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Pete Wishart: Can the hon. Gentleman help the House by naming any health professional body that agrees that the freezing or reduction of duty on cigarettes would be a good thing in terms of the health issues?
Mr. Laws: I am grateful to the hon. Gentleman. That is precisely the type of issue that needs to be considered as part of a study into whether the existing duty differentials are working. Although I am sure that no or very few individuals would suggest that a lower price for tobacco products in this country would have anything other than adverse effects on health, many individuals, even in the health field, would be extremely concerned about a system in which no duty is paid on 28 per cent. of
cigarettes, and in which smuggled hand-rolled tobacco accounts for 70 per cent. They would also be extremely concerned that a large amount of the Government's health policy in respect of tobacco products was being undermined by the fact that a huge amount of consumption in this country is of products on which no duty was paid.That trend is being exacerbated, undoubtedly, by the Government's responsibilities in respect of the single market, as was demonstrated by the decision that the Economic Secretary had to take last October to dismantle some of the Government's draconian steps to stop tobacco and other dutiable goods being brought into this country. It is too early to say what will be the effects of the Government's policy reversal. When we look at the figures in the year ahead, we may find, as some tobacco manufacturers have suggested on the basis of the early data, that the proportion of tobacco consumed in this country that is smuggled or brought in legitimately with no duty paid increases markedly as a consequence of that policy reversal.
Rob Marris: May I point out to the hon. Gentleman that it was not a reversal of Government policy? The Government were turned over in the courts and followed the law.
Mr. Laws: The hon. Gentleman is playing with words. What he is saying is that the Government's policy was overturned in the courts, so the Government had to change their original policy in a serious way. Some of the major measures suggested by Martin Taylor that the Government implemented were precisely the measures that have now had to be dismantled, whereas some of the proposals in respect of narrowing duty differentials appear to be precisely those that the Government have not been willing to discuss.
The stage has been reached at which the Government and the Treasury ought to commission a serious and public piece of work that is seen to be independent from all interests, to consider three issues. First, it should consider the economic impact of current duty differentials, and what would be the effect of narrowing them. I know of few economists who at this moment think that a reduction in tobacco duty would be self-funding—that it would increase demand in this country in such a way that it would pay for itself. The Institute for Fiscal Studies certainly did not seem to reach that conclusion when it reviewed the issue a couple of years ago. The increase in smuggling, however, may have changed the dynamics of that calculation. As the hon. Member for Eddisbury also mentioned, we need to consider other costs, such as the effects on small businesses, the economic incentives that we are creating for people to travel backwards and forwards between the United Kingdom and the continent, and the far-from-negligible policing costs for the Government of having to convert a strategy that could be based on narrowing duty differentials into one based entirely on policing.
Secondly, clearly, we must understand better the health effects of any reduction of duty levels. As the hon. Member for Eddisbury said, it is notable that recently, when tobacco duty has been increasing rapidly, we seem to have been least successful in reducing consumption. Consumption seems to have levelled out precisely when
duty has been increasing significantly. That may tell us that the strategy has not been working recently because it has created such incentives for people to bring in non-duty-paid goods that it has undermined the effect of the Government's attempts to increase tobacco prices.Thirdly, as the hon. Member for Eddisbury also mentioned, there is the issue of crime, and the fact that the huge illegal smuggling activity is fuelling a significant crime wave, not least in the south-east corner of the country. That and the associated crime, and the causes to which that profit is put, ought to be a great concern for the Government.
I hope that the Government will not hide behind the concept that the present rate of duty is exactly right. I hope, too, that the Economic Secretary will acknowledge the huge increase in smuggling over recent years and the need to take that into account in Government policy. I also hope that he will acknowledge that the Government's U-turn on the tobacco escalator—the scrapping of the automatic escalator—reflects their understanding that there is a limit to the extent to which tobacco duties can be allowed to rise without introducing such large incentives to smuggling that the basis of the policy is undermined.
Mr. George Osborne: The hon. Member for Yeovil (Mr. Laws) said that we all had to be honest about our past. Saying that I used to smoke is my contribution to meeting that request. At times, I am in danger of having the zeal of the convert, because I see the damage that smoking does. By instinct, and like many people, I recognise the value of having high duties as a way of discouraging people from smoking. However, as the hon. Gentleman said and as my hon. Friend the Member for Eddisbury (Mr. O'Brien) pointed out in his good speech, the issue is much more complicated than that, and it is right for the Committee to explore how the rates of duty that the Government set impact on tobacco smuggling and consumption.
2.30 pm
As many people have said, smuggling is a massive problem. A fellow member of the Public Accounts Committee reminded us that it had recently carried out an investigation into tobacco smuggling. It broke with all precedent by summoning before it the representatives of a private company—the management of Imperial Tobacco—to explain to the Committee what the company's relationship was with the smuggling problem and Customs and Excise.
I have several concerns that have already been elucidated by other hon. Members, but I will touch on them briefly. My hon. Friend the Member for Billericay (Mr. Baron) pointed out the health concern. The Government's legitimate objective of using fiscal measures to discourage consumption is clearly undermined if those same measures lead to a huge increase in smuggling. One of the features not yet touched on in the debate is the fact that between 2 billion and 3 billion of the cigarettes that are smuggled are counterfeit. They are not actually the cigarettes that they claim to be. That could have serious health implications. People might think that they are smoking
low-tar cigarettes because that is the way that they are packaged when, in fact, they are smoking counterfeit cigarettes that are not low tar. There are serious health concerns which should be addressed.I touched on law and order when I intervened on my hon. Friend the Member for Eddisbury. Tobacco smuggling is a huge boon to organised crime in this country and it goes hand in hand with other activities such as drug smuggling and the trafficking of human beings for prostitution and immigration purposes. It is striking that many of the smuggled cigarettes that we consume come from places such as Latvia, Moldova, Afghanistan and Kaliningrad. Such places are associated with many of the other serious crime problems that we face.
There is another aspect to my concern about law and order. Because one in five cigarettes are smuggled in, because one in five smokers use illegal products and because they are purchased off the back of a lorry by the owners of pubs, clubs and corner shops, many otherwise law-abiding people are brought into contact with the criminal fraternity. That can have a corrosive effect.
As is legitimate in a debate on a Finance Bill, Members have touched on the revenue concern. In one year that the Public Accounts Committee considered, £3.5 billion was lost as a result of tobacco smuggling. That is the equivalent of 1p on the basic rate of income tax, so we are talking about a very large sum of money.
My next remark is not intended as criticism of the present Government, because all Governments have pursued this policy. The underlying cause of the problem is the variable rates of duty available in this country and in other countries, particularly those near us in Europe. If the price of a packet of cigarettes were very low, there would be a limited incentive to smuggle them into this country. Therefore, it is legitimate to ask about the impact of those rates on smuggling and consumption.
I have two questions for the Economic Secretary—one is general and the other more specific. First, what sort of work and modelling has been done in the Treasury on the effect on cigarette consumption, smuggling and revenue of freezing or reducing the duty? When Richard Broadbent, who is otherwise a very impressive individual, came before the Public Accounts Committee, he was questioned by its Chairman on this issue. Mr. Broadbent replied:
- "I do not know and I am not sure we are able to calculate with any degree of certainty—and we have not calculated—what the impact might be of such a step downward in rates in the UK".
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