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Cross-Channel Shopping

1.30 pm

Mr. David Laws (Yeovil): I am delighted to have an opportunity to raise this important issue, and I welcome the Economic Secretary to his place. As you said, Mr. Deputy Speaker, he was delayed slightly, and one could perhaps say the same of yesterday's announcement by the Government. We should be grateful that they both turned up eventually.

I do not know whether to describe the debate as timely or particularly untimely in the light of yesterday's announcement by the Economic Secretary, which, broadly speaking, I welcome. However, the debate provides an opportunity for us to scrutinise the announcement, to ask questions about the implications for relevant Treasury policy and to find out whether the Government's new policy is likely to deal with the problems that have been created in the past couple of years.

According to the press release issued by Customs and Excise and to the Economic Secretary's statement, yesterday's announcement was not a change in policy. He described it, in his introductory comments to a press conference, as the next stage in a Government strategy to combat cross-channel smuggling. A Treasury source seemed particularly insistent about this, telling the Evening Standard that it was ridiculous to speak of a U-turn, as the announcement was part of a long-term strategy. That will surprise many people who have for some time been lobbying on the matter, including many of my parliamentary colleagues, Members of the European Parliament, the European Commissioner Mr. Bolkestein and others.

The Economic Secretary's comments yesterday seem to jar somewhat with those made by his right hon. Friend the Chief Secretary to the Treasury at a meeting we had with him some months ago. I am glad that there has been a rethink of the issue and that the Government have decided to move in the direction suggested by the legal judgments, the EU Commissioner and, perhaps, some of the newspapers that have campaigned on the issue recently, not least The Sun and the Daily Express.

You will probably recall, Mr. Deputy Speaker, that, in September, the Economic Secretary was criticising the European Commissioner, Mr. Bolkestein, for raising the question of the UK Government's attitude to cross-channel trade in tobacco and alcohol. He criticised Mr. Bolkestein for trying to be a popular hero on this issue and for trying to whip up enthusiasm among the press over cross-channel trade. I was therefore rather surprised by an article in The Sun on 21 October—only a few days before this announcement—with a headline suggesting that the Economic Secretary was ordering a U-turn; that seems somewhat off-message. A rather nice picture of the Economic Secretary bore a caption stating that he was backing shoppers. The Government's thinking about this matter seems to have undergone a welcome change, but it is not yet clear whether legal pressure forced them into it, or whether they have had a change of heart.

I welcome the substance of yesterday's statement, because it is intended to deal with three areas of concern raised by, among others, the Commission, Members of Parliament and Members of the European Parliament.

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The first issue that it deals with, in part, is the burden of proof. It is outrageous that, in a single market—and in a legal system such as ours, under which people are assumed to be innocent until proven guilty—control of cross-channel trade in tobacco and alcohol by Customs and Excise should result in people having to demonstrate their innocence, rather than Customs being obliged to establish that they are bringing in alcohol and tobacco not for their personal use, which is not restricted under EU rules, but for on-sale to other parties. For the past year or so, Customs has been operating on the presumption that the burden of proof is on individuals coming across the channel to prove that they are not smuggling.

The extent to which the burden of proof has been balanced in that way is shown by another aspect of the crisis. The Minister who formerly had responsibility for these matters—the current Chief Secretary to the Treasury—contacted me about a case that I had raised on behalf of a constituent. The lady concerned lent her car to her son so that he could travel to France. He was stopped on the way back and was found to have an amount of tobacco that was over the guideline amount but not the limit amount. The car, of course, was seized by Customs, but it was not returned to the lady; as a consequence, she had problems getting to work—Somerset is a rural area—and was in danger of losing her job.

The Chief Secretary indicated that where the owner of the vehicle was not present, they must be able to demonstrate that they were genuinely innocent of any involvement. Customs interprets that to mean that aside from where a vehicle is stolen and reported to the police prior to seizure, a person who has consented to the use of the vehicle by others accepts a risk by doing so. In other words, if you lend a vehicle to someone, you are assumed to be as guilty as they are if they come back with an amount of cigarettes or alcohol in excess of the guideline amounts. It is outrageous, by any standards, that people should be assumed to be guilty until proven innocent, but that is how the assumption of guilt has been working; people who lend out their vehicles are assumed to be guilty unless the vehicle has been stolen. That is bizarre, and I am glad that the Government have tried to address the issue.

