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Mrs. Lait: The Financial Secretary has probably cleared up the confusion about the amount lost as a result of cross-border shopping, but no Conservative Member has questioned such losses. Our concern relates to the duty evaded as a result of smuggling and bootlegging, and that is the much larger sum of £950 million. If we agree on that, will the hon. Lady also confirm that that is equivalent to a reduction of about ½p on income tax and 0.5 per cent. on VAT each year?

Dawn Primarolo: The largest amount comes in the tobacco category, particularly hand-rolled tobacco, which we shall debate later, so perhaps I can deal with the matter then.

In defence of small business, the hon. Member for Tunbridge Wells (Mr. Norman) went on at some length about prices in Asda, that well-known corner shop. The hon. Gentleman, like several other Conservative Members, sought to advance the case that the only influence on price is duty.

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The right hon. Member for Wells (Mr. Heathcoat- Amory), in committing himself to freezing beer duty, did not mention that, in March 1992, March 1993 and January 1995, the Conservative Government substantially increased beer duties. Why has the Conservative party changed its view now?

The RPI figures show that, when this Government increased duty on a pint of beer by 1p, the increase to the consumer was 7p. For four cans of lager--we are told that canned drinks pose a particular problem for the corner shop--the real price increase was 12p. There does not seem to be a direct correlation between duty and price. Price will clearly have an impact on cross-border shopping.

Mr. Norman: Has the Minister, in her estimates of the duty lost, taken into account the extent of fraud? Will she comment on the official import and export figures, which highlighted the problem? I understand that, in 1994, 322,000 hectolitres of beer were exported to France, but the French reported receiving only 148,000 hectolitres, the implication being that the difference is accounted for by fraud.

Dawn Primarolo: I was about to come to the hon. Gentleman's point about diversion fraud. That relates to how much the Exchequer loses, not the producers who are selling the goods and whether they leave the country. I am not suggesting that producers collaborate in diversion fraud; we discussed diversion fraud with them during the review. The hon. Gentleman will know that a high-level EU group is considering the matter, because it does not affect only Britain.

Mr. Edward Davey: I want to comment on who is responsible for the price increase. Has the hon. Lady had a chance to read an article in yesterday's issue of The Licensee and Morning Advertiser which, on page 1, under the headline "Price-rise blow for duty campaigners", deals with the issue and with some of the cant and hypocrisy that we have heard from Conservative Members?

The First Deputy Chairman: Order. The hon. Gentleman is reading from an article, but interventions must be brief.

Dawn Primarolo: I get the general drift of the hon. Gentleman's point. I avidly read many publications, but I cannot recall reading that particular one yesterday. However, I am delighted that it acknowledges, as I think the industry would, that price is the result of a number of complex issues, not just duty.

Mr. Norman: The hon. Lady confirmed the considerable problem of duty fraud. Does she agree that one of the difficulties of duty fraud and contraband is that they distort the marketplace in that it is much easier for the big brewers to participate in the export market and therefore receive the benefits of reimportation or--inadvertently and without intention, of course--the benefits of the fraud trade, whereas the small brewer, who is not packaging and selling into the export trade, is disadvantaged?

Dawn Primarolo: I wanted to deal with the question of smaller brewers in reply to the comments made by the hon. Member for Mid-Sussex (Mr. Soames), so I shall come back to that important point.

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Hon. Members went on to suggest that the change in the drinking habits of the drinking public and the demise of the British pub were the Government's fault. The hon. Member for Beckenham (Mrs. Lait) suggested that the Government were actively encouraging criminal activity, which is not the case. I will explain later what action the Government are taking on smuggling.

Mr. Robathan: I assure the Financial Secretary that I, for one, am not pointing the finger of blame at this Government, and that I and other Conservative Members lobbied the previous Government on the problem of smuggling. My point is that the problem is growing and needs action. Far from helping to solve the problem, which has many facets, increasing duty will make it worse. We are not accusing the Government of encouraging criminality; we are accusing them of not taking action.

5.30 pm

Dawn Primarolo: With respect, the hon. Member for Beckenham did accuse the Government of actively encouraging criminal activity. I am trying to be fair to those hon. Members who, I know, take seriously smuggling and criminal activity, and who wholeheartedly support the Government's actions.

The hon. Member for Vale of York (Miss McIntosh) mentioned the Oxford economic model. The brewers' suggestion in the model is that, if we cut duty, we shall boost consumption and shall not, therefore, lose money in the long term. That suggests that the short-term impact of a tax cut might be to boost demand, and that lower taxes are likely to increase personal disposable income and temporarily boost GDP. Almost any tax cut would have a similar effect. We dispute--as, I am sure, does every hon. Member--the brewers' suggestion of a free lunch and the implication that, by continually cutting indirect taxes, we would indefinitely raise output and reduce inflation. That would clearly not be the case.

The hon. Member for Kingston and Surbiton (Mr. Davey) made a helpful contribution about health and tax issues. He made several points about young people and alcohol consumption, which must be part of the wider policy debate conducted by the Government. He will be aware that, yesterday, my right hon. Friend the Leader of the House announced in a statement that a cross-departmental ministerial committee will consider the growth in alcohol consumption by young people, as well as that in smoking, to which I will return.

The hon. Member for Kingston and Surbiton went on to make points about the licensing regime. I know that people think that the Treasury is omnipresent, but as yet, licensing regimes are not within its remit. I therefore note his points, but cannot deal with them.

Miss McIntosh: I accept that there is no such thing as a free lunch, but the Financial Secretary has not replied to my questions about the fact that the Government are committed by the treaty of Rome not to a uniform rate, on which Labour Members have insisted, but to equalising the rates of duty and VAT. That is an important difference. Does she accept that the British presidency has failed in its duty to undertake that exercise and to commission a Commission study on that matter?

Dawn Primarolo: No, I do not accept that. The hon. Lady is aware that harmonisation of indirect taxes is not

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a requirement of the treaty of Rome, and that all member states believe, as we do, that it is important to continue to have the right to set the rates.

I have covered the points about price made by the hon. Member for Tunbridge Wells. I have tried to reassure him that we take smuggling seriously. He repeatedly asserted that smuggling has worsened in the past 24 months, but whatever he thinks is happening on the streets, his assertion is not supported by the information available to the Government. The significance of an increase in duty of 1p on a pint has been tremendously inflated.

Mr. Norman: Will the Minister please confirm that her colleagues in the Home Office are not complaining that smuggling is a worsening problem, and that they are satisfied that it is contained and is static?

Dawn Primarolo: The Government do not refute the importance of smuggling and how we deal with the threats that it poses to revenue, and health and social policy: hence the setting up of the--

Mr. Norman rose--

Dawn Primarolo: May I finish the answer? The hon. Gentleman must surely expect an answer to his question before he intervenes again.

The Government have made a commitment to set up the alcohol, tobacco and fraud review, and to work with the industry to start to grapple with the difficult problems of smuggling and diversion fraud. That is the first time that such action has been taken. The Opposition seem simply to be arguing that the Government are not moving fast enough, rather than disagreeing with the general direction of our policy.

Mr. Norman: I thank the Minister for attempting to reply to my question. Will she confirm her assertion that smuggling and fraud have not worsened at all in the past 24 months? That is in direct contradiction to claims made by other members of the Government.

The Temporary Chairman (Mrs. Gwyneth Dunwoody): Order. Interventions are getting longer, and it would be helpful if hon. Members remembered that they should be brief.

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