Finance Bill

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Mr. Luke: I shall return to the Customs and Excise situation, but I believe that many hardened smokers who have smoked all their lives cannot give up because they have been hooked for so long. I speak from experience, because my father was such a person and he unfortunately died of cancer. However, the incremental effect of taxes on younger people, who are not yet so involved in the habit, may be positive and they may be deterred from taking up smoking. I am not being critical and I am happy to acknowledge a personal freedom to smoke, but passive smoking has become a big issue in legal and medical terms. I hope that the overall effect is that the number of people who smoke is marginally reduced, people's health improves and costs to the health service reduce.

I take the point on Customs and Excise. This week, much concern has been raised in the Scottish press on Customs and Excise coverage in remote northern and north-eastern areas of Scotland. It has been run down so badly that smuggling of different types of banned goods has increased. I hope that the Treasury focuses on Customs and Excise having balanced coverage to ensure that smuggling and its ill effects—rl>specifically, those of tobacco—are countered.

Mr. Jack: I congratulate the Financial Secretary on his introduction of the clause, which showed his keenness for debate and his awareness of the facts. I am sure that we shall hear more during the debate.

I follow hon. Members on both sides of the Committee in probing the Government further on the reason for the clause. In table A.1 of the Red Book on page 155, the straightforward assumption is that the proposed revalorisation will have a zero revenue

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effect. If that is so, it brings into question note five of the notes on clauses, which states:

    ''Research has consistently shown that the price of cigarettes affects demand.''

The hon. Member for Kingston and Surbiton said that we have previously discussed the demand elasticity of tobacco products; perhaps we should discuss it again. I am not a smoker, but I am aware of the struggle by smokers to give up. I am also aware, from inspection rather than from objective proof, that more young people are starting to smoke. It would be helpful to have the facts before us. We do not know what effect a 6.3p increase per packet will have on a young first-time smoker as opposed to a more established smoker who has taken a personal decision on the risk. That argument follows the one on tobacco advertising.

People in the tobacco business closely follow proceedings in Parliament on this matter. It has always been argued that tobacco advertising does not persuade people to smoke, but shifts them between brands. One can make of that argument what one wants, but in the context of price, is the Government strategy designed to raise revenue, to dissuade newcomers from starting to smoke or just to make life difficult for those who have already discounted their exposure to the health risks of tobacco? I suggest that if one wants to dissuade people from smoking, one might go beyond simple revalorisation. If one is looking for a method of raising money, one might adopt a different strategy.

The clause and its notes do not make clear the strategy that the Government are following. We do not even know whether we are into the world of diminishing returns because, in many cases, indirect tax has almost become part of the tax firmament—every year a revalorisation will take place not only for tobacco, but for alcohol products. Whisky can reach a point of diminishing return for revenue, and the Chancellor made great play of a reduction in which he was involved, just as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) did.

The notes on clauses do not conduct us through a cost-benefit analysis, which the hon. Member for Dundee, East (Mr. Luke) started to do. The Treasury could say that we do not have a hypothecation of tax, but last night, on Second Reading of measures connected with national insurance, we got as near to a gigantic hypothecated tax as we have been for a long time.

If the Government's objective in raising revenue through national insurance is substantially to increase national health service funding, it is correct to ask precisely what is the relationship between revenues raised from the variety of tobacco products in subsection (1) and the associated health costs. That debate involves not just health costs, but revenue loss to the economy due to people who are ill as a result of smoking-related diseases and who are not productive. I could go on, which is why a cost-benefit approach may be the right one. It would be helpful to know the elasticity factors on which the Treasury bases its proposals. Do they vary with the age of the smoker or potential smoker?

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It would be useful to have information about the measurable effects on smoking trends in the United Kingdom; Government and Opposition Members have made points about that. It would also be helpful to contrast that with information about other European countries with different tax regimes, which, in their own way, have given rise to some smuggling. The Treasury is taxing through an indirect and, by definition, regressive tax. Therefore, it is important to know the justification for the Government's proposals, so that the Committee might have a proper and well-informed basis on which to judge what it may be asked to support.

