Examination of Witnesses(Questions 80-99)
MR RICHARD
BROADBENT AND
MR MIKE
WELLS
MONDAY 29 APRIL 2002
80. It is peanuts. Tell me, for every 1% of
smuggling that is prevented, how much does that save in tax?
(Mr Broadbent) Can you do the calculation in your
head? While my colleague does the calculation, perhaps we can
come back to that in two minutes, in essence we have a smuggled
market share of 21% costing, as you say, £3 billion. £280
million.
81. So for every 1% smuggled that is prevented
you save £280 million in revenue. That clearly shows the
path that I was trying to go down. I was also going to ask if
there are any statistics that show how much is actually—I
do not know if this is the same question—saved for every
£1 million you spend? Have you any statistics about that?
(Mr Broadbent) I was trying to avoid this one for
one equivalence but last year we know we spent of the order of,
excluding the scanners, £35 million or so and we can see
that the revenues are of the order of £200 million higher.
Chairman
82. Can you repeat those figures, please?
(Mr Broadbent) In current costs, ignoring the capital
cost of the scanners, we spent in the order of £30 million
extra and we can see that the revenue is up £200 million
higher but I have been very careful to avoid a one for one equivalence.
I think we should go two or three years and see.
Mr Steinberg
83. The point that I think I am trying to prove,
and I seem to be proving it I think, is that the more money you
actually invest in the detection and prevention of smuggling,
the more money you actually save the taxpayer in terms of taxes
lost, so it is very, very cost-effective.
(Mr Broadbent) When we set out the Tackling Tobacco
Strategy, as I said we went through a very important process of
actually working out what we would do rather than just spending
money and hoping for the best. The money that was identified for
that was the money given to us. It is always tempting to say that
if we had an extra £1 million we would get more for it, but
personally I am happier saying we know how we are spending that
money, we know what we are doing strategically and tactically
and managerially to deliver the outcome. If I come to the conclusion
that having done those things there is evidence those things are
working then I am happy to go back and ask for more. As one of
your colleagues said earlier, we have not quite got on top of
the scanners yet and it would probably be a mistake to pour the
money into the scanners until we are absolutely on top of it and
then to say now we have got this bit working, we can go that step
further.
84. We have talked this afternoon about what
the Government is doing and what Customs and Excise is doing but
how much responsibility do the cigarette companies themselves
have? What are they doing?
(Mr Broadbent) The cigarette companies, the tobacco
manufacturers, have quite a significant responsibility.
85. In what way?
(Mr Broadbent) Well, most of the product—
86. It is very difficult to say to them, I suppose,
that they have got to take measures when in fact they are just
selling their cigarettes presumably quite innocently, but do they
sell them quite innocently? For example, if they offload their
cigarettes in the Far East and sell billions more cigarettes in
the Far East knowing that they cannot be smoked there just by
the fact that everybody would have to have a cigarette in their
mouth every five minutes, do they know those cigarettes are going
to be smuggled into this country and therefore they go to their
outlet in the Far East knowing full well that they are not going
to be smoked there, they are going to be brought to Europe?
(Mr Broadbent) Tracking back the flows of cigarettes
into this country, most of which are UK manufactured— We
estimate somewhere between 11 and 17% of the market is counterfeit,
most of the balance is UK manufactured tobacco. Clearly a major
line of inquiry is to try to trace back the tobacco to see how
it went out of this country to come back in again and the co-operation
of the tobacco manufacturers is absolutely essential to our ability
to do that. We do have arrangements with the tobacco manufacturers
to support that co-operation, including data exchange and warnings
about suspect customers.
87. They do not have a very good reputation,
do they? I do not know whether it is true or not.
(Mr Broadbent) Our own experience—
88. We are told that they dump cigarettes into
the non-developed countries free of charge to ensure that people
pick up the habit and then they come in and sell to them. They
do not have a very good reputation, whether that is true I do
not know. It seems to me that a good way of selling a lot more
cigarettes is to make sure that they dump them in the Far East
knowing at the end of the day they are going to end up here.
(Mr Broadbent) It is not quite like that because the
UK is quite a high margin market for cigarettes. To go back to
the difference in prices in the EU, one of the facts of that is
that pre-tax prices in the UK are by some measure the highest
in Europe even before the tax is imposed. For UK manufacturers
their margin is significantly enhanced if they can sell their
cigarettes in the UK in the licit market. A smuggled cigarette,
even if they make it, will probably bear a lower margin. Having
said that, I think the comment I would make about tobacco manufacturers
is we do try and work with them very, very closely. I would not
generalise about them, I think our experience is that each company
is rather different.
