Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 120-139)



  120. Are any tobacco company executives under investigation?
  (Mr Broadbent) There has been one investigation into the activities of individuals, two of whom were arrested, one of whom was an employee of a tobacco manufacturer, of Imperial.

  121. There have been two arrests.
  (Mr Broadbent) No charges have been made so I probably should not comment further on that.

  122. Is it true, by the way, as Kenneth Clarke said in an article in The Guardian, that the level of tobacco smuggling in Britain is higher as a proportion of the total market than it is in Columbia?
  (Mr Broadbent) I am afraid I do not know whether that is true or not.

  123. You would not care to speculate?
  (Mr Broadbent) I would not care to speculate.

  124. I wanted to ask you another question arising from the BMJ article because it made the point that the biggest issue was container fraud. Again perhaps you could supply in a note afterwards the figures. It is talking about different kinds of cigarettes coming in illegally. In 1999 Customs & Excise estimated that £50 million was revenue lost by smuggling by air passengers, £340 million from cross-Channel bootlegging and £1,400 million from container smuggling. First, could you supply to the Committee a note of the figures for the different kinds of entry for as many years going back as you can, 1995, however far back you can go, right up to present point, if that is possible?
  (Mr Broadbent) I could certainly supply the figures. Again they will not go back very far. Without labouring the point, we are doing something entirely new here and the current position is that the maritime trade is roughly the same, the cross-Channel trade is down by 75% and the trade through airports is up by a not very big amount.[5]

  125. But the cross-Channel bootlegging and trade from air passengers are both pretty insignificant compared with container traffic.
  (Mr Broadbent) 80% of traffic is the container traffic.

  126. How many containers have you stopped?
  (Mr Broadbent) In the current year?

  127. How about since 22 March 2000? Since "tobacco smugglers told your time is up" on 22 March 2000, how many containers have you stopped that turned out to be full of contraband cigarettes? I am talking about where you had a hit. Since 22 March 2000 how many containers have you found full of cigarettes?
  (Mr Broadbent) I would have to do that calculation. We made 150,000 challenges in the course of last year. I do not know offhand the numbers of those. Mr Wells may do.
  (Mr Wells) In the financial year 2000-01 we seized 364 loads of tobacco with quantities in each load in excess of one million cigarettes which you can assume in every case would have been a container or a heavy goods vehicle.

  128. There is quite a big difference. Again the BMJ article makes the point that an average container can have five to ten million cigarettes, which is a hell of a lot more than a lorry or a heavy goods vehicle. I am talking specifically about containers.
  (Mr Wells) Both containers and lorries can contain similar quantities of up to eight to nine million cigarettes in each. They vary from anything up to eight or nine down to about one million but generally in freight consignments it exceeds one million and there have been 364 such seizures.

  129. That was not necessarily 364 containers?
  (Mr Wells) It would have been both containers and freight vehicles.

  130. Right, thank you. But there are freight vehicles and freight vehicles. I printed off some press releases from your web site. It says: "Customs Christmas crack-down on cigarette smugglers."
  (Mr Broadbent) Festive!

  131. Perhaps you should spend some of that £7 million on zipping up your PR a bit. I must say "Major Customs seizures in Dundee and Peterhead" is even more exciting! The point is they are talking about £82,000 worth of cigarettes here, 85 kilos there, the number does not jump out at me, and £30,000 in this one. Looking through your web site there is no obvious "We have seized a container with ten million cigarettes", "We have seized another container with 8 million cigarettes". What you seem to be basing your press releases on is chicken feed.
  (Mr Broadbent) We tend not to boast about the big stuff because you are dealing there with commercially organised gangs and although we do publicise them—indeed you will have seen on that particular web site that we did publicise the seizure of 40 million cigarettes shortly before Christmas in Northern Ireland—we choose the ones to publicise. This is a PR exercise and it is very important to make sure there is a constant flow of publicity saying "we seize cigarettes in your area". It might be Dundee but we have got to show people. In the handling of big seizures we have got to tread rather differently. We do sometimes advertise them but we choose which ones we do.

