Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 40-59)



  40. I notice also that you recommend—this was a year ago now—a number of matters be reviewed by the Customs. I think you require them in effect—You have a polite way of expressing everything which is admirable, I wish I could emulate your politeness but I am afraid I cannot, I would call them instructions, no doubt you would call them polite requests. For example, keeping under review the balance between prosecution and other measures in reducing overall smuggling is one of the things you require Customs and Excise to do. Have you monitored the way in which they have kept that balance under review? A year has gone by now, what is your reflection on that?
  (Mr Parker) This Report deals with the year 2000-01, that was only published relatively recently so in many respects this is the latest examination that we have conducted.

  41. But no doubt we are not dealing with the world purely as historians, to some extent this is meant to guide our actions. We have got under review criminal activity which was taking place more than two years ago. Are you saying that you have not yet asked the Director to comment upon this and to say whether he has reviewed the balance between prosecution and other measures?
  (Mr Parker) As part of our programme of audit for the 2001-02 trust statement and also section two report we will evaluate progress since then.

  42. But you have not done that yet?
  (Mr Parker) We have not done that yet.

  43. I wonder if I can just turn back to you, Mr Broadbent. I see my two minute notice coming already, it seems to come faster and faster. My feeling is that criminals are moving much faster than yourselves. The C&AG's Report is almost two years out of date in relation to some of the activities that it describes and you have not got round to discussing it yet in any detail as far as I can tell. You are unable to really respond to my questions about the last year which expired a month ago and I would have thought you would have some idea. How do you respond to the suggestion that basically you are a tail-end Charlie—that is another Yorkshire expression—and the criminals are much more fleet of foot than yourselves and basically you are just not keeping up with them in any way, the information is not there?
  (Mr Broadbent) I think I would respond in this way. I think that tobacco smuggling is an area where they got ahead of us, the level of market share of smuggling rose very rapidly, was doubling in some years, and would be very significantly much higher now. Secondly, I am personally impressed by both the commitment of the Government and of the organisation to recognise that the problem exists and to put in place the strategy which has been put in place to tackle it. Thirdly, I am very struck, and I am always struck when I come to these issues, by the extent to which this strategy and components of it is completely different from everything they have done before, not just in how we are measured in terms of the outcome, not how many have you seized but what have you actually achieved, right through to the use of the technology, the use of intelligence, where by the way I agree with you, I think intelligence probably is the key issue, through to trying to develop every part of our activities, changing the way we prosecute people, changing the way we conduct investigations. I am impressed with the way the organisation has done that. I think there is an enormous amount to do and I think we started from a position where the problem was heading out of control if we had not acted. We have acted and I think the outcome so far has been clearly material, without in any way being complacent, in terms of the market as it was projected to grow and I think there are some signs that building on last year we are going to be reasonably close to our outcome target.

  Jon Trickett: I am afraid you have not convinced me but I see my time is up.

  Chairman: Thank you very much, Mr Trickett. If you could just raise your voice a bit.
  (Mr Broadbent) I am sorry. I am losing my voice slightly as well.

Mr Gibb

  44. Can I just ask you about your award winning and very expensive advertising campaign and just ask you what that is all about. The first bullet point in the report is "To make the public aware that tobacco smuggling is a large scale criminal activity undertaken by serious and violent organised criminals". Why do you want to make that an objective of the advertising campaign?
  (Mr Broadbent) One of the issues we had to tackle in the early stages of this problem was the sense that it was okay to either smuggle tobacco yourself or buy tobacco which had been smuggled by somebody else. One of the messages we try to get across (which is not necessarily a moral message) is that if you do smuggle tobacco you are breaking the law. We do not want to end up seizing somebody's vehicle and they say they did not know. Secondly, if you do buy or perhaps your children buy cigarettes from people in the street, there is a very good chance that the person you are buying from is a criminal. One of the things you learn about acts that are criminalised is the interface between particularly the younger person and the criminal which can lead to very unpleasant consequences.

  45. Does this objective, which says that tobacco smuggling is a large-scale criminal activity undertaken by serious and violent organised criminals, mean that if you are a small-scale person undertaking non-violent and non-serious smuggling of tobacco, that is alright? Is that the implication of the advert?
  (Mr Broadbent) No, it is not the implication of the advert and I do not think that any of our tracking research suggests that was the implication taken from it. There are a number of themes, as pointed out in the Report, and this particular theme is addressed at this specific point which is that people think tobacco smuggling is okay. There are other themes which say, effectively, do not risk your own vehicle doing small-scale smuggling because losing your vehicle is a major penalty.

  46. What is the public's view of the level of tobacco smuggling?
  (Mr Broadbent) We have not done any market research to test that.

  47. One of your objectives is to encourage the public to help Customs tackle tobacco smuggling. Why would they want to help you? Should you not know their attitude to begin with?
  (Mr Broadbent) Even at the current levels of smuggling, which are certainly too high, four out of five smokers are law-abiding and they would like something to deal with the fifth who are not.

