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Mr. Swayne: I acknowledge that the hon. Gentleman is right to say that, as long as a differential exists, people will trade; but, obviously, the number of people trading will be determined by the size of the differential and the profitability. Is not the phenomenon that the hon. Gentleman describes something to do with the cultural background in Europe, which, as he said, stretches back a long way? Nevertheless, this type of trading is a relatively new phenomenon, at least in this country.

Mr. Campbell-Savours: When the hon. Gentleman starts talking about cultural backgrounds, I tread a little warily, because I know roughly the area into which he is daring to venture.

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There is one other aspect that I wanted to raise in my brief contribution.

Mr. Bercow: Will the hon. Gentleman give way?

Mr. Campbell-Savours: No. Let me go on, because I do not want to hog the debate.

I have in my hand a brief that comes from the Treasury, which I believe is available to most Members. It says that the Treasury will invest in technology, including large- scale X-ray scanners that can look inside lorries and freight containers.

I hope that, when the Minister replies to the debate, he or she will address the issue of these scanners, because I believe that that is an interesting development. I am told that such scanners already exist in the United States of America, and that they really work. I should have thought that if there is a technology that provides for the use of scanners in identifying large hauls of cigarettes in truck containers, it should be used.

I am told that the revenue lost from a truck container can be as much as £1 million per container. If we have that technology, the trade will soon collapse. If scanners are in operation, transport operators who contract companies to carry such loads from other parts of the European Union know that they risk losing their tractor units and trailers--many of which are worth between £120,000 and £150,000 per unit--if they are found to be carrying cigarettes. I am told that we are to have a dozen scanners. I only wish that we were buying more; I would have 50, as they will be a particularly good investment.

The trade is not made up entirely of the little guys who wheel their trolley off the P&O ferry at Dover and sell fags locally on the motorway. The real trade is the big 40 ft trucks crammed full of aluminium boxes, and people get away with it because we do not have the resources to check on such loads.

5.45 pm

Mr. Letwin: Does the hon. Gentleman think that smugglers' propensity to invest in materials such as lead to counteract the X-ray would be increased or decreased if the differential were reduced?

Mr. Campbell-Savours: That is an interesting question. If one puts enough lead in a 40 ft truck-trailer to cover boxes full of fags, it will probably weigh down the whole vehicle, as will be evident from its axles. Regardless of that, it is extremely easy to develop technology capable of locating lead. If one wants to find people who are carrying fags, all one has to do is use a bit of equipment that can identify lead. Lead on top of someone's load means that they are carrying fags.

We shall therefore introduce the necessary technology. I predict that the policy will work and will be extremely successful if we invest in such equipment. If we increase the quantity that is available for use for detecting cigarettes and other products at British ports, smuggling will be cut dramatically, so I hope that my hon. Friends will go down that route.

Mr. Edward Davey (Kingston and Surbiton): The whole Committee is grateful for the comments of the hon. Member for Workington (Mr. Campbell-Savours).

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I cannot speak as eloquently as he does, but I support his argument that scanners are a key tool for the Government in tackling smuggling.

Page 6 of the Government's document, "Tackling Tobacco Smuggling" gives statistics on tobacco smuggling in 1999, estimating that £1.4 billion of the £2.5 billion that was lost--or more than half of last year's lost revenue--was through freight consignment smuggling, which scanners are designed to tackle. The Government are quite right to go down that road, as the hon. Gentleman pointed out. However, he was a little too generous to the right hon. Member for Bromley and Chislehurst (Mr. Forth) who, in the final knockings of his speech, seemed to be suggesting that Spain should improve its physical controls on tackling smuggling, but that that was not the right policy for Britain. That was rather inconsistent and incoherent, and not typical of how the right hon. Gentleman usually argues his case.

The right hon. Member for Wells (Mr. Heathcoat- Amory) said that the Conservatives are certain that the only solution to the matter is to cut duties. The hon. Member for Broxtowe (Dr. Palmer) asked why that is so and what motives lie behind Conservative policy. He suggested that the Conservative party may just want to cut smuggling and is not worried about the revenue. Perhaps it wants to promote drinking and smoking. We need to know the real reasons for Conservative policy, which, if I understood the right hon. Gentleman correctly, is based on the need to protect revenue.

