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3.31 pm

Mr. Nick St. Aubyn (Guildford): We have heard a great deal this afternoon from Labour Members about the Government's crackdown on evasion and the increasingly oppressive regime but, perhaps typically of this Government, we have heard nothing about the principles of Government by consent, which must include taxation by consent.

There is increasing evidence not only that the general tax burden is reaching a level that people do not accept is fair and just, but that the level of taxes being imposed, particularly in this area, is at the heart of the problems of collection that have been described this afternoon, because more and more people feel that the amount being claimed from them is grossly unfair.

At the back of the Select Committee's report is an account of the evidence given by the Tobacco Manufacturers Association, in which it points out that the charge on a packet of 20 cigarettes had risen from about £1.50 a packet in 1993 to £3 a packet by January 1999. It points out that the differential from the average throughout the other EU member states has risen from less than 50p to more than £1.75. The result is that, in real terms, the amount of revenue coming from tobacco taxes since 1992 has fallen--a doubling in the tax on tobacco and a fall in the revenue yield.

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We heard from Labour Members how that was partly due to the white van phenomenon, but, evidently, the big criminal element has found that the profits to be made at those much higher levels of taxation are so attractive that it has decided to become involved. By raising taxes to such a high level, the Government have made an opportunity for criminal activity, which excessive taxation has been proved to create many times before.

If we are to have Government and taxation by consent, we must observe the proper way in which taxation is to be decided and debated. It was striking in the course of the Finance Bill Committee, on which some of us recently served, that the Government refused to give us the pertinent information from the Taylor report when we came to debate the level of tobacco duty.

Before we consider that, it is worth bearing in mind the fact that, if the Government had succeeded in maintaining the level of duty at the level they inherited, the yield from tobacco duty in the first three years of this Parliament would have been £3 billion higher than was actually achieved. That is £3 billion which might have gone into the health service or to meet the other needs of our society but which has been lost as a result of the Government's failure to follow a successful strategy in achieving not just the highest rate of tobacco duty, but the optimum level.

As the Select Committee pointed out, it, too, was disappointed that the Taylor report was not made available; that several key witnesses told it that they had not been consulted by Mr. Taylor; and that the advice tendered by Mr. Taylor was apparently personal and confidential to the Chancellor. The Committee concluded:

The only person who had access to the conclusions was the Chancellor, who is described by one of his colleagues in the Government in today's Daily Express as being "power-crazed" and "bonkers." Should we really allow such an important report to be spirited and squirrelled away by the Chancellor to be interpreted purely in terms of his view of the situation, rather than having the type of open and clear debate that is needed if we are to develop an effective policy--not, as I say, of having the highest level of tobacco duty in Europe or anywhere in the world, but of having the optimum level, which would yield more revenue to spend on the services where it is needed?

3.36 pm

Dr. Peter Brand (Isle of Wight): I am not accustomed to speaking on Treasury matters, but I was struck by the Select Committee's report, especially paragraphs 59 and 87, and the Government's response, which reflect the concern expressed today that we should have enough front-line officers to deal with smuggling. Clearly, we welcome the Government's initiative, particularly in concentrating on tobacco smuggling. The Government's response to the Select Committee's concern was the £209 million and the 1,000 extra staff to be employed, and that is welcome.

I have a particular interest in smuggling since my constituency has 60 miles of coastline, five harbours, two airports and many large houses which were built with profits from smuggling. In the midst of the 18th century, we employed 120 Customs officers, but now we have only 3.5. Those 3.5 people do an excellent job because

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they are equivalent to community policemen. They work through harbour-masters and yachtsmen, and people give them soft evidence and intelligence, so they have been extremely successful. We are a high-risk area, but luckily, a low activity area because we pick matters up before anything happens.

I am concerned that we have lost two of our allocation of 3.5 Customs officers to serve permanently at the container port in Southampton. I have made some inquiries and the same sort of thing has happened elsewhere on the south coast. There has been a 60 per cent. reduction in the Hamble and further down the coast.

It is important that yachtsmen see Customs officers around. Not only do they have a deterrent effect: law-abiding yachtsmen expect to be able to make easy contact with a Customs officer to pass on matters of concern or strange patterns of behaviour informally, without having to telephone an office and make a formal complaint. It is important that Customs and Excise should not lose sight of the invaluable role played by the local Customs officer, as opposed to the specialist teams that can be drafted in.

