Finance Bill

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Mr. Bercow: It is important to be clear about the philosophical underpinning, if such a term can be used in relation to a Liberal Democrat, of the hon. Gentleman's position. His support for the Government's position is on the ground of health rather than that of revenue raising. For the avoidance of doubt, will he confirm that if—I am not saying that this is the case—the evidence were to show that the Government's policy was not effective in terms of health but only in terms of revenue raising, he would change his position?

Mr. Davey: I would indeed, and the Government would too. Like previous Conservative Governments, they have said that the purpose of raising tobacco excise duty is to reduce the demand for smoking. An awful lot of evidence from the World Health Organisation and other bodies not only in this country but internationally supports the thrust of their policy, and that of the previous Conservative Government, on tax duty. If that evidence were to change, it would be incumbent on all hon. Members to change their positions.

I refer members of the Committee to the pre-Budget report, which indicated that the Government's anti-smuggling policy is having an effect. The Financial Secretary said that the tide of smuggling may be turned by 2003, and the pre-Budget report suggested that it is currently stable. I am sure that he would agree that smuggling is still at a very high level because 21 per cent. of the UK market is believed to consist of smuggled cigarettes, which is a very large percentage. We need to see that figure pushed down even further.

I hope that the Financial Secretary will tell us what other measures are being taken and how he imagines that the measures that are already in place will continue to push down on smuggling, whether it consists of cross-Channel passenger smuggling, the white van trade or the organised crime part of the smuggling market. I hope that he can provide good evidence that Liberal Democrat Members are right to continue to support the Government in their dual approach of increasing duty on cigarettes for health and having an anti-smuggling policy to tackle fraud.

One specific measure in the clause surprised me because recent Finance Bills have frozen the duty on hand-rolling tobacco. The differential between the

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price of hand-rolling tobacco in the UK and its price in Belgium, France and one or two other EU countries was far greater than the differential between the price of a packet of 20 cigarettes, which resulted in a greater propensity to smuggle hand-rolling tobacco. Indeed, hand-rolling tobacco became a substitute for rolled tobacco, and tobacco manufacturers experienced a major substitution from packets of cigarettes to hand-rolled cigarettes. I was therefore surprised to see a change in policy in the Budget to move from non-indexation of duty on hand-rolling tobacco to indexation. Previous Budgets have contained a real-terms cut in excise duty on hand-rolling tobacco. I wonder whether the Minister can explain why policy has changed and how the Government justify that.

Mr. Howard Flight (Arundel and South Downs): I add my welcome to your chairing of our deliberations today, Mr. Gale. I should probably declare an interest as perhaps one of the few smokers present.

Does the Financial Secretary have any estimates of the Government's objective in terms of reducing smoking? We know that the revenue objective is a reduction of £100 million, but we do not know what reduction in smoking they expect to achieve.

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I shall, for what it is worth, fall in line with the general middle class view that smoking is a bad thing and must be discouraged at all costs, but what has taken place since 1997 is an example of political correctness achieving the wrong objectives. It is clear that a bell-shaped curve applies both to discouraging smoking and to tax revenues, and that there is at least a theoretical, optimum position on the tax revenue curve before one begins to encourage widespread smuggling—not just smuggling, but people going over to continental Europe in droves and buying what they are allowed to buy.

Secondly, there is a knock-on bell-shaped curve in relation to discouraging smoking: again, once cheap cigarettes become widely available as a result of smuggling, the price-demand effect goes into negative territory. On both curves there is a point at which the right price and the right duty tend to achieve the optimum on both fronts. What we are achieving is well to the right of that and down the other side of the curve, and the figures were quoted.

It is interesting that up to 1997 we were one of the most successful countries in reducing smoking, which fell by 37 per cent. between 1970 and 1997. Prevalence fell by 40 per cent. The policy of gradual price increases, without getting wildly out of line with continental European prices, worked, as no doubt did all the teaching that smoking is bad for one. However, the estimates are that smoking has gone up about 5 per cent. since 1997, particularly, as I think we are all aware, among younger ladies.

