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The Economic Secretary to the Treasury (John Healey): May I welcome you to the Chair, Mrs. Heal, on my first opportunity to serve under your chairmanship in the Committee of the whole House?
We heard a reflective and detailed exposition from the hon. Member for Eddisbury (Mr. O'Brien) that raised genuine concerns and questions about the current policy and although I respect that, I must tell him that his contribution might have been more appropriate in the Standing Committee. However, what is discussed on the Floor of the House is a matter for his and his colleagues' judgment and choice.
The hon. Member for Yeovil (Mr. Laws) made a somewhat less detailed and reflective contribution, although it was nevertheless considered. He described amendment No. 61 as a probing amendment. It would make a negligible change to the Bill and it does not disguise his interest in tax harmonisation throughout the European Union, which lies behind many of his remarks.
Mr. Laws: I am happy to confirm that my party believes in tax competition, not tax harmonisation, and that is precisely what the debate is about.
John Healey: The hon. Gentleman urged us to have a smaller, if not harmonised, differential on excise duties. We will follow closely what other European countries do. The hon. Gentleman is right that Denmark is reducing excise duty on tobacco, but in January France increased the duty and VAT on a packet of cigarettes by 34p and Germany recently increased it by 63p. So the UK is not alone or isolated in its policy of high taxation to reduce smoking.
The hon. Members for Yeovil and for Eddisbury asked about the publication of the Taylor report. That call is not new and my reasons for refusing its
publication have not changed. The Taylor report contains internal private advice that was supplied to the Chancellor and we will not publish it.
Mr. Stephen O'Brien: It is difficult for Opposition Members to gainsay what a Treasury Minister says about an internal report that was commissioned to provide private information. It would be fair for the Economic Secretary to reflect on the idea that it would be better if internal reports were not publicly announced as great triumphs of consultation. There were high expectations about the report's probity and that encouraged many outside bodies to do a lot of work and make representations. If the report cannot be published, much of that good will has been wasted with only the Government benefiting, not the nation.
John Healey: The Taylor report was undertaken four years ago. Since then, the Government have published an unprecedented amount of data and analysis. They have made an unprecedented assessment of the amount of revenue lost and the problem posed by smuggling. They have also put in place unprecedented investment to tackle that.
Mr. Michael Jack (Fylde): Is the Minister willing to supply a copy of the document to the Information Commissioner and ask whether, in the commissioner's judgment, it contains matters that for security reasons prevent it from going into the public domain? We would all feel happier if we had a proper assessment of the Treasury's need to keep the report to itself.
John Healey: The Government made their position clear several years ago and we have no intention of altering that now.
Mr. George Osborne: On a point of order, Madam Deputy Speaker. Is it in order for a Minister to refer to a document in the House and not place a copy of it in the Library?
The First Deputy Chairman of Ways and Means (Sylvia Heal): The Minister is entirely in order.
John Healey: Thank you, Mrs. Heal.
John Healey: I have a great deal of time for the hon. Member for Buckingham (Mr. Bercow) but he only recently arrived in the Chamber, so I shall give way to the hon. Member for Yeovil.
Mr. Laws: The Economic Secretary says that he will not publish Mr. Taylor's report. Will he confirm the press reports at the time which suggested that Mr. Taylor made recommendations in the report on the duty differentials between this country and the continent?
John Healey: The hon. Gentleman tempts me into the realm of speculation and I shall not respond.
Mr. Bercow: Will the Economic Secretary give way?
John Healey: The hon. Gentleman is so persuasive that I shall give way just this once.
Mr. Bercow: I am grateful to the Economic Secretary for giving way and happy to reciprocate his good regard. However, it will not do to say, "This is our position. It is a clear position and therefore I am not going to consider changing it, notwithstanding powerful arguments in support of so doing." Aside from any commitments to his boss, what intellectually is his answer to my right hon. Friend the Member for Fylde (Mr. Jack) on the idea of putting the issue before the Information Commissioner? What is his intellectual response to that?
John Healey: The Government have determined their position. I am afraid to say that that has not changed and I do not entertain seriously the suggestion proposed by the right hon. Member for Fylde (Mr. Jack).
