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Renewable Energy

Ms Joan Walley accordingly presented a Bill to require the Government to draw up a strategy for promoting non-convergent renewable energy technologies: And the same was read the First time; and ordered to be read a Second time on Friday 21 July, and to be printed [Bill 120].

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Orders of the Day

Finance Bill

(Clauses 1, 12, 30, 31, 59, 102 and 113)

Considered in Committee.

[Sir Alan Haselhurst in the Chair]

Clause 1

Rate of duty on beer

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-- 'TABLE--

1. CigarettesAn 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

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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 rose--

Mr. Nigel Beard (Bexleyheath and Crayford) rose--

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

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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.

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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.

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