is right to say that, as long as a differential exists, people will trade; but, obviously, the number of people trading will be determined by the size of the differential and the profitability. Is not the phenomenon that the hon. Gentleman describes something to do with the cultural background in Europe, which, as he said, stretches back a long way? Nevertheless, this type of trading is a relatively new phenomenon, at least in this country.

Mr. Campbell-Savours

When the hon. Gentleman starts talking about cultural backgrounds, I tread a little warily, because I know roughly the area into which he is daring to venture.

There is one other aspect that I wanted to raise in my brief contribution.

Mr. Bercow

Will the hon. Gentleman give way?

Mr. Campbell-Savours

No. Let me go on, because I do not want to hog the debate.

I have in my hand a brief that comes from the Treasury, which I believe is available to most Members. It says that the Treasury will invest in technology, including large-scale X-ray scanners that can look inside lorries and freight containers.

I hope that, when the Minister replies to the debate, he or she will address the issue of these scanners, because I believe that that is an interesting development. I am told that such scanners already exist in the United States of America, and that they really work. I should have thought that if there is a technology that provides for the use of scanners in identifying large hauls of cigarettes in truck containers, it should be used.

I am told that the revenue lost from a truck container can be as much as £1 million per container. If we have that technology, the trade will soon collapse. If scanners are in operation, transport operators who contract companies to carry such loads from other parts of the European Union know that they risk losing their tractor units and trailers—many of which are worth between £120,000 and £150,000 per unit—if they are found to be carrying cigarettes. I am told that we are to have a dozen scanners. I only wish that we were buying more; I would have 50, as they will be a particularly good investment.

The trade is not made up entirely of the little guys who wheel their trolley off the P&O ferry at Dover and sell fags locally on the motorway. The real trade is the big 40 ft trucks crammed full of aluminium boxes, and people get away with it because we do not have the resources to check on such loads.

5.45 pm
Mr. Letwin

Does the hon. Gentleman think that smugglers' propensity to invest in materials such as lead to counteract the X-ray would be increased or decreased if the differential were reduced?

Mr. Campbell-Savours

That is an interesting question. If one puts enough lead in a 40 ft truck-trailer to cover boxes full of fags, it will probably weigh down the whole vehicle, as will be evident from its axles. Regardless of that, it is extremely easy to develop technology capable of locating lead. If one wants to find people who are carrying fags, all one has to do is use a bit of equipment that can identify lead. Lead on top of someone's load means that they are carrying fags.

We shall therefore introduce the necessary technology. I predict that the policy will work and will be extremely successful if we invest in such equipment. If we increase the quantity that is available for use for detecting cigarettes and other products at British ports, smuggling will be cut dramatically, so I hope that my hon. Friends will go down that route.

Mr. Edward Davey (Kingston and Surbiton)

The whole Committee is grateful for the comments of the hon. Member for Workington (Mr. Campbell-Savours). I cannot speak as eloquently as he does, but I support his argument that scanners are a key tool for the Government in tackling smuggling.

Page 6 of the Government's document, "Tackling Tobacco Smuggling" gives statistics on tobacco smuggling in 1999, estimating that £1.4 billion of the £2.5 billion that was lost—or more than half of last year's lost revenue—was through freight consignment smuggling, which scanners are designed to tackle. The Government are quite right to go down that road, as the hon. Gentleman pointed out. However, he was a little too generous to the right hon. Member for Bromley and Chislehurst (Mr. Forth) who, in the final knockings of his speech, seemed to be suggesting that Spain should improve its physical controls on tackling smuggling, but that that was not the right policy for Britain. That was rather inconsistent and incoherent, and not typical of how the right hon. Gentleman usually argues his case.

The right hon. Member for Wells (Mr. Heathcoat-Amory) said that the Conservatives are certain that the only solution to the matter is to cut duties. The hon. Member for Broxtowe (Dr. Palmer) asked why that is so and what motives lie behind Conservative policy. He suggested that the Conservative party may just want to cut smuggling and is not worried about the revenue. Perhaps it wants to promote drinking and smoking. We need to know the real reasons for Conservative policy, which, if I understood the right hon. Gentleman correctly, is based on the need to protect revenue.

The Opposition are saying that, if duty is cut, there will be increased revenue. That is like applying the Laffer curve to indirect taxation. That seems to be the key to their argument. If they are saying that, by cutting duties, we shall cut cross-border smuggling, but that that might have a negative revenue effect, we might all agree. If we wanted to spend money solely on cutting cross-border smuggling, we could all agree that cutting excise duties on tobacco and alcohol would almost certainly have some impact on that smuggling. We are not sure of the scale, but it would certainly have an impact.

When we consider the revenue impact of cutting duties, the analysis is rather more complicated. I refer to an article in "Fiscal Studies" of September 1999 by Crawford, Smith and Tanner, entitled "Alcohol Taxes, Tax Revenues and the Single European Market".

Mr. Bercow

Riveting reading.

Mr. Davey

It is an important read for this debate because it brings some economic literacy to it. It considers real numbers and models them properly. It focuses also on own-price and cross-price elasticities of demand for smuggled products. It works out the impact of cutting duties on demand and thus on the tax take. I accept that the study focuses on alcohol and the effect of cutting excise duties on it. The authors, in estimating the various price elasticities of demand in the mid-1990s in Britain for various alcohol products, show that, if we were to cut duties on beer and wine, the revenue would decrease. That is a clear and unambiguous conclusion in an economically literate study.

Sir Michael Spicer

As the hon. Gentleman is so economically literate, he will know that the elasticities that are assumed by, or produced from, the report have been hotly disputed by other people.

Mr. Davey

I am grateful for the hon. Gentleman's intervention. I have spoken to representatives of the industries concerned about these matters. I have yet to see a detailed economic knock-down of the price elasticities. I have heard some anecdotal evidence against them, but not detailed economic facts. The debate should focus on the facts and not on pure dogma. We need to introduce into it some objective cool-headed studies, and I believe that the study to which I have referred is one.

Dr. Palmer

Given the existence of the report from a respected independent body, does the hon. Gentleman agree that amendment No. 1 should fall? It merely demands an independent report on the effect of liquor duties on smuggling.

Mr. Davey

The hon. Gentleman makes a valid point.

In trying to explain the thinking behind the report and the analysis, the authors of the report consider two effects. First, they focus on the effects on revenue when we cut taxes. One effect is to raise demand as people who were consuming illegal goods start consuming goods with duty paid, which adds to the tax base. If we cut excise duties, we might find more people demanding the product. That is the ordinary demand curve effect. In those terms, revenue would be raised as a result of what the Conservatives are proposing.

The effect that outweighs that, as set out in the study, is that the lower tax per unit of sale resulting from a cut in excise duties more than offsets the gain in tax revenue from the higher demand. Unless a cut in excise duty had a great effect in increasing sales and demand, the second effect would always outweigh it. Previous studies have backed up the findings of the Crawford, Smith and Tanner study and point in that direction.

It is interesting that the report suggests that the duty on spirits is a revenue-maximising rate, so that, if duties were cut, we would see a fall in revenue. A distinction is made between different alcohol products but there may be a fall in revenue when duties reach a certain level, and the Government have recognised this.

Liz Blackman

Is the hon. Gentleman aware that the Canadian experience revealed exactly the same effect? By cutting duty, Canada has forgone revenue on tobacco.

Mr. Davey

I am grateful for the hon. Lady's intervention. I was not aware of the details of the Canadian experience, but perhaps I should have been.

We need to know from the Conservatives what lies behind their argument. Do they want to cut cross-border smuggling? If that is their position, it is a valid one. When they add up their expenditures when preparing for the next election, they may want to say to the British people that a key priority is to spend £1 billion, or whatever the sum may be, on cutting cross-border smuggling by lowering duties, and that that priority goes before the health service, schools and the police. However, if they are saying that cutting duties on beer and wine will increase revenue, they have no case.

Mr. Heathcoat-Amory

I shall summarise our position for the hon. Gentleman. We have a failed health policy and we want a successful one. We have a failed criminality policy and we want a successful one. We have a failed revenue policy and we want a successful one. The Government's response is to make a bad situation worse by opening up the duty differential, which will make all those problems worse.

Mr. Davey

For a second I thought that the right hon. Gentleman was in a time warp and was describing the record of the Conservative Government. I do not want to defend this Government's overall record on health. Indeed, my colleagues and I have criticised it. It is difficult to criticise overall their record on finances because there are huge surpluses which are growing by the day. Their record on criminality is certainly questionable, especially in terms of numbers of police officers. However, given the previous Government's record in these areas, the right hon. Gentleman has a nerve. He failed to address earlier whether the Conservative party is arguing that a cut in excise duties will increase revenue. If the Opposition are advancing that argument, the Committee is entitled to know on what basis they are doing so. The evidence from Canada and from the independent economically literate study produced by the Institute of Fiscal Studies suggests that what is being said by those on the Opposition Front Bench is completely wrong.

One might be tempted to suggest that the Opposition are being slightly opportunistic and that, during a week when there will be elections, they are trying to be populist, as their Leader has tried to be populist on various other areas of policy. The Leader of the Opposition has failed, and I believe that the Opposition will fail tonight because they have failed to make their point.

I do not have a study to quote from when we come to consider whether reducing duties on tobacco would increase revenue. I do not know of a study that has gone into the various own-price and cross-price elasticities that need to be computed if we are to work out the effect of reducing duties. Does the Minister know of a study that has considered own-price and cross-price elasticities and the effect of a cut in the duties on tobacco in terms of the overall tax yield from tobacco? If such a study does not exist, does the Treasury intend to commission one? Such an independent study would be important in informing the debate. If we have reached the top of the curve or gone beyond it in excise duties on tobacco, and if a cut would yield more revenue, my right hon. and hon. Friends and I might well reconsider our position. We are not dogmatic about it. If a cut in duties would have a beneficial effect all round for health policy and revenue raising, for example, we would be more than happy to support such a move, but there is no evidence to suggest that that would be the effect.

