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Mr. Dale Campbell-Savours (Workington): If Conservative Members believe that those duties should be cut, how would they compensate for the lost revenue?

Mr. Heathcoat-Amory: If the hon. Gentleman had been listening, he would know that no compensation is necessary as the policy is costing the Government money. Last year, the duties received on tobacco products decreased. If he really wants to understand the issue, he should read the Government's own documents on the matter. The situation is crazy, undermining not only health and crime policies, but revenue policy.

Of course, there are winners from the policy. They include the criminal gangs--which may well be operating in the hon. Gentleman's constituency--and the smugglers. There is a Treasury that benefits from the policy, but it is the French Treasury. There is a retail industry that benefits as well, but it is based in Calais. The losers are the legitimate outlets, including the retailers and traders and, when it comes to alcohol, the brewers and their suppliers--as well, of course, as the British taxpayer. We want to put an end to that.

We are faced with the policy of a madhouse. We want an unvarnished independent review that sets out the link between the level of duty and the level of smuggling. If the Government believe that the high level of duty is not the cause of the criminality, let them show it by commissioning an independent report and being brave enough to publish the results.

Mr. Bercow: Given that on average more than 80 per cent. of the cost of a packet of cigarettes finds its way to Treasury coffers, does my right hon. Friend agree that if Ministers regard that as a harmless phenomenon, they owe it to the House to tell us for what proportion of the total cost of a packet of cigarettes excise duties should ultimately account?

Mr. Heathcoat-Amory: My hon. Friend is right. That could well be included in the report for which we are calling. We want a comprehensive look at the entire structure of alcohol and tobacco duties and the link between prices and smuggling. There are many examples from around the world on which to draw. Canada faced a similar problem and successfully stopped the smuggling by cutting its duties. The Nordic countries have done the same. There are plenty of examples and information available, but the Government are too scared to put the issue to the test of an independent review that they would then publish. Unless and until the Government come forward with the information that we want, we shall vote against the duty increases.

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Dr. Palmer: I was interested by the comments of the right hon. Member for Wells (Mr. Heathcoat-Amory). I have not yet fully understood whether the Conservatives are opposed to the duty levels because they feel that they are conducive to smuggling--that was the only argument that he advanced--or whether they wish for lower duties per se. If the Government's new initiatives with the tobacco industry on clearer labelling for duty-paid cigarettes succeed in reducing smuggling, will the Conservatives accept the health argument for high levels of taxation, or will they adopt the populist argument--a tactic that they seem to be flirting with in other policy areas--that cigarettes ought to be cheap?

That goes to the heart of the amendment. If it stands or falls on the issue of smuggling alone, the Opposition are saying that they have no objection in principle to high rates of duty. It would be helpful if that could be clarified.

Sir Michael Spicer (West Worcestershire): Another pertinent question might be whether the hon. Gentleman accepts and approves of the regressive nature of the taxes.

Dr. Palmer: I am grateful for that intervention. Rather than looking at single taxes, where arguments could weigh one way or the other, we should consider the overall impact of direct and indirect taxation. One of the most welcome features of the current Government has been the substantial redistributive impact of taxation as a whole. I would be surprised to hear the hon. Gentleman welcome that, but if he wishes to join those favouring redistribution, he will be welcome on this side of the House.

I was curious about the suggestion by the right hon. Member for Wells that taxation is set by a free market. That is an interesting concept, because there is no market in the usual sense of buying and selling. However, there is a good deal of international debate about the tendency of international free trade to encourage a movement of taxation to the lowest possible level that any country may choose to impose, just as there is a tendency to encourage movement to the lowest possible standards.

When I lived in Switzerland, I saw embarrassing advertisements by the British Council, encouraging companies to move to Britain on the grounds that wages, taxes and Government interference were lower. I remember asking Swiss employers whether that was significant for them. They said that it was nice to pay less money, but that the primary factor for them was the relatively low level of education and infrastructure in Britain.

The right hon. Member for Wells is attempting simultaneously to satisfy the more populist elements of his constituency, which favour low levels of indirect taxation, while attempting to remain on this side of respectability by disguising it as an attack on smuggling. He said that small shopkeepers are constantly harassed to prevent under-age smoking. Is he saying that he would prefer that small shopkeepers were not approached--I will not use the word harassed--to discourage under-age smoking? Is he saying that under-age smoking should be left to the free market? Is he saying that because there is a difficulty in discouraging under-age smoking when those concerned buy from smugglers, we should give up on attempting to persuade shopkeepers not to supply under-age smokers?

