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Mr. Beard: Is not there a paradox in the right hon. Gentleman's argument? He complains that the incidence of smoking is increasing, and especially among young people, yet Conservative policy is that the markets would somehow harmonise prices on the continent and in Britain. Is not that essentially the same as saying that we ought to harmonise taxes? However, if taxes were harmonised, the price of cigarettes would fall further. As a result, even more people would smoke, and even more children would acquire the habit. Does not that run totally contrary to any sensible health or revenue policy?

Likewise, the right hon. Gentleman--

The Chairman: Order. This is developing into a mini-speech. The hon. Gentleman should ration his remarks.

Mr. Forth: I am delighted to have the opportunity to answer at length the points raised by the hon. Member for Bexleyheath and Crayford (Mr. Beard). I shall seek to do so while--I hope--staying strictly in order.

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I am sure that the hon. Gentleman was here a moment ago when my right hon. Friend the Member for Wells took great pains to explain the matter. I am not in favour of tax harmonisation, in the European Union or anywhere else. However, I have just returned from the United States of America, where there is a single market and a single currency. There is no single currency in the North American Free Trade Agreement: Canada and Mexico proudly retain their own currencies while taking part in a very satisfactory free trade arrangement.

As my right hon. Friend explained so eloquently a short time ago, there is in the United States a tendency for tax levels not to diverge so excessively as to give rise to a lot of cross-border smuggling between states. That is a perfectly natural, market-driven process, and it is worlds apart from the heavy-handed, bureaucratic, ideological process favoured by Labour Members. They want someone in Frankfurt or Brussels to impose tax rates and regimes on this country. We oppose that completely but, as my right hon. Friend said, we have no objection to the evolution of proper tax regimes in different parts of a single market, as long as that single market continues to function.

Worse, the hon. Member for Bexleyheath and Crayford has not grasped that we used to have a proper market in these products. They were sold through properly regulated and supervised outlets, and there was a perfectly reasonable regime governing sales to under-age people, and so on. However, now that a growing proportion of the market is attributed to smuggled goods, we have no chance of regulating or supervising the market in any way.

We want to find a way to restore an orderly market in these products. It is right that that market should be regulated with regard to under-age consumers, but I believe that the decision about using the product should be left to the mature judgment of people of a proper age, based on proper information from the Government.

Mr. Campbell-Savours: The right hon. Gentleman is almost a convert. He expresses support for the principle that there is a tendency to equalise taxation, as happens in the free trade area in the United States of America, but does he see Europe in the same way? Does he believe that there should be a tendency to equalise all forms of taxation in the European Union? How would he justify that?

Mr. Forth: Again, the hon. Gentleman must have fallen asleep temporarily when I drew my preferred analogy. I shall not use the analogy that he used, as I prefer my own, which concerns NAFTA. That arrangement is perfectly satisfactory to the Canadians, Americans and Mexicans, but has no single currency or overarching bureaucracy. However, I am watching you, Sir Alan, as I do not want to stray out of order.

Sir Michael Spicer: Will my right hon. Friend give way?

Mr. Forth: I will, but I hope that my hon. Friend will not tempt me much further down this line of argument. If he does, I shall blame him for what you might say, Sir Alan.

Sir Michael Spicer: I am most grateful to my right hon. Friend, who does not need my help to cope with

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mischievous questions from Labour Members. However, does he agree that, with cigarettes in particular, the differential between taxes in European Union countries and taxes in countries outside the EU is more important than tax differentials inside the EU?

Mr. Forth: My hon. Friend makes a very proper point. It is at the root of what we are disputing.

My right hon. Friend the Member for Wells eloquently set out these obvious and basic factors, and we await the Minister's reply. I have no doubt that he will want to set out in detail the Government's response to those points and explain whether they will accept amendment No. 8, which would be a significant contribution to solving the problem.