The clause increases excise duty on all tobacco products in line with inflation. Its purpose is to maintain the real cost of smoking by ensuring that the level of duty on all tobacco products keeps pace with inflation in line with recent years, as the hon. Member for Eddisbury said. Our aim is to encourage people to smoke less or quit, and to discourage children and young people from taking up the habit. To that extent, the general approach reflects what this and previous Governments have done to use high prices as part of maintaining the pressure to reduce consumption. Some 35 per cent. of the population smoked 20 years ago. Five years ago that was down to 28 per cent. and there has been a slight fall since then to 27 per cent. in 2001, the latest year for which figures are available. I congratulate the hon. Member for Tatton (Mr. Osborne) on his personal contribution to that statistic.
Amendments Nos. 1 to 3 would freeze excise duty on all tobacco products other than cigarettes. We cannot accept them as their likely effect would be to increase smoking. Amendment No. 61 would raise excise duty on hand-rolling tobacco by marginally less than inflation. It is hard to understand the purpose of that marginal change proposed to the new duty rate. The tax effect would be an increase of about one quarter of one penny on a typical 25 g packet of hand-rolling tobacco.
I emphasise that we do not take lightly or without regard to wider considerations the decision to increase tobacco duties in line with inflation across the board. The policy as set out in the 1999 pre-Budget report is to have Budget-by-Budget decisions that take into account a wide range of factors, as hon. Members urged us to do, including the Government's health objectives. When there have been reasons to do so, we have taken a different approach. For example, the Chancellor froze duty on hand-rolling tobacco in his first three Budgets in response to a difficult smuggling problem, as hon. Members recognised. However, with £209 million invested in an anti-smuggling strategy, the revenue lost as a result of cross-channel passenger smuggling of hand-rolling tobacco declined from around £700 million three years ago to just £95 million last year. Duty rates policy was adjusted accordingly, precisely the linked decision that the hon. Member for Billericay (Mr. Baron) wanted.
In two years, Customs and Excise has succeeded in not only halting the growth in cigarette smuggling and keeping the illicit market share to 21 per cent., but
reducing the volume of cigarettes successfully smuggled into the UK by almost 1 billion. That is a reduction of nearly 5 per cent. and the first time in more than a decade that that has happened. If we had not made the investment and taken that action, the forecast for the illicit market would now be around 31 per cent. That means that 7.5 billion cigarettes were prevented from entering the illicit market in the UK in 2001–02 through the efforts of Her Majesty's Customs and Excise to bring the problem under control.My hon. Friend the Member for Hemsworth (Jon Trickett) serves in a distinguished way on the Public Accounts Committee. I pay tribute to his work and to that of the hon. Member for Tatton, especially for their important inquiry into tobacco smuggling and the export activities of Imperial Tobacco. The hon. Member for Tatton asked about a memorandum of understanding. The company has worked closely with Customs and Excise. They have made good progress and there is a reasonable prospect of its signing a memorandum of understanding shortly. However, as the PAC and hon. Members on both sides of the House acknowledged, internationally organised gangs smuggle the majority of tobacco into the UK. It enters the UK in large volumes through freight, and no duty whatsoever is paid on the product. About 70 per cent. of that smuggled tobacco is unaffected by the duty rates in our neighbouring European Union countries.
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We are concerned about wider issues such as smuggling, but for this Budget, we decided to maintain the real level of duty across all tobacco products in support of the Government's health objectives. That is what the clause seeks to do, and that objective would be undermined by the amendments in two ways. First, they would reduce the cost of the products in question in real terms by preventing the level of duty from keeping pace with inflation. Secondly, they would increase the price differential between cigarettes and other tobacco products. That may encourage cigarette smokers to engage in down-trading—rather than giving up, smokers may respond to the relative increase in price by shifting their consumption from cigarettes to cheaper products. There is already a trend for smokers to down-trade from cigarettes to hand-rolling tobacco in particular, as my hon. Friend the Member for Cardiff, West (Kevin Brennan) pointed out in his intervention. The amendments would only reinforce that trend.
Indeed, the representations that we received from health and anti-smoking groups such as Action on Smoking and Health, the Royal College of Physicians and Cancer Research UK in the run-up to the Budget made it clear that they believed the tax rate on hand-rolling tobacco should be increased to
- "reduce the incentive to switch from cigarettes".
- "cigar prices should be kept in line with cigarettes and increase at the same rate".
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