I dislike the regressive nature of this taxation. Let us be truthful: many tax credits will be spent on smoking. In view of the prevalence of smoking in society, it is the biggest regressive tax that we have. A prohibition mentality lies behind the good intentions, and the Government should step back, take stock and do their own analysis of revenues as well as of the

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impact of pricing policies on smoking, including the interaction with anti-smuggling activities. Smuggling relates not simply to 21 per cent. of cigarettes and 70 per cent. of hand rolled, but to the 10 to 12 per cent. of people who buy their cigarettes outside this country. Therefore, the smuggling figures do not tell the whole story about the revenue that is being lost and what is being smoked.

The Government must admit that the results of all the effort and money spent on staffing Customs and Excise and so forth are pretty feeble. Even the Customs and Excise target—not that it necessarily expects to achieve it—is to reduce cigarette smuggling to 18 per cent. in 2004–05 from 21 per cent. today. Therefore, I cannot see how the Government can claim that all the cost and effort of greater Customs and Excise activity will have much impact.

What has happened to the hypothesised additional money from the smoking tax for the NHS, which the Chancellor boasted about in 1999? Do the falling tax revenues mean that the money the NHS would have received has also fallen? Has that been forgotten? Was it all just words and spin at the time? What are the numbers here? Is the policy still in place?

We have corrupted society. We have made many decent people participate in smuggling because they regard it as socially acceptable not to pay excessive prices, as I have commented in the past. Exactly the same happened with coffee in the 18th century. We have reduced tax revenues dramatically—the estimate is by about £3.5 billion a year, or some £10 billion since 1997—yet we have increased tobacco consumption by 5 per cent.

Is that a sensible strategy to have followed? To me, it sounds crackpot on all fronts. Merely to recite the chant that we must put up prices because smoking is bad for people, while not considering the effects of what is being done, seems hypocritical and wrong to me, even if the primary objective involves health through reduced smoking. I should like to know the relevant figures.

Mr. Bercow: I am grateful to my hon. Friend for giving way, as he provides a learned disquisition on his subject. The Committee must consider important issues of health improvement and raising revenue, but I was struck by what he said at the outset about bowing down to the middle class consensus on the subject. For the avoidance of doubt, I put it on record that although I gave up cigarette smoking on 25 June 1986, following an especially trying meeting of Lambeth borough council's women's committee, I strongly believe in freedom of choice. I defend passionately my hon. Friend's right to continue to smoke cigarettes, if that is his choice.

Mr. Flight: I thank my hon. Friend. Perhaps I shall give up one day, but to return to wrestling, I am glad to say that I can still wrestle pretty effectively.

It is a great pity that the Government suppressed the key parts of the Taylor report. The strategy followed since 1997 has, very clearly, been to up the duty and up the price of cigarettes by more than is

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sensible if the aims are to discourage smoking and to have regard to tax revenue.

Mr. Iain Luke (Dundee, East): On behalf of the newer Members here, who have not served before, may I say how much I have appreciated your chairmanship of Committees, Mr. Gale, and how you have guided us through the intricacies of parliamentary debate? I hope that you keep us in touch with what we should and should not do in this Committee.

I take the points made by the hon. Member for Arundel and South Downs, but smoking is bad for, and affects, people's health. Even if the marked effects of this tax increase are marginal, it will certainly save someone's life and have a good effect on people's health throughout the country. Every family knows of, or is affected by, the abysmal habit of smoking. I am a non-smoker, so I can take that Presbyterian, Calvinist view but, at the end of the day, what the Government are doing must be promoted. We must look at the matter in the round. The recent Bill to restrict or abolish tobacco advertising would have saved the health service £40 million a year and saved 3,000 of the 120,000 lives that we are discussing.

Mr. Flight: Does the hon. Gentleman really believe that such a measure would reduce smoking? The crucial point is that smoking has increased due to the higher prices of the past five years and the resultant impact on smuggling. I have asked the Minister what he expects the outcome to be. Will the angle that the hon. Gentleman advocates be counter-productive?

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