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1.45 pm
Kevin Brennan (Cardiff, West): I am trying to follow the logic of the hon. Gentleman's argument and I understand where he is going. However, is it logical to include rolling tobacco, but not to include cigarettes? After all, rolling tobacco is one of the commonest ways through which young people on low incomes get into smoking.
Mr. O'Brien: I take the hon. Gentleman's point seriously and I have given considerable thought to it. Percentage sales of hand-rolling tobacco are small compared with cigarettes. If the hon. Gentleman will bear with me as I move through my argument, he may see that another balance has to be struck between the merits of what I am proposing now and the position in a couple of years' time when we can make a genuine comparison between the sales of cigarettes and of another set of tobacco products. We will all be better informed about any difference in the behavioural circumstances with respect to cigarettes and other tobacco products. We will be able to study where the graphs on health and revenue cross with respect to smuggling and cross-border sales and full UK duty-paid sales. We will also be able to assess the behaviour of young people. I hope that the hon. Gentleman will accept that children are primarily focused on ready-made cigarettes. Some may be interested in hand-rolling tobacco, but I am told—I do not have established evidence to give chapter and verse—that the bulk of such tobacco is sold to adults, defined as 25 years old and over. That is an adult lifestyle choice.
Rob Marris (Wolverhampton, South-West): The hon. Gentleman talks about comparative figures and says that, if his amendment were accepted, we could assess them in a couple of years' time. Is he aware of the position in Canada, where I recollect that the provinces
of Ontario and Quebec lowered the rate of excise duty on cigarettes because of smuggling from America? The consumption of cigarettes went up, so they are now raising the excise duties again because the earlier policy did not have the desired effect in terms of the behavioural changes that the hon. Gentleman is talking about.
Mr. O'Brien: That is helpful. It reminds me that I did encounter data of that sort, though I cannot remember it as clearly as the hon. Gentleman does. I recall that it was one of the reasons why I felt that it would be helpful to leave out cigarettes for that purpose. It should also provide a comparative control group to assess the risks and the behavioural differences, partly because purchasing of cigarettes is more widespread and obtaining them is easier than other tobacco products.
Mr. Jonathan Djanogly (Huntingdon): Is it not the case, in Canada as in this country, that one simply does not know how many illegal cigarettes are being consumed? The statistics are effectively meaningless because, without knowledge of how many illegal cigarettes are in circulation, we cannot know whether smoking is increasing or decreasing.
Mr. O'Brien: My hon. Friend makes a helpful point. It prevents us from getting hijacked by a sense of unreality in a debate that the amendments are designed to promote. We are dealing with cross-border and, more importantly, smuggling issues, and my hon. Friend the Member for Tatton (Mr. Osborne) mentioned black market operations in the UK. All the figures have to be regarded as estimates, but the Treasury, Customs and Excise, and many other interested groups—health groups and the Tobacco Manufacturers Association—are doing their best to get hold of reliable figures.
Over a period of years, estimates and approximations have been made. Although there has been some difficulty in ensuring confidence in the numbers, for the reason that my hon. Friend the Member for Tatton outlined, those numbers have become internally consistent. The information that we have makes it look as though that internal consistency has produced comparative data, year on year. The Government and health groups are thus able to refer to them.
The Government's actions are driven as much by health considerations as by revenue considerations. That was true of the previous Government, whom I supported: they, too, were keen to look at the balance between health, the raising of revenue, and the jobs involved in the very important industry that depends on tobacco manufacturing and the distribution and retailing of tobacco products. Over a long period of years, the figures have achieved at least an internal consistency. The challenge is to produce comparable figures on which the House can rely. That challenge would not be made worse by the amendments. However, some hon. Members may declare that no numbers exist that can be relied on, and that we will never know whether health issues are improving.
Pete Wishart (North Tayside): I want to clarify the central tenet of the hon. Gentleman's argument. Is he suggesting that we reduce the proposed rate of duty on
these tobacco products in an attempt to beat smuggling and organised crime? If so, that appears a very blunt instrument.
Mr. O'Brien: I shall try to make sure that my argument comes to a form of conclusion, so that the hon. Gentleman gets a sense of where the proposal might lead. The amendment has not been tabled simply for the sake of it—far from it. There will inevitably be scepticism among hon. Members from time to time about such matters, but I am seeking to make a genuine argument, as the amount of effort that has gone into it proves.
My proposed solution would at least allow us to make a proper judgment. The primary argument for freezing tax rates on the specified tobacco product items—that is, excluding cigarettes—is that it would reduce, although not eliminate, the incentive to smuggle and to go cross-border shopping. Even tax rises by the level of inflation increase already very large price differentials. A packet of 20 cigarettes costs roughly £4.29 in the UK, compared with an official price of £2.69 in France, and street prices of between £2 and £2.50. Increases in tax since 1997 have also accompanied a rise in smuggling from just 3 per cent. to 21 per cent. We therefore have to determine what rates of duty have to do with that phenomenon, which is clearly of concern to the Revenue. That is the main business of the Committee as it considers the Finance Bill. However, it is also a concern for all hon. Members, as constituents regularly raise matters to do with health, both here and in other forums.
I remind the House of the Customs and Excise document published in March 2000. Known as the TTS document, it states that smuggling
- "undermines progress on government health objectives by making cheaper cigarettes available through unregulated sources".
- "there are other undesirable effects. These include the law and order and social problems"—
- "arising from the concentration of large groups of criminals in certain areas . . . And it has resulted in a decreasing respect for the law, as the numbers of people involved in the buying and selling of smuggled goods has risen to many thousands, possibly millions. In addition, large scale tobacco smuggling has the potential to create building blocks for organised crime networks run along business lines in a way rarely seen before in the UK, and to finance other serious criminal activity."
Rob Marris: Does the hon. Gentleman accept that the vast majority of tobacco products smuggled into the UK come from countries in the eurozone? The euro has risen 10 per cent. in value in this calendar year. That will
undercut any comparative figures that the hon. Gentleman is trying to use, and also what he is seeking to achieve with the amendment, because the price of cigarettes in France in sterling terms has effectively gone up 10 per cent.
Mr. O'Brien: The hon. Gentleman makes an interesting point. At the grave risk of sounding as though I would much prefer to be at the Government Dispatch Box, rather than the Opposition one—although of course I would—I have not seen figures to support the contention that smuggling is primarily from the eurozone countries. I believe that the original source may be the eurozone countries, but the rise in criminal activity means that there are increasing numbers of intermediaries outside the eurozone. There is a fair argument to be had as to whether that exchange rate will make a huge difference. I think that the real concern is the current price differential.
Mr. George Osborne: Perhaps I can help my hon. Friend, as a huge number of smuggled products are manufactured in the UK, and then exported abroad to countries such as Latvia, Moldova and Afghanistan. They are also exported to Kaliningrad. The products are then smuggled back into this country. They do not come from France, so the matter has nothing to do with the euro exchange rate.
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