Mr. David Ruffley (Bury St. Edmunds)

Will the hon. Gentleman clarify one point? Is he saying that the Government of this country should base their tax and excise duty policies on the work of Crawford, Smith and Tanner?

6 pm

Mr. Davey

I am certainly not saying that, but I am advocating that the Government base their tax policy on objective, independent, well-founded and economically literate analysis. We have not had that from those on the Conservative Front Bench.

Dr. Palmer

Is the hon. Gentleman not being a little optimistic in thinking that a further study would help to clarify the debate? As we have heard from the interventions of Conservative Members, even when there is an independent report, they do not want it. They want an independent report whose conclusions they like and, if they get one whose conclusions they do not like, they ask for another report.

Mr. Davey

The hon. Gentleman has a point, but I do not want to rubbish independent and objective reports. We need more of them, because this is an important social, economic and fiscal issue. The Government, and the previous Government, reacted to the initial findings on the effect of cutting duties on alcohol by freezing the duty on spirits and by keeping the increases in excise duties on beer and wine to the rate of inflation. That is a sensible policy that evidence from independent and objective studies seems to back up.

However, at the moment, I do not have to hand a similar study considering the price elasticities of demand for tobacco, and such a study is necessary for this debate. It could provide it with some rigour and a framework, so that we do not have to clutch figures from the air or make wild assumptions. Surely, given the brilliance of economists and the civil service in this country, we can try to obtain the facts and publish them, so that the debate focuses on the correct issues.

Mr. Bercow

At the start of his speech, the hon. Gentleman appeared to suggest that he accepted that a large differential would tend to favour the smuggler. He therefore dissociated himself from the position advanced by the hon. Member for Workington (Mr. Campbell-Savours), whose continental meanderings were enjoyable but, I fear, no substitute for empirical evidence. The hon. Gentleman now appears to be telling us that he does not know what the empirical evidence is. Therefore, can we establish beyond doubt the Liberal Democrats exact position on excise duties on tobacco as of 2 May 2000? Does he think that they should be higher, lower or stay the same? When will he learn to play his cards right?

Mr. Davey

The position is simple, and I will answer the hon. Gentleman directly. In the Lobby tonight, we will support the Government's position on increasing excise duties on tobacco and alcohol. I hope that that answer helps him with his troubles. However, he has mixed up two points. I agree with him that a larger price differential provides a greater incentive to smuggling. That is a law of economics, as the hon. Member for West Dorset (Mr. Letwin) said. However, it does not follow from that—the evidence is not yet forthcoming—that a reduction in duties would lead to an increase in revenue or that we should back an ill-thought-through and ill-considered policy that would be bad news for the health service, our schools and the police.

Mr. Bercow

I am deeply disappointed by the hon. Gentleman's reply. I had hoped against hope—oh, naive soul that I was—that he was a genuine libertarian. The late John Stuart Mill, for one, would be ashamed of him.

Mr. Davey

May I refer the hon. Gentleman to John Stuart Mill?

If a study on the price elasticities of tobacco were carried out so that the debate was rather more informed than it has been in some quarters, we might find that a cut in duties might increase revenue yields. However, we might still decide that we wanted to increase the duty because of other factors such as health policy. As the hon. Member for Erewash (Liz Blackman) pointed out, the evidence from countries with low rates of duty is that, because of sophisticated organised crime, smuggling will continue even if the differential is quite small. There is bound to be a differential with other countries, and particularly with those outside the European Union, and organised crime will arbitrage on the differential between the different tax rates and will try to exploit it.

Whatever the policy on reducing duties, we might decide that our first priority should be to invest in anti-smuggling devices such as the national network of scanners to which the Government are rightly committed. We might decide that we need more Customs officers and that we would not want to cut their numbers as the Conservatives did when they were in power. We have not heard them apologise for doing that and for reducing the resources available to Customs and Excise, but perhaps they should have done so.

Policies other than cutting duties can be used to reduce smuggling. If they are successful—we should all hope that they are—there might be an increase in the revenue yield. The policy of fiscal marks on cigarettes appears in clause 14, so I shall not dwell on it. However, it may be a useful aid in the attack on smuggling. It is possible that we shall want to debate the details of the policy's implementation, but properly marking the packs on which duty has been paid is a sensible way forward. Making the punishments for smugglers appropriate and seizing their assets is another approach. When organised crime is involved, custodial sentences should be available to punish the criminals properly.

I have concerns about aspects of the Government's policy. In particular, I am concerned about the speed of implementation. Several reports have been produced, but we are waiting for more officers and for the scanners. The Government have been in power for three years and they should be getting on quickly with anti-smuggling proposals, monitoring their efficacy and helping the debate by producing objective reports that provide an economic analysis that is stronger than that we heard from those on the Conservative Front Bench. Such reports would enable us to assess the effect of cutting duties on the Exchequer.

Liberal Democrats will, at least for this year, support the Government's approach to tackling smuggling. We support the measures that I have outlined and will ensure that the Revenue's tax base is protected. However, over the next year or two we want the Government to consider the duties' effects in more detail than they have to date, so that, when we revisit this issue this year and the year after that, the debate will be rather more informed than it has been tonight.

Sir Michael Spicer (West Worcestershire)

Successful or not, the increases in excise duties are an integral part of the Government's policy to raise the overall level of taxation as a percentage of gross domestic product. The fact that the Government are increasing taxation as a whole as a proportion of GDP is now an established fact in the Red Book, and even if, under the convention uniquely invented by the Government, one includes the working families tax credit as a tax deduction, taxes as a whole are going up.

To return to a point made by the hon. Member for Broxtowe (Dr. Palmer), the irony is that the burden of the overall level of taxation falls on indirect rather than direct taxes. As a Conservative, I have no particular objection to that—it fits in very much with my overall philosophy—but it must be a cause for shame among Labour Members. The process of increasing excise duties is part of that overall strategy.

The strategy is necessary because of the explosion in the rate of increase in public spending and planned public spending that the Red Book also recognises. It is soaring—there is no question about that. The Select Committee on the Treasury recently established the facts. In 2000–01, public spending will rise by 6.7 per cent.; in 2001–02, it will rise by 6 per cent.; and in 2002–03 by 13 per cent. It is therefore not surprising that bodies such as the International Monetary Fund recently pronounced that Britain's economy was at risk of overheating and that the aim of Government policy ought to be to take the pressure off interest rates. The IMF stated that in these circumstances it would be ideal for fiscal policy to take the burden off monetary policy, and the fact that that has not happened is a matter to be regretted.

All that is part of a context recognised by everyone outside the present Government. Expenditure is soaring and taxation policy is inevitably following it. It so happens that taxes are being raised through indirect taxation, particularly excise taxes.

Mr. Edward Davey

Can the hon. Gentleman tell the House what expenditure he would cut in order to tighten fiscal policy?

Sir Michael Spicer

I would take a totally different approach to public expenditure. There is the question whether private resources should be used for public services to a far greater extent than is the case. It is extraordinary that a Government who ostensibly support those most in need, but not so much those less in need, do not accept—they may do so secretly, but not publicly—the need for private resources in public programmes. That is inevitable and will have to be recognised one day.

Mr. Davey

I am grateful for the hon. Gentleman's reply. Can he tell me whether it is in respect of pensions, police, schools or hospitals that he believes the private sector has most to do?

The Second Deputy Chairman of Ways and Means (Mr. Michael Lord)

Order. We are straying rather wide of the amendment.

Sir Michael Spicer

I bow to your constraints, Mr. Lord, although I would be happy to debate the topic at length.

The rise in excise duties is a matter of great interest. The rise in tobacco duty is self-evident. The change is 8.41 per cent. However, in the case of alcohol, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) mentioned, the so-called indexation to inflation is a strange phenomenon and will have to be explained by the Government.

Throughout the Red Book and throughout the discussions that we on the Treasury Committee have with the Monetary Policy Committee, the argument is that the rate of inflation—RPIX—is currently below the target level of 2.5 per cent. and is likely to remain so. Nevertheless, the Government say that indexed alcohol duty will go up by 3.4 per cent.

There may be all sorts of calculations involved, but the basic inflationary index used to govern inflationary policy and thus to determine most of the UK's monetary economic activity—the RPIX index—continues to be well below the target level of 2.5 per cent., so it is extraordinary that an indexation device is suddenly introduced, whereby excise duties on alcohol are put up by 3.4 per cent. The Government will have to tell us more about that in the course of the debate. [Interruption.] I am glad that the Minister is sending his assistant scurrying away, presumably to get some answers.

6.15 pm

Amendments Nos. 1 and 2 highlight the importance of the independent analysis of the effect of excise on smuggling. The Treasury Committee, and especially the Sub-Committee which I chair, spent a great deal of time on the matter. It took evidence and on 8 February published its report on HM Customs and Excise. Paragraph 64 is directly relevant to the debate on the amendments. It states that in March 1999, in the pre-Budget report, the Chancellor of the Exchequer announced that there would be an "independent evaluation of the strategy and measures deployed to tackle excise duty and fraud and evasion …"— no mention there of it being a personal report.

In the 1998 pre-Budget report, almost exactly the same promise was made. That is partly the answer to the hon. Member for Kingston and Surbiton (Mr. Davey), who spoke about physical constraints on smuggling. The 1999 announcement was an almost exact repetition of the offer of an analysis of physical constraints on smuggling in the previous year's pre-Budget report. In 1999 Mr. Taylor was put in charge of the report. The results of his evaluation apparently influenced the measures taken in the 1999 report and in the current Budget.

