Finance Bill

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Mr. Davey: Notwithstanding the Financial Secretary's excellent skills, I regret the absence of the Paymaster General who is, I am sure, detained on serious business in Brussels. She played a leading part in previous Finance Bill Committees and on the Floor of the House in respect of the important matter of policy, which is the substance of the clause. The hon. Lady has a detailed knowledge of the subject and has appeared before several Treasury Committee hearings. Despite the Financial Secretary's exceptional skills, the debate is the poorer because of the Paymaster General's absence. The reasons behind those opening remarks will become clearer as I detail some growing concerns about the Government's handling.

The hon. Member for West Dorset was right to say that the Liberal Democrats have supported the Government year in, year out on their policy of raising excise duty on tobacco products. We support also their policy objectives on health and cracking down on fraud through legal means, such as new technology, the recruitment of more Customs and Excise staff and having new stamps on packets, which we debated last year. We do not want to give tacit support to lawbreakers. If they break the law passed by Parliament, they should be punished; at no stage should we give any succour to them, even on a parking ticket. Sometimes people park cars in dangerous places, which can be a threat to other people's lives. It might seem a small offence, but it can be significant.

10.15 am

In previous debates, as the hon. Gentleman mentioned, we discussed in detail the elasticities of tax revenue with respect to duty. We also discussed cross-price and demand elasticities, and had debates using reports by the Institute for Fiscal Studies and rejoinders to those reports from industry. They were some of the best tax debates that we have had in this Parliament because they were extremely well informed. We have debated various enforcement techniques, and the Government have made strides on smuggling, which should be recognised.

On a recent trip to the Crown court in Kingston, I was regaled by judges who were almost fed up with having to try tobacco smuggling cases. They complained that such cases took up too much of their time but I had to say that, although I understood their frustration, they were engaged in enforcing the law. Their work was not only bringing lawbreakers to justice by fining and imprisoning them properly, but sending out a wider signal that is a key part of the Government's strategy to deter future smugglers.

It is being made clear that the Government will take a hard line on smuggling and that, if people smuggle, they will be caught, punished and imprisoned. That will bring to an end that illegal traffic, and I support the Government and Customs and Excise in cracking down on it in every possible way.

Despite those remarks and that past support, I want to enter a note of caution and a caveat to our support for the Government's policies on this matter, because several issues about the Government's handling of it are leading to our support wearing thin. They are detailed issues, but must be aired before we pass the clause. As has been mentioned, the Government failed to publish the Taylor report. I will not go into that in detail, because it has been covered in the past and I do not want to go over old ground, but the Government also have not published a more recent and potentially more damaging report—the Rocques report, which was set up by the Paymaster General. Customs and Excise announced on 7 July 2000 that John Rocques, ex-senior partner of Deloitte & Touche, would lead the inquiry and report to Mr. Broadbent and the Minister by the end of November 2000. Indeed, I believe that the Minister received a preliminary report in November and, after John Rocques had asked for more time, the final report in the new year. However, that report has not been published and the Treasury Committee on which I serve criticised the Government for their failure to do so. The Paymaster General was good enough to give the Committee an informal briefing on progress with the Rocques inquiry, but she has gone no further and the report has not been published. We received a letter explaining why not. Many reading it gained the impression that Customs and Excise had rejected the conclusions of the Rocques report—it was too critical of the Department—and asked him to draw fresh conclusions

In the Financial Times on 5 February this year, Mr. Rocques affirmed that there were no reasons why his report should not be published and acted upon. So here we have a second major report commissioned by the Government on this key area of policy that has not been published. That should help explain why I am concerned.

Furthermore, the Treasury Committee report was published on 22 March 2001, but the Government have yet to reply. This cross-party report—some Labour Members signed up to it—does not pull its punches. I shall not detain the Committee by reading all the conclusions—you would call me to order if I did, Dr. Clark—but conclusion (b) states:

    ``The Government owes Parliament an urgent statement about the scale of the loss of excise revenue between 1994 and 1998, the reasons for the loss and the steps taken to prevent such losses occurring again. The Government should also explain the current status of the Rocques report and indicate the date by which it aims to secure publication''.