89. I read in the Report, and I think it was
interesting to note, that you have targets. Everybody seems to
have targets, do they not? You seem to have exceeded your target
for cigarette confiscation by something like 38% this year but
actually included in the figures is almost one billion cigarettes
that had been confiscated before they got into this country. That
cannot be bad because at the end of the day they would have got
here and they would have added up to a loss of revenue, but are
you making your targets look a lot easier by including those cigarettes,
or are those cigarettes confiscated abroad not necessarily going
to be included in your targets?
(Mr Broadbent) I think the first thing I would say
is the one target that I attach significance to is the outcome
target, the smuggled market share. Everything else is secondary
to that. There are many, many different indicators: prosecutions,
seizures, assets seized, gangs disrupted, money taken, these are
all outputs. The only target which really matters is getting that
smuggled market share down. That is the critical difference between
an outcome based target and output targets. In relation to the
particular point you raise, we do obviously have to make judgments,
and we try and make them responsibly, about how we measure our
seizures but it is normally fairly clear if you seize a bunch
of Superkings with a UK health warning in a ship which is about
to set sail for the UK—If you get them at that point upstream
you are sometimes talking about very large numbers. We have seized
cigarettes in tens of millions sometimes upstream. This is a very
important activity.
90. It seems to me that you need an intelligence
agency working, and I think Mr Trickett touched on this. There
has got to be a very great potential for that if you can get those
cigarettes before they get on to the boats to get over to this
country. Is that very much taken into consideration?
(Mr Broadbent) I agree with you and one of the things
that we are doing, and indeed it is a relatively expensive thing
but it is a very worthwhile thing, is we are posting more and
more people overseas. We have essentially what we call Fiscal
Liaison Officers. We have a very successful initiative in the
drugs area, we have Drugs Liaison Officers who essentially work
with agencies overseas to move our effort upstream. We have adopted
the same approach with fiscal officers who concentrate a lot on
tobacco. We have increased the numbers overseas, we are increasing
them again in the current year, and they are very critical in
engaging both host country agencies and other activities to try
and increase our ability to seize cigarettes upstream.
91. So do you get help from European authorities?
(Mr Broadbent) It varies a bit but we usually get
good co-operation from the authorities in Europe.
92. At figure 14 we are told there are 43 ports
or entry points into the UK. Is there a plan to have a scanner
at each port?
(Mr Broadbent) I do not think we will have a scanner
at each port but we currently plan to have up to 20 scanners,
we have 12 at the moment. I think with that with up to 20, given
that we will be moving some of them around—
93. I am going to try and rush you because I
want to get through this. You have 12 scanners, 43 ports, how
is that effective? I understand that they are mobile but presumably—
(Mr Broadbent) The trade into this country is very
focused. Those 12 scanners are covering 90% of container traffic
and three-quarters of ro-ro traffic already. Dover, Felixstowe,
a few large ports, account for a very large percentage of the
total trade.
94. What is more effective? Is a manual search
more effective or is scanning more effective?
(Mr Broadbent) The point about a scanner is it helps
inform you which ones to search manually because it can take you
as much as two days to turn a lorry out if you are looking for
something. A scan says do this one and you do not waste as much
time.
95. I worked out that something like £24
million has been spent on scanners, something like that. How many
Customs officers could you have employed for £24 million?
(Mr Broadbent) I would think roughly 300.
96. What would be the more effective?
(Mr Broadbent) The scanners.
Mr Steinberg: Thank you.
Mr Bacon
97. Mr Broadbent, could I start where Mr Steinberg
left off, the £209 million over three years. I am looking
at the press release from 22 March 2000 when you announced this
massive £209 million, it says. It says "As a result
of the measures announced, Customs will reverse the trend in tobacco
smuggling in three years and in the process we will . . ."
and there is a list of various things, like: "seize over
ten million cigarettes, break up 180 smuggling gangs, seize £50
million of criminal assets and collect an additional £2.3
billion in tax revenue." Could you say how many cigarettes
you have seized since this announcement?
(Mr Broadbent) As I was saying to your colleague earlier,
we are always in the position where we are waiting for data to
catch up. If I assumed, and it is an assumption, that this year's
total seizures was broadly the same as last year we are probably
talking about approaching five billion and a bit more.
98. So when you say this year's will be the
same as last year's do you mean there will be two and a half billion
in the year after this announcement was made and then in the subsequent
March 2001 to now there will be another 2.5 billion?
(Mr Broadbent) Yes, I am using round numbers for this
year because I have not got full data for this year. Last year
we seized 2.77 billion cigarettes.
99. When you say "last year" do you
mean calendar to March 2001 or do you mean to December?
(Mr Broadbent) No, I should be more precise. Last
year is the year ending March 2001.
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