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1.22 pm

Sir Michael Spicer (West Worcestershire): I feel these days that I should begin all speeches by declaring an interest, however remote or obscure it is, as president of the Association of Electricity Producers. I do not think that there will be any read-across, but I declare the interest in case there is.

I do not want my remarks to turn into a boring, self-congratulatory society debate. However, I shall return two of the compliments of the right hon. Member for North Durham (Mr. Radice). First, he is an excellent Chairman of the Select Committee on the Treasury. He is particularly good in the way that he has devolved responsibility. He allows the Treasury Sub-Committee freedom to investigate the range of departments and agencies for which the Treasury is responsible. I thank my other colleagues on the Committee, who have given a great deal of time to its work. I see some of them in the Chamber. Working on the Treasury Committee with the Sub-Committee has become almost a way of life for us.

The Sub-Committee is behind the report, and it drafted the initial report. It has taken a pretty dyspeptic view about Customs and Excise and the way in which it is run. I believe that it is fair to say that we think that, as a department, it is defensive and pretty secretive. Perhaps that is because before the Committee began its work it was unused to discussing its policies in the light of day. It is pretty unwilling to innovate. Above all, it has been unsuccessful in carrying out its policy remit, particularly

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its remit of closing down the revenue gap that arises from smuggling. As the right hon. Member for North Durham has suggested, this is perhaps symbolised by the revelation yesterday that Customs and Excise had lost up to £2 billion between 1995 and 1998 in unfound excise duties. That was in the period when Customs and Excise also lost around £1 billion of VAT, which, as far as I know, has not been found yet. Perhaps the Minister will tell us later that that money has been found. The loss of £1 billion in VAT is additional to the latest revelation of the £2 billion that was lost in excise duty.

Smuggling is at the centre of the problem, especially cigarette smuggling, which is not only serious but increasing greatly. In the report, we accept that various remedies may exist for the massive loss of duties, which occurs through cross-channel and other international smuggling, especially of tobacco, but also of alcohol. We found that, were duties lowered, fewer losses through smuggling would be likely. When we visited Canada, we discovered that, when the Canadian Government reduced duties, especially on tobacco, there was a reduction in smuggling.

However, we also accepted the conclusions of the Institute for Fiscal Studies, which showed that a reduction in duties would lead to a reduction in revenue. We acknowledge that the industry does not accept that conclusion. It argues that leakages occur, and that the elasticities are such that further increases in duties might lead to losses in revenue through further leakages to smugglers and negative elasticity.

There is much logic in the industry's comments. We also recognise that the Treasury has forecast a fall in revenue, which accompanies high duties, but makes no assumption about future duty levels. However, the industry's position is not based on any independent research. There is no substantive research behind the industry's conclusions. We therefore have to accept that the IFS study is the only truly independent study that has been undertaken of the effect of duties on revenue. We took that study as our evidence. That is why the Taylor report is important in that context.

There is a suspicion among those in the tobacco and alcohol industries that the Taylor report recommended a reduction in duty in response to the problem of smuggling. There is a further suspicion that the report's publication was suppressed because of that advice to the Government. The Committee was saddened by the fact that the conclusion and analysis of the Taylor report, which was forecast in the Budget last year, could not be published. The suspicion therefore lingers that the Government have on their desk recommendations to reduce duty in the context of smuggling and the general efficiency of Customs and Excise.

Mr. Oliver Letwin (West Dorset): Did the Treasury Sub-Committee seek to take evidence from Mr. Taylor, and discover his account of his recommendations in the undisclosed document?

Sir Michael Spicer: No, we did not decide to take evidence directly from Mr. Taylor. However, we pressed the Government hard to produce the papers behind the Taylor report. We received a negative response.

Mr. Letwin: My hon. Friend will realise that it is important for the House to hear the answer to my next question. Why did the Sub-Committee decide not to interview Mr. Taylor?

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Sir Michael Spicer: I suppose the Sub-Committee accepted that, because the Government had commissioned the report, it was for the Government to determine whether it should be published. We certainly pressed the Government. Indeed, I shall press the Government today, as I shall return to the issue shortly. We all thought that it would have been helpful to have the report, but we also thought that, as it was a Government report, it was for the Government to decide whether to release it.

Having dealt with the question of reduction of duties, we were left with the question of how we were to address the serious and remaining problem of what to do about the increase in smuggling, and the loss of revenue, amounting to as much as billions of pounds, resulting from the current rate. We considered two possible solutions. The first was greater administrative efficiency, which led us to discuss the possibility of closer working between Departments on revenue-raising. We found that the roots of what has come to be described as closer working were planted as long ago as 1994; we also found that very little had actually happened. In fact, no proper liaison committee had been established until our Committee's interest in the subject had been made public.

We were unhappy about both the progress of closer working and the way in which the Government seemed to be setting about pursuing it in the future. In our report, we said:

We are surprised that more thought has not been given to the evaluation of the Closer Working programme . . . We received no clear indication from Customs and Excise of how it intended the Closer Working programme to develop in future.