So yet another senior House Committee wants the Government to come clean about what is going on.

The Public Accounts Committee is also interested and the National Audit Office registered a note of concern about the Government's handling of the problem. In a preliminary report, the Comptroller and Auditor General said on 9 February that he was unable to certify that

    ``adequate regulations and proceedings have been framed to secure an effective check on the assessment, collection and proper allocation of revenue'',

or that

    ``the sums brought to account in respect of such revenue are correct''

because of problems with the collection of excise duty. When the Comptroller and Auditor General publishes such a report, albeit preliminary, the House should stand up and take note. We are right to be concerned about further tax changes without clarification of where the Government stand.

The Comptroller and Auditor General is a servant of Parliament, not of Government. He has a superb staff working for him on behalf of this place and our constituents, so we must take his statement seriously. The NAO will move on from its preliminary report and produce a more detailed report to Parliament. Unfortunately, it is not yet concluded, but I know of its concerns about the weak controls of Customs and Excise.

A whole series of reports—written or part-written—could be before us to illuminate the debate and help us decide whether it was appropriate to continue with the tobacco duty escalator. The Government have the written reports, but they have not informed today's debate, which is scandalous. I speak as a Member who has supported the Government's policy throughout this Parliament, so I cannot be criticised as partisan or a Johnny come lately.

The hon. Member for West Dorset referred to other evidence that provided cause for concern. When the Government have provided an estimate of the loss of revenue due to smuggling—

Mr. Timms: I just want to pick up one of the hon. Gentleman's points. He said that the escalator is continuing, but it is not. It has been halted and the Bill contains only an inflation rise.

Mr. Davey: I am grateful for that intervention: I was incorrect. Excise duties are still being treated this year in terms of indexation. The question remains whether we have reached a point of diminishing returns. Are the elasticities such that increases in taxation lead to a reduced yield? I have argued against that in the past, because all evidence and analysis suggested that we had not reached that point, but I am now beginning to question that. I hope that we have not, because of the health signals that are so important to the Government's policy. We cannot bury our heads in the sand: if we have reached that point, we will need to review our strategy.

Before the Financial Secretary's intervention, I was talking about the Government's published figures. The hon. Member for West Dorset alluded to them when he said that more smuggled products than the Government acknowledge may come from the EU as a result of the differential between the UK and other member states.

The Tobacco Manufacturers Association says that the Government operate on a 20:80 rule. With 80 per cent. of the smuggled product coming from outside the EU, duty changes make no difference to the bulk of it. The association takes issue with the 20:80 rule of thumb that Customs and Excise uses to calculate the loss of revenue. It uses pack tests, an analysis of the packets that are thrown away, often after football matches. Various football stadiums have been swept up after the match and the packets have been counted in order to work out where the cigarettes were produced and imported. On the basis of several such detailed researches, the Tobacco Manufacturers Association believes that the split between extra-EU and intra-EU smuggled products is more likely to be 40:60 to 60:40. If so, the Government figures are wrong.

Mr. Letwin: That is precisely the difference to which I was alluding. It is hearsay that Customs and Excise operates on a 20:80 principle. I say hearsay advisedly because we have never had—certainly not in Committee—open acknowledgement of the figures on which Customs and Excise bases its estimates. That is what we need. At the moment, the pack tests provide the only evidence available in the public arena. As the hon. Gentleman rightly says, they suggest that the Government's analysis is deeply flawed.

Mr. Davey: The hon. Gentleman is right. We have not had that admission. The intellectual framework behind the Government's policy has never been clearly elucidated, so we have been unable to scrutinise it properly. That is the problem, and it stretches our patience too far. I am not sure whether there was a Division on the Budget resolution behind the clause; if there had been, we intended to support the Government. We want the Government to come clean—

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