Roger Casale (Wimbledon): I welcome you to the Chair, Mr. Gale, and look forward to serving under your chairmanship. This is the first time that we have come into contact. On occasion, because of the similarity of our names, our post has been misdirected, but I hope that no one in Committee confuses our identities.

I speak as one who gave up smoking some years ago. I am not the kind of reformed smoker who tries to persuade everyone else to give up. Nevertheless, I succeeded in quitting, but not as a direct result of price increases, although they had an indirect effect, as family members noticed that the cost of my habit was eating up more and more of the family income. A serious point that has been well made is that the smoking tax has a disproportionate effect on people on lower incomes, and the cost of cigarettes represents a substantial part of some families' budgets. We must bear that in mind when we consider measures such as clause 1.

Nevertheless, I welcome the measure, which will result in more revenue for the Government. It will also help to reduce cigarette consumption, which is good for public health. Most importantly, it will generate more income that can be invested in the NHS. However, we must be aware of the social impact of the tax, which is different for different sectors of the population. To counter the disproportionate effect, perhaps we ought to make more help available by offering, for example, nicotine replacement treatment through GPs and the NHS to those who genuinely wish to give up smoking.

In previous Finance Bill debates, we have discussed the influence of smuggling—it has been mentioned today—and how it can decrease revenue. However, there is an error at the heart of the argument. Many things cause people to smuggle cigarettes, alcohol and other goods, not least increased freedom of movement and greater ease of shopping in other European countries using technology such as the internet. Of course, we must be aware of smuggling's effect, but we cannot blame it all on increased tobacco prices. A balance must be struck that considers the objectives of raising revenue, protecting public health and counteracting smuggling. In the fight against smuggling, the Government have invested many new resources to increase the number of Customs and Excise employees and, through the Home Office, to clamp down on criminal activity.

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The hon. Member for Christchurch contends that the indexation of cigarette prices was not a Tory policy. We all remember that, under the Tory Government, there was not only indexation of tobacco prices, but the introduction of the escalator that created above-inflation cigarette price increases. To strike a proper balance between protecting public health, raising revenue and discouraging smuggling, we have removed the escalator, but it is still right to have an inflationary increase this year.

Mr. Chope: The hon. Gentleman misrepresents me. I said that under the Conservatives, the incidence of smuggling was less than 5 per cent. of cigarette consumption. Now, it is well over 20 per cent. Under the Conservatives, tobacco and cigarette consumption were falling, but they have increased by about 5 per cent. over the last five years. Those two changes have come about since the election of a Labour Government. The hon. Gentleman may think that they have nothing to do with the Labour Government, but surely someone should take responsibility. I suggest that the Government should.

Roger Casale: It is a long time since we had a Tory Government, and I hope that the next Tory Government are a long way in the future. However, several other factors have changed in the meantime. The increase in smuggling is a general phenomenon and we must do something about it. If the hon. Gentleman is so concerned about smuggling, I hope that he favours the extra measures and investment that will counter it.

Mr. Bercow: The omens from the 1997–2001 Parliament are not auspicious for the hon. Gentleman's thesis that excise duty rises will lead to decreased tobacco consumption. Can we please have it on the record, therefore, whether he predicts that tobacco consumption will be lower at the end of this Parliament than it is today, as a result of increased excise duties?

Roger Casale: The laws of economics are such that if the price of a good is increased, demand is reduced. On smuggling, price is one of several factors that we must take into account. If the hon. Gentleman is so concerned about smuggling and thinks that the only way to reduce it is to reduce tax, he must pursue that argument to the end and say that we should have no tax on cigarettes, or only very little.

I have found in the comments that we have heard this morning a reluctance to accept such tax. Again and again, we hear arguments against particular taxes, but perhaps what lies behind them is a general antipathy to any tax at all. The Government have struck the right balance. We must take account of the need to discourage smuggling, and we were right to come off the tobacco price escalator. The measure is the right response, and I support it.

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