Mr. Roger Casale (Wimbledon): At the start of his remarks, the right hon. Gentleman referred to economic literacy. The economics of his proposed changes to discourage smuggling--a freeze, as I understand it, on the level of tobacco duty--mean that the overall tax revenue from tobacco duty would either go up or down. It might go up because there would be less smuggling and more people would buy cigarettes legally. Equally, if the rate of revenue received goes down, the amount of overall revenue would probably go down. If tax revenue were to increase, would he commit to spending that extra money on the national health service, as the Government are doing? If it goes down, how would he replace that money, or would it be taken out of the NHS, resulting in cuts to the service? Where would the money be spent if the revenue were to increase as a result of his proposals, and where would it come from to compensate for any reduction?

The Chairman: Order. The hon. Gentleman is getting near to a peroration.

Mr. Forth: These are helpful interventions. I will reply briefly to the hon. Gentleman's question. I do not believe in hypothecation, which is a self-defeating exercise. I can see why the Government have done it--for their usual populist, trivial, short-term reasons. As I do not agree with hypothecation, I do not need to answer the hon. Gentleman's question in the way in which it was put.

My judgment is that were my amendment to be accepted, the reduction in tobacco product prices would regularise and restore the market to where it was some time ago. Revenues overall would probably go up, and products would be sold in a more orderly market rather than one which is becoming increasingly illegal and based on smuggling. That would have a number of consequences. At present, we cannot, as effectively as we would wish, seek to prevent under-age children from smoking. That purpose is shared across the House. I believe that we have a duty, as effectively as possible, to seek to prevent our young people from taking up smoking, but once they reach the age of, say, 18, our duty is properly to inform them of the dangers of consuming that product and then leave it to their judgment.

Mr. Casale: I am grateful to the right hon. Gentleman for giving way a second time. Is he saying that he would like more money to be raised for the Exchequer through the sale of tobacco?

Mr. Forth: I would be very happy if that were the case. That is the way it used to be, and I believe that my

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amendment would lead us in that direction. That is why I hope that the Minister will consider it sympathetically and perhaps give a positive response.

Mr. Bercow: If tax rises continue to depress revenues and to advance other countries' tobacco industries at the expense of our own, should we not be told by Ministers whether, on the strength of the evidence, they would be prepared to change policy, or whether they intend to continue with the existing foolhardy policy for fear otherwise of having the finger pointed at them by the politically correct fetishists?

5.30 pm

Mr. Forth: I am certain that that is uppermost in Ministers' minds, because these days it usually is. We know that the Government are driven almost solely by focus groups, opinion polls and probably by fetishists as well, as my hon. Friend suggests. The Government are not driven, regrettably, by economic literacy, cool analysis or a genuine desire to introduce policies that make sense. However, the Minister will have a chance to redeem himself and the Government when he seeks to catch your eye, Sir Alan, and we look forward to that very much.

I want to introduce some figures into the debate to illustrate the extent of the problem. I have been told, and have every reason to believe the figures reliable, that a typical pack of 20 king size cigarettes costs £4.17 in the UK at full retail and with full tax paid. On the continent, the price varies from as low as £1.25 in Greece to £1.84 in Belgium. That huge differential explains the enormous and increasing propensity for smuggling.

My hon. Friend the Member for New Forest, West (Mr. Swayne) described the kind of offer that most of us will have experienced. Smuggled tobacco and alcohol products are regularly and illegally, but temptingly, offered to people in every part of the United Kingdom. That explains the figures given earlier by my right hon. Friend the Member for Wells about the fall in revenue and the increasing proportion of the total market represented by smuggled product. Price differentials drive that process.

I have heard anecdotally of prices as low as £1 a pack for 20 cigarettes. The tobacco industry suggests that the going rate on the black market is about £2.50. Even that price tempts the consumer and makes smuggling profitable. The Government are losing an increasing amount of revenue as a result, as well as losing any possibility of exercising regulatory control, particularly over the sale of products to under-age children.

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