Mr. Heathcoat-Amory: Before the hon. Gentleman wastes any more of the House's time by distorting

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my argument, may I remind him that I was making the point that it is no good simply harassing small shopkeepers to prevent under-age smoking when it is the Government who ought to be addressing the problem? The Government should stop running a policy that encourages the distribution of tobacco products in uncontrolled outlets, which has increased and is increasing the incidence of under-age smoking. The Government should start by taking action themselves, rather than putting the problem on to small shopkeepers.

Dr. Palmer: I am still struck by the repeated use of the word "harassment". The right hon. Gentleman is using his criticism of the rate of duty to side with the less responsible small shopkeepers who object to the police keeping an eye on them to discourage their sale of cigarettes to under-age purchasers. Is he willing to state clearly that the Opposition are strongly in favour of small shopkeepers being discouraged from selling to under-age children?

Mr. Heathcoat-Amory: Of course we are, but the Government must play their part. It is no good simply expecting the legitimate trade to bear the full burden of preventing under-age smoking when the Government are pulling in the opposite direction--and hypocritically urging action against small shopkeepers--when the Government themselves are responsible for a policy that is increasing the incidence of under-age smoking, as is shown by the regrettable statistic that the number of people in the younger age brackets who are taking up smoking is increasing.

5.15 pm

Dr. Palmer: We may understand then that Conservative policy is to support what the right hon. Gentleman earlier called the harassment of small shopkeepers to prevent them from selling to under-age smokers, as long as the Government also take the action that he wishes to see.

Mr. Gardiner: Does my hon. Friend agree that the right hon. Member for Wells (Mr. Heathcoat-Amory) has just undermined his own argument? He stated that the increased duties have caused an increase in illegal sales, which means that children are increasingly buying tobacco and cigarettes, but he also argues that that is cause for harassing legitimate outfits. If under-age consumers of tobacco are buying it on the black market, it makes no sense for him to urge the harassment of shopkeepers with legitimate businesses.

Dr. Palmer: I am grateful to my hon. Friend for his well-expressed point, which shows the basic weakness of the Opposition's position. I do not wish to take up the House's time too much--

Mr. Eric Forth (Bromley and Chislehurst): Go on.

Dr. Palmer: I knew that that would please the right hon. Gentleman.

As a Nottingham Member, I share the concerns of other hon. Members who represent cigarette producing areas about smuggling. We need to do more to eliminate the similarity of smuggled goods to legitimately produced

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goods, and I welcome the joint Government-industry initiative on that, which the right hon. Member for Wells failed to mention. Tax harmonisation with the European Union on tobacco also makes sense, and the industry has repeatedly said that it would welcome that.

The amendment is totally one-sided. It is selective and looks only at one aspect of the problem. As such, it is not a serious alternative to clause 1.

Mr. Forth: This debate is rapidly becoming a combination of political correctness, economic illiteracy, wishful thinking and nanny-statism, all wrapped up into one bizarre package. We have what would appear to most people to be an obvious argument that, for reasons that I hope the Minister will explain when he replies to the debate, the Government are unable or unwilling to grasp. It is obvious to the Opposition, and to almost everybody outside the House. Smokers and non-smokers, people who buy legitimate or smuggled cigarettes, and small and large shopkeepers all know what is going on, and they cannot see the point of the exercise. However, the Government persist with their sterile and damaging policy. The Minister must give us a thorough explanation of what the Government think that they are doing, whether they accept what is happening, and where the Government think that their policy is leading.

There is a peculiar analogy to be made for this debate, because it is all bound up in the politically correct policies that we have become more and more accustomed to from the Government. For example, an environmental argument is introduced when they seek to justify their swingeing increases in vehicle petrol duties. At the same time, they have reduced taxation on domestic fuel, which produces even more pollution than vehicle emissions. The Government have failed to justify that. In this case, taxation is allegedly used as part of health policy, but it is patently failing. Not only is it not yielding the revenues, but--as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out--the incidence of smoking is increasing. On every possible count, the policy is failing.

We need a full explanation from the Government of whether they will accept amendment No. 8 and if not, why not.

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