Because of the importance of the report in determining Government strategy on excise duty, particularly in relation to smuggling, we—the Treasury Committee— requested sight of Mr Taylor's report to the Chancellor so that we could assess whether the measures announced by the Chancellor to deal with tobacco smuggling fully met the evaluation's recommendations. We were also concerned to investigate how Mr Taylor had undertaken his review, given that witnesses from several key alcohol and tobacco trade and retail associations told us that they had not been consulted by him. We were told— this is the point raised by my hon. Friend the Member for Sevenoaks (Mr. Fallon)— that the advice tendered by Mr Taylor was "personal and confidential" to the Chancellor and could not be made available to Parliament as a result.

We continued: We consider it unacceptable that the Treasury should commission a review of an important area of Government policy, and announce policy measures apparently based on the outcome of that review, without allowing Parliament access to the review's conclusions. We recommend that the Chancellor make available for Parliamentary scrutiny the results of Mr Martin Taylor's recent evaluation of Government policy to tackle tobacco smuggling. That is what lies behind the two amendments.

Mr. Campbell-Savours

If the Taylor report included material that was based on intelligence, would the hon. Gentleman still be in favour of publishing it?

Sir Michael Spicer

There are always issues associated with intelligence, but the Government were not prepared to consider publishing any part of the report, or to produce a summary of the analysis that led to the conclusions. They were not prepared to give Parliament any insight into an apparently substantive and significant contribution to Government policy which had been announced in public. Confidential matters relating to security and intelligence could have been deleted. Parliament accepts that when such reports are published, certain references to intelligence sources and techniques will not be disclosed.

It is scandalous that the report was not published. I should have thought that that was common ground on both sides of the House. I should have thought that the hon. Gentleman, who feels strongly about parliamentary matters and speaks against the Executive on occasion, would consider it wrong that a major report which was publicly announced should not be a public document. Probably because it reached conclusions that the Government did not wish it to reach, the curtains came down. I do not believe that that had anything to do with information or intelligence. The fact that the report came to the wrong conclusions from the Government's point of view made it unacceptable in the public domain.

Mr. Campbell-Savours

I do not know what was in the report. I do not know whether it dealt with intelligence matters, but I presume that it did. If, on a balance of judgment, Ministers decided that a document would be worthless unless it included that intelligence material, which it cannot include if it is to be published, how can one challenge that judgment? A similar decision would have been made by Ministers in the previous Government. I heard them say that when I used to sit on the Opposition Benches.

Sir Michael Spicer

If the matter had such implications for national security and the intelligence services because of smuggling, the Government could have made that clear, but they did not. They claimed that the report was a personal matter for Mr. Taylor and the Chancellor. If the hon. Member for Workington (Mr. Campbell-Savours) is right—I suspect that he is not—the Government should say that the report had not been published for security reasons. We could have considered the matter and Parliament could have decided whether it had implications for national security. However, the Government never said that the report was sensitive because of national security or the way in which the intelligence services work; they said that the report was personal to the Chancellor. I believed that the hon. Gentleman would find that unacceptable.

Mr. Forth

Does my hon. Friend believe that if the ill-fated, so-called Freedom of Information Bill ever reaches the statute book it will force the publication of such taxpayer-funded reports?

Sir Michael Spicer

My right hon. Friend makes an interesting point. The report on Customs and Excise gives an example of another Government report that has been kept secret and unpublished, and specifically refers to the context that my right hon. Friend described. The reports states: It is extremely disappointing that, as the Freedom of Information Bill began its passage through Parliament, Customs and Excise refused us access to a six year old report on a matter of departmental organisation central to our present inquiry, far removed from party political controversy or national security— to answer the hon. Member for Workington— defence or foreign policy concerns.

Mr. Campbell-Savours

How does the hon. Gentleman know that?

Sir Michael Spicer

Because that is the clear implication. The report simply considered whether the Customs and Excise service could be made more efficient, perhaps by amalgamating it. No one has ever told the Select Committee that security or intelligence matters were involved. If that had been said, we could have considered it. My right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) is right to say that, despite the hoo-hah and hot air that surrounds the Freedom of Information Bill, six-years-old papers of no party political import are suppressed. Those papers were drafted by the previous Administration, and the Government probably believe that they reached the wrong conclusions.

Such suppression is wrong and a good reason for accepting amendments Nos. 1 and 2, which are eminently sensible. They are not especially party political and they deal with the extent to which Parliament should be allowed to scrutinise the Executive.

Mr. Michael Fallon (Sevenoaks)

Before my hon. Friend leaves the point about whether the Taylor report can be construed as personal, can he explain to the Committee how a report which was commissioned by a Minister who is a public official and which was prepared for a public Department for public policy making, can be described as personal to the Chancellor of the Exchequer?

Sir Michael Spicer

I cannot think of a reason. As my hon. Friend rightly says, the Taylor report is on a vital public issue. I cannot understand how it can be personal to the Chancellor.

Mr. Letwin

Does my hon. Friend agree that the report might be construed as personal because it was personally embarrassing to the Chancellor?

Sir Michael Spicer

My hon. Friend may be right, as he so often is.

I want to consider the general thrust of the argument of the hon. Member for Kingston and Surbiton. He said that revenues would increase, and that the revenue take was necessary for all the projects that he wants to implement. He is a big spender and taxer; increasing revenue is therefore a good thing from his point of view. He said that all the Institute for Fiscal Studies reports on alcohol showed that that would happen and that, despite the leakage, the overriding thrust of policy would be to raise revenue.

The Institute for Fiscal Studies is undertaking a similar study on tobacco. Doubtless it will be as easy to pull apart as that on alcohol. The elasticity arguments in the report are highly subjective. No one knows from where they have been plucked. They are not empirically constructed because the IFS does not have the resources for that.

Mr. Edward Davey

The hon. Gentleman criticises the Institute for Fiscal Studies, which is well respected. I did not realise that he believed that it was so bad. It took its data from the family expenditure survey of 1979–96.

Sir Michael Spicer

When making a historical analysis of elasticity, one makes an assumption and includes it in the model that one is constructing. Assumptions based on historical data may not apply to the future. In the Canadian example, the assumptions applied to the future, but in the Swedish example they did not. Elasticity arguments are always subjective.

Mr. Davey

If the hon. Gentleman reads the report, he will find that the research was controlled by, for example, ascertaining whether elasticity in the south-east of England was different from that in the rest of the country. That was achieved by ascertaining whether price elasticity was different before the single market began and after it was established. The elasticity was found to be the same. The hon. Gentleman's argument is therefore not borne out by the facts.

Sir Michael Spicer

The hon. Gentleman is well versed in such matters. I am sure that he will accept that elasticity arguments in such studies, especially when based on historical data, are often highly subjective. That is especially true in the case that we are considering.

In his contribution, the hon. Gentleman claimed that the beneficial—in his view—revenue effect of all the extra dosh and the great expenditure plans, which he will doubtless beat the Labour party to effecting because the Liberal Democrats want to spend even more money than the Labour party, were tremendous and not to be stopped. The only method therefore of dealing with smuggling was by physical means, such as X-ray scanners. The hon. Member for Workington wanted 50 and the Government want 12; doubtless the Liberal Democrats are somewhere in the middle.

The hon. Members for Workington and for Kingston and Surbiton claimed that smuggling would be prevented by physical measures. That would be wonderful if the empirical evidence bore it out. However, in the 1998 pre-Budget report, the Government produced a list of physical measures such as X-ray screening, CAT marks, proposals for licences for pubs and related premises and provisions for punishing retailers for smuggled goods. That list was published in 1998 and repeated in 1999.

Mr. Campbell-Savours

Do the measures work?

Sir Michael Spicer

That is the whole point. During that period, smuggling has taken off.

Mr. Campbell-Savours


Mr. Beard


Sir Michael Spicer

Many of the physical means have been implemented. We must grant the Government that. The Government and Customs and Excise have tried to increase—[Interruption.]

The Second Deputy Chairman

Order. We cannot have continual interventions from a sedentary position. If the hon. Member for Bexleyheath and Crayford (Mr. Beard) wants to intervene, I should be grateful if he did it in the conventional way.

Sir Michael Spicer

I shall give way shortly. However, I am trying to make the point—I hope calmly and collectedly—that the physical measures have been introduced and have been used increasingly. However, smuggling has increased much more quickly than the rate of the measures' introduction.

Mr. Beard

The hon. Gentleman claims that the efforts to stem smuggling have been ineffective. However, it was revealed in the Treasury Committee's inquiry into HM Customs and Excise that the previous Administration cut by 300 the number of officers who dealt with smugglers. The previous Administration had given up trying to control smuggling.

6.30 pm
Sir Michael Spicer

There is no question but that both Administrations have tried to introduce new methods, methodologies and technologies to customs, but smuggling has increased rapidly even though more and more technology has been put in the system, particularly during the past two years over which, apparently, the Government have increased the physical resources going to Customs and Excise. There has to be at least a question mark over whether reliance on physical constraints and physical investigation as opposed to excise measures will be effective.

Mr. Campbell-Savours

I understand that the hon. Gentleman chaired the Treasury Committee Sub-Committee that considered the issue, so can he give a clear answer to my direct question: do the scanners that we are to buy work?

Sir Michael Spicer

I do not doubt that a scanner will scan effectively and will find—[Interruption.] We must deal with the question whether we will ever have enough scanners and whether the increased traffic—large vans from outside the European Union and the white van trade from inside—will swamp them, as is the case at present. The invasion flood of contraband articles is such that we cannot hope to control it physically. That is the argument. The hon. Gentleman may want more than 50 scanners, and he may have to have 500 or 5 million, but, given the massive differentials in cigarette duty, especially outside the EU, all the experience is that such measures are not effective or are at least questionable.