The Opposition are saying that, if duty is cut, there will be increased revenue. That is like applying the Laffer curve to indirect taxation. That seems to be the key to their argument. If they are saying that, by cutting duties, we shall cut cross-border smuggling, but that that might have a negative revenue effect, we might all agree. If we wanted to spend money solely on cutting cross-border smuggling, we could all agree that cutting excise duties on tobacco and alcohol would almost certainly have some impact on that smuggling. We are not sure of the scale, but it would certainly have an impact.

When we consider the revenue impact of cutting duties, the analysis is rather more complicated. I refer to an article in "Fiscal Studies" of September 1999 by Crawford, Smith and Tanner, entitled "Alcohol Taxes, Tax Revenues and the Single European Market".

Mr. Bercow: Riveting reading.

Mr. Davey: It is an important read for this debate because it brings some economic literacy to it. It considers real numbers and models them properly. It focuses also on own-price and cross-price elasticities of demand for smuggled products. It works out the impact of cutting duties on demand and thus on the tax take. I accept that the study focuses on alcohol and the effect of cutting excise duties on it. The authors, in estimating the various price elasticities of demand in the mid-1990s in Britain for various alcohol products, show that, if we were to cut duties on beer and wine, the revenue would decrease. That is a clear and unambiguous conclusion in an economically literate study.

Sir Michael Spicer: As the hon. Gentleman is so economically literate, he will know that the elasticities that are assumed by, or produced from, the report have been hotly disputed by other people.

Mr. Davey: I am grateful for the hon. Gentleman's intervention. I have spoken to representatives of the

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industries concerned about these matters. I have yet to see a detailed economic knock-down of the price elasticities. I have heard some anecdotal evidence against them, but not detailed economic facts. The debate should focus on the facts and not on pure dogma. We need to introduce into it some objective cool-headed studies, and I believe that the study to which I have referred is one.

Dr. Palmer: Given the existence of the report from a respected independent body, does the hon. Gentleman agree that amendment No. 1 should fall? It merely demands an independent report on the effect of liquor duties on smuggling.

Mr. Davey: The hon. Gentleman makes a valid point.

In trying to explain the thinking behind the report and the analysis, the authors of the report consider two effects. First, they focus on the effects on revenue when we cut taxes. One effect is to raise demand as people who were consuming illegal goods start consuming goods with duty paid, which adds to the tax base. If we cut excise duties, we might find more people demanding the product. That is the ordinary demand curve effect. In those terms, revenue would be raised as a result of what the Conservatives are proposing.

The effect that outweighs that, as set out in the study, is that the lower tax per unit of sale resulting from a cut in excise duties more than offsets the gain in tax revenue from the higher demand. Unless a cut in excise duty had a great effect in increasing sales and demand, the second effect would always outweigh it. Previous studies have backed up the findings of the Crawford, Smith and Tanner study and point in that direction.

It is interesting that the report suggests that the duty on spirits is a revenue-maximising rate, so that, if duties were cut, we would see a fall in revenue. A distinction is made between different alcohol products but there may be a fall in revenue when duties reach a certain level, and the Government have recognised this.

Liz Blackman: Is the hon. Gentleman aware that the Canadian experience revealed exactly the same effect? By cutting duty, Canada has forgone revenue on tobacco.

Mr. Davey: I am grateful for the hon. Lady's intervention. I was not aware of the details of the Canadian experience, but perhaps I should have been.

We need to know from the Conservatives what lies behind their argument. Do they want to cut cross-border smuggling? If that is their position, it is a valid one. When they add up their expenditures when preparing for the next election, they may want to say to the British people that a key priority is to spend £1 billion, or whatever the sum may be, on cutting cross-border smuggling by lowering duties, and that that priority goes before the health service, schools and the police. However, if they are saying that cutting duties on beer and wine will increase revenue, they have no case.

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