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Mr. Redwood: During the local elections, Liberal Democrats in many parts of the country offered £100 off, signed by the leader of the Liberal Democrats for the time being. Is the hon. Gentleman tabling amendments to guarantee the £100 off, and how much extra income tax will a family have to pay to qualify for this apparent bonanza?

Mr. Laws: As the right hon. Gentleman will know, that was not hidden under the carpet. It was raised directly by the Liberal Democrat Treasury spokesman in a debate just a couple of weeks ago, and published as part of our alternative Budget proposals. I do not think

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there can be any doubt that this is our policy, and that it is clearly on record. Of course there will be all the necessary follow-through to ensure that we have an opportunity to debate the issue still further, and I hope we shall discover the Conservatives' position then.

The shadow Chancellor is not here today. I suspect that he is nursing his bruises from the result of the elections in Shepway. I am afraid that when, a few weeks ago, he was asked by none other than The Daily Telegraph what he would do about the increase in council taxes this year, he said, "I do not know." At least the Liberal Democrats have a policy on the issue. It is disappointing that the Conservatives have yet to develop one.

We shall have a good deal of time to debate the specific tax measures in the Budget in Committee, both on the Floor of the House next week and in Standing Committee subsequently, but I should like to touch on some today. One of the big issues that we shall need to debate this year is, I suspect, tobacco and alcohol duty, along with the implications of the differential between this country and the European Union in relation to smuggling. The Government have had to grapple with that issue, as is shown by this year's figures from the National Audit Office. It is clear that they have had to change their assumptions about the amount of tobacco revenue they will receive.

For many years our party believed, especially in respect of tobacco taxation, that there was an argument for the escalator that has operated. We argued some time ago that the extra finances should be earmarked for the health service, and a number of years ago the Chancellor did that, at least in theory. In a single European market, however, it is increasingly difficult to construct barriers; attempts to do so have been overturned in the courts, as we saw last year in respect of limits on non-dutiable goods brought back from the continent. It is becoming harder to maintain the duty differentials. That is a consequence of the tax competition that I would welcome—in contrast to a deliberate attempt to harmonise taxes, which I think neither necessary nor desirable.

According to the Government's own figures, even given their current measures to reduce tobacco and alcohol fraud and smuggling, some 20 per cent. of the tobacco market consists of smuggled tobacco. The figure is extraordinarily high for hand-rolled tobacco, which seems almost to constitute a majority of the tobacco consumed in this country. If we add that to legitimate cross-border shopping, we find that some 28 per cent. of tobacco consumed here—not far short of 30 per cent.—comes from the continent, with no duty paid.

I do not think that the case for a reduction in tobacco duty has yet been made. It is clear that any resulting upturn in consumption would prompt significant health concerns—although such concerns must be moderated by the fact that a huge amount of consumption takes place already, at very low prices, because so much tobacco is smuggled. It is certainly time that the Treasury engaged in a serious debate in the House, and an analysis of the costs of persisting with the current large duty differentials. We should be able to discuss what gains could be made if those differentials were reduced, at least to an extent that might make smuggling less attractive. I hope that those in all parts of the House

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would engage in that debate, not least because the Treasury—stuffed full of economists as it obviously is—should be sceptical about any system that, in a single market, involves two such different tax rates, creating huge incentives for smuggling.

Perhaps we can learn something from other continental countries, as the Conservative party has allegedly tried to do. Perhaps we should be learning something about the deliberation that is under way in EU countries, including Denmark, which I understand voted for a fair-sized reduction in tobacco duties to become effective later this year. I hope we shall table amendments in order to elicit a debate, and to encourage more consideration of the costs and potential benefits of such a policy change.

Kali Mountford: When considering cost implications, we should take account of parts of Europe where there is far more cirrhosis of the liver and lung cancer than there is in this country. We should consider treatment costs, and the human cost. We cannot discuss only the differential between duty rates in the debate that the hon. Gentleman suggests.

Mr. Laws: Those are precisely the issues that need to be considered, but if the hon. Lady looks at figures comparing duty rates across Europe with the amount of illness caused by alcohol and tobacco she will find that there is far from a one-to-one relationship. Alcohol abuse in particular seems to be related not just to price but to other social factors, which need to be considered.

Since the days when our Treasury spokesman represented Gordon, in Scotland, it has been traditional to touch on issues relating to spirits. Such issues are relevant not just to cross-channel smuggling, but to some of the measures in this Bill and last year's that affect the Scotch whisky industry. The Financial Secretary probably knows of the industry's representations on changes in the corporation tax treatment of stock depreciation; if she does not, she may have to by the time the Bill is enacted. I understand that the treatment that was introduced last year will have a particularly damaging effect on this business. Stock has to be held until it can mature, before being passed on to the market and consumed. This could cost the industry up to £30 million.

The next issue—it was raised by some of my colleagues in another place, and several hon. Members have touched on it today—is stamp duty land tax and relief on commercial property in deprived areas. As usual with most of the Chancellor's well-motivated measures, it sounds like a good idea. However, the issue that we need to debate in Committee is its practical impact: whether it will have the beneficial effects that the Chancellor claims, and whether the cost that he anticipates—some £90 million—will prove realistic. As my colleagues in another place have shown, the 2,000 most deprived wards contain not only residents and businesses that are experiencing great deprivation and pressure on profits but large regional shopping centres such as Lakeside, and big property developments such as Canary Wharf; indeed, the latter is in one of the 50 most deprived wards. I wonder whether the fact that such developments and their owners may benefit from

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this measure is entirely in line with the Treasury's desires, and whether the resulting economic effects will match the Treasury's wishes in all cases.

Who will monitor the cost of this measure and assess its benefits? This House has discussed many times the film tax relief that the Chancellor introduced to much fanfare several Budgets ago. It was supposed to cost in the region of £15 million to £20 million, but it had to be curtailed severely one or two Budgets later, when it was discovered that it threatened to cost a couple of hundred million pounds, because individual episodes of "Crossroads", "Emmerdale" and other programmes were being reclassified as films. The fear exists that other such well-intentioned measures may have precisely that effect.

The final issue relating specifically to the clauses is VAT fraud. Abuse and avoidance of the tax system is clearly a major problem, particularly in respect of missing trader VAT fraud, which continues to cost the Government billions of pounds. As the shadow Chief Secretary has said, it is of course right that we seek to close such loopholes. However, I understand that clause 18, on

will allow the Treasury to take action against suppliers and recipients of certain specified commodities, even in cases where they are potentially innocent parties. In the explanatory notes, the Government say that they will take steps to ensure that innocent businesses are not caught up in these new measures, and I hope that the Financial Secretary can say a little more today to reassure us that businesses that are trading perfectly legally and legitimately should have nothing to fear from them.

This was a very thin Budget in terms of substance, but a fat one in terms of the new regulations and complications that it introduced. As my right hon. Friend the leader of the Liberal Democrats said, it was a "hope for the best" Budget—a crossed-fingers Budget—the results of which will not be seen until later on this year and next. I fear that the Chancellor will have to return to the House to revise up his Budget forecasts yet again. He has got away with excuses for a long time because of the strength of the consumer sector—a temporary boom in the housing and retail markets, which now seems to be coming to an end. I suspect that we will look back on the Budget of 2003 as a significant one not because of what was in it but because it may mark a turning point in the Chancellor's and the Government's reputation for economic management.

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