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Mr. Christopher Leslie (Shipley): Instead of trying to justify and make excuses for smuggling and criminality, why does the right hon. Gentleman not commit himself to, say, spending more on Customs and Excise?

Mr. Heathcoat-Amory: Because that will not work. I shall say more in a moment about the Government's failed policies. They are launching an initiative this year--it is not the first; they have launched others in the past--to do precisely what the hon. Gentleman suggests, and recruit more Customs and Excise officers and civil servants. Meanwhile, the situation continues to get worse because the Government are not dealing with the cause of the crime. Instead, they have come up with a new wheeze: they are trying to sound responsible and respectable by saying that the extra revenue from the tobacco tax will be spent on the national health service.

Here again, the Government are in something of a muddle over exactly what sums they are talking about. The Chancellor of the Exchequer said that the increased revenue would amount to £300 million in the coming year. Not to be outdone, the Prime Minister said a few weeks later that it would amount to £400 million. Two weeks after that, the Chief Secretary to the Treasury said that it would amount to only £235 million. It is not surprising that the Government do not know how much extra revenue the policy will give them. Last year, the revenue from tobacco duty actually fell by £2.5 billion. It was lucky that the NHS was not dependent on that revenue.

A report published by the Government at the time of the Budget refers to the huge number of people now engaged in illegal trade. Page 6 of that report states that

The report also says that smuggling is on a strong upward trend.

Mr. Desmond Swayne (New Forest, West): Over the weekend, I enjoyed the company of a house guest. On Sunday lunchtime, he went to the pub in a very prosperous part of Hampshire. Having expressed an interest in buying some cigarettes over the counter, he was approached by two potential salesmen offering to sell him 200. That was in rural Hampshire.

Mr. Heathcoat-Amory: My hon. Friend is right. The problem is no longer confined to the channel ports and to the south coast, it is nationwide.

An alarming development--to which perhaps my hon. Friend alludes--is that people are beginning to think that they are not doing anything wrong in buying smuggled

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goods. Indeed, they are not committing a crime--there is nothing illegal about buying smuggled cigarettes; the illegality is only in selling them. Respectable and responsible people are increasingly saying that if the Government are so stupid as to defy common sense in that way, making a bad situation worse, is it really a crime? That is a worrying development.

In addition, the Government's whole policy undermines the legitimate trade. Small shopkeepers are constantly being harassed by the police for selling cigarettes to under-age smokers. They are fined for selling cigarettes to people under the age of 16, but meanwhile the Government are implementing a policy that encourages under-age smoking because of the vast and growing illicit market operating throughout the country through uncontrolled outlets. Is it any wonder that smoking among young people is increasing again? The only response that the Government have to that very serious problem--the epidemic of smuggling--is to launch yet another campaign.

Mr. Barry Gardiner (Brent, North): Will the right hon. Gentleman confirm that the Government are looking at the practice of forestalling in the industry, which has been responsible for a large amount of the drop in revenue? That practice by the manufacturers, whereby they clear a large amount of their product through pre-Budget prices and then only a very small amount of their product after the Budget, is one of reasons why there has been a loss to the Revenue and why an even greater loss is predicated for next year. It has little to do with smuggling. The Government are seeking to tackle that industry problem.

Mr. Heathcoat-Amory: Again, the Government are tackling the wrong end of the problem. They are dealing not with the cause of the problem, but with its symptoms. Simply fiddling around with the forestalling problem will do nothing to stop the underlying illegality and smuggling. If the hon. Gentleman really thinks that some changes in the way in which tobacco manufacturers pay their tax will deal with the issue that I have described, he fails to understand not only the issue, but the Government's literature. Their own report described in graphic terms the scale of the problem facing the country because of smuggling.

I was about to describe a previous Government initiative. They have just launched a new proposal to recruit and deploy almost 1,000 extra civil servants, but they have done all that before. On page 73 of the pre-Budget report of November 1998, they set out a great new initiative called the alcohol and tobacco fraud review, including extra resources, recruitment of new staff, tougher policies on the prosecution of offenders and on seized vehicles, the introduction of sentencing guidelines and the revocation of licences from businesses caught smuggling. What happened? The situation went on getting worse.

I shall give perhaps the most eloquent example of that. Based on that previous initiative, the Government supposed that their revenue for 1999-2000 from tobacco products would be £8.9 billion. In fact, it was £5.7 billion. That is a staggering undershoot. They lost more than £3 billion because of the failure of their initiative to halt smuggling, so that is the answer to the hon. Member for Shipley (Mr. Leslie).

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One can have all the anti-smuggling initiatives in the world, but they will not work until one tackles the root cause of smuggling. Exactly that point applies to the initiative that the Government are launching on the back of their just-published report. The seeds of the Government's failure is written into that report, in which their own figures show that smuggling will worsen in the next three years. Even Ministers say that the initiative will not solve the problem and that, indeed, the problem will worsen. If Ministers say that it will get worse, I think that we are entitled to believe them on that point.

5 pm

The Government are dealing with the symptoms of smuggling, not with its causes. Today, we should like to hear from Ministers a real report on the real causes of smuggling. They asked Mr. Martin Taylor, who is a distinguished business man, to do a report on that very issue. He reported to the Government, but that report is secret. We have previously heard from Ministers much waffle and windy rhetoric about openness, the public's right to know and accountability, and that everything would be published and in the open--but, although they have commissioned a report from an outside business man into the very issue of the causes and consequences of smuggling and what to do about it, that report is secret.

Mr. Michael Fallon (Sevenoaks): My right hon. Friend has described the report as secret, but is he aware that Ministers, in their reply to the Treasury Committee's report, described the Taylor report as "personal"? How can a report commissioned by the Chancellor of the Exchequer be described as his personal property?

Mr. Heathcoat-Amory: My hon. Friend is absolutely right--taxpayers paid for that report, and it is not personal at all. The report was not going to be personal until Ministers read it and realised that it was rather embarrassing. Suddenly, the report has become very personal and secret.

It is widely known in the trade that Mr. Martin Taylor, being a man of common sense, included in a letter attached to the report the commonsense observation that if we really wants to do something about smuggling, we have to do something about the duty differential between the United Kingdom and the continent. As publication of that observation would be too embarrassing for the Government, they have suppressed it.

There is a similar situation in the alcohol products market. I shall not repeat the points that I have already made, but they apply in very much the same way in that market--in which, for example, the licensed trade is being undermined by the Government. It took several hundred years to build up a responsible, licensed trade in the United Kingdom, so that people could drink in responsible surroundings in which alcoholic drinks should not be sold to minors. It is quite a considerable achievement. The Government, however, are putting at risk and undermining entirely that achievement by presiding over a disorderly market in which drink is sold in uncontrolled outlets to minors and others.

The cause of that situation is staring the Government in the face: it is, again, a large and growing duty differential. The difference in beer duty between the United Kingdom and France, for example, is about 30p.

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Other European countries have faced exactly the same problem. Historically, all of the Nordic countries and Ireland have, like the United Kingdom, had high alcohol duties. However, when those countries joined the single market and faced the demands that it imposed, all of them cut their duties on alcoholic products. Only the United Kingdom Government are defying logic and common sense by increasing duties in every Budget, making a serious problem worse.

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