Finance Bill

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Mr. Bercow: The proposed order of consideration as outlined by the Paymaster General seems sensible and, on behalf of the Opposition, I commend it to the Committee.

Question put and agreed to.


    That the Bill be considered in the following order, namely, Clauses 1 to 3, Clause 5, Schedule 2, Clause 6, Schedule 3, Clauses 7 to 12, Schedule 4, Clauses 13 to 18, Clauses 20 to 22, Clauses 24 and 25, Clauses 30 to 33, Clause 36, Clauses 34 and 35, Clause 37, Schedule 6, Clause 39, Clause 38, Clauses 40 to 42, Schedule 7, Clause 43, Schedule 8, Clause 44, Schedule 9, Clauses 45 and 46, Schedule 10, Clauses 47 to 50, Schedule 11, Clause 51, Clause 117, Clause 52, Schedule 12, Clause 53, Schedules 13 and 14, Clauses 54 and 55, Schedule 15, Clause 56, Schedules 16 and 17, Clause 57, Schedule 18, Clause 58, Schedule 19, Clauses 59 and 60, Schedule 20, Clauses 61 and 62, Schedule 21, Clause 63, Schedule 22, Clauses 64 to 66, Clause 101, Clauses 67 to 78, Schedule 23, Clause 79, Schedule 24, Clauses 80 and 81, Schedule 25, Clause 82, Schedules 26 to 28, Clauses 102 and 103, Clause 105, Clause 83, Schedules 29 and 30,

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    Clause 104, Clause 84, Schedule 31, Clause 85, Schedule 32, Clause 86, Clauses 93 to 100, Clauses 106 and 107, Schedule 33, Clauses 108 and 109, Schedule 34, Clauses 110 and 111, Schedule 35, Clauses 112 to 114, Schedule 36, Clauses 115 and 116, Clauses 118 to 129, Schedule 37, Clause 130, Clauses 132 and 133, Clauses 135 to 140, New Clauses, New Schedules, Schedule 39.—[Dawn Primarolo.]

Clause 1

Rates of tobacco products duty

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

The Financial Secretary to the Treasury (Mr. Paul Boateng): May I add my voice, Mr. Gale, to the Committee's chorus of approval and satisfaction at the privilege of serving under you during the course of our proceedings. I heard you say in response to a remark by the hon. Member for Kingston and Surbiton that it was for you to referee the Committee. We have heard a lot, not least from the hon. Member for Buckingham, about jousting. I must confess that I do not associate the hon. Members for Buckingham or for Christchurch so much with jousting as I do with the World Wrestling Federation and all that goes with it. Therefore, I fear that your skills as a referee may well be sorely tried in the course of the proceedings, but I have no doubt that you, who have wrestled with the best of them, will be able to keep us all under control.

I do not think that such refereeing will be necessary in relation to clause 1. It is an innocuous clause. Smoking is the single largest cause of preventable illness and premature death in the United Kingdom, killing about 120,000 people every year. Research has consistently shown that the price of cigarettes does affect demand, so maintaining the high price of tobacco encourages people to stop smoking and deters people—particularly the young—from taking up the habit. As a result of the large real-terms increases in duty under this, and previous Governments of all political persuasions, cigarette prices in the UK are now at historically high levels. Our decision to raise duties in line with inflation this year will help to maintain the real price, and will discourage people from smoking. I believe that the whole Committee would share that sentiment.

The clause increases rates of excise duty on all tobacco products by approximately 1.9 per cent. in line with inflation, with effect from 6 pm on 17 April 2002. The representations that we have received from health and anti-smoking groups in the run-up to the Budget made clear that they believe that

    ''greater emphasis should now be placed on raising prices through addressing the trends that tend to drive price down rather than increasing headline tax rates for cigarettes.''

Those trends include the supply of cheap, unregulated tobacco through the smuggling market. As hon. Members know, that problem had been worsening rapidly before the financial year 2000–01 and, without action, it was estimated that smuggling would account for more than a third of the market by 2003. Therefore, I am happy to report to the Committee that, as a result of action taken in our tackling tobacco smuggling strategy, we are now on track to put the smuggling problem into reverse by 2003. In our view, that will help to increase the average price that

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consumers pay for cigarettes in the United Kingdom. There is, therefore, widespread support among health and anti-smoking groups for our duty policy on cigarettes and our so far highly successful efforts to clamp down on the unregulated supply of cheap, smuggled tobacco.

I hope that hon. Members will feel able to echo that support and take this concrete step to ensure that we continue to bear down on the problem and send a clear public health message to would-be consumers of this product. I commend the clause to the Committee.

11 am

Mr. Christopher Chope (Christchurch): I, too, welcome you to the Chair, Mr. Gale. The Financial Secretary thinks that we are engaged in a wrestling match. I assure him that there will be nothing sham about what Conservative Members will do in the Committee: we will want to discover the facts and look at the evidence. On that basis, I have some questions that I hope he will be able to answer.

