§ Mrs. LawrenceTo ask the Chancellor of the Exchequer what his latest assessment is of tobacco and alcohol smuggling and its impact on Government revenues; and what action he is taking to tackle it. [153056]
§ Dawn PrimaroloIn March 2000, Customs and Excise forecast that tobacco duty revenues for 2000–01 would be £7.4 billion. In fact, tobacco duty revenues for 2000–01 are now expected to be £7.5 billion, the first time in four years that the forecast yield has been exceeded.
Last March, the Government announced their "Tackling Tobacco Smuggling" strategy, which is designed first to slow the growth in tobacco smuggling, which has been on a strong upward trend, and then to put it into decline within three years. The strategy provided £209 million for investment in 1,000 extra staff and a national network of X-ray scanners. This strategy is at an early stage but it is already beginning to show results. In the first nine months of 2000–01, Customs have seized more than 1.4 billion cigarettes in the UK and helped overseas enforcement agencies seize nearly 700 million cigarettes en route to the UK. Customs investigators have also broken up 38 major organised crime gangs involved in the smuggling and supply of huge volumes of illicit cigarettes. As more front-line staff are put in place, new X-ray scanners come on line, and tobacco pack marks come into force, Customs will be able to take even more effective action against the criminals involved in tobacco smuggling.
As part of the "Tackling Tobacco Smuggling" strategy, Customs are pursuing a target for 2000–01 of holding illicit market penetration to 21 per cent. of the UK cigarette market, equating to £2.8 billion in lost revenues. Customs' assessment for the calendar year 2000 suggests that 22 per cent. of the UK cigarette market is made up of smuggled cigarettes, equating to £2.9 billion in lost revenues. Customs also estimate that 70 per cent. of cigarette consumption in the calendar year 2000 was of UK tax paid product and 8 per cent. was legitimately purchased for personal consumption free of UK taxes.
Detailed estimates of revenue lost (excise and VAT) through cross-border shopping and smuggling of alcohol and tobacco for the calendar year 2000 and revised figures for 1999 are contained in the tables. In reaching these estimates using the best information currently available, Customs' assessment is that overall cigarette consumption in 2000 was approximately 81 billion cigarettes.
Table 1: Revenue lost through all forms of tobacco smuggling £ million1 1999 2000 Cross-Channel smuggling of2: Hand rolling tobacco 670 890 Cigarettes and other tobacco 320 470 Total cross-Channel smuggling of tobacco 985 1,360 Tobacco smuggling by air passengers, Internet and parcel 110 120 Freight smuggling of cigarettes3 1,600 2,300 Assessment of all forms of tobacco smuggling and evasion4,5 2,700 3,800 1 Figures have been independently rounded to £5 million. Components may not therefore sum to the totals shown. Figures for freight smuggling and the overall assessment are rounded to the nearest £100 million.
230W2The 1999 cross-Channel smuggling figures have been revised to take into account new data on traffic flows from the ONS International Passenger Survey.
3Freight smuggling of cigarettes is calculated as the residual after the other forms of revenue loss have been subtracted from the overall assessment.
4Customs have only published assessments of all forms of tobacco smuggling and evasion for 1998 and 1999. Estimates of cross-Channel smuggling were first published in 1996.
5A comparable table of overall alcohol losses is being prepared and will be published in due course.
Table 2: Revenue lost through cross-border shopping of EU duty paid tobacco £ million Product type 1998 1999 Cigarettes and other tobacco products n/a 185 Hand-rolling tobacco n/a 35 Total 85 220 Notes:
1. Figures have been independently rounded to £5 million. Components may not therefore sum to the totals shown.
2. The figures shown for revenue lost assume that 100 per cent. of all tobacco purchased abroad substitutes for similar purchases in the UK.
3. The increase in the cross-border shopping estimates between 1998 and 1999 reflects the effects of the abolition of intra-EU duty free sale in July 1999. Prior to abolition duty free sales were not included in the estimates of cross-border shopping: from July 1999 onwards duty free sales have largely been replaced by EU duty paid sales, which are included in cross-border shopping. Because the switch from duty free sales to EU duty paid sales does not involve an additional revenue loss, the measured increase in cross-border shopping between 1998 and 1999 overstates the net additional loss of revenue.
4. Prior to 1999 the split between the different tobacco products was not robust enough to publish.
Table 3: Revenue evaded and revenue lost through cross-Channel smuggling of alcohol £ million 19991 2000 Product type Revenue evaded Revenue lost Revenue evaded Revenue lost Beer 190 140 245 185 Wine 45 30 65 50 Spirits 20 15 15 15 Total 255 190 325 245 1Revised
Table 4: Revenue lost through cross-border shopping of EU duty paid alcohol £ million Product type 1998 1999 Beer 55 60 Wine 180 220 Spirits 50 90 Total 290 370 Notes:
1. Figures have been independently rounded to £5 million. Components may not therefore sum to the totals shown.
2. The figures shown for revenue lost assume that between 70 per cent. and 80 per cent. of all alcohol purchased abroad substitutes for similar purchases in the UK.
3. The figures exclude any amounts for revenue lost on alcohol products smuggled in freight consignments or diversion fraud.
231W4. The 1999 cross-Channel smuggling figures have been revised to take into account new data on traffic flows from the ONS International Passenger Survey.
5. Prior to abolition duty free sales were not included in the estimates of cross-border shopping from July 1999 onwards duty free sales have largely been replaced by EU duty paid sales, which are included in cross-border shopping. Because the switch from duty free sales to EU duty paid sales does not involve an additional revenue loss, the measured increase in cross-border shopping between 1998 and 1999 overstates the net additional loss of revenue.