Finance Bill

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Mr. Timms: The hon. Gentleman has missed the key point in my comments, which was that trade estimates rest on assumptions about how hand-rolling tobacco is translated into numbers of cigarettes. There is scope for debate about how that calculation is made, but it is important to place on the record that the catastrophic situation described by the hon. Member for Arundel and South Downs is not borne out by evidence and that the prevalence of smoking is not rising.

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I agree with comments about the seriousness of tobacco smuggling and that no one should be doing it. I welcome the robust position taken on that by my hon. Friends and the hon. Member for Kingston and Surbiton. That is why we announced last March the tackling tobacco smuggling strategy. It is designed first to slow the growth in tobacco smuggling, which has recently followed a strong upward trend—that is a target point, to respond again to the hon. Member for Arundel and South Downs—and secondly to put it into decline within three years. We provided £209 million for investment in extra staff and new equipment to do that, and Customs has increased the deployment of front-line staff and investigators during the past year. An extra 650 people will be in post by the end of this month and another 300 during the coming year. Customs has also put in place X-ray scanners designed to detect bulk consignments of smuggled tobacco. Three are in operation and two more will follow shortly, and a second batch will be ordered in the next few months. My hon. Friend the Member for West Ham is right that the previous Government should have listened to his and others' warnings and put those measures in place earlier. I do not agree with him about cannabis, but I agree on that point.

The strategy is at an early stage, but it is beginning to show encouraging results. In the first nine months of the past financial year, Customs seized more than 2.1 billion cigarettes destined for the UK market. The scanners are starting to pay dividends as well, and we are confident that they will spot large numbers of cigarettes being brought into the country. In those nine months, Customs investigators broke up 38 major organised crime gangs. Targets have been set and we are achieving them. Tough policies on vehicle seizures are having a powerful effect: in the first nine months of the past financial year, almost 6,700 vehicles were seized by Customs, which was nearly double the number seized in the same period in the previous year.

We debated UK duty paid marks at length in Committee last year, and they are being introduced on packets of cigarettes and hand-rolling tobacco to help the identification of smuggled goods. From 1 July, it will be a criminal offence to transport, sell, offer for sale or allow the use of premises for the sale of unmarked cigarettes and tobacco. All packs will have to bear the UK duty paid marks, which will deter people from selling unmarked goods and encourage pub owners and workplace managers to prevent sales on their premises. The strategy is in its first year, but as more front-line staff are put in place, new X-ray scanners come on line and pack marks are introduced, we will be able to take even more effective action against criminals who are involved in tobacco smuggling. I am confident about the way in which the strategy is working.

The hon. Member for West Dorset asked about the overall take on tobacco tax receipts. The current expectation for tobacco receipts in the previous financial year—this has not been finalised, but I am pretty confident about it—is that we have collected £7.6 billion, which is a little more than the projection in the 2000 Budget. As we all recognise, far too much money is not being collected, hence the strategy. Nevertheless, the fact that receipts are above what we expected provides confidence that we have now got the measure of the problem and are making progress in addressing it.

There has been a good deal of discussion about the extent to which the problem is driven by the duty differential between the UK and continental Europe and about estimates by Customs of how much tobacco comes from outside the EU. Figures on that were published earlier this year in response, I think, to the Treasury Committee's inquiry. The estimate is that in 2000, total cross-channel tobacco smuggling was worth £1.36 billion. The figure for freight smuggling was £2.3 billion. Of that £1.36 billion, cigarettes and other tobacco accounted for £470 million. There is also hand-rolling tobacco and the tobacco smuggled by air passengers, internet and parcel.

Mr. Letwin: Will the Financial Secretary repeat those figures?

Mr. Timms: Gladly. In 2000, total cross-channel smuggling of tobacco was worth £1.36 billion, of which £470 million was cigarettes and other tobacco. The figure for hand-rolling tobacco was £890 million. Tobacco smuggling by air passengers, internet and parcel was worth £120 million. Freight smuggling of cigarettes was worth £2.3 billion. That adds up to £3.8 billion, so well over half is from freight smuggling.

I am happy to confirm and say on the record that Customs estimates that up to 80 per cent. of cigarettes smuggled into the country come in containers. Almost all of that comes from outside the EU. The hon. Member for West Dorset asked which countries those cigarettes come from. We think that they come from, for example, Dubai, China, some countries in southern Africa, Vietnam and Baltic countries, where it is likely that no duty, rather than a low level of duty, has been paid.

