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Finance Bill
(Clauses Nos. 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules Nos. 5, 6, 19 and 25, and any new Clauses and Schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration)
Considered in Committee [first day].
[Sir Alan Haselhurst in the Chair]
Clause 1
1.30 pm
Mr. Stephen O'Brien (Eddisbury): I beg to move amendment No. 1.
The Chairman: With this it will be convenient to consider the following amendments: Nos. 61, 2 and 3.
Mr. O'Brien: As we commence the Committee of the whole House on the Finance Bill, may I welcome you to the Chair, Sir Alan, and draw attention to my entry in the Register of Members' Interests? We will deal with amendments Nos. 1, 2 and 3, standing in my name and those of my right hon. and hon. Friends, with the rates applying to tobacco and their implications, and with why the amendments have been proposed.
In considering these amendments, it is important to recognise the competing interests of the freedom of choice of consumers—people's freedom to be un-oppressed by the Government in the choices that they make in their own lives—and of the health background that has become an increasingly important consideration in recent years in relation to tobacco products. The plan has been to increase rates of excise duty on all tobacco products in line with inflation. The Budget stated that it would increase the rate by 2.8 per cent. with effect from 6 pm on 9 April 2003—the day the Chancellor made his Budget statement to the House. In the four Budgets between 1997 and 2000, the increases were inflation plus 5 per cent., and in Budgets since then the increases were inflation only, so the Government's current proposal is in line with the past three Budgets.
Although my colleagues and other Members will immediately have spotted that the amendments relate to tobacco products, they will also have noted that they relate not to the rate of duty on cigarettes—to which we do not propose an amendment—but that relating to the other categories of products: cigars, pipe tobacco, hand-rolling tobacco and other smoking and chewing tobacco. I hope that the reason for tabling these amendments will become clear, and that the Government will be persuaded to consider them favourably.
I began by mentioning the caveat of health issues because the focus tends to be on cigarettes. Because so much importance is attached to the behaviour that the rates of duty applying to tobacco products seek to influence, the message tends to be somewhat more
emotively concerned with cigarettes. In order to ensure that the argument is as transparent and compelling as possible, those who think as I do on these matters have thought it important not to cloud the issue by dealing directly with cigarette tobacco products at this point, but I hope that the Government can learn some lessons if we are able to pursue the route proposed through the amendments.Although the amendments do not deal with cigarette tobacco products, the problem that they identify and deal with is equally valid in terms of cigarette smoking and related tobacco products, and of other tobacco products. The outline of the problem that has informed me, my colleagues and a wide variety of outside bodies can be found in the Government's own document, entitled "Tackling Tobacco Smuggling"—it has become known as "TTS"—which was published by Her Majesty's Customs and Excise and the Treasury in March 2000. Paragraph 1 states:
- "The increased availability of cheap smuggled cigarettes is undermining the Government's health objectives."
Smuggling currently accounts for 21 per cent. of cigarette consumption and 52 per cent. of hand-rolling tobacco consumption, and the Treasury has lost a staggering £12 billion in revenue since 1997. The level of cross-border shopping, which must be distinguished from smuggling, continues to rise; it now accounts for 7 per cent. of cigarette consumption and 17 per cent. of hand-rolling tobacco consumption. That constitutes a further revenue loss since 1997 of £3 billion. No UK duty is paid on 28 per cent. of cigarettes, or on 69 per cent. of hand-rolling tobacco. Some 28 per cent. of UK cigarettes sell at £2 to £2.50 for a packet of 20, the remainder selling at full price.