The second issue that the Government have tried to address is the fact that, in many cases, the penalties are draconian in relation to the offence. We are not here to defend those who engage in serious, large-volume cross-channel smuggling and fraud, but some of those who have brought back alcohol and tobacco, been aware that there was no personal limit on the amount that they could bring back for personal use and been caught out by Customs officers, who have accused them of bringing back amounts over the guideline amount. For small excesses, their vehicles are then confiscated and may not be returned.

Vehicles with a value of £15,000 or £20,000 could have been seized and not returned as a consequence of an amount being brought back in excess of the guideline amounts by only a moderate amount. That seems draconian and unfair. Equally unfair is the fact that those bringing back tobacco or alcohol over the guideline amount by a larger amount who drive vehicles of a lesser value would, by losing that vehicle, incur a much smaller penalty than those with large and

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expensive cars who, in the view of Customs officers, happened to be over the guideline amount with no good reason.

The third issue that the Government have sensibly sought to address is the mismatch between the guideline amounts for alcohol and for tobacco. People were able to bring back 90 litres of wine, which is a substantial amount by anybody's standards; one certainly could not whistle through that in a few days. However, the number of cigarettes that could be brought back was far less in magnitude and could be consumed by a household within a short time. Increasing the guideline amount for cigarettes was extremely sensible and welcome.

It is important that we do not simply focus on the good things, much though the Economic Secretary might want me to. We should highlight concerns and ask where the changes may lead and what problems may arise.

First, we must press the Economic Secretary on the amount of resources that will be available to Customs to police the new arrangements, which, in some respects, will be no easier to police than the previous ones. He will be aware of the difficulty that Customs has had in dealing with the huge amounts of tobacco and alcohol that have been smuggled during the past few years and of the need properly to resource its efforts. I hope that he will say something about that.

Secondly, will the Economic Secretary clarify the issue of stop and search, which came up in the Hoverspeed legal judgment? The Government's approach was challenged, and it was suggested—with good reason, I suspect—that Customs officers randomly stopped and searched people coming back over the channel to see whether they had more than the guideline limits. Should Customs officers stop and search individuals returning from the continent in a free and open single market? Will the guidelines for officers be clear in that respect? What evidence will give officers reasonable grounds to stop and search a vehicle?

Thirdly, we need assurances about the vehicles that Customs has seized and which are still in the pounds. People who are waiting on appeals will have heard yesterday of the change in policy and will be wondering whether the Government will now take a more reasonable line. That is particularly true, now that the guideline limit has been changed, of those whose vehicles were seized because they had more tobacco than was allowed. Will the Economic Secretary consider an amnesty to return cars that have been seized? Is he prepared to compensate those whose cars have been destroyed in the meantime? Such people will be angry to discover that the Government have changed their mind and acknowledged that it would be sensible to treat the amounts that those people brought back as being for personal use.

Fourthly, there is the substantive issue of how the new rules will work in relation to the burden of proof. The Government have given the impression that the burden of proof will again fall on Customs staff and that it will

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not be for the citizen to prove his innocence. However, yesterday's Treasury press release, and the notes to editors, clarify show how the burden of proof will be treated, stating:

How different will that be in practice from the current arrangements? Will Customs not still put the onus on the individual to explain his circumstances in a way that meets its requirements? The approach in the press release is very different from that in the rest of the law, which assumes that people are innocent until proven guilty. If I walked down the street outside the Palace of Westminster with an expensive stereo, the police could not ask me to justify why I had it; they could arrest me only if they had good reason to assume that I had stolen it. I am not sure that the new Government guidelines are sufficiently clear in that respect.

Lastly, there is a much wider issue, which I urge the Government to consider. I had a useful meeting yesterday with the chairman of Shepherd Neame, the brewers, which has been active on this issue. There is a wider concern about the misalignment in alcohol duties between this country and the continent. Although the Liberal Democrats are not in favour of the enforced harmonisation of taxes in Europe and believe that the issue should be resolved through tax competition, there is concern about whether the arrangements can be policed satisfactorily in a single market in which people are assumed to be innocent until proven guilty. It is not acceptable to stop and search people randomly.

I urge the Economic Secretary to hold an independent inquiry, or at least a Treasury inquiry, to consider the consequences of reducing duty in the UK towards European levels in order to tackle illegal trade. In addition, I urge him to consider the health effects of putting higher duties on tobacco and alcohol to see whether they are working and whether a reduction in duty towards the European average would have the desired effect.

Hugh Robertson (Faversham and Mid-Kent): I represent a brewing town, so the jobs of many of my constituents and the survival of many local pubs are directly affected by illegal imports. I am sure that we would all agree that cutting excise duty would reduce smuggling, but Shepherd Neame has proved comprehensively that, by cutting excise duty, we could also increase the legal take, and therefore the amount of revenue available to the Treasury. Will the hon. Gentleman ask the Economic Secretary whether he would be prepared to meet representatives from Shepherd Neame to discuss that proposal?

