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Sir Michael Spicer: I am grateful to my hon. Friend, who makes a good intervention.
I put a question to the hon. Member for Workington, which he did not answer. Some countries have markedly reduced excise duties and, as a result, the position there has appreciated--smuggling has diminished considerably. Our country provides the example of increased reliance on technology accompanied by increased excise duties and a massive explosion in smuggling. We must properly ask whether there is substantive cause and effect between the rise in excise duty and the enormous increase in smuggling. That is why it is right for us at least to call for a proper investigation of the matter that should be made public so that we can debate it before determining whether the excise rate is correct.
Mr. William Ross (East Londonderry): I have opposed the year-on-year tobacco duty increases under Conservative and Labour rule, not least because Northern Ireland's tobacco industry suffers grievously as a result of them. I have also always opposed the constant ratchet effect in respect of road tax and the price of road fuel. We see Government policy on tobacco taxation as having three aims: increasing revenues, reducing consumption and preventing children from purchasing cigarettes. The Government's present approach is to increase tax by 5 per cent. above inflation, but that simply is not working; revenues have been undermined, tobacco consumption is rising and smugglers have no qualms about selling to children. For those reasons, we have put our names to some of the amendments and we certainly support the others.
Despite what the hon. Member for Workington (Mr. Campbell-Savours) cheerfully told us, smuggling is not represented by someone walking across a border with a bag on his back; it is a vast organised criminal activity. This island has the advantage of a water barrier to the north, south, east and west, but Northern Ireland has the disadvantage of being tied in to an island with a land frontier. Therefore we have experience of fuel smuggling. Although that is not covered by the amendment, the same problems arise and we know the damage that has been done not only to revenues, but to the unfortunate individuals who try to run businesses selling that product in Northern Ireland when a much lower tax rate is in force a few yards away.
The tobacco industry welcomes the Government's proposed measures to combat smuggling, including the 950 new Customs officers, but everyone in the industry in Northern Ireland believes that the tax rate will only encourage it. We are trying to stop smuggling, but we are also promoting a tax policy that encourages breaking the law, and even by the Government's own estimate, the new measures will reduce smuggling by only 10 per cent. at best.
United Kingdom taxes are the highest in Europe. Sweden had the second highest until it made a 26 per cent. reduction because of smuggling. Denmark recently issued a statement pledging to reduce taxes by 2003 to bring it into line with its neighbours, and Hong Kong has issued a similar statement. The measures taken by Canada to change the economic environment in which its smugglers operate have already been referred to; legal sales fell to 1980 levels and smuggling all but disappeared. People may want a particular brand of tobacco or cigarettes as opposed to another. That is a question of personal choice. However, smuggling operates not on brand preference, but purely on price differential.
Mr. Michael Clapham (Barnsley, West and Penistone): The hon. Gentleman made a distinction between Ireland and Great Britain, saying that Ireland, which has a land border, is much more vulnerable to smuggling than an island with port facilities. Does he agree that an extra 1,000 officers and X-ray facilities may allow an island to control the racket to some degree, and that that would have an impact on tobacco sales inland? Will the X-ray scanners and the officers have an effect?
Mr. Ross: One appreciates the fact that the increase in the number of officers and the new technology that is coming on stream will have an effect, but the tobacco industry in Northern Ireland does not believe that it will have the impact for which the Government evidently hope. Not all the tobacco that arrives in Great Britain necessarily comes across to Dover or even into England; some could come to Rosslare and go out through Larne. Gallaher's in Ballymena found that the hand-rolling tobacco that it had produced over many years went out of the United Kingdom legally and on to the continent. However, 10 days after it had left the factory, it was on sale on market stalls in and around Belfast. The Government know that, and we have been telling successive Governments about it for years.
Smuggling is a big industry and we should not be under any illusions about what has happened. My information, which I am sure has been made available to other hon. Members, is that 3 million people in the United Kingdom smoke cigarettes on which UK duty has not been paid. I understand that the Government have admitted to losing £2.5 billion in revenue per annum; at least, that is what they stated in their pre-Budget report, published last November.
Amendment No. 7, which has not been selected, would return taxes to pre-Budget levels. Amendment No. 8 would reduce the pre-Budget price of 20 cigarettes--if we assume that to be £3.92--by £1, to £2.92. It would also reduce the pre-Budget price of £8.05 for 50 g of hand-rolling tobacco to £3.50. In other words, it would bring retail prices down to levels that would remove the financial incentive for people to buy black market products. According to the industry, that, coupled with the £209 million worth of Government measures, would eliminate the black market altogether.
As has been pointed out, owing to the substantial difference between United Kingdom and overseas tobacco prices, smuggling offers potentially high profits. The hon. Member for Workington mentioned the chap carrying a sack of tobacco products across the border from Switzerland to Italy. I suspect that if he did that seven days a week, he would have a reasonable wage at the end of the week, even given the relatively small price differential. How much would that be multiplied given the differentials between the Continent and the United Kingdom? It is worth the while of organised criminal gangs to become involved in such activity, and we believe that they have done so.