We concluded:

We do not believe that the Closer Working programme will fully achieve its objectives and deliver the benefits claimed by Customs and Excise. Consequently, the option of merger requires serious consideration.

That brought us to the question of merger between the Inland Revenue and Customs and Excise. In part, we referred to Canada on that, because Canada had recently carried out precisely such a merger. We said to the Canadians, "We have two revenue-raising departments, one of which does not seem to be working particularly well. Do you think that there are arguments for merging?" We found that, in Canada, many of the worries about merging did not apply. It had worked, and we thought that there was at least a case--a case that the Government should consider--for merging the two departments. The argument would be that, given that Customs and Excise says that it is short of resources, merging the departments would make economies. More money could be used for customs purposes than is used at present, and the whole arrangement would be administered better.

Other arguments were advanced. The right hon. Member for North Durham mentioned compliance costs for industry. It has been argued that--certainly in regard to the collection of VAT--Customs and Excise is less than assiduous in allowing for the needs of business, and in making business tax collection as efficient as possible in terms of costs. The Inland Revenue undoubtedly does that; it is argued that Customs and Excise tends to be more heavy-handed. Compliance costs might therefore be another factor in favour of merging the departments.

However, the Committee was particularly interested in efficiency in the context of customs and collection. When we questioned the Minister, we learned that the

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Government had not particularly studied the Canadian example--which we had pressed them to do for some time--and that they were relying on a report produced some six years ago, under an earlier Administration, which had apparently argued against a merger. We pressed on many occasions to have the report put on the Table, but were unsuccessful. We were even prepared to look at it in confidence, but there was complete reluctance to let us look see it. As it was used constantly in evidence--it was the only real justification for not going further into the merger issue--we were extremely dissatisfied.

I must read to the House the conclusions that we reached. It was a serious matter to us. We felt that we should have been allowed to look at the report on the question of merger. We say in paragraph 22:

It is extremely disappointing that, as the Freedom of Information Bill began its passage through Parliament, Customs and Excise refused us access to a six year old report on a matter of departmental organisation central to our present inquiry, far removed from party political controversy or national security, defence or foreign policy concerns. We entirely fail to see how the public interest could be harmed by the disclosure of this report, although, of course, the Government's case against merger of the revenue departments might easily be harmed if we were to have found that the report's analysis of the costs and benefits of merger had been inadequate or skewed against the merger option. We are led to conclude from this episode that the 1993 report would not have stood up to vigorous scrutiny by this Committee.

That was a fairly serious thing for us to say. It did not please me to have to say it, but I still hope that Customs and Excise and the Government will reconsider the matter. An argument against merger cannot be based on the findings of a report whose analysis and premises we are not allowed to see.

In trying to achieve greater efficiency in Customs and Excise, proposals have been made to introduce new technology, particularly X-ray equipment. The problem is that, in recent years, none of the three great initiatives on the matter seems to have had any positive effect. The first resulted from the 1998 alcohol and tobacco fraud review. That ended with a lot of conclusions about the need for more technology and various other proposals, focusing particularly on X-ray equipment. That stood in the open and was apparently applied, but, when we got to last year's pre-Budget report, the programme put forward as the answer to the problem was almost precisely the same as that which had been put before Parliament almost two years previously. Apparently, nothing in the meantime had happened. The smuggling had become worse in the process.

Then on 30 June, just a week ago, the Paymaster General announced that she had

commissioned a full independent investigation into the collection of excise duties in HM Customs and Excise,

so we have had three promises of new initiatives on Customs and the way in which it collects duties. In the meantime, no one disputes that the situation is getting worse and worse.

The last Government initiative was certainly in anticipation of the latest scandal being revealed. There we have it. Once the £2 billion had been acknowledged to have been lost, the Government came up with yet another initiative, which seems similar, if not identical, to previous initiatives, which so far have failed.

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That leaves us with a number of questions to ask the Government. What did the Taylor report say? They are not prepared to let us look at the actual text of any report, but we need to know. The Committee decided to leave the Government quite a lot of room for manoeuvre on the question of excise duties and their effect on smuggling; some of us even felt that we left them too much room for manoeuvre. In return, Parliament must be allowed to know the details of the Taylor report.

Has there been--or will there be--proper consideration of the merger issue? Specifically, will the Government think again about why Parliament should not be allowed to see a six-year-old report on which they seem to be basing the entirety of their case for not considering the merger issue further?

There have recently been three statements that new technology will be introduced. But why has technology not been more effective? Why have there not been greater results from a programme that has now been under way for several years? Why is the programme becoming less effective with the passing of each year?

There is also the issue of the latest scandal. If there is to be a public inquiry, when will it be established and when will it report? Given that the new scandal comes on top of what one might call previous unfortunate incidents, will the Government start to take a rather less cavalier attitude to the overall issue of smuggling and reforming Customs and Excise? Will Ministers also reconsider the Committee's suggestions--although they have already rejected most of the major ones?

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