Mr. Laws : The hon. Gentleman raises a powerful point subtly. As an economist, I am not yet persuaded that a reduction in duty would be self-funding, but there is a case to answer. The Government have raised the issue to some extent by freezing duty on alcohol over the past few years, rather than continuing with the policy of

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over-indexation pursued by the Conservative Government, as well as by the Labour Government when they first took office.

There is a case to answer and, although I realise that I am raising a wide issue at the end of a narrow debate, I urge the Economic Secretary to keep an open mind on the subject and to be willing to commission research in the Treasury to find out whether there is a case for reducing the duty differentials between the European continent and the UK.

1.47 pm

The Economic Secretary to the Treasury (John Healey) : I begin by congratulating the hon. Member for Yeovil (Mr. Laws) on securing the debate. His membership of the Treasury Select Committee gives him particular expertise in the area. He wondered out loud whether the debate was timely or untimely in the light of my announcement yesterday. It is timely for me, because it gives me chance to explain further what I said, but I always welcome the chance for Parliament to play its proper role in scrutinising Government policy.

I welcome the hon. Gentleman's welcome for my announcement, and particularly welcome the fact that the new regulations will clarify the burden of proof and refine the penalties. As of yesterday, we dealt with what he described as the mismatch between the guidelines on alcohol and tobacco.

I shall deal with the questions about resources and stops in my other remarks. I shall also give some explanation of the burden of proof. On vehicles, we have already put in place procedures for reviewing any seizures and procedures for the proper restoration of fees. I have no intention of making the new package retrospective or of putting in place an amnesty because procedures are in place to deal with the problems.

To reassure the hon. Gentleman on tax, we can enforce the regime, and yesterday's announcement was an important part of enabling us to do that in future. I emphasise to the hon. Gentleman and to the hon. Member for Faversham and Mid-Kent (Hugh Robertson) that low duty rates are no defence against tobacco smuggling. Italy, Spain and other European countries have much lower tobacco duty rates than we do, but they also have a serious cigarette smuggling problem.

Despite the common talk of booze cruises, the most serious problem lies with tobacco; the hon. Member for Yeovil, a member of the Select Committee, will be aware of that fact. Some 20 per cent. of the tobacco market is illicit, compared with only 4 per cent. of the beer market and 3 per cent. of the wine market. That was the reason why, in the 2000 Budget, my right hon. Friend the Chancellor announced the tackling tobacco strategy.

The Government put £200 million into that strategy, which has led to the recruitment of nearly 1,000 extra staff at our frontier ports and inland. The hon. Member for Yeovil was concerned that not enough resources were in place to operate the regime, but the resources are there. We have also installed more high-tech equipment, including a national network of x-ray scanners to detect the high volume of smuggling in freight containers. As part of the strategy, we introduced tougher sanctions and penalties, including the seizure of vehicles used for

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smuggling, along with a fiscal mark to help to identify those cigarettes that have been smuggled and those on which duty has been paid.

Mr. Laws : Is the Economic Secretary saying that, in spite of changing the regulations yesterday, he can offer no comfort to people who had their car seized last week because they were 200 cigarettes over the limit? Will no flexibility be given to those cases?

John Healey : The review procedures are in place to deal with such instances, and we shall see that they are followed through. The announcement that I made yesterday does not have a retrospective impact.

I shall proceed, because the time available to me is shorter than I should have liked. Without the action that we took two years ago, it was forecast that, by this year, the illegal tobacco market would have been 34 per cent. Customs is bringing the problem under control and reversing the growth in smuggling. I shall publish figures alongside the pre-Budget report in a few weeks' time that show the improvement in Britain's tobacco market.

The results of the tobacco strategy's first stage have been especially dramatic. They include a 75 per cent. cut in smuggling alongside a 10 per cent. growth in spending in legitimate shopping. It is worth dwelling on the juxtaposition between smuggling and shopping, which offers strong evidence that the crooks, not the consumers, have been the target of customs activity. Each year, 14 million people cross the channel and nearly 99.9 per cent. pass through customs without a problem. Tobacco and alcohol is seized from only around 14,000 annually. Customs has a tough job to do in difficult circumstances. Most worryingly, we have seen recently cheats and smugglers becoming increasingly clever at mixing with and posing as honest shoppers.

