Finance Bill

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Mr. Tony Banks (West Ham): It is absolute nonsense to say of someone who breaks a law that they would be innocent if not criminalised by the Government. One might as well say that a law-abiding citizen who commits murder has been criminalised. If someone breaks the law, he has broken the law.

Mr. Letwin: I completely agree with the hon. Gentleman that the fault for breaking the law lies not with the Government but with the lawbreaker, and I completely agree with his implicit assertion that the lawbreaker should be punished if caught. However, the fact remains that large numbers of our fellow citizens who otherwise obey the law engage in the criminal activity of buying roll-your-own—one can see that happening in many pubs around the country—from someone who got it off the back of a lorry. I attribute the blame for the action to the people who engage in it—I agree with the hon. Gentleman about that—but mortal flesh is weak. It is regrettable that they break that law, because they begin to put themselves on the wrong side of the law in general. To be a law-abiding person—I exempt parking tickets and speeding fines— [Hon. Members: ``Oh.''] Well, I certainly exempt parking tickets. I do not believe that by getting a parking ticket an individual puts himself into a different relationship with the state. Perhaps I am wrong about that.

Mr. Michael: Will the hon. Gentleman give way?

Mr. Letwin: In a moment. I agree with the hon. Member for West Ham (Mr. Banks) that when someone starts buying illicit cigarettes, they take a deep, and wrong, action and put themselves in a position where their whole relationship to the state and to authority begins to go wrong. That is not to say that everyone who buys illicit cigarettes moves on to other more serious crimes—that would be a crazy assertion—but it is very dangerous. The blame lies fairly and squarely with that individual, but there is something wrong about an arrangement in which many of our citizens engage in that blameworthy activity.

10 am

Mr. Michael: The hon. Gentleman is going down a dangerous path. He referred to parking and speeding. For many years, not having insurance was considered a lesser offence. However, that meant that the victim of a serious accident might not have been able to gain compensation. If the hon. Gentleman is asserting that some offences do not really matter, he needs to be clear about what he means.

Mr. Letwin: I am not saying that they do not matter or should not be punished. On the contrary, they should. If there is a law, it should be obeyed. If it is disobeyed, the person who disobeys it should bear the penalty. There is no doubt about that. What I am saying is that it is possible for people occasionally to overstay in a parking spot without necessarily changing their entire relationship to the state. It is also possible for people to buy roll-your-own off the back of a lorry and not change their whole relationship to the state, although that is a slippery slope.

If Opposition Members think that I am taking some kind of cheap party political shot, they are wrong. If they examine their consciences, they will find that they agree with me. There is a real danger to our society if large numbers of our fellow citizens engage in activity that is fundamentally illicit and dishonourable, and come to feel that they are on the wrong side of the law.

The present duty is the cause of the smuggling, and the smuggling is the cause of the criminality alongside the blameworthiness of the criminal. We must ask whether that situation can be allowed to continue. Is it fiscally proper? Does it result in higher fiscal revenues? Is it socially proper? Does it result in a better society? Is it a proper result from the point of view of the nation's health? Does it make us healthier?

Let me take those questions in reverse order. There is no doubt that the prevalence of smuggling, and of smuggled and often inferior tobacco, is not improving the nation's health, but is making it worse. All the evidence suggests that whereas licit smoking is under control, illicit smoking is burgeoning. That is not to the advantage of the nation's health. I have already made the social point. I suspect that Opposition Members will agree that there is a grave danger to our society arising from the extent of the smuggling.

Now we turn to the new and interesting development. So far as we are able to determine, the fiscal effect of those rising differentials has now turned against the Government, and I await the Financial Secretary's comments on that. That seems to undermine the whole case that the Government have been making in the past three or four years. It is always asserted that, whatever else one may say, the protection of the revenue was secure, and that with each increase in the duty differential the elasticities were such that, despite increasing smuggling, the revenue would rise. That no longer seems to be the case.

Finally, I come to a point usually made by the Paymaster General rather than the Financial Secretary, although it will perhaps be made again today by the Financial Secretary. A great part of the structure of the argument in defence of the Government's continued nominal increases in duty has been that the duty differential of which I am speaking, between, for example, a purchase in Calais and a purchase in Dover, is largely irrelevant, because, so the Paymaster General frequently asserts, the big and organised smuggling is often from countries of origin with duties that are way below ours. I suspect that my hon. Friends have also heard her argue that repeatedly. If her argument were carried to its conclusion, it would assert that even a 10, 20 or 30 per cent. reduction in our duties would not make a significant difference to smuggling, because the big smuggling is from countries where the duty is 20 per cent. or similar to ours and there would still be profit in it. Therefore, she argues, huge amounts of Government money should be spent on enforcement rather than on attempting to decrease the duty differential.