Mr. Swayne

May I ask my hon. Friend about these scanners? If, as is increasingly the case, young men go to France for an agreeable weekend and buy, ostensibly legitimately, a large number of cigarettes—presumably for their own consumption—and then sell them in pubs in the south-east and parts of rural Hampshire, what will the scanners do to deter such trade? Very little, I suspect.

Sir Michael Spicer

I am grateful to my hon. Friend, who makes a good intervention.

I put a question to the hon. Member for Workington, which he did not answer. Some countries have markedly reduced excise duties and, as a result, the position there has appreciated—smuggling has diminished considerably. Our country provides the example of increased reliance on technology accompanied by increased excise duties and a massive explosion in smuggling. We must properly ask whether there is substantive cause and effect between the rise in excise duty and the enormous increase in smuggling. That is why it is right for us at least to call for a proper investigation of the matter that should be made public so that we can debate it before determining whether the excise rate is correct.

Mr. William Ross (East Londonderry)

I have opposed the year-on-year tobacco duty increases under Conservative and Labour rule, not least because Northern Ireland's tobacco industry suffers grievously as a result of them. I have also always opposed the constant ratchet effect in respect of road tax and the price of road fuel. We see Government policy on tobacco taxation as having three aims: increasing revenues, reducing consumption and preventing children from purchasing cigarettes. The Government's present approach is to increase tax by 5 per cent. above inflation, but that simply is not working; revenues have been undermined, tobacco consumption is rising and smugglers have no qualms about selling to children. For those reasons, we have put our names to some of the amendments and we certainly support the others.

Despite what the hon. Member for Workington (Mr. Campbell-Savours) cheerfully told us, smuggling is not represented by someone walking across a border with a bag on his back; it is a vast organised criminal activity. This island has the advantage of a water barrier to the north, south, east and west, but Northern Ireland has the disadvantage of being tied in to an island with a land frontier. Therefore we have experience of fuel smuggling. Although that is not covered by the amendment, the same problems arise and we know the damage that has been done not only to revenues, but to the unfortunate individuals who try to run businesses selling that product in Northern Ireland when a much lower tax rate is in force a few yards away.

The tobacco industry welcomes the Government's proposed measures to combat smuggling, including the 950 new Customs officers, but everyone in the industry in Northern Ireland believes that the tax rate will only encourage it. We are trying to stop smuggling, but we are also promoting a tax policy that encourages breaking the law, and even by the Government's own estimate, the new measures will reduce smuggling by only 10 per cent. at best.

United Kingdom taxes are the highest in Europe. Sweden had the second highest until it made a 26 per cent. reduction because of smuggling. Denmark recently issued a statement pledging to reduce taxes by 2003 to bring it into line with its neighbours, and Hong Kong has issued a similar statement. The measures taken by Canada to change the economic environment in which its smugglers operate have already been referred to; legal sales fell to 1980 levels and smuggling all but disappeared. People may want a particular brand of tobacco or cigarettes as opposed to another. That is a question of personal choice. However, smuggling operates not on brand preference, but purely on price differential.

Mr. Michael Clapham (Barnsley, West and Penistone)

The hon. Gentleman made a distinction between Ireland and Great Britain, saying that Ireland, which has a land border, is much more vulnerable to smuggling than an island with port facilities. Does he agree that an extra 1,000 officers and X-ray facilities may allow an island to control the racket to some degree, and that that would have an impact on tobacco sales inland? Will the X-ray scanners and the officers have an effect?

Mr. Ross

One appreciates the fact that the increase in the number of officers and the new technology that is coming on stream will have an effect, but the tobacco industry in Northern Ireland does not believe that it will have the impact for which the Government evidently hope. Not all the tobacco that arrives in Great Britain necessarily comes across to Dover or even into England; some could come to Rosslare and go out through Larne. Gallaher's in Ballymena found that the hand-rolling tobacco that it had produced over many years went out of the United Kingdom legally and on to the continent. However, 10 days after it had left the factory, it was on sale on market stalls in and around Belfast. The Government know that, and we have been telling successive Governments about it for years.

Smuggling is a big industry and we should not be under any illusions about what has happened. My information, which I am sure has been made available to other hon. Members, is that 3 million people in the United Kingdom smoke cigarettes on which UK duty has not been paid. I understand that the Government have admitted to losing £2.5 billion in revenue per annum; at least, that is what they stated in their pre-Budget report, published last November.

Amendment No. 7, which has not been selected, would return taxes to pre-Budget levels. Amendment No. 8 would reduce the pre-Budget price of 20 cigarettes—if we assume that to be £3.92—by £1, to £2.92. It would also reduce the pre-Budget price of £8.05 for 50 g of hand-rolling tobacco to £3.50. In other words, it would bring retail prices down to levels that would remove the financial incentive for people to buy black market products. According to the industry, that, coupled with the £209 million worth of Government measures, would eliminate the black market altogether.

As has been pointed out, owing to the substantial difference between United Kingdom and overseas tobacco prices, smuggling offers potentially high profits. The hon. Member for Workington mentioned the chap carrying a sack of tobacco products across the border from Switzerland to Italy. I suspect that if he did that seven days a week, he would have a reasonable wage at the end of the week, even given the relatively small price differential. How much would that be multiplied given the differentials between the Continent and the United Kingdom? It is worth the while of organised criminal gangs to become involved in such activity, and we believe that they have done so.

Tax currently accounts for more than 80 per cent. of tobacco retail prices. Since 1997, the price of a typical packet of cigarettes in the United Kingdom has increased by more than £1. A typical packet of 20 costs the UK smoker well over twice what it costs his counterpart in Belgium or France, while the roll-your-own smoker pays nearly four times as much. The black market price is about £2.50, which enables large profits to be made from smuggling.

Revenue losses resulting from tobacco smuggling rose to some £2.5 billion between 1998 and 1999. According to the pre-Budget report, that amounts to about 25 per cent. of all tobacco revenue due. Since 1997 some £5 billion of tobacco tax revenue has been lost, and, as I have said, the retail price of a packet of cigarettes has risen by £1.

Hon. Members have pointed out that the revenue fell last year, but as last year's Red Book will show, a fall was forecast not just for that year but for coming years. It all comes down to a simple tax problem that has plagued every ruler since taxes began. Once the amount of tax that people will pay relatively willingly has been exceeded, Governments encounter increasing resistance from taxpayers, who will therefore try to reduce their taxes.

The really wealthy, of course, have always managed to reduce their taxes, not so much through tax avoidance schemes as by overseas trusts, for instance; that is perfectly legitimate. However, the small man—the ordinary citizen—will buy his petrol and pay the high price for it. He will grumble, because he will know that most of that will go into the Chancellor's pocket, but he will pay, because he can do no better. If you live in England, it is not worth your while to drive across to France to fill your car; if you live in Newry or Londonderry, it is worth going into the Irish Republic.

Tobacco, however, is a great deal lighter, and a great deal more valuable than fuel in terms of volume. It is easier to transport and easier to hide, and the profits are vast. I do not know—although I am sure that if the Minister puts his mind to it, he can soon find out—how many packets of 20 cigarettes will go into a 40 ft container, but the revenue lost on that one container would probably go a long way towards paying for the lorry that is transporting the cigarettes. If someone could get a few loads through, even if he lost the lorries it might still be worth his while. I wonder what the economics really are; I am sure that the smugglers would take that into account.

6.45 pm

Let us be clear about the history. The smugglers began by importing hand-rolling tobacco. Currently, four out of five packets of hand-rolling tobacco consumed in the United Kingdom are smuggled in. Often, United Kingdom tobacco goes out and comes back again—tobacco that would normally have been sold in the UK. As I have said, much of it is prepared in Ballymena. In the United Kingdom, 50 g of hand-rolling tobacco costs £8.49; in Belgium, it costs only £1.70.

Years ago, management and trade union representatives from Gallaher's factory came to the House and told us that the market for smuggled hand-rolling tobacco had reached saturation point. The next target, they said, would be cigarettes, and they were dead right. We told the officials of not just the present but the last Government that was the position, and events proved us correct.

Our tax on cigarettes is the highest in the world. The legitimate cigarette market had decreased by 8 per cent. in 1998 and by 10 per cent. in 1999, yet cigarette smoking is increasing. Many millions of people are involved in the illegal cigarette trade, as suppliers and as buyers. We believe that one packet in four consumed in the United Kingdom has been smuggled in, despite all the efforts to make smuggling more difficult by means of labelling and packaging.

I think that the path we have been treading is counterproductive, and will not work in the future. It is time to look anew at what must be done. When smugglers can sell for between £2.20 and £2.50 a packet of cigarettes that costs £4.17 in the United Kingdom, they will find a market. That has a corrosive effect on society, and on people's honesty. More and more people go along with it, saying, "It is only a packet of fags; it does not really matter." That, however, amounts to supporting criminal gangs, and in criminal activity, one thing leads to another.

We are talking not just about a loss of revenue, but about increased consumption, and easier availability of tobacco products to children. As we all know, smoking, drinking and drugs are the "in thing" among young people. That can be overcome only through education; the fact that a product is pricy, or the knowledge that it has been smuggled, adds an aura that will attract the young. There is a vastly increased level of criminality among millions of people. I think that activity of this kind will encourage non-compliance with other aspects of the law, contempt for the law and flouting of the law, and that that will have a damaging effect on the social fabric of the community.

The Chancellor estimated that the yield from his 5 per cent. real increase would be £235 million in the current financial year, but previous forecasts have been unreliable, and have underestimated the rapid growth in smuggling. Consumption has increased by more than 5 per cent. since 1995, and by 4 per cent. since 1997; the trend is up, not down. I think that there has been too much "spinning" with regard to tax increases, in an attempt to make political capital.