It is now time to move to the next stage of our tobacco strategy, which is the new package of measures that I announced yesterday. The package of measures has the twin aim of reinforcing our action against smugglers and reinforcing our protection of the rights of genuine shoppers. It is fair for shoppers, tough on smugglers and clear about the difference between the two. It is designed to resolve arguments about the legality of customs actions, guarantee fairness for honest shoppers and bear down harder on bootleggers who corrupt the system.

The regulations that I laid before Parliament yesterday will repeal the Personal Reliefs Order enacted by the previous Conservative Government in line with European Union advice in 1992 and replace them with new regulations. The changes will make it clear that alcohol and tobacco on which tax is paid elsewhere in the European Union and which is imported into the UK for own use is not liable for duty. It will also make it clear that tobacco and alcohol imported for payment in cash or kind for profit or for reimbursement is subject to UK duties.

The new regulations remove the burden of proof on the individual to show that goods are for their own use. That was introduced in 1992 by the last Government and reflected guidance at that time from the European Union. It would be for Customs to be satisfied that goods were for a commercial purpose, and the decision would be based on criteria set out in the new regulations

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in UK legislation for the first time, including the explanations offered by people importing large quantities. Customs will widely publicise those criteria and stand ready to explain its reasons for reaching its view to any court or tribunal as necessary.

In practice, Customs has always had to be satisfied that, when challenged, it can explain and defend the judgments it makes. The new regulations reflect recent interpretations offered by the courts, and represent a useful overhaul of 10-year-old EU-based legislation. They bring the UK legislation into line with the court ruling in the Hoverspeed case in July, and the reality of existing practice.

Only a tiny proportion of those entering the UK are stopped by Customs. Stops are made due to a range of factors, based on knowledge of smuggling techniques and behaviour that changes constantly. Often, they occur as a result of pre-arrival selection, informed by general, and sometimes specific, intelligence. That is supplemented by professional observation. A typical stop only lasts a few brief moments, unless the exchange gives rise to increasing doubts.

I reaffirmed yesterday the absolute commitment of Customs to ensure that its actions fully comply with its legal obligations and I called on others to ensure that they, too, met their obligations. In particular, I made clear that I expected those in the international passenger transport industry to ensure that the records kept on transport movements were complete and accurate, that the information provided to passengers did not mislead and that they co-operated fully with Customs to prevent criminal use of their operations. The best already do; the rest must now do the same.

However, there is confusion. There have been arguments concerning popular campaigns, court actions and questions raised by the European Commission, and these have sown confusion for the cross-channel traveller. They have also made it more difficult for the frontline Customs staff to run the current regime. That is why I announced the refinement of our tobacco strategy in the package yesterday. I am determined to make the position clear.

Yesterday, I announced new indicative guideline levels for cigarettes and hand-rolling tobacco.

Mr. Laws : The Economic Secretary said that yesterday's announcement would clarify policy and help to clamp down on smuggling. Is he predicting that the amount of cross-channel smuggling will be cut by yesterday's measures?

John Healey : The package of announcements made yesterday mean that we will be able to achieve the targets that we have already set for our tobacco strategy. We have reached the second stage of that strategy, so we are still committed and on track to reduce the level of the illicit market in the UK by 2005–06 to 17 per cent.

Let us be clear about two things. First, those new indicative levels will help draw a clearer distinction between the shopper and the smuggler, and, in doing so, both the shopper and Customs staff will benefit. Secondly, travellers may still be stopped and have goods seized when they have amounts below the new indicative levels if Customs staff are satisfied that those goods are for resale either for profit or reimbursement.

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However, we can do more to ensure that our excise duty regime draws the clearest possible distinction between the shopper and the smuggler. I confirmed yesterday that I have also asked Customs to adapt its vehicle seizure policy, to publish a clear new guide to appealing and complaining—available from yesterday—and to undertake a review of the present appeals and complaints system with the Lord Chancellor's Department.

Yesterday I also confirmed that we would not relax the regime or soften our actions against smugglers. I confirmed that those who use vehicles to smuggle on a large scale or a repeat basis would be offered no opportunity for restoration. I confirmed that Customs expects to conduct an increased number of

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prosecutions, and would examine the scope to hit finances of criminal gangs using the new proceeds of crime legislation. I confirmed that violence against Customs officers in carrying out their duties will not be tolerated and will be subject to prosecution. Finally, I confirmed that cross-channel operators would be expected to play their full part in helping to tackle smuggling and helping shoppers know their rights and responsibilities.

I can do no better than cite the leader in the Evening Standard today, which said that the package struck a reasonable balance between the right of the public to purchase drink and tobacco in the EU and the duty of the Government to pursue lawbreakers who smuggle goods—

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