Mr. Banks: I am listening carefully to what the hon. Gentleman says. He implies that smuggling has arisen because of the differential in duty on cigarettes between this country and the continent. However, that differential has always existed. We have all the disadvantages of a single market, but not the advantages. When there was a duty differential in the past, people were allowed to bring in only 200 cigarettes; now, there is the nonsense of people going to the continent in a white van, getting as many as they like and bringing them back. The problem was bound to arise. The issue is not so much the difference in duty as the single market with regard to cigarettes.

Mr. Letwin: Before I respond to that, let me say how much I welcome the fact that a Government Back Bencher on the Finance Bill Committee, albeit a distinguished former Minister, is actively taking part in proceedings. That is a welcome development.

Mr. Banks: I just wanted the hon. Gentleman to know that he was not on his own.

Mr. Letwin: I fear, however, that the hon. Gentleman's arguments are not at one with those of his hon. Friends on the Front Bench.

Mr. Banks: There's a surprise.

Mr. Letwin: They have argued that the problem arises from smuggling not across the channel with people being able to move back and forth and buy cigarettes at will in Calais, but from much further afield and on an organised basis from countries with deeply discounted regimes.

I believe, however, that the problem resides in great part in informal smuggling from just across the channel. The hon. Gentleman is wrong to think that the problem arises from the single market. There is duty to be paid on entry to this country if the cigarettes are brought here for resale. An illegal act is occurring. That has nothing to do with the single market, which does not permit people to enter this country without paying duty on the differential.

Mr. Banks rose—

Mr. Letwin: I shall give way in a moment.

The cause of people seeking to bring cigarettes across the channel is the scale of the differential. The industry tells us—I hope that these figures are accurate—that the total tax in the UK per 20 cigarettes is £3.37. The average for the rest of the EU is £1.39. In France, it is £1.61. When a duty differential is well over 100 per cent., there is a problem, but it is not the single market. The problem is geography and competitive taxation.

Mr. Banks: I did not say that the single market was a problem. I said that, in this regard, we get the disadvantages. Movement is allowed as a result of the increase in the amount of tobacco and alcohol that people can bring in for personal consumption, but we do not have the advantages of the equalisation of taxation, which is why I passionately believe in a single market. When the hon. Gentleman's party was in government and the trade started, I remember saying as a Back Bencher that it would escalate as soon as the amounts of tobacco and alcohol that could be brought in were increased and that that would have a damaging impact on the tobacco and alcohol retail industries, especially in the south-east. That was pooh-poohed by the Government, who said that it was perfectly within their control.

Mr. Jack: On a point of order, Dr. Clark. May I elicit your guidance on the appropriate length of interventions?

The Chairman: I, too, had been wondering about the length of the interventions. I think that they are about right. If hon. Members have several interventions to make, they should catch my eye and make their own contribution.

Mr. Letwin: I do not have the slightest doubt that the hon. Member for West Ham (Mr. Banks) will catch your eye in due course, Dr. Clark. If what the hon. Gentleman said is right, and I do not doubt his word, that his assertions were pooh-poohed, my hon. Friends, who were then responsible for managing such matters, were in the wrong. [Interruption.] My right hon. Friend the Member for Fylde (Mr. Jack) will speak for himself.

We should perhaps have been more alert to the evolution of such proposals, but that does not rescue the Government from a more serious accusation. Some years later the trends were more evident and the retail industry, especially the small, independent retailers, began to be crucified by the difficulties so presciently identified by the hon. Member for West Ham. At that time, instead of responding by saying, ``Ah yes, our hon. Friend pointed that out some years ago. We must recognise the force of his observations because they have clearly come to pass,'' the Government said, ``We are now the Government. We are going to continue merrily increasing the differential.'' The Conservative Government's lack of prescience has become this Government's blindness to the facts, which is regrettable.

We should abandon our party badinage and agree that the time has come to end the lunacy; we must move away from an ever-widening differential and try to find the means to enforce the regime against smugglers, as the Government are trying to do, although not sufficiently effectively. We must also ask ourselves how we can possibly justify widening the differential.

I hope that the Financial Secretary will illuminate the Paymaster General's arguments, to which I referred. It would be helpful to understand whether there is a solid, intellectual and statistical basis for her assertion. What proportion of smuggling is from countries with very low duty? What countries—or set of countries, if discretion forbids direct identification—are involved? How low is their duty? What proportion of smuggling is judged to come from countries nearby which have a significant duty differential but one that is so great that it becomes impossible to imagine significantly diminishing it by a different set of policies for our own duties? We need answers to those questions. Instead of rehearsing the general argument we must consider whether a serious policy option is to do something about the matter in the light of the facts. We may begin to do something when the Financial Secretary has given us the facts, as I hope he will. We are urgently in need of them.

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Prepared 26 April 2001