  48. Is that right? You are making that assertion.
  (Mr Broadbent) If you take the 21% market share that is smuggled, as it was last year, then 79% of the market is being supplied legally.

  49. That does not imply they think the level of tobacco duty is legitimate.
  (Mr Broadbent) It just answers the question you asked me of whether they would support us in trying to deal with the problem.

  50. It does not imply that either. They could be very hostile to the level of tobacco duty and yet still buy cigarettes with full duty because they do not know where to get it without paying duty or they live too far from Dover.
  (Mr Broadbent) That is possible. It is also possible they are chosing to make a law-abiding choice, although possibly, as you say, disagreeing with the level of tobacco duty. One important function of any law enforcement organisation is to do with equity, where people choose to be law-abiding.

  51. Should you not find out? You are spending £7 million of my money and my constituents' money. Should you not find out what the public attitude is before you undertake this very expensive advertising campaign?
  (Mr Broadbent) The advertising campaign was designed to support an objective on which the Government had already decided. That objective was to resource an attack on smuggling, not reduce tax on cigarettes.

  52. But you want to be effective in advertising. The point of your objective was to encourage the public to help Customs. Would it not help if you knew what the attitude of the public was so that you might be able to gear your advertising campaign?
  (Mr Broadbent) The attitude to tobacco duty or smuggling?

  53. Both because they are interlinked. If you do not believe duties are right, therefore you are going to be quite in favour of tobacco smuggling. My anecdotal evidence from my constituency is that people do not think it is wrong to smuggle tobacco and alcohol across from France to Britain because our duties are too high and why should we pay so much more than our neighbours in the Single Market in France?
  (Mr Broadbent) As I say, the advertising campaign is designed to tackle people's attitude to smuggling. There is set of issues surrounding people's attitude to tax. That is not the problem which this tobacco strategy is designed to tackle. There are a whole group of reasons why taxes on tobacco should be high. There is very good research which shows that there is a link between price and demand and there is clearly a link between smoking and dying. The Government seek to raise tax with more than revenue objectives in mind, but that is not the argument which we are making in this strategy which is to do with tackling tobacco smuggling.

  54. There is a huge argument that a large number of young people are buying their cigarettes with no duty attached to them at all because of the huge amount of smuggling, so the deterrent for them of high taxation is not working because they are not paying the duty. We had better move on to some other issues. You are spending hundreds of millions of pounds, for example £80 million on buying these X-ray scanners. These are all huge sums of taxpayers' money to deal with something that is not a society problem like real crime, drugs crime, violent crime, robberies, burglaries. It is to do with a self imposed problem because of the tax-raising revenue method. Do you not think it is a rather strange allocation of our nation's scarce resources?
  (Mr Broadbent) Any government has the absolute right to decide what its taxation policy should be and there is certainly a very valid argument for saying something like tobacco, which is a damaging substance, should be taxed at a rate which reflects the damage it can do. It is absolutely right that the organisation which is then asked to make sure that taxation policy is effective is resourced to do the job. If you take, for example, the £80 million on scanners which is spent over seven years and is not a one year cost, the money we have spent so far on the scanners has been more than repaid by the amount of tobacco and other goods those scanners have found. It is not just tobacco. We have had a very large seizure of heroin a few weeks ago. They are multi-functional.

  55. That is a very good answer. From where are most cigarettes smuggled? From which countries do they come?
  (Mr Broadbent) Between 70 and 80% of smuggling by value is maritime where it comes in by lorry or container from the Far East and East Europe. In a sense the actual point of final embarkation to the UK is random in that it can come from Belgium but the goods are sourced from the Far East, some parts of the Middle East or East Europe.

  56. What are the duty rates in those countries?
  (Mr Broadbent) Effectively zero. A very high percentage of tobacco coming from those countries bears no tax at all.

  57. So if we were to harmonise our duty rates with those of our European Union partners, do you believe it would make little difference to the level of smuggling?
  (Mr Broadbent) It would have some impact, I am sure, but intra-EU smuggling is probably less than 20% of the total. Indeed, low tax countries in Europe like Spain and Italy have very significant smuggling problems.

  58. In answer to the Chairman you said tobacco revenues were up from £7.6 billion to £7.8 billion. How much of that increased revenue is due to the growth of the economy or higher duty levels or changes in smoking habits or reduced smuggling? What is the analysis of that increase?
  (Mr Broadbent) The revenues for the last year were £200 million above forecast and the forecast incorporated all the economic assumptions, the smoking pattern assumptions, indeed the intended impact of our strategy. I would be very careful not to say there is a one-for-one equivalence but it is one of the many bits of information one has to try and support one's judgment as to what impact you are having on the problem.

  59. Within that year what has been the reduction in smoking from last year to this year?
  (Mr Broadbent) I do not think we have seen figures and we will not see figures until the autumn for the prevalence of smoking last year.

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