The Chancellor and the Prime Minister made great play of hypothecating £400 million of tobacco tax revenue to the NHS as part of the additional £2 billion that the Chancellor announced would be made available to it. I believe, however, that in a global tax system such as ours all the tax goes into one bucket, or pool, and all the spending comes out of that pool. The idea that it can be said that a particular element of taxation will benefit a particular spending Department is a nonsense—a swiz.

As far as I remember, the original road tax started out as something designed to pay for roads. If that had continued, the whole of Britain would be covered in tarmac today. That is the lesson that every Member should learn. Hypothecated taxation is smoke and mirrors. It does not work. All the Government have to do is to say that they are putting in £400 million from tobacco, and two years later they take out £800 million or £900 million.

Mr. Ruffley

The hon. Gentleman is developing a powerful argument. Is he aware that his arguments on the bogusness of hypothecation are strongly supported by the Institute for Fiscal Studies, a body that the Labour party, and, indeed, the Liberal Democrats, are so keen to pray in aid in these matters?

Mr. Ross

I have read different comments by that body, but the hon. Gentleman is correct to say that it recognises the smoke and mirrors in the whole hypothecation argument.

Having said that about the Chancellor, I have to say that his figures are being contested. I understand—at least, my researchers tell me—that in the November 1999 pre-Budget report, he announced the hypothecation of tobacco receipts. He said that the yield of a 5 per cent. real increase would be £300 million. Just before the March Budget, the Minister for Public Health talked of £250 million. In his Budget, the Chancellor spoke of £300 million, and on 5 April the Prime Minister told the House that the figure was £400 million—a figure confirmed by the Chancellor the following day.

In the light of the reliability of the statements by the people running the Government's finances, we need to view those figures with a certain caution. Few taxes are as counterproductive as those on alcohol, tobacco and road fuel. The policy that was embarked on a good many years ago has been shown to have run its course. It is time to think a new way forward.

I am sorry that the right hon. Member for Bromley and Chislehurst (Mr. Forth) has left the Chamber—[HON. MEMBERS: "He is still here."] Oh, yes, so he is. He was attacked for what he said about the different levels of taxation across borders, but I wonder, as I am sure he does, whether open borders and different levels of taxation can really co-exist.

Mr. Ruffley

In supporting amendment No. 1, I want to advance an argument from an important part of the British economy, the brewing industry—in particular, a distinguished company in my constituency, Greene King. I want to explore an argument that it has advanced. In its view and that of the analysts who advised it, their suggestions would reduce the pernicious effects of alcohol smuggling.

The margins on smuggled beer are such that smuggling could rapidly become much less profitable were there to be a cut in beer duty. Greene King argues that a cut of about 2p per pint would be enough, at the margin, to ensure that fewer smugglers would be prepared to run the risk of smuggling beer from France to this country and, in particular, to East Anglia. It suggests an initial cut of 2p to reduce the profit element from bootlegging. That is a modest enough proposal, bearing in mind the fact that, as has been observed in the debate, the excise duty on a pint of beer in France is equivalent to about 5p, whereas in the United Kingdom it is about 33p.

The tax regime for beer has not leapt into life since I May 1997. I am not inviting the Committee to believe that all the problems that beer producers are experiencing are due to policies set in the past three years or so. However, I am inviting it to recognise the clear fact that beer sales have declined over the past decade, which has led to closures of breweries and public houses. The figures do not make happy reading. Sixteen of the largest 85 breweries have either closed, or their closure has been announced, since May 1997. The Countryside Agency has recently warned of its concern on behalf of rural areas that, every week, six village pubs close.

I need no convincing of the genuine fear that publicans and licensed victuallers in my constituency of Bury St. Edmunds have about their future if the tax regime is not amended by a modest 2p cut in duty. I have visited country pubs in my part of Suffolk and the message is loud and clear: the Government should listen and entertain the possibility of duty cuts.

I do not wish to get into an arcane but doubtless interesting debate with the hon. Member for Kingston and Surbiton (Mr. Davey). I do not wish to logic chop about what Crawford, Smith and Tanner did or did not say in volume 20, issue No. 3, 1999, of "Fiscal Studies" about own-price elasticities or cross-price elasticities, save to say that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) threw some serious spanners in the works of the hon. Gentleman's argument by observing that, in different countries, the assumptions on elasticities can be subjective.

It ill-behoves any hon. Member to base an indirect tax policy on one or two academic studies that do not prove to be conclusive. Intuition and basic economics suggest that there can be cuts in beer duty without necessarily seeing a decline in revenue.

Mr. Edward Davey


Mr. Ruffley

I did not want to go down this avenue, but the hon. Gentleman tempts me.

Mr. Davey

If the hon. Gentleman does not want to have the debate on price elasticities, how else does he want to decide the issue about whether the taxes should go up or down? Has he invented some new science?

Mr. Ruffley

Because of time, I do not wish to go into detail. I do not accept the hon. Gentleman's argument that if Crawford, Smith and Tanner say that the policy will lead to a decline in revenue, it must be so. It is one academic study, doubtless backed by some Treasury economist. For the hon. Gentleman to say that for all time and in all cases one academic study proves the case is not realistic politics. He is not living in the real world. I would like an argument, but I say merely that I do not accept that we can base a whole tax system on one or two academic studies.

The scale of the problem needs to be debated. The figures that the brewers and licensed retailers have produced on the volume of bootlegging into this country makes fairly depressing reading. For my region of East Anglia, I have figures on the destinations of white vans carrying beer. The estimate for the total number of vans travelling into London in 1999 was 12,690. Of the top 20 destinations, in my region the estimate for Chelmsford is 4,790 and for Peterborough it is 1,870. Those statistics are very real for publicans and licensed victuallers in my constituency. They think that the stuff is flooding into the centres of Chelmsford and Peterborough and percolating into market towns and surrounding areas in Bury St. Edmunds.

The evidence—[Interruption.] If the hon. Member for Kingston and Surbiton wants to witter away from a sedentary position, he is welcome to do so, but does he want to intervene?

Mr. Davey

indicated dissent.

Mr. Ruffley

The impact on the rural economy is such that Greene King must have a point. With beer duty set at the level that it is, it is a regressive tax hitting hardest those who can least afford to pay it. It impacts on the livelihood and viability of pubs, particularly those in villages. The rural economy, at the margin, is affected by that process.

7 pm

As we have heard from the hon. Member for East Londonderry (Mr. Ross), the high beer tax increases introduced by the Chancellor since the Government took office are having a corrosive effect on the United Kingdom's law and order regime, and in influencing whether individuals obey the law or succumb to the temptations that have been created to break the law. The Government said that they would be tough on crime and tough on the causes of crime, so the effect of their tax increases should give them some pause for thought. They say that they are tough on inflation, but every 1 p increase in beer duty increases the retail prices index by 0.15 per cent.

The Government are also happy to pray in aid the virtues—there are virtues—of the single-market regime, but their policy and practice on beer duty is deeply antipathetic to the European single market. The Committee will need no reminding of the Council of Ministers decision in 1992 that future beer duty changes should be directed towards achieving the common market rate of about 8p on an average pint of beer.

Most European countries have made considerable progress towards achieving the common market duty rate. Since 1992, France and other low duty countries have doubled or trebled their duty rates. Conversely, Sweden, Denmark and Norway have made considerable reductions to achieve the target rate. Only one country—the United Kingdom—has moved significantly away from the target rate. Nevertheless, the Government claim to be at the heart of Europe.

Although I do not agree with very much of what comes out of Brussels, I think that the United Kingdom Government should be taken at their word. If they are serious about the European single market and trying to make it work, they should listen to the voices of brewing and to people at Greene King. Ministers should intelligently examine the possibility of making modest cuts in beer duty—to save jobs in rural areas, to save our pubs and to maintain a vibrant village pub life in the United Kingdom.

Mr. John Swinney (North Tayside)

The hon. Member for Kingston and Surbiton (Mr. Davey) wondered what might be Conservative Members' central proposition in this debate. I believe, after much careful listening, that their basic argument is that a lower differential in tobacco and alcohol prices between the United Kingdom and our European partners would reduce smuggling. Although that point is clear, I think that it significantly over-simplifies the argument. Even if the point could be proven—today, the Committee has heard enough conflicting evidence on the point to debate it endlessly—it does not provide a full explanation.

The decisions that a society makes on alcohol duty, tobacco duty, vehicle excise duty and road fuel duty—which the hon. Member for East Londonderry (Mr. Ross) dealt with in his speech—are based on a variety of perspectives and objectives. Revenue raising could be one of the Government's objectives in setting duty levels. Alternatively, duty levels could be set to try to generate a particular outcome.

The present and previous Governments have increased road fuel duty well in excess of inflation in an attempt to reduce vehicle use. However, as any hon. Member representing a rural constituency could tell any Government, increasing that duty to achieve that objective is an utter waste of time, because our constituents in rural constituencies have no alternative to using their cars. Increasing that duty to achieve that objective has therefore been particularly useless.

Tobacco or alcohol duty may be increased to achieve other objectives, such as to improve public health, essentially by saying to people, "Smoking and drinking may not be terribly good for you, and you should think twice before spending your money on them."

Sir Robert Smith (West Aberdeenshire and Kincardine)

Does the hon. Gentleman think that although the declared intention behind increasing those duties may have been based on health or environmental factors, the Treasury had its eye on the fact that it could make much more money by increasing them?

Mr. Swinney

That logic is absolutely irrefutable in relation to the road fuel duty increases that I have had to watch being approved by the House in my three years as a Member.

