Tobacco: Cross-border Shopping and Smuggling (Hansard, 4 June 1996)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, Customs' estimate of excise duty revenue lost from legitimate personal importation of duty-paid tobacco products for the year ending 30th June 1995 is £120 million. Additionally, VAT receipts of £30 million are estimated to have been lost. Customs do not have an estimate of the extent of excise duty losses due to smuggling of tobacco products. They are working with the tobacco and alcoholic drinks industries with the aim of achieving an objective measurement of smuggling.

The Viscount of Oxfuird
My Lords, I thank my noble friend for that reply. Is he aware that one of the warehouses on the Continent of Europe situated near the ports in one week shipped 19 tonnes of tobacco out of its doors? Around 95 per cent. of that went to the United Kingdom, largely to the north east. Can my noble friend assure us that the statistics which are part of his study take into account the estimates of the retail tobacco trade, which calculate the loss to the Treasury due to smuggling and the evasion of tax on those products as being £1.6 billion?

§ Lord Mackay of Ardbrecknish
My Lords, as my noble friend is aware, there are really two aspects to his Question. One concerns the loss to the revenue from those people who buy products abroad and bring them into this country legitimately under the single market arrangements. In that regard I answered his Question in relation to excise duty and VAT. If one extrapolates that figure, for the same period it comes to around £200 million at off-licence prices for tobacco coming in by that route. Smuggling is much more difficult to ascertain. Smugglers tend not to put up their hands at the port and say that they are smuggling X amount of items into the country. It is a difficult issue and we are discussing with the industry how to quantify it. At the same time, we are attempting to prevent it.

Lord Bruce of Donington
My Lords, does the noble Lord think it wise to have made cuts in the numbers of Customs and Excise officers over the past 10 years, not only on account of this loss that has occurred, but also because of the losses that occur in undetected fraud in the case of export refunds and other matters of that kind?

§ Lord Mackay of Ardbrecknish
My Lords, deciding how many people should be employed in any agency—Customs and Excise, police or any other organisation—is a balance between the costs and the likely benefit from those costs. I can assure the noble Lord, Lord Bruce, that we take seriously excise verification in relation to the single market regulations. We have moved to a situation which is much more intelligence-based for the simple reason that the old-fashioned procedure, which I am sure the noble Lord, Lord Bruce, would prefer, of opening cases at random at ports is inefficient, especially when one considers that nearly 20 million people pass through the port of Dover in any given year.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that this is a serious problem for small 1154 shopkeepers? They are losing a lot of trade because of the smuggling and cross-border transfer of goods. Does he agree that the smuggling takes place at such a rate because the duty on our tobacco is the highest in Europe and equivalent to 4.5p on the standard rate of income tax? Is it not time that we achieved harmonisation of taxation within the Community so that smuggling can be alleviated?

§ Lord Mackay of Ardbrecknish
My Lords, if the other countries in the European Union wish to harmonise their tax on tobacco products, I welcome that action. We impose the tax not only as a revenue-raising exercise, which it undoubtedly is, but also as a method of signalling that tobacco is a dangerous product.

§ Lord Mason of Barnsley
My Lords, is the Minister aware that a vast trade has developed in the black marketing of tobacco which has been smuggled into the country? Many criminals are thriving on the cross-border trade. With bulk buying on the Continent on a large scale, criminals are selling tobacco in the pubs and clubs of the north at half the UK price. As the noble Lord suggested, small shopkeepers are suffering terribly, some losing up to £20,000 a year. It also takes up a lot of police time. Apart from the Exchequer losses, it is a costly exercise. Apart from consultations with the tobacco industry and Customs and Excise, what positive steps are the Government taking to halt this illegal trade?

§ Lord Mackay of Ardbrecknish
My Lords, we should not get the size of the problem out of proportion in relation to the total amount of sales of tobacco products. The excise revenue from tobacco in this country is about £7.5 billion a year. As I mentioned in my original Answer, the legitimate import comes to around £120 million of lost excise duty. We do not know what smuggling adds to that, but we take it extremely seriously.
In the current year we increased the number of posts available for excise verification by some 20 people, based in the south east of England where the major entry ports of this country are situated. As I explained earlier, we are using all the intelligence methods at our disposal to catch those people who are importing illegally large amounts of tobacco products and alcoholic beverages.

§ Lord Glenamara
My Lords, is the noble Lord aware that, so far as cross-border shopping is concerned, many thousands of Scandinavians come to Newcastle each year to do their Christmas shopping and the shopkeepers on Tyneside are delighted to have them?

§ Lord Mackay of Ardbrecknish
My Lords, I am delighted to agree with the noble Lord. Indeed, the last time I answered a question like this, I drew the attention of the House to the fact that cross-border shopping is not all in one direction and is not all about tobacco and alcohol. There is considerable cross-border shopping from those Scandinavian countries into, as the noble Lord said, Newcastle and also into Scotland.

§ Lord Harris of High Cross
My Lords, perhaps I may ask the Minister a question, speaking as the 1155 chairman of FOREST and something of a student of the phenomenon of smoking. The tobacco trade from all its sources pitches the figure of lost duty and tax at around £600 million, which would imply that around 5 to 10 per cent. of the consumption of tobacco is outside the official channels of retailing and the taxation the Government take when they estimate the proportion of the population who smoke. Therefore, might not their estimate of the proportion of the population who smoke be too low, bearing in mind the avoidance of taxation and also the evasion of taxation?

§ Lord Mackay of Ardbrecknish
My Lords, I am not entirely sure where that question led me. I suspect the noble Lord wishes to hear me say that we should reduce taxation on tobacco products. However, I think he will he disappointed because I am convinced, as are the Government, that the health reasons for imposing considerable duty on tobacco are unanswerable.

§ Lord Eatwell
My Lords, I am sure the Minister is aware that in the British Medical Journal last year there was a detailed study of tobacco smuggling. The study discovered that most tobacco smuggling was associated with organised crime and concluded that any reduction in smuggling must therefore involve increased co-operation between Customs and police authorities, particularly throughout the European Union. This week the European Union planned to push forward the development of a unified policing policy. The Government have said that they will veto that development. Is that not a free gift to the smugglers and to organised crime?

§ Lord Mackay of Ardbrecknish
My Lords, the Government's decision on these and other matters at the present time is a defence of British interests, which I know will come as a strange suggestion to the noble Lord—

§ Lord Eatwell
Smuggling!

§ Lord Mackay of Ardbrecknish
No, my Lords, not smuggling, because even the noble Lord knows that my right honourable friends are taking the view that they are adopting in the Councils of Europe because of the unreasonable attitude Europe is taking over beef. I should have thought that even the noble Lord would have understood that distinction without my having to spell it out to him.

The Viscount of Oxfuird
My Lords, is my noble friend aware that the current major area for smuggling is hand rolling tobacco? If this continues, surely it will move into the area of cigarettes, which will produce a massive drop in the Treasury's takings.

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is right that the smuggling of hand rolling tobacco is a major problem. Indeed, it is one we watch very carefully. My right honourable friend the Chancellor took action last year by not increasing the duty on hand rolling tobacco in order to try to dampen down that trade.