Mr. Letwin: Is the Financial Secretary saying that 80 per cent. of the £2.3 billion freight is cigarettes in containers? What percentage of that does he expect has come from countries with zero or very low rates?

Mr. Timms: No, 80 per cent. is the estimate of the proportion of smuggled cigarettes that enter the country in containers. Those would come mainly within the figure for freight smuggling of cigarettes. As I said, almost all of that comes from outside the EU.

Interestingly, the hon. Member for Kingston and Surbiton drew attention to the tobacco manufacturers pack survey. Customs takes account of the evidence from that in forming its views about what is happening. However, that includes cigarettes bought outside the UK and brought into the country legitimately as well as smuggled products. That factor must be taken into account in interpreting the survey. He also drew attention, rightly, to the work of the Treasury Committee in this regard, to which we pay close attention. Its view was that it was not clear that reducing duty rates would affect large-scale smuggling, which appears to be the major problem, and it is right. We shall continue to pay close attention to what the Treasury Committee says.

I shall go through the strategy's targets for the coming three years. We expect the share of cigarettes accounted for by smuggling in the current financial year to be 22 per cent., which we want to come down to 21 per cent. next year, and 20 per cent. in the year after. That reduction must continue. I assure the hon. Member for Arundel and South Downs that we will bear down on the problem for as long as it exists. We want realistic and measurable targets to tackle the huge problem that has grown over a long period and which we are now taking steps to turn round.

The hon. Member for Kingston and Surbiton asked me about publication of the Rocques inquiry. Some of the inquiry has already been published: the hon. Gentleman asked specifically about losses of excise duty in the period 1994 to 1998, which were reported by the National Audit Office on 9 February. The chairman of Customs and Excise made a full disclosure of Revenue losses in his statement on the 1999-2000 accounts. More work needs to be done on matters arising from the Rocques inquiry; advice must be assessed in order to inform Customs and Excise's detailed plan of action to tackle the problems. We need to take legal advice on some issues before deciding what can be published.

Mr. Davey: The Minister says that he needs to take legal advice and that some issues are still being worked on. However, the Government and Customs and Excise have known about such matters for some time. In her evidence to the Select Committee on 8 February, when asked about the publication date, the Paymaster General said:

    ``As I have said, I think we need to have these answers on the public record as soon as possible.''

That was nearly three months ago, when the problems outlined by the hon. Gentleman were known about. That is not good enough. The Minister must say when the report will be published and why it has not been published already.

Mr. Timms: Much of the information has been placed on the record, not least in my hon. Friend's evidence to the Select Committee. I shall pass on to my hon. Friend the hon. Gentleman's expression of regret, which all members of the Committee will share, that she is not with us today. The subject of the Rocques inquiry was alcohol diversion fraud and although it refers to tobacco it was not the central thrust of the report.

In the report on tackling tobacco smuggling we set out clearly the estimates and assumptions on which we base our anti-smuggling strategy. I draw to the Committee's attention the fact that the most recent figures published by Imperial Tobacco suggest that cigarette smuggling accounts for less of the non-UK duty-paid element than Customs estimated. The full range of evidence on these matters must be taken into account.

The clause strikes the right balance between protecting health and protecting revenue. The strategy is now in place to tackle the serious problem of smuggling and I hope that the Committee will support it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 14, Noes 7.

Division No. 1]

Allen, Mr. Graham
Bailey, Mr. Adrian
Banks, Mr. Tony
Barnes, Mr. Harry
Bennett, Mr. Andrew F.
Dobbin, Mr. Jim
Donohoe, Mr. Brian H.
Hendrick, Mr. Mark
Johnson, Miss Melanie
Kilfoyle, Mr. Peter
Michael, Mr. Alun
Roy, Mr. Frank
Taylor, Mr. David
Timms, Mr. Stephen

Clappison, Mr. James
Flight, Mr. Howard
Jack, Mr. Michael
Letwin, Mr. Oliver
Luff, Mr. Peter
Ottaway, Mr. Richard
St. Aubyn, Mr. Nick

Question accordingly agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5

Dilution of cider

Question proposed, That the clause stand part of the Bill.

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