Specific tobacco or alcohol duty increases may have a particular purpose other than to stymie increased smuggling or to extend the price differentials between the United Kingdom and our European partners, while sending a message to people in our community that excessive drinking and smoking may not be good for them. There has been some confusion in the debate about the ideal level for excise duties and about how to deal with smuggling.

We have had some interesting exchanges on what could be done to reduce smuggling, and the hon. Member for Workington (Mr. Campbell-Savours) made a particularly lively comment on the number of scanners that could be used. However, in dealing with smuggling the starting point must be the maintenance of an effective Customs and Excise network properly to protect the access points to the markets in our community. As those of us who are familiar with the changes made by the previous Conservative Government will know, Conservative Members left the Customs and Excise network in tatters. I support this Government's attempts to try to restore some of that network, but I am sceptical that their action will be sufficient to tackle the problem.

Today, Conservative Front Benchers have dealt with the matter of alcohol sales to minors as though the problem has been caused only by smuggling. In fact, the cause of the problem goes much wider than smuggling. Our community's regulatory and legal systems must enable us to protect minors from gaining access to alcohol and tobacco products.

We have to ask ourselves two fundamental questions on the issue of excise duty. First, are we entitled to maintain duty differentials between this country and our European partners? I think that, unless we are all signed up to tax harmonisation—which I am not—we are entitled to maintain the differentials. Secondly, do we expect excise duties and the way in which they are determined to have a credible effect on the purchasing patterns of individuals in our society? I have been dismissive of the impact of road fuel duty on the fuel purchasing patterns of my constituents, who live in a rural area, because I do not believe that they have an alternative to using their cars. However, I am fairly confident that excise duties could affect people's patterns of purchasing tobacco and alcohol products.

The core of the fair parts of the amendments tabled by Conservative Members—and of the comments made by the hon. Member for West Worcestershire (Sir M. Spicer), who made a compelling case—dealt with why the Taylor report should be put into the public domain. Today, we shall have to hear from Ministers a new, different and very credible explanation of why that report has not been made public. If publicly commissioned and funded documents are not to be made public as we enter the freedom of information age, I wonder what on earth that freedom of information age is all about. What is the new age about if not to provide us with an opportunity to examine the issues?

The heart of the freedom of information issue is whether the House will be able to have reasoned and measured debates that are based on evidence. We have to keep a very keen eye on the issue. If the Committee or the House refuses to look the evidence straight in the face, we shall not be serving the public particularly effectively. The Conservatives have not proved that there is an inextricable link between smuggling and levels of excise duty, but I should like more evidence to be in the public domain so that we can arrive at a proper judgment.

Mr. Timms

We have had an interesting discussion on the amendments. I shall briefly explain to the right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for West Worcestershire (Sir M. Spicer) why the figure of 3.4 per cent. was used for revalorising excise duties this year. Every year since the general election, we have revalorised duties by the expected increase in the all-items retail prices index over the 12 months from the September before the Budget. Since the general election in May 1997, the forecasts have been lower than the outturn, so the duty increases have been less than they would have been if we had used the actual inflation figure. Last year, inflation increases in excise duties were 1.3 per cent., whereas this year they are 3.4 per cent. It is swings and roundabouts. The hon. Member for West Worcestershire referred to RPIX and the 2.5 per cent. target, but it is the all-items RPI figure that is used for revalorisation, not the figure excluding mortgage payments. That accounts for some of the difference. I do not recall any complaints from Opposition Members last year at the small inflation increases in excise duties and there should not be any about the 3.4 per cent. increase this year.

Mr. Howard Flight (Arundel and South Downs)

Will the Minister confirm that the Government moved to using the forecast because they had two increases in fuel duty in one year? Otherwise, they could have continued with past practice of using the same inflation index for taxes and allowances.

Mr. Timms

That was not the reason. The reason was the timing of the changes. The decisions are now made at a different time of year.

In 1998, the Government published the alcohol, tobacco and fraud review that we had commissioned. It examined fraud and smuggling in some detail, particularly issues relating to alcohol. That resulted in 90 recommendations to help stem and reduce levels of illegal activity. Customs was allocated £44 million for the period to 31 March 2002 to take forward the key recommendations. It has been acknowledged in the debate that we have implemented the main recommendations. Customs continues to work closely with the trade on those that remain.

Smuggling is a serious threat to our health and revenue objectives, but we have made it clear that we are not going to allow criminals to dictate our agenda or influence the levels of our duties. Following the 1999 Budget and the sharp rise in tobacco smuggling, my right hon. Friend the Chancellor appointed Martin Taylor to conduct an independent evaluation of tobacco smuggling last summer. His conclusions formed part of the new anti-smuggling strategy described in the Government paper, "Tackling Tobacco Smuggling", published on 22 March.

Mr. Letwin

Will the Financial Secretary now commit the Government to publishing the Taylor report?

Mr. Timms

There has been some discussion of that point during the debate. I was particularly interested in what the hon. Member for West Worcestershire said, but he was mistaken. My right hon. Friend wrote to the Chairman of the Treasury Committee on 26 January, saying: I am afraid that the advice which Martin Taylor gave to me contained matters that were recognised to be operationally sensitive, the release of which, even in summary form, would give smugglers a valuable insight into Customs' strategy for tackling tobacco smuggling. My hon. Friend the Member for Workington (Mr. Campbell-Savours) was right on that point. I would have thought that the Conservatives would have been aware of that letter.

7.15 pm
Mr. Heathcoat-Amory

That is why I asked the Chancellor if he would place a copy of the report in the Library, with excisions of matters of operational sensitivity to Her Majesty's Customs and Excise. We fully understand that any matters of national importance to do with the intelligence services should be excised. The reply made no reference to that point, saying simply that Martin Taylor's advice to the Chancellor was personal and confidential.

Mr. Timms

I am glad that the right hon. Gentleman was aware of that; his hon. Friend the Member for West Worcestershire appeared not to be. The important point is that the recommendations on tackling smuggling were published in "Tackling Tobacco Smuggling" and have been fully implemented by the Government.

Mr. Letwin

Will the Minister now commit the Government to publishing the Taylor report with all operationally sensitive elements excised, and if not, why not?

Mr. Timms

My right hon. Friend's letter makes it clear why that would not be sensible. We have published the recommendations and are implementing them, as well as putting around 1,000 extra officers into tackling the problem, reversing the cuts in Customs under the previous Government. Our aim is to put cigarette smuggling into decline within three years. The additional staff dedicated to combating smuggling in the tourist lanes at the channel ports will yield important dividends in the fight against alcohol smuggling as well, which featured particularly in the contribution of the hon. Member for Bury St. Edmunds (Mr. Ruffley).

My hon. Friend the Member for Workington rightly put great emphasis on the importance of scanners and asked me to comment on the issue, which I am pleased to be able to do. He is right about the significance of what we have done. We have committed £44 million to the purchase of a national network of scanners. There will be at least a dozen. All the main freight ports will be covered. Some of the scanners will be mobile so that we can move them to where the risk is highest. He would not expect me to say precisely where they will all be, for obvious reasons, but the first scanners will be in operation before the end of this calendar year and the remainder will be introduced during the next calendar year, so we are moving rapidly.

Mr. Heathcoat-Amory

If the scanners are going to be so quickly deployed and so successful, why does the Government's report say that the amount of smuggling will increase over the next three years?

Mr. Timms

The scale of the smuggling problem is evident. We have been open and frank about that. The right hon. Member for Bromley and Chislehurst (Mr. Forth) asked me about the scale of smuggling. The figures are in "Tackling Tobacco Smuggling". It is a characteristic of this Government that we commit ourselves only to targets that we can deliver and we only make promises that we can keep. That is why we have committed ourselves to reversing the increase in smuggling within three years. Customs is confident that it can deliver that and I have no doubt that it will.

Mr. Casale

I accept that smuggling is a threat to our health and revenue policies, but will my hon. Friend confirm that those policies are not being undermined completely by smuggling? Revenues from tobacco are going up and there is clear evidence of improvements in public health through people giving up smoking as a result of the increases. Will he further confirm that altering the price of tobacco is not the only possible anti-smuggling policy? Is it not a matter of regret that our increases in policing and controls are not supported by the Opposition?

Mr. Timms

My hon. Friend is right about the importance of tobacco duty as part of an anti-smoking policy. Interestingly, the shadow Health Secretary agrees with him on that point. During the debates on last year's Finance Bill, the Opposition tabled amendments to freeze or reduce all tobacco duties on the grounds that the rises encouraged smuggling. To listen to some speeches from Opposition Members today—including Front Benchers—one might think that that was still their policy. In fact, the policy this year is to call for some reports.

Three months after the Finance Bill debates last year, the shadow Health Secretary published a review of Conservative policy on smoking that dropped the previous Conservative opposition to the advertising ban, and reversed the Conservative party's opposition to tobacco tax increases. The review stated, presumably, the view of all Opposition Front Benchers—that duty increases on cigarettes send out the correct health message. He is absolutely right.

Mr. Forth


Mr. Timms

The right hon. Member says that that is rubbish, and he has put his name to a very different amendment from that tabled by his Front-Bench colleagues.

In this debate, I was expecting to congratulate Opposition Front Benchers on a sensible policy U-turn. However, the right hon. Member for Wells still had the rhetoric of last year, even though the policy substance and the amendment are different.

Mr. Flight

Will the Financial Secretary give way?

Mr. Timms

No, I have to make some headway, tempting though it is to give way to the hon. Gentleman.

I welcome the modest change proposed in the Conservative amendment, which recognises, as the shadow Health Secretary has done, that duty increases on cigarettes send out the correct health message.