In looking at the competing factors affecting the judgment that the Treasury must be required to make annually in considering these rates, it is interesting to note that the long-term downward trend in cigarette consumption has been broken. Tax increases since 1997 have resulted in a broadly flat overall level of tobacco consumption, including cigarettes and hand-rolling tobacco. I was naturally somewhat sceptical about this, thinking that those who have an interest in tobacco—be they smokers or producers—might be spinning me a line. So I turned to the Office for National Statistics, which in fact bears out these figures. For instance, in 1979—to pluck a year at random—cigarette and hand-rolling tobacco smokers accounted for 39 per cent. of the UK adult population. Between 1979 and 1992, the rate of consumption declined dramatically through the tremendous work of the previous Conservative Administration. In 1992, the rate was approximately 29 per cent.—a full 10 per cent. decrease. In 1997, the rate was about the same, and today it remains in the region of 27 to 28 per cent.
In terms of a percentage of the UK adult population, the graph for the consumption of cigarette and hand-rolling tobacco has therefore flattened, and has
remained flat since 1992. So the attempt to focus on the behavioural drivers through the Treasury's annual setting of rates, the function of which is to have regard to the health of our citizens, worked dramatically between 1979 and 1992; however, the graph has remained broadly flat ever since, with the percentage remaining at just over a quarter of the adult population.It would be fair to say that, on health grounds, much progress has been made, but it has stalled and steadied. However, the amount of cigarettes, hand-rolling tobacco and other tobacco products either smuggled into the country or bought through cross-border shopping has shot up dramatically. The statistics are far more difficult to establish, not least because smuggling is unsurprisingly not officially recorded. The revenue loss through smuggling and cross-border shopping has risen dramatically from between £0.5 billion and £0.75 billion in 1996–97 to about £4.5 billion in 2002, the last year for which records are available.
Rather than taking the rates as read and viewing them as the natural order of a Chancellor's Budget—the result of people wondering what price he is going to put on a packet of fags—it is better to focus on behavioural success and behavioural opportunities. That applies to health, to revenue and to shopkeepers—particularly the owners of corner shops, examples of which can be found in every constituency and which carry considerable overheads—who are suffering significant losses through smuggling and cross-border shopping. Constituencies are more affected the closer they are to the south coast of England, but they are not alone because smuggling goes on equally on the east coast and the problem is also prevalent in my own constituency—as I know from talking to owners of what are colloquially known as corner shops—even though Eddisbury has no coastline. A large black market has developed, and at times it has become, frankly, a legitimate industry.
I recently debated with the Minister secondary legislation through which the Government sought to allow an increased quota of certain products for personal use to be brought into the country. The concern remained that some cross-border shopping had resulted in on-sales, so the Government attempted to deal with the problem through that secondary legislation.
I have consulted people from a wide range of interests, as well as people in my own party who are focused on these matters, to establish what the solution should be for this year.
Mr. George Osborne (Tatton): My hon. Friend is making an excellent speech. Before he moves on, he might like to reflect on the fact that the black market encourages organised crime and has created serious law and order problems, as well as costing the Exchequer, small businesses and others in terms of revenue.
Mr. O'Brien: My hon. Friend represents a neighbouring constituency. He recognises that, despite the fact that neither of us has a coastline in our constituencies, smuggling and the black market deeply concern many people who run legitimate, well stocked and provisioned businesses.
The Government have repeatedly recognised—it is not a matter of contention and would be agreed by all parties—that applying a rate to tobacco products is not simply a revenue-raising matter. It carries revenue-raising opportunities, as well established over many decades by Governments of both colours, but over the past 20 years it has become more widely understood—and I have sought to put it on the record with the information that I provided—that the rates provide behavioural opportunities in respect of health and revenue raising. The rates also affect the opportunities to acquire these products—whether brought from across the English channel, from other countries, or smuggled.
I have viewed health considerations particularly highly, as they are well aired and understood, though people sometimes have different points of emphasis or completely different points of view on the dangers of tobacco. As I say, we have to look at behaviour. I concluded that we should focus on non-cigarette products in order not to be distracted by more emotive health arguments attached to cigarettes, not least because evidence shows that cigarettes are the tobacco products of choice for under-age children and have peer group attractiveness for teenagers. We should therefore reflect on what it would mean behaviourally if we froze tax rates this year on certain products.
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