I have written to the area controller, and he assures me that the work will still be done, with specialist teams being drafted in when necessary. But they will arrive by ferry, and by the time they are on the ferry everyone will know they are coming. That is not the same as having people in the locality who are integrated with the local community and who have a visual presence. I urge the Minister to consider the policy, which has served the police badly. It is the equivalent of taking policemen out of the community and sticking them into cars and specialist teams.

If we go along that route, we may see good performance indicators, but in a way such indicators are those of failure. They are signs that we have virtually allowed smuggling to occur, after which we make arrests. Deterrence, and getting the community on the right side, is the way in which a stretched resource can be used most effectively.

3.41 pm

Mr. Oliver Letwin (West Dorset): We have had an interesting debate on a most interesting report. Apart from anything else, the debate has brought out the deep truth of a statement that is lodged at various parts of the report. It has not been brought out with particular prominence, but it is there. It is that the range of activity within Customs and Excise is positively daunting. I think that the Select Committee observes that it sees no argument against a merger because the range of activity within each of the two bodies--the Inland Revenue and Customs and Excise--is greater than the difference between the two bodies.

As my hon. Friend the Member for Congleton (Mrs. Winterton) said, in one area of its activities Customs and Excise is a sort of border police force, while in another there is a group of people raising VAT, a standard tax. I marvel at the fact that Customs and Excise can do anything at all given the range of its activities, and that anybody can run it. I hope that it will not be taken by members of the previous management as too great an indictment of their activities that hon. Members criticise them. I doubt whether their critics would have been able to do a better job than they did. We impose on them an incredibly difficult task.

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We have a real problem on our hands, and the Select Committee has provided a valuable service in drawing attention to some parts of it. I wonder whether the full scope of the problem emerges from the report. I wonder also--I shall suggest that it is not the case--whether the full scope of the problem arises from the operation of Customs and Excise. I think that a great part of it is attributable to us in Parliament--to government and policy rather than merely to operations.

I do not know whether a merger is appropriate. There has been a long-running debate. The members of the Treasury Sub-Committee have investigated the matter, under the chairmanship of my hon. Friend the Member for West Worcestershire (Sir M. Spicer), and on the whole have suggested that merger would be a good idea. The most important point that the Sub-Committee makes is that neither it nor we are in a proper position to debate the subject: the findings of the one serious investigation that has been conducted by those who are in the know on the inside of Whitehall have not been revealed.

It is a tribute to the tact of my hon. Friend and his Committee colleagues that the report is quite cautious in the way it describes the matter. I think that the failure to reveal the findings of the investigation amounts to something close to contempt of the House. What I take to be a serious piece of administrative investigation was called for by a responsible body, a Select Committee, and it was not yielded up.

I am surprised that the Sub-Committee, through the Chairman of the Select Committee on the Treasury, is not seeking to have the House demand it. I understand that the House would be in a position to make it a contempt not to yield it up. I think that as a general principle our Select Committees are still too timorous about their demands on Whitehall. I understand the constraints within which they operate, but I think that the report should definitely be before us.

It may be that there is some reason why the Government are not willing to yield up the report, even after the embarrassments of the debate. If that is the position, there is only one proper solution, and that is to commission a new full-scale inquiry on the basis of an open book, so that everyone knows what is being done, and to publish its findings. I suspect that until that is done we will not know whether there is merit in the Select Committee's intuition that there should be a merger. We maintain an entirely open mind on that issue until a full-scale inquiry has been conducted.

If the Paymaster General is not willing to yield up the earlier report because, as the Select Committee speculates, it is inadequate, or, indeed, for some other reason, I hope that she will say that she will commission a full-scale and open inquiry. We would then at least have the basis for a proper debate.

The scale of the smuggling problem has emerged clearly in the debate, and it is extremely serious. My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke), with characteristically brilliant allusiveness, took us back through the ages and reminded us that smuggling is not a new phenomenon. It is not since I was a child that I have heard the Kipling verse, but my right hon. Friend is correct to say that people were concerning themselves with smuggling long ago. I think

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that I can slightly outdo him in historical reach, by saying that smuggling was a very serious problem in Anglo- Saxon times. In those days the witan much concerned themselves with the subject of smuggling. So we have about 1,000 year's worth of experience of serious smuggling.

The fact is that the scale of the smuggling catastrophe--I use that word advisedly--has reached proportions which in some parts of Britain threaten the foundations of ordinary society. I am not speaking of loss of income. Customs and Excise costs about £1,000 million a year to run and it raises about £100,000 million a year in tax. It loses about 2 per cent. of that in forgone revenue--I hesitate to say this, but

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