First, why does the Red Book projection for yield from tobacco duty in the coming year show a reduction of £100 million compared with the yield last year? Is that because there has been a reduction in tobacco consumption, or because the Government have not got as far as they would have liked in dealing with the problem of smuggling? What will the impact of the measure be on consumption?

The Financial Secretary says that the Government have been successful. I think that he said they are on track to put the smuggling problem into reverse. In 1996–97, smuggled cigarettes were 4 per cent. of the cigarette market. Now they are 21–23 per cent., and the loss of revenue is about £3.5 billion each year. This is a Labour problem. There was no problem on this scale when the Conservatives were in power, and I hope that the Financial Secretary will address that serious issue.

The evidence from the tobacco manufacturers is that, since 1997, consumption, which up to then had been on a decline since the early 1970s, has increased by about 5 per cent. Why is that? I suspect that it is because there is easy access, particularly by young people, to imported, illegally smuggled and cheap cigarettes, which are available at the school gate, and indeed inside the school ground in many places. Therefore, young people have access to much cheaper cigarettes than those available at retail tobacconists. As the Financial Secretary said, we have by far the highest tobacco tax, not simply in Europe but anywhere in the world. As a result of the clause, duty on cigarettes will be more than £3.50 out of a retail price of about £4.50.

I hope that the Financial Secretary can answer some of the questions that arise from the clause. Although we have not tabled an amendment seeking a freeze in tobacco duty this year, we are waiting for the information from the Treasury on the present situation. I understand that, normally by this stage in the year, the information on the impact of anti-smuggling measures has been produced. Perhaps the

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Financial Secretary can tell us what progress has been made and whether there has been a reduction in smuggling in the past year or a continuing increase. Perhaps he can tell us whether consumption has gone up or down. Can he also explain why in countries such as Spain the smuggling level is 5 per cent., while in this country it is more than 20 per cent.? To what extent is that related to the level of tax that the Government insist on imposing on legitimate smokers? Has the Treasury now abandoned the belief that additional taxation has an effect on the level of smuggling? That seems to be implicit in the clause.

I hope that the Financial Secretary will be able to answer some of those questions and address the problem of the £3.5 billion of lost revenue. That is the total yield from national insurance contributions. An enormous sum is missing. It is feeding a black market involving criminal gangs on a scale unprecedented in this country. It is a serious issue on which to start the Committee's proceedings.

I lack the experience of many Committee members, having served on a Finance Bill Committee only once. That was in 1986 when I had a non-speaking part. I noticed that the then Opposition concentrated on speaking at great length because that was all they could resort to as a form of opposition. We intend to speak briefly, to the point and to try to persuade the Government to respond to the serious issues that we raise.

Mr. Davey: During the previous Parliament, we had many debates in this Committee on proposals to increase tobacco duty. The Liberal Democrats gave qualified support to the Government's proposals gradually to raise tobacco duties, and the Conservative party was against that. The hon. Member for Christchurch has not made it clear whether the Conservatives are against the measure, and said that that depends on the Government's reply to this debate. I look forward to their reaction to that reply. I want to put on the record that the Liberal Democrats remain in favour of the Government's policy of increasing excise duty on tobacco products, primarily for health reasons. Every year, 120,000 people die of tobacco-related illnesses, so the matter is serious.

During the previous Parliament, we had many debates on whether that policy was beginning to have the reverse effect of that intended and whether the proliferation of smuggling was resulting in children and adults having access to cheap tobacco and smoking more than they would have done if duties had remained unindexed or been cut. Those debates backed the Government's position, but gave them a warning.

We had a long debate on elasticity of demand, the tax elasticity of smuggling, cross-priced elasticity and revenue elasticity to duty rates. I shall not reiterate that debate, but the conclusion was that if the Government raised duties there would be a net gain to the Exchequer, so they are justified in continuing that policy. However, the hon. Member for West Dorset (Mr. Letwin) made a powerful argument about the social effect of undermining law and order with the increase in smuggling. He argued that unless the

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smuggling were tackled, whether or not there was a revenue gain for the Government from increasing excise duty on tobacco, there would be an undermining of social order and that that should be costed into the Government's equations. He was right to make that point and he did so powerfully. That was the major reason for us saying loudly to the Government that their anti-smuggling policy must be shown to work and be continued with persistence and ferocity.

The pre-Budget report suggests that that policy is beginning to work. We were told that Customs and Excise seized nearly 2 billion cigarettes in 1999–2000 and nearly 3 billion in 2000–01, which clearly indicates that there have been greater seizures, although it also shows that smuggling is still there. I wonder what happens to those 3 billion cigarettes.

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