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

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

Mr. Heathcoat-Amory: That is exactly what I said a few moments ago. Had the hon. Gentleman been listening, he would have heard me quote from a report that reached exactly that conclusion, although it pointed out that price rises had a much greater effect in deterring smoking in better-off households than in poorer households. I am willing to repeat what I said when the hon. Gentleman was nodding off: it is obvious that, if one increases the price of something, people will buy less of it. That is not a particularly remarkable observation. However, the increase does the most damage to poorer households. I am sure that the hon. Gentleman must have constituents on very low incomes who are hit in precisely the way that I described.

The measure is flying in the teeth of a serious law and order issue, whereby smuggled tobacco is resulting in uncontrolled sales to minors, in pubs and clubs and on street corners, and illegally to small tobacconists who sometimes cannot resist the opportunity to buy cheap supplies. All that must worry the Government, who, at least nominally, are committed to law and order.

Our amendment reduces the increases back to 3 per cent. in real terms. I am fully aware that the difference between 3 and 5 per cent. will not cause the difficulties that I have outlined to evaporate, but we are approaching breaking point, and that is why a review is important and why it is disappointing that the Prime Minister's promised review has not taken place. Meanwhile, I urge that the Committee revert to the previous escalator, which will at least avoid the more damaging implications of the Government's present policy.

Mr. Leslie: Listening to the right hon. Member for Wells (Mr. Heathcoat- Amory), one might forget that smoking kills people and that the rate of death and disease from smoking is far too high and needs to come down.

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It is essential that people, particularly young people, are deterred from smoking, and we must try to find ways of ensuring that tobacco consumption is reduced.

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

"is the most effective way to reduce smoking."--[Official Report, 30 November 1993; Vol. 233, c. 939.]

The higher tobacco duty escalator is widely accepted, certainly in my constituency--I have had no representations opposed to the 5 per cent. escalator--as necessary in the wider public interest for health and public protection.

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

"every 10 per cent. increase in price--

of tobacco--

"produces about a 3 per cent. to 6 per cent. decrease in consumption."--[Official Report, 11 February 1994; Vol. 237, c. 617.]

That is an important example of cause and effect. One cannot compare VAT on fuel with tobacco duty, because heating is good for people and tobacco consumption is bad. The right hon. Member for Wells was wrong in that regard.

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

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

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

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

Mr. Heathcoat-Amory: No, it will come from the surplus.

Mr. Leslie: If we get into surplus we can consider that, but effectively the Opposition are looking at putting that amount on the PSBR.

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We have heard nothing from the Opposition about how they will make up that lost revenue. The amendment is poorly thought out and, moreover, it is not in the interests of public health and the wider need to protect people's health throughout Britain.

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

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

8.15 pm

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

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

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

The hon. Member for Shipley referred to the link between tobacco duties, and health. If anything, we would have supported the Government in further increasing tobacco duties with the one caveat that the resources thereby raised should be earmarked to go directly into the health service. That might have breached the spending limits inherited from the previous Government, but my

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constituents, and the constituents of many Labour Members, would not have worried about that. They would have welcomed extra cash for the health service, because it would have brought down waiting lists.

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

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

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