A couple of days ago, I replied to one of the many letters that I receive; this one was from Wakefield health authority, and was signed by the director and deputy director of public health and the director and deputy director of the Wakefield health action zone. The letter made the straightforward point that increasing the price of tobacco through taxation leads to a reduction in consumption and, most importantly, helps to discourage young people from becoming addicted. That is the overwhelming view of those who work in health care and are concerned about these issues. That has been recognised, rightly, by the shadow Health Secretary.

On alcohol duties, there is a need to maintain the real value of Government revenue to help achieve all our objectives, such as strengthening the health service and education. Excise duty and value added tax on alcohol make a significant contribution to the Exchequer—more than £10 billion in 1998–99.

This is the first increase in the beer, wine and main cider duty rates since January 1999. It is worth making the point that alcoholic drinks are now taxed less heavily than they were at the beginning of the single market. Compared with duty rates in 1993, excise duty on beer has fallen in real terms by more than 4 per cent. The proportion of duty in relation to the cost of an on-trade pint of beer has fallen from 38 per cent. of the retail selling price in 1982 to about 30 per cent. now.

Some claim that high taxation is putting alcohol producers and pubs out of business, but that is not the case. There are lots of reasons why some businesses fail and others prosper. A significant number of breweries have reported extremely good or even record profits, such as Shepherd Neame, Young's, Belhaven, and Gales.

Abandoning the duty increases along the lines proposed by the two amendments would cost £90 million in alcohol duty and £235 million in tobacco duty. Amendment No. 8, tabled by the right hon. Member for Bromley and Chislehurst, would significantly cut tobacco duty rates, and would be particularly damaging. It ignores the vital health implications of consequent reductions in the cost of tobacco—some 94p off the price of a typical pack of 20 cigarettes—and would cost the Exchequer £1.8 billion. Public services, including the health service, would be deprived of essential funding, and future demands on the health service would be compounded by a significant growth in the number of smokers who would require treatment.

Reference has been made to the work of the Treasury Committee in this area, and I refer hon. Members to the conclusions of its investigation into Customs and Excise, which was a worthwhile and important contribution to the debate. The Committee observed: academic evidence does not lend weight to the argument that reducing duty rates would discourage cross-Channel trade, legitimate or otherwise to the extent that government revenue would increase. The hon. Member for Kingston and Surbiton (Mr. Davey) rightly drew attention to that point. The Committee also noted that it did not believe that reducing duty rates would affect large-scale smuggling which appears to be the major problem.

The Committee was right about that, and the important point was made by the hon. Member for West Worcestershire, but missed by his Front-Bench colleagues. The serious problem about cigarette smuggling is not duty-paid cigarettes from the rest of the EU being brought into the UK, but cigarettes being smuggled from outside the EU, frequently with no duty having been paid at all. A small variation in the rate of duty in the UK will not change that. That is why, as my hon. Friend the Member for Erewash (Liz Blackman) rightly said, there are serious smuggling problems in Italy and Spain, where the duty rate is much lower. It is not a problem of comparative duty rates within the EU, but of smuggling from outside the EU.

In short, the Government do not intend to produce any further reports on smuggling to the timetable that has been indicated, nor do we intend to reduce tobacco duty rates. It would be quite wrong to make that reduction. I urge the House to reject the amendments.

Mr. Letwin

Some elements of this debate have been positively surreal. We were treated to a disquisition on economics by the hon. Member for Workington (Mr. Campbell-Savours), in which he explained that changes in duty would have no effect on the propensity to smuggle. That was a unique contribution to the economics of welfare that will live in our memories.

The hon. Member for Kingston and Surbiton (Mr. Davey) referred to some academic studies. He may be right that it remains the case, as the Treasury model assumes, that, in liquor and tobacco, we have not yet reached the crossover point—the point of diminishing returns. It may be right that reductions or stasis in duties will have a commensurate, or almost commensurate, effect on revenues. The Opposition amendments raise a different matter. I declared my interest in the register, as I suppose that there are some firms with which my bank has a relationship that would be affected.

More important than that, millions of our fellow countrymen are being criminalised under present policy. The Financial Secretary is in possession of a valuable item in that connection—a serious report, commissioned with taxpayers' money from a distinguished business man who reported to the Chancellor, who is not an ordinary individual. We have reason to believe that that report may contain important evidence and observations about the relationships—

Mr. Campbell-Savours

The hon. Gentleman is guessing.

Mr. Letwin

I am guessing, and I am doing so because a cover-up is going on. It is not in the interests of the Executive in the long run or of Parliament in the short term that such a cover-up should continue.

The Minister and his colleagues are in possession of a report that may show a clear relationship between the level of duty and the duty differential currently obtaining on the one side, and the level of smuggling, which is having a huge and—as even the Government's own report admits—growing effect on the criminalisation of very many of our fellow countrymen. That is not a matter to be laughed off or dismissed by any study, however econometrically valid or otherwise, of the relationship between duty and revenue. We are dealing with a social crisis that will not be resolved by a few scanners. The Government do not think that and they do not say that in their report, and the issue has not been resolved after repeated attempts at administrative action.

7.30 pm
Mr. Timms

The hon. Gentleman mentioned people being criminalised. Will he confirm that people who indulge in criminal activity do so of their own will and that it is right that they should be caught and punished?

Mr. Letwin

Yes and yes, and yet this is the Government who came to power under the slogan, "Tough on crime, tough on the causes of crime." This issue is a major cause of crime in this country and there comes a moment when the problem becomes so great that the social inhibitions against criminal activity that normally restrain decent individuals in our society begin to break down. If the Financial Secretary has not noticed that happening, he is less percipient than I gave him credit for.

The Government know, and the report they commissioned made it clear—we suspect—that the main cause of the smuggling today is the duty differential. All the Opposition ask this evening is something that this Government, of all Governments, are bound to concede, being as they are so deeply devoted to the principle of freedom of information. We ask that they do not proceed with further duty increases until they bring before the House a clear and distinct report on the relationship between smuggling and duty.

Mr. Andrew Stunell (Hazel Grove)

I have been following the hon. Gentleman's argument with some care. Is he saying that there comes a point when the pressure towards criminal behaviour is such that the Government have to give way? Does he believe that that applies to cannabis and the widespread breaking of the law on its consumption?

Mr. Letwin

I am amazed by the exceptional ability of the hon. Gentleman, who has been following our remarks with great care but has not been in the Chamber for almost the entire debate. I am not suggesting that the Government should give up their attack, in this case or in others. I suggest that the Government should operate on a sensible and professional basis of sound evidence, and not conceal the evidence that they have from the House. That is a proposition so evident that I would have thought that Ministers, on reflection, will concede it.

Question put, That the amendment be made:—

The Committee divided: Ayes 113, Noes 309.

