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Dawn Primarolo: It is a pretty good record.

Mr. Letwin: As the Paymaster General says from a sedentary position, it is a pretty good record. If we asked throughout the world how many people manage to collect that much money spending that little money and with that amount of loss, the answer would be not many.

The mere loss of revenue is a trivial item compared to the effect of smuggling on ordinary society and ordinary people in many areas in the southern part of Britain, and increasingly throughout the rest of Britain. The relationship of government to the governed and the acceptance by the governed of the legitimacy of things that we do in this place and which government imposes upon them, is a critical component of the coherence and stability of our society. It is bad enough when professional crooks bring in large loads of smuggled goods, but perfectly ordinary people are going abroad and, as a matter of course, buying stuff, not declaring it, giving it to friends and relatives or selling it openly in pubs. One such case has been mentioned and that could be replicated by hundreds of thousands of others.

I do not say that the activity has gone so far as to constitute a social crisis, but we have the beginning of the end of the proper relationship between governed and government, and that is a catastrophe. We used to have a country in which we prided ourselves on that relationship working extraordinarily well. We used to smile ruefully about people in Italy who did not pay their taxes. We thought that that was not the sort of thing that happened in Britain.

We now have on our hands enormous criminal activity by perfectly ordinary people who otherwise lead respectable lives. That is a very bad situation. I do not believe that any amount of extra effort by Customs and Excise, machines or anything of the kind--my hon. Friend the Member for Guildford (Mr. St. Aubyn) was right about this--will solve the problem. It can be solved only by trying to redress in some way over time--and with all the difficulties that this implies--the great gap between our levels of excise and those in nearby ports. Otherwise, the problem will remain and no amount of effort by Customs and Excise officers will cure it.

Liz Blackman: How does the hon. Gentleman answer my point that, no matter how great the reduction in tobacco duty, cheaper goods, or goods with no duty, will always be available, and big business will ensure that they fill any gap?

Mr. Letwin: It is obvious that I did not make myself clear. I accept that organised criminal smuggling will

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probably continue, whatever the level of duty. Smuggling has probably existed for as long as time. However, the propensity of hundreds of thousands--perhaps millions--of otherwise respectable citizens to engage in criminal activity, which is the social disaster that I am describing, arises almost exclusively from the discrepancy in excise rates. That should be a matter of mutual anxiety. It is not a party political issue. We should all be concerned about what we do to ordinary people. I accept the point about big business smuggling, but it was not my point.

Mr. Cousins: I am following the hon. Gentleman's argument closely. I am sure that it has occurred to him that he is calling for harmonisation of tax rates.

Mr. Radice: EU harmonisation--oh dear!

Mr. Letwin: I am calling for action by a sovereign country to deal with difficulties that its citizens face. That is different from the proposition that the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) may support, and that the right hon. Member for North Durham (Mr. Radice) certainly supports: that a foreign power in Brussels should tell us how to do it. The difference is signal.

Mr. St. Aubyn: Is there not all the difference between tax harmonisation imposed by Brussels and tax competition, which is a global phenomenon that no Government can afford to ignore?

Mr. Letwin: My hon. Friend is absolutely right. When we consider the Finance Bill in due course, we shall again debate double tax relief, which shows the extent of the Government's departure from tax competition. However, I shall leave that point aside.

I want to consider a vital point that has emerged not from the debate but from the report: the role of Customs and Excise, not as a policeman, but as a tax gatherer. The Treasury Sub-Committee, piously but rightly, states that we need to move to a simpler system with which it is easier to comply. I use the word "piously" because neither the Sub-Committee nor the Government have devised good measures for putting that into practice. However, the aim is noble.

It is one of Britain's better known secrets that the Conservative party has devised a set of plans for a simpler system. Now that people are again interested in the Opposition because the Government are crumbling around us, it is possible--I put it no more strongly than that--that the Government may pay attention to the admirable plan that we presented some time ago. It has 10 points, because that is how such plans are devised--I pay no attention to that. They are not the only 10 points that are worth considering; perhaps they are not even the 10 most important points, but we should take concrete action. I shall therefore outline 10 easy measures.

First, there should be six weeks at the end of a VAT quarter for every business to complete its VAT returns. I have spoken to dozens of firms and representatives who have made it clear that that is vital. They do not have enough time to complete their forms.

