Examination of Witnesses(Questions 140-159)
MR RICHARD
BROADBENT AND
MR MIKE
WELLS
MONDAY 29 APRIL 2002
140. But it took Customs and Excise five years
to come forward with a strategy.
(Mr Broadbent) It depends where you measure the starting
point from.
141. The first time it blipped on the radar.
(Mr Broadbent) It is not clear to me, I am afraid
I will have to go back and check, that anybody was aware at the
time that was happening. As you know, we have only quite recently
begun to measure fraud as part of our activities. At the point
that it was becoming apparent, which I think was around the late
1990s, that was when the Government asked Martin Taylor to conduct
his study which led to the strategy being put in place. Obviously
if it had been put in place earlier our job, which is not an easy
job, would probably have been slightly easier.
142. I did a history degree, I am just wondering
if this is the greatest ever revenue collection failure of modern
times by Customs and Excise.
(Mr Broadbent) I am not sure I want to speculate on
that either actually.
143. I cannot think of any others. You are losing
£3.5 billion. Maybe we would have to go back to rum smuggling
in the 18th Century.
(Mr Broadbent) The numbers are obviously very material
and the problem is a very serious problem.
144. You are only responsible for the excise
and the vat but presumably there is other tax lost in that there
is no tax on the retailers. If all cigarettes were legally sold
then the Inland Revenue would be taking money from tobacco retailers
selling those products.
(Mr Broadbent) That is true. Assuming, of course,
as we believe, most of the smuggled product is UK manufactured
then of course they are being taxed for corporation tax.
145. It has to be a UK retailer.
(Mr Broadbent) That is the vat and excise, which is
what we are measuring.
146. There must be corporate taxation on the
retailer.
(Mr Broadbent) Yes, I see what you mean, there must
be an element of that although many of the retailers are quite
small traders, I think. Of course you must be right, yes.
147. So the actual sum is even larger, the total
loss to the Exchequer is even larger.
(Mr Broadbent) I would not know what that figure was
or whether it was material but you must be right in principle,
yes.
148. I want to pick up something Mr Wells said
but I did not quite catch it. He said that there were increasing
problems of fraud of the mark, counterfeiting the UK Duty Paid
mark, is that correct? He said something about 11 to 17%, if he
could clarify that.
(Mr Wells) We estimate that somewhere between 11 and
17% of all the cigarettes that we seize are counterfeit and we
assume that is typical of the smuggling market.
149. Counterfeit in the sense UK Duty Paid has
been counterfeited?
(Mr Wells) Entirely counterfeit in that the brand
they purport to be is not in fact what they are. They are often
manufactured in China or other parts of the Far East, purport
to be Benson & Hedges cigarettes, a particularly popular brand
to counterfeit, but in fact are not manufactured by the manufacturer
of that brand. In addition to counterfeiting the brand itself
they counterfeit the fiscal mark.
150. Do you predict that to be an increasing
problem as your strategy for having the UK Duty Paid mark is implemented?
(Mr Wells) Certainly the problem of counterfeiting
per se has been growing. If we are successful in getting
additional co-operation from the tobacco manufacturers and reducing
the presence of their own brands one would expect counterfeiting
to become more predominant. It is certainly a problem that potentially
has scope to grow.
151. How can you go about stopping that? Do
you have to go to China to stop it?
(Mr Wells) It is an exceedingly difficult problem
to stop. We do attempt to co-operate with agencies in the Far
East but counterfeiting of tobacco is but one of many things counterfeited
in that part of the world. Clearly we try to tackle it there and,
as the Chairman said earlier, we have Fiscal Liaison Officers
posted around the world, including in Hong Kong. Hong Kong is
one of the places in which we have made particularly large quantities
of seizures overseas. We do attempt to target it upstream. We
obviously also target the main container ports into which traffic
from the Far East comes and we have had some particular success
against that form of traffic.
152. It seems to me that as long as the duty
is so high in the UK you are always going to have a problem with
people looking at any way possible to get illegal cigarettes into
the country. It seems to me this may be an emerging problem which
one of the traditional measures would necessarily be very effective
against. Will scanners pick up these cigarettes that presumably
will be coming in in what seems like a legal fashion?
(Mr Wells) I am sorry, if I misled you on that, I
apologise. They are still smuggled when they arrive in the UK.
Overwhelmingly cigarettes for the legitimate UK market are manufactured
in the UK so it is extremely rare to find cigarettes legitimately
being imported into the UK, so they are almost always disguised
as something else when they arrive.
(Mr Broadbent) If I could interject. The internationalisation
of mobile trade, a lot of it in areas which are essentially no
tax at all, does mean that whatever the UK tax rate, and indeed
whatever the tax rate in Italy, Spain and elsewhere, these are
problems that are going to be with us which is why it is important
we change the way we are managed and driven. Although I understand
taxation as a policy, the way globalisation has impacted these
activities suggests that these problems are going to be with us
for a very long time come what may.
153. Presumably Customs and Excise have always
had to adjust to changes in global trade.
(Mr Broadbent) Presumably. It has had a long history
and I have been there a relatively short period of time. It does
strike me very much that most of the things Customs and Excise
deals with effectively, given the fact they are illegal, are commercial
flows which, like the rest of the UK economy, have undergone an
enormous process of internationalisation in the last decade.
154. On the use of prosecutions, and I do not
want to rehearse the argument, I share the view of the Committee
about you not making enough use of prosecutions, if I had a packet
of cigarettes on me that did not have UK Duty Paid on it would
I be committing an offence?
(Mr Broadbent) Yes, I believe it is.
(Mr Wells) It is unless you have bought those overseas
with the intention of using them yourself.
155. But it would be if I had gone into the
pub and bought them?
(Mr Wells) It would be, yes.
156. Do you ever prosecute people just for possession
of these cigarettes without UK Duty Paid on them?
(Mr Broadbent) We have not prosecuted an individual
for possessing a packet of non-marked cigarettes.
157. One of the ways around Mr Gibb's view is
that people do not regard this as too serious would be if you
started prosecuting people for having these cigarettes on them
and then they would be much more reluctant to buy them in pubs,
off the backs of lorries and so on.
(Mr Broadbent) I do have sympathy and I would like
to emphasise that I am acutely aware of the need for balance here.
If I can try and give you some pointers. The first thing is recognising
the relative resources available, the ability to train people
and to implement law, arrest people, is quite limited. Arresting
individuals is a very, very labour intensive thing, you are taking
people off other activities. The second thing is that you do have
other sanctions available. The third thing, and I just say this,
is that in some of the areas where this is most evident there
are some quite material difficulties in arresting people. You
often find, for example, the distributors are illegal immigrants
so you arrest them and they are out the next day, or in some cases
officers come under quite concerted physical attack. Where I worry
most about the balance of prosecution is at the level of the small
to middle distributor. It is very difficult, I think, to believe
we can devote enough manpower to arresting individuals who have
got 10, 100, 200 cigarettes.
158. What about the police? Do the police say
"this is too small for us"?
(Mr Broadbent) I do not believe the police see it
as their priority to do that.
159. Have you had discussions with the police
about making it more of a priority?
(Mr Broadbent) We have had discussions and, indeed,
we do joint operations with them. We had a big joint operation
with the police recently in Chinatown, in Soho, where we seized
hundreds of thousands of cigarettes. We have talked to the police,
for example, about security on the Holloway Road where my officers
have been threatened with weapons at times. Where I feel we need
probably to be doing more than we are doing, because I do recognise
it is not balanced, is the point just above.
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