  132. Can you say when you expect this number that keeps on going up—it was £680 million in 1997, £2.5 billion in 1998 and in 1999 it is now £3.5 billion—is going to start going down?
  (Mr Broadbent) The outcome targets we have been set require us to, first of all, slow the growth and then stabilise it and then bring it into decline in 2002-03.

  133. I wrote it down that you said you are "moving towards stabilising it", which does not sound like you are on top of the problem.
  (Mr Broadbent) I am trying to choose my words carefully because outcome targets are complex areas. I would not want to mislead people. I do not have the information today that says we are going to meet that target but I believe we are moving towards it.


  134. In answer to Mr Bacon you praised Gallaher's and you talked about other companies that were not performing so well but you were clearly sensitive at naming them. If talking about this is a problem in public session, would you like to have a word with us in private session at the end of this meeting?
  (Mr Broadbent) That might be a useful thing to do.

  Chairman: Thank you very much. Mr George Osborne?

Mr Osborne

  135. Thank you very much, Chairman. Can I refer to the line of questioning Mr Bacon is on since I was going to ask you to name and shame the companies, but we will have wait. Since you published the Tobacco Strategy in March 2000 according to this Report, the way I have read it, the revenue lost has increased from £2.9 billion to £3.5 billion, prosecutions have fallen by 19%, the scanners with which you had hoped to detect 50 million cigarettes detected only 13, your target of seizing 15 million was missed and you only seized eight million, and the number of cigarettes smuggled increased by eight million. This strategy is not an unqualified success so far, is it?
  (Mr Broadbent) The key goal of the strategy is to achieve an outcome and that outcome is to first of all reduce the rate of growth in smuggling, which was very, very rapid indeed. Smuggling would have increased to over 30% of the market in the absence of doing anything else. Then to stabilise it and then to bring it down. That is the target that we are focused on. On all the other activity indicators which contribute towards that target, I have no hesitation if one thing is not working in leaving it and moving on to another thing. At any one point in time some of the outputs, if you like, of prosecutions, procedures, people, money, will be up, some will be down, some will be well ahead of target, some may be behind. In some cases that will reflect the difficulty we are having in achieving our goals, in some cases it will reflect decisions we have taken to do it slightly differently because we are trying to achieve an outcome and the outcome is the market share of smuggling.

  136. Except an outcome of three billion more cigarettes smuggled is not a huge success.
  (Mr Broadbent) "Huge" is not a word I would use but it is a success if measured against the absence of activity the number would have been very significantly larger. Where other countries have had this problem they have seen smuggling grow rapidly to 50, 60% of the market. If you do not grapple with it the growth rates are exponential. On previous occasions in this Committee we have discussed this. For example, we were talking about oils last time we were here and if you do not tackle a problem early you face exponential growth rates.

  137. Do you think that it was a mistake not to tackle this problem earlier?
  (Mr Broadbent) I think that it was very important before it was tackled to know what we were going to do about it. I do not think we would have solved the problem just by throwing money at it. It is perhaps a measure of the complexity of our new approach that it took a period of time to go back and say "what are you going to do which is different which will have an impact?"

  138. We do not have the figures here but, say, 10 years ago, what percentage of cigarettes smoked in the UK were smuggled? Say 1993 or 1994.
  (Mr Broadbent) The earliest figure I have in my head, as it were, is essentially negligible. I think 1996 was the first year it started to go up and between 1996 and 1997 it doubled from three to 6%. That was probably the point where the problem began to accelerate.

  139. You were not in post, I know, but do you think the failure of Customs and Excise to get a grip on the problem earlier was a big mistake that you are now paying the price for?
  (Mr Broadbent) Clearly if the problem had been gripped at an earlier stage, which is what we hope we are going to do in oils following the strategy announced in the Budget just a short while ago, all the experience is if we grip the problem earlier it is easier to deal with—distribution networks do not go in and market shares are not so large. That does assume, of course, you know what to do. Tackling commercial smuggling in the way it has developed over the last decade, it is not just a function of the UK's tax policies, it is an economic activity which the whole of Western Europe is facing because like all other forms of commerce smuggling has internationalised over the last decade. It is not clear to me that even if we had spotted the trend early, and as you know we now do much more work on trying to measure these trends, we would necessarily have stopped it by just conducting our traditional approach but more so. We had to completely change the way we do things.

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