Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 80-99)



  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.


  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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