Tax currently accounts for more than 80 per cent. of tobacco retail prices. Since 1997, the price of a typical packet of cigarettes in the United Kingdom has increased by more than £1. A typical packet of 20 costs the UK smoker well over twice what it costs his counterpart in Belgium or France, while the roll-your-own smoker pays nearly four times as much. The black market price is about £2.50, which enables large profits to be made from smuggling.
Revenue losses resulting from tobacco smuggling rose to some £2.5 billion between 1998 and 1999. According to the pre-Budget report, that amounts to about 25 per cent. of all tobacco revenue due. Since 1997 some £5 billion of tobacco tax revenue has been lost, and, as I have said, the retail price of a packet of cigarettes has risen by £1.
Hon. Members have pointed out that the revenue fell last year, but as last year's Red Book will show, a fall was forecast not just for that year but for coming years. It all comes down to a simple tax problem that has plagued every ruler since taxes began. Once the amount of tax that people will pay relatively willingly has been exceeded, Governments encounter increasing resistance from taxpayers, who will therefore try to reduce their taxes.
The really wealthy, of course, have always managed to reduce their taxes, not so much through tax avoidance schemes as by overseas trusts, for instance; that is perfectly legitimate. However, the small man--the ordinary citizen--will buy his petrol and pay the high price for it. He will grumble, because he will know that most of that will go into the Chancellor's pocket, but he will pay, because he can do no better. If you live in England, it is not worth your while to drive across to France to fill your car; if you live in Newry or Londonderry, it is worth going into the Irish Republic.
Tobacco, however, is a great deal lighter, and a great deal more valuable than fuel in terms of volume. It is easier to transport and easier to hide, and the profits are vast. I do not know--although I am sure that if the Minister puts his mind to it, he can soon find out--how many packets of 20 cigarettes will go into a 40 ft container, but the revenue lost on that one container would probably go a long way towards paying for the lorry that is transporting the cigarettes. If someone could get a few loads through, even if he lost the lorries it might still be worth his while. I wonder what the economics really are; I am sure that the smugglers would take that into account.
6.45 pm
Let us be clear about the history. The smugglers began by importing hand-rolling tobacco. Currently, four out of five packets of hand-rolling tobacco consumed in the United Kingdom are smuggled in. Often, United Kingdom tobacco goes out and comes back again--tobacco that would normally have been sold in the UK. As I have said, much of it is prepared in Ballymena. In the United Kingdom, 50 g of hand-rolling tobacco costs £8.49; in Belgium, it costs only £1.70.
Years ago, management and trade union representatives from Gallaher's factory came to the House and told us that the market for smuggled hand-rolling tobacco had reached saturation point. The next target, they said, would be cigarettes, and they were dead right. We told the officials of not just the present but the last Government that was the position, and events proved us correct.
Our tax on cigarettes is the highest in the world. The legitimate cigarette market had decreased by 8 per cent. in 1998 and by 10 per cent. in 1999, yet cigarette smoking is increasing. Many millions of people are involved in the illegal cigarette trade, as suppliers and as buyers.
We believe that one packet in four consumed in the United Kingdom has been smuggled in, despite all the efforts to make smuggling more difficult by means of labelling and packaging.I think that the path we have been treading is counterproductive, and will not work in the future. It is time to look anew at what must be done. When smugglers can sell for between £2.20 and £2.50 a packet of cigarettes that costs £4.17 in the United Kingdom, they will find a market. That has a corrosive effect on society, and on people's honesty. More and more people go along with it, saying, "It is only a packet of fags; it does not really matter." That, however, amounts to supporting criminal gangs, and in criminal activity, one thing leads to another.
We are talking not just about a loss of revenue, but about increased consumption, and easier availability of tobacco products to children. As we all know, smoking, drinking and drugs are the "in thing" among young people. That can be overcome only through education; the fact that a product is pricy, or the knowledge that it has been smuggled, adds an aura that will attract the young. There is a vastly increased level of criminality among millions of people. I think that activity of this kind will encourage non-compliance with other aspects of the law, contempt for the law and flouting of the law, and that that will have a damaging effect on the social fabric of the community.
The Chancellor estimated that the yield from his 5 per cent. real increase would be £235 million in the current financial year, but previous forecasts have been unreliable, and have underestimated the rapid growth in smuggling. Consumption has increased by more than 5 per cent. since 1995, and by 4 per cent. since 1997; the trend is up, not down. I think that there has been too much "spinning" with regard to tax increases, in an attempt to make political capital.
The Chancellor and the Prime Minister made great play of hypothecating £400 million of tobacco tax revenue to the NHS as part of the additional £2 billion that the Chancellor announced would be made available to it. I believe, however, that in a global tax system such as ours all the tax goes into one bucket, or pool, and all the spending comes out of that pool. The idea that it can be said that a particular element of taxation will benefit a particular spending Department is a nonsense--a swiz.
As far as I remember, the original road tax started out as something designed to pay for roads. If that had continued, the whole of Britain would be covered in tarmac today. That is the lesson that every Member should learn. Hypothecated taxation is smoke and mirrors. It does not work. All the Government have to do is to say that they are putting in £400 million from tobacco, and two years later they take out £800 million or £900 million.
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