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Mr. Heathcoat-Amory: If the scanners are going to be so quickly deployed and so successful, why does the Government's report say that the amount of smuggling will increase over the next three years?

Mr. Timms: The scale of the smuggling problem is evident. We have been open and frank about that. The right hon. Member for Bromley and Chislehurst (Mr. Forth) asked me about the scale of smuggling. The figures are in "Tackling Tobacco Smuggling". It is a characteristic of this Government that we commit ourselves only to targets that we can deliver and we only make promises that we can keep. That is why we have committed ourselves to reversing the increase in smuggling within three years. Customs is confident that it can deliver that and I have no doubt that it will.

Mr. Casale: I accept that smuggling is a threat to our health and revenue policies, but will my hon. Friend confirm that those policies are not being undermined completely by smuggling? Revenues from tobacco are going up and there is clear evidence of improvements in public health through people giving up smoking as a result of the increases. Will he further confirm that altering the price of tobacco is not the only possible anti-smuggling policy? Is it not a matter of regret that our increases in policing and controls are not supported by the Opposition?

Mr. Timms: My hon. Friend is right about the importance of tobacco duty as part of an anti-smoking policy. Interestingly, the shadow Health Secretary agrees with him on that point. During the debates on last year's Finance Bill, the Opposition tabled amendments to freeze or reduce all tobacco duties on the grounds that the rises encouraged smuggling. To listen to some speeches from Opposition Members today--including Front Benchers--one might think that that was still their policy. In fact, the policy this year is to call for some reports.

Three months after the Finance Bill debates last year, the shadow Health Secretary published a review of Conservative policy on smoking that dropped the previous Conservative opposition to the advertising ban, and reversed the Conservative party's opposition to tobacco tax increases.

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The review stated, presumably, the view of all Opposition Front Benchers--that duty increases on cigarettes


He is absolutely right.

Mr. Forth: Rubbish.

Mr. Timms: The right hon. Member says that that is rubbish, and he has put his name to a very different amendment from that tabled by his Front-Bench colleagues.

In this debate, I was expecting to congratulate Opposition Front Benchers on a sensible policy U-turn. However, the right hon. Member for Wells still had the rhetoric of last year, even though the policy substance and the amendment are different.

Mr. Flight: Will the Financial Secretary give way?

Mr. Timms: No, I have to make some headway, tempting though it is to give way to the hon. Gentleman.

I welcome the modest change proposed in the Conservative amendment, which recognises, as the shadow Health Secretary has done, that duty increases on cigarettes send out the correct health message.

A couple of days ago, I replied to one of the many letters that I receive; this one was from Wakefield health authority, and was signed by the director and deputy director of public health and the director and deputy director of the Wakefield health action zone. The letter made the straightforward point that increasing the price of tobacco through taxation leads to a reduction in consumption and, most importantly, helps to discourage young people from becoming addicted. That is the overwhelming view of those who work in health care and are concerned about these issues. That has been recognised, rightly, by the shadow Health Secretary.

On alcohol duties, there is a need to maintain the real value of Government revenue to help achieve all our objectives, such as strengthening the health service and education. Excise duty and value added tax on alcohol make a significant contribution to the Exchequer--more than £10 billion in 1998-99.

This is the first increase in the beer, wine and main cider duty rates since January 1999. It is worth making the point that alcoholic drinks are now taxed less heavily than they were at the beginning of the single market. Compared with duty rates in 1993, excise duty on beer has fallen in real terms by more than 4 per cent. The proportion of duty in relation to the cost of an on-trade pint of beer has fallen from 38 per cent. of the retail selling price in 1982 to about 30 per cent. now.

Some claim that high taxation is putting alcohol producers and pubs out of business, but that is not the case. There are lots of reasons why some businesses fail and others prosper. A significant number of breweries have reported extremely good or even record profits, such as Shepherd Neame, Young's, Belhaven, and Gales.

Abandoning the duty increases along the lines proposed by the two amendments would cost £90 million in alcohol duty and £235 million in tobacco duty. Amendment No. 8, tabled by the right hon. Member for Bromley and Chislehurst, would significantly cut tobacco duty rates, and would be particularly damaging. It ignores the vital health implications

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of consequent reductions in the cost of tobacco-- some 94p off the price of a typical pack of 20 cigarettes--and would cost the Exchequer £1.8 billion. Public services, including the health service, would be deprived of essential funding, and future demands on the health service would be compounded by a significant growth in the number of smokers who would require treatment.

Reference has been made to the work of the Treasury Committee in this area, and I refer hon. Members to the conclusions of its investigation into Customs and Excise, which was a worthwhile and important contribution to the debate. The Committee observed:


The hon. Member for Kingston and Surbiton (Mr. Davey) rightly drew attention to that point. The Committee also noted that it did not believe that reducing duty rates


The Committee was right about that, and the important point was made by the hon. Member for West Worcestershire, but missed by his Front-Bench colleagues. The serious problem about cigarette smuggling is not duty-paid cigarettes from the rest of the EU being brought into the UK, but cigarettes being smuggled from outside the EU, frequently with no duty having been paid at all. A small variation in the rate of duty in the UK will not change that. That is why, as my hon. Friend the Member for Erewash (Liz Blackman) rightly said, there are serious smuggling problems in Italy and Spain, where the duty rate is much lower. It is not a problem of comparative duty rates within the EU, but of smuggling from outside the EU.

In short, the Government do not intend to produce any further reports on smuggling to the timetable that has been indicated, nor do we intend to reduce tobacco duty rates. It would be quite wrong to make that reduction. I urge the House to reject the amendments.

Mr. Letwin: Some elements of this debate have been positively surreal. We were treated to a disquisition on economics by the hon. Member for Workington (Mr. Campbell-Savours), in which he explained that changes in duty would have no effect on the propensity to smuggle. That was a unique contribution to the economics of welfare that will live in our memories.

The hon. Member for Kingston and Surbiton (Mr. Davey) referred to some academic studies. He may be right that it remains the case, as the Treasury model assumes, that, in liquor and tobacco, we have not yet reached the crossover point--the point of diminishing returns. It may be right that reductions or stasis in duties will have a commensurate, or almost commensurate, effect on revenues. The Opposition amendments raise a different matter. I declared my interest in the register, as I suppose that there are some firms with which my bank has a relationship that would be affected.

More important than that, millions of our fellow countrymen are being criminalised under present policy. The Financial Secretary is in possession of a valuable item in that connection--a serious report, commissioned with taxpayers' money from a distinguished business man who reported to the Chancellor, who is not an ordinary

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individual. We have reason to believe that that report may contain important evidence and observations about the relationships--

Mr. Campbell-Savours: The hon. Gentleman is guessing.

Mr. Letwin: I am guessing, and I am doing so because a cover-up is going on. It is not in the interests of the Executive in the long run or of Parliament in the short term that such a cover-up should continue.

The Minister and his colleagues are in possession of a report that may show a clear relationship between the level of duty and the duty differential currently obtaining on the one side, and the level of smuggling, which is having a huge and--as even the Government's own report admits--growing effect on the criminalisation of very many of our fellow countrymen. That is not a matter to be laughed off or dismissed by any study, however econometrically valid or otherwise, of the relationship between duty and revenue. We are dealing with a social crisis that will not be resolved by a few scanners. The Government do not think that and they do not say that in their report, and the issue has not been resolved after repeated attempts at administrative action.


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