Secondly, we need a new, independent business protection unit so that firms that are about to go under have a sympathetic ear, and can prove to that unit that

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they will surmount the difficulties and not fail. That is preferable to Customs and Excise acting as the creditor of first resort and the party that pulls the business under when it gets into difficulties. Customs and Excise, after contact with the special unit, should be willing to wait for its money.

Thirdly, there should be a presumption that VAT officers will give binding advice within a specified period and in advance of a contemplated action. People can thus know whether their proposals are legal.

Fourthly, there should be symmetry in payments. I am sure that, like me, hon. Members of all parties frequently receive complaints about that matter. Why does not Customs and Excise pay the same interest rate when it is late with its payments or repayments as taxpayers who pay Customs and Excise late?

Fifthly, the detail in VAT returns needs urgent review. Those returns are unnecessarily onerous.

Sixthly, the disclosure limit for errors is old fashioned. The Government pride themselves on modernising; I do not like that idea, but the Government believe in it. A figure of £2,000, which was set many years ago, is clearly ludicrous and should be increased.

Seventhly, we need a review of, or consultation exercise about, the future of the capital goods scheme. It used to work, but we now live in a world of computers, and the limits do not reflect the cost of computing.

Eighthly, something should be done about the payments-on-account scheme. The option of 12 monthly direct debit payments is available from any utility and most other people with whom one deals, but not Customs and Excise. Why not?

Ninthly, the deregistration threshold should parallel the registration threshold in some way.

Tenthly, and most importantly, there should be no question, except in the most extreme circumstances, of retrospective legislation to alter the ground rules to avoid avoidance schemes. I say that especially in the hearing of the Paymaster General because, of all the holders of her post in British history, she takes the palm as the most assiduous pursuer of avoidance schemes. Let us promise that we will not go backwards and penalise people for past activities that were legitimate when they undertook them. That applies to Customs and Excise legislation as much as to the Inland Revenue legislation that we shall debate when we consider the Finance Bill.

I have reached the end of my remarks and the allotted time. I hope that when the Treasury Sub-Committee considers Customs and Excise again, it will emphasise the critical importance of openness and use every power at its disposal to get the Taylor report published. That report has been mentioned often; it is a mythical item and we do not know its contents any more than we know those of the study on merger. It is a shame and a disgrace that the House has not seen it.

3.56 pm

The Paymaster General (Dawn Primarolo): We have had a long and detailed debate, using the hook of the vote on Customs and Excise. Many detailed points have been made. In the short time available, I shall not be able to refer to them all. I shall consider the 10 points that the hon. Member for West Dorset (Mr. Letwin) outlined. However, my remarks will concentrate on the main subjects that have been raised.

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My right hon. Friend the Member for North Durham (Mr. Radice) briefly set out three broad basic topics, which other hon. Members developed. They were the merger, smuggling and compliance. Compliance broke down into two subjects: the cost of compliance for business and its cost to the Department. Many hon. Members concentrated on the internal systems of Customs and Excise and its ability to respond.

I was grateful to the right hon. Member for Cities of London and Westminster (Mr. Brooke) who, with others, referred to the tens of thousands of people who work in the Department. As the hon. Member for West Dorset pointed out, they collect more than £100 billion--40 per cent. of all tax collected for the Government. They do that very efficiently, at a cost of around 1 per cent. As the hon. Member for West Dorset also said, we concentrated today on what was not collected, but when we consider the record as a whole, it is very good.

The Treasury Sub-Committee is ably led and chaired by the hon. Member for West Worcestershire (Sir M. Spicer). I take its report seriously. I cannot say that I enjoyed reading it, or that I felt entirely relaxed as today's debate unfolded. However, I want to try to give a positive response. I think that we owe that to those who are employed by us, and who discharge certain duties. Moreover, serious issues need to be addressed.

I smiled when the right hon. Member for Cities of London and Westminster gave a rather odd example of the rules some years ago. Until recently, a rule stated that French dogs used for tobacco detection purposes were not allowed on our ferries because of our quarantine arrangements. Fortunately, the matter now seems to have been resolved.

As my hon. Friend the Member for Erewash (Liz Blackman) said, Opposition Members should be extremely careful before criticising the current Government. It was their Government who reduced Customs and Excise staff by at least 3,000. I have been the Minister responsible since the election of 1997. As my hon. Friend the Member for Erewash pointed out, 300 officers dealing with the smuggling of drugs were about to lose their jobs as a result of plans that we inherited from the last Government. We did not proceed with those proposals, let alone the large numbers involved.

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