Division No. 174] [7.33 pm
Amess, David Lidington, David
Ancram, Rt Hon Michael Lilley, Rt Hon Peter
Arbuthnot, Rt Hon James Loughton, Tim
Bercow, John Luff, Peter
Blunt, Crispin Lyell, Rt Hon Sir Nicholas
Boswell, Tim MacGregor, Rt Hon John
Bottomley, Peter (Worthing W) McIntosh, Miss Anne
Bottomley, Rt Hon Mrs Virginia MacKay, Rt Hon Andrew
Brady, Graham Maclean, Rt Hon David
Brazier, Julian McLoughlin, Patrick
Brooke, Rt Hon Peter Malins, Humfrey
Browning, Mrs Angela Mates, Michael
Bruce, Ian (S Dorset) Mawhinney, Rt Hon Sir Brian
Cash, William May, Mrs Theresa
Chapman, Sir Sydney (Chipping Barnet) Moss, Malcolm
Norman, Archie
Clappison, James Ottaway, Richard
Collins, Tim Page, Richard
Cormack, Sir Patrick Paice, James
Cran, James Pickles, Eric
Curry, Rt Hon David Portillo, Rt Hon Michael
Davies, Quentin (Grantham) Prior, David
Davis, Rt Hon David (Haltemprice) Randall, John
Dorrell, Rt Hon Stephen Redwood, Rt Hon John
Duncan Smith, Iain Robathan, Andrew
Fabricant, Michael Robertson, Laurence
Fallon, Michael Ross, William (E Lond'y)
Flight, Howard Rowe, Andrew (Faversham)
Forth, Rt Hon Eric Ruffley, David
Fowler, Rt Hon Sir Norman Sayeed, Jonathan
Fox, Dr Liam Shephard, Rt Hon Mrs Gillian
Gale, Roger Simpson, Keith (Mid-Norfolk)
Garnier, Edward Spicer, Sir Michael
Gibb, Nick Stanley, Rt Hon Sir John
Gill, Christopher Steen, Anthony
Gray, James Swayne, Desmond
Green, Damian Syms, Robert
Greenway, John Tapsell, Sir Peter
Grieve, Dominic Taylor, Ian (Esher & Walton)
Hague, Rt Hon William Taylor, John M (Solihull)
Hammond, Philip Taylor, Sir Teddy
Hawkins, Nick Townend, John
Heald, Oliver Tredinnick, David
Heathcoat-Amory, Rt Hon David Trend, Michael
Hogg, Rt Hon Douglas Tyrie, Andrew
Horam, John Waterson, Nigel
Howarth, Gerald (Aldershot) Whittingdale, John
Jack, Rt Hon Michael Widdecombe, Rt Hon Miss Ann
Jackson, Robert (Wantage) Wilkinson, John
Jenkin, Bernard Willetts, David
Johnson Smith, Rt Hon Sir Geoffrey Wilshire, David
Winterton, Mrs Ann (Congleton)
Key, Robert Winterton, Nicholas (Macclesfield)
King, Rt Hon Tom (Bridgwater) Yeo, Tim
Kirkbride, Miss Julie Young, Rt Hon Sir George
Laing, Mrs Eleanor
Lansley, Andrew Tellers for the Ayes:
Leigh, Edward Mr. Geoffrey Clifton-Brown
Letwin, Oliver and
Lewis, Dr Julian (New Forest E) Mr. Peter Atkinson.
Abbott, Ms Diane Davey, Valerie (Bristol W)
Adams, Mrs Irene (Paisley N) Davidson, Ian
Ainger, Nick Davies, Rt Hon Denzil (Llanelli)
Ainsworth, Robert (Cov'try NE) Dawson, Hilton
Allen, Graham Dean, Mrs Janet
Armstrong, Rt Hon Ms Hilary Denham, John
Ashton, Joe Dobbin, Jim
Atherton, Ms Candy Donohoe, Brian H
Atkins, Charlotte Doran, Frank
Austin, John Dowd, Jim
Ballard, Jackie Drew, David
Barnes, Harry Dunwoody, Mrs Gwyneth
Battle, John Eagle, Angela (Wallasey)
Bayley, Hugh Edwards, Huw
Beard, Nigel Ennis, Jeff
Beckett, Rt Hon Mrs Margaret Etherington, Bill
Berth, Rt Hon A J Fearn, Ronnie
Bell, Martin (Tatton) Field, Rt Hon Frank
Bell, Stuart (Middlesbrough) Fisher, Mark
Benn, Hilary (Leeds C) Fitzsimons, Lorna
Benn, Rt Hon Tony (Chesterfield) Flint, Caroline
Bennett, Andrew F Flynn, Paul
Bermingham, Gerald Foster, Rt Hon Derek
Berry, Roger Foster, Don (Bath)
Best, Harold
Betts, Clive Foulkes, George
Blackman, Liz Gardiner, Barry
Blears, Ms Hazel George, Andrew (St Ives)
Blunkett, Rt Hon David George, Bruce (Walsall S)
Borrow, David Gerard, Neil
Bradley, Keith (Withington) Gibson, Dr Ian
Brand, Dr Peter Godman, Dr Norman A
Breed, Colin Godsiff, Roger
Brinton, Mrs Helen Goggins, Paul
Brown, Rt Hon Nick (Newcastle E) Golding, Mrs Llin
Brown, Russell (Dumfries) Gordon, Mrs Eileen
Browne, Desmond Griffiths, Jane (Reading E)
Bruce, Malcolm (Gordon) Griffiths, Nigel (Edinburgh S)
Buck, Ms Karen Griffiths, Win (Bridgend)
Butler, Mrs Christine Grocott, Bruce
Campbell, Rt Hon Menzies (NE Fife) Grogan, John
Gunnell, John
Campbell, Ronnie (Blyth V) Hain, Peter
Campbelh-Savours, Dale Hall, Mike (Weaver Vale)
Caplin, Ivor Hall, Patrick (Bedford)
Casale, Roger Hamilton, Fabian (Leeds NE)
Caton, Martin Hancock, Mike
Chaytor, David Hanson, David
Clapham, Michael Heal, Mrs Sylvia
Clark, Rt Hon Dr David (S Shields) Healey, John
Clark, Dr Lynda Heath, David (Somerton & Frome)
(Edinburgh Pentlands) Henderson, Doug (Newcastle N)
Clarke, Charles (Norwich S) Henderson, Ivan (Harwich)
Clarke, Eric (Midlothian) Hill, Keith
Clarke, Rt Hon Tom (Coatbridge) Hinchliffe David
Clarke, Tony (Northampton S) Hodge, Ms Margaret
Clelland, David Hoey, Kate
Clwyd, Ann Hood, Jimmy
Coaker, Vernon
Coffey, Ms Ann Hoon, Rt Hon Geoffrey
Colman, Tony Hope, Phil
Connarty, Michael Hopkins, Kelvin
Corbett, Robin Howells, Dr Kim
Corston, Jean Hughes, Ms Beverley (Stretford)
Cranston, Ross Hughes, Kevin (Doncaster N)
Crausby, David Hughes, Simon (Southwark N)
Cryer, Mrs Ann (Keighley) Humble, Mrs Joan
Cryer, John (Hornchurch) Hurst, Alan
Cummings, John Hutton, John
Cunningham, Rt Hon Dr Jack (Copeland) Illsley, Eric
Jackson, Ms Glenda (Hampstead)
Cunningham, Jim (Cov'try S) Johnson, Alan (Hull W & Hessle)
Dalyell, Tam Johnson, Miss Melanie (Welwyn Hatfield)
Darting, Rt Hon Alistair
Davey, Edward (Kingston) Jones, Rt Hon Barry (Alyn)
Jones, Helen (Warrington N) Prentice, Gordon (Pendle)
Jones, Ms Jenny (Wolverh'ton SW) Prosser, Gwyn
Purchase, Ken
Jones, Jon Owen (Cardiff C) Quin, Rt Hon Ms Joyce
Jones, Dr Lynne (Selly Oak) Quinn, Lawrie
Jones, Martyn (Clwyd S) Radice, Rt Hon Giles
Jowell, Rt Hon Ms Tessa Rapson, Syd
Kaufman, Rt Hon Gerald Raynsford, Nick
Keen, Alan (Feltham & Heston) Roche, Mrs Barbara
Kemp, Fraser Rowlands, Ted
Khabra, Piara S Roy, Frank
Kidney, David Ruane, Chris
Kilfoyle, Peter Ruddock, Joan
King, Ms Oona (Bethnal Green) Russell, Bob (Colchester)
Ladyman, Dr Stephen Russell, Ms Christine (Chester)
Lawrence, Mrs Jackie Ryan, Ms Joan
Laxton, Bob Salter, Martin
Lepper, David Sanders, Adrian
Leslie, Christopher Sarwar, Mohammad
Levitt, Tom Savidge, Malcolm
Lewis, Ivan (Bury S) Sawford, Phil
Linton, Martin Sedgemore, Brian
Livsey, Richard Sheerman, Barry
Lloyd, Tony (Manchester C) Sheldon, Rt Hon Robert
Llwyd, Elfyn Skinner, Dennis
McAvoy, Thomas Smith, Rt Hon Andrew (Oxford E)
McCafferty, Ms Chris Smith, Angela (Basildon)
McDonagh, Siobhain Smith, Miss Geraldine (Morecambe & Lunesdale)
McDonnell, John
McFall, John Smith, John (Glamorgan)
McIsaac, Shona Smith, Llew (Blaenau Gwent)
McKenna, Mrs Rosemary Smith, Sir Robert (W Ab'd'ns)
Mackinlay, Andrew Snape, Peter
McNamara, Kevin Soley, Clive
McNulty, Tony Southworth, Ms Helen
MacShane, Denis Spellar, John
McWalter, Tony Squire, Ms Rachel
McWilliam, John Starkey, Dr Phyllis
Mahon, Mrs Alice Steinberg, Gerry
Marsden, Gordon (Blackpool S) Stevenson, George
Marsden, Paul (Shrewsbury) Stewart, David (Inverness E)
Maxton, John Stewart, Ian (Eccles)
Meacher, Rt Hon Michael Stinchcombe, Paul
Meale, Alan Stoate, Dr Howard
Michael, Rt Hon Alun Strang, Rt Hon Dr Gavin
Michie, Bill (Shef'ld Heeley) Straw, Rt Hon Jack
Michie, Mrs Ray (Argyll & Bute) Stringer, Graham
Milburn, Rt Hon Alan Stuart, Ms Gisela
Miller, Andrew Sutcliffe, Gerry
Mitchell, Austin Swinney, John
Moonie, Dr Lewis Taylor, Rt Hon Mrs Ann (Dewsbury)
Moore, Michael
Moran, Ms Margaret Taylor, David (NW Leics)
Morgan, Ms Julie (Cardiff N) Taylor, Matthew (Truro)
Morley, Elliot Temple-Morris, Peter
Morris, Rt Hon Ms Estelle (B'ham Yardley) Thomas, Gareth (Clwyd W)
Thomas, Simon (Ceredigion)
Mullin, Chris Timms, Stephen
Murphy, Denis (Wansbeck) Tipping, Paddy
Murphy, Rt Hon Paul (Torfaen) Todd, Mark
Naysmith, Dr Doug Tonge, Dr Jenny
Norris, Dan Touhig, Don
O'Brien, Bill (Normanton) Trickett, Jon
O'Brien, Mike (N Warks) Truswell, Paul
Olner, Bill Turner, Dennis (Wolverh'ton SE)
O'Neill, Martin Turner, Dr Desmond (Kemptown)
Organ, Mrs Diana Turner, Dr George (NW Norfolk)
Osborne, Ms Sandra Turner, Neil (Wigan)
Palmer, Dr Nick Tyler, Paul
Pearson, Ian Tynan, Bill
Pickthall, Colin Vaz, Keith
Pike, Peter L Vis, Dr Rudi
Plaskitt, James Walley, Ms Joan
Pond, Chris Ward, Ms Claire
Pound, Stephen Watts, David
Prentice, Ms Bridget (Lewisham E) Webb, Steve
White, Brian Winnick, David
Whitehead, Dr Alan Wood, Mike
Wicks, Malcolm Woodward, Shaun
Wigley, Rt Hon Dafydd Worthington, Tony
Williams, Rt Hon Alan (Swansea W) Wray, James
Wright, Dr Tony (Cannock)
Williams, Alan W (E Carmarthen) Wyatt, Derek
Williams, Mrs Betty (Conwy)
Willis, Phil Tellers for the Noes:
Wills, Michael Mr. David Jamieson and
Wilson, Brian Mrs. Anne McGuire.

Question accordingly negatived.

THE CHAIRMAN, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, put forthwith the Question, pursuant to Standing Order No. 68, That the clause stand part of the Bill.

Question agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 12 ordered stand part of the Bill.

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