Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 180-199)



  180. People can import pornography then?
  (Mr Wells) There are certain restrictions in terms of drugs, weapons, pornography, etcetera, which are provided for as exceptions from the general provision of free trade within the Community. Tobacco, alcohol and most other consumable goods are not in that category.

  181. Surely if we treat tobacco not as a consumable good in that sense but as a health hazard, it would be open to the British Government to take a different tack?
  (Mr Wells) It is not illegal to consume tobacco in the United Kingdom.

  182. I wonder if I could ask very quickly some points about the questions of penalties. How many of your staff smoke smuggled tobacco?
  (Mr Broadbent) Well, I do not have, I am afraid, hard figures on that that I feel confident I could give you.

  183. On the question of penalties, I am a bit worried about your observations that really there is no action taken on anybody who is found with the odd packet of tobacco that has been brought into the country here and there. I am not suggesting that their child benefit should be stopped, but is it not possible to look at something equivalent to spot fines like the equivalent of a parking fine? Police stop people all the time for a variety of things. If they are found with tobacco that has been bought or smuggled at one point, then fining in that way would presumably be a sanction?
  (Mr Broadbent) It is less that we ignore possession of smuggled tobacco; it is that we do not have officers in every pub. Clearly, it goes on and we just do not come across it. I think it would be highly cost-ineffective to put an officer in every pub to try and spot it. Without diminishing the seriousness of the offence, and where it is blatant and where we come across it we do take action—and you can see this in some of the distribution hot spots in Scotland and London—to get on top of the problem we have to get to the people just above them.

  184. If I can just finish this point. There was advertised in one of the Glasgow papers recently buses from the west of Scotland to France which were basically billed as a Smuggler's Special. Is no action taken in these circumstances against individuals who advertise that or bring stuff back, or indeed against shopkeepers? I must say I do not agree with your view that this has been resolved at the retail level. I am aware, and I am sure my colleagues are aware, of a system of dual pricing in a number of shops where you go in and you are unknown and you ask for cigarettes and you get them at full price, you say you do not want those cigarettes and they have other cigarettes which are at a different price. That is going on in quite a widespread fashion across the west of Scotland and I am sure in a number of other areas. It appears that you are taking no action against that and it does give a clear message that this is not a serious problem.
  (Mr Broadbent) I am sorry, I think there is a confusion about "no action". There is a series of proportionate actions. We do have a very significant inland disruption effort which visits a whole range of premises and, in fact, for the last year for which I have figures we made something in the order of over 25,000 visits by specially created strike forces who go into particular areas, and the west of Scotland is a particular concentration, and they will deliberately make seizures, tackle premises. The action we consider in each case is do we seize, do we confiscate, do we fine, do we prosecute, and that is a judgment which we do try and make proportionately in each case.

  185. My final point, and maybe I can have a note rather than an answer, could you clarify what percentage of smuggling is by, as it were, Robin Hoods who are helping people get cigarettes cheaply and what percentage by organised criminal gangs because there is a perception that you are just cheating the tax and therefore it does not matter, it is a victimless crime in some way. It is very much my impression that a lot of this is done by organised criminal gangs who are being subsidised effectively by people buying low price cigarettes. Were this publicised it seems to me that would have an impact on a lot of people in my area who are relatively law abiding in most things but do not see this as a crime.
  (Mr Broadbent) This was one of the early thrusts of the publicity campaign to understand that a very high percentage of this traffic is with organised gangs. If you assume that 80% of the commercial scale traffic is clearly largely organised and then you have the remaining traffic, much of which does involve people who when we stop them have criminal records.[7] Essentially Dover at the peak of this trade became a magnet for criminality and you saw associated criminality rising very fast. The fact that criminality is inextricably linked with smuggling is something that we do try to drive home in our publicity campaigns. Can I just try and reassure the Committee that I am very seized of the seriousness of the point you were raising about what we do inland. It is not often realised that in the last year for which I have numbers we seized about 10,000 vehicles for smuggling and a quarter of those vehicles were seized inland, including in places like west Scotland. It is not a free ride.

  186. No, I understand that.
  (Mr Broadbent) It is just that prosecution is not always the thing we do because of the time. We seize vehicles inland, we seize goods, money, it is not a free ride.

  Chairman: Thank you very much, Mr Davidson. Mr David Rendel.

Mr Rendel

  187. Thank you, Chairman. Would you agree, Mr Broadbent, that there are actually three different benefits to the public sector in bringing down the smuggling of tobacco? The first is obviously the extra amount of duty you can raise by making sure that smuggling does not go on. The second is that on the whole the less smuggling there is the more the price of cigarettes will go up and that is beneficial to the health of the country in general. The third is if you reduce smuggling that gives the Chancellor the opportunity, if he wishes to, which some fear he may not have at present, to carry on raising the level of duty on tobacco because there is some fear at present that all he is doing is increasing the amount of smuggling if he increases duty. Are all those three valid?
  (Mr Broadbent) Yes, I think they are valid. I would just possibly rephrase the last one as giving the Chancellor more flexibility on fiscal policy because I think if you do not have a controlled regime, whether you want to keep duty constant in real terms, reduce it or increase it, they are all very difficult choices because you do not have control over the average price in the market.

  188. Thank you. You were a bit hesitant about naming any companies but you have, in effect, named Imperial as being one of the most difficult companies that you have dealings with at present. Are companies like Imperial free to carry on exporting wherever they wish even when you have raised one of these red or yellow cards warning them that exporting to a particular country is very dangerous?
  (Mr Broadbent) It is not an offence to export tobacco and one of the problems we have is we have issued a number of red and yellow cards, actually more to Imperial than other companies. The red and yellow card is our indicator of risk and we suggest to the companies that they should satisfy themselves as to the bona fides of that customer. Other manufacturers have respected that and stopped exports to that customer, there are two cases with Imperial where they are continuing to export to customers to whom we have issued a red and yellow card, one of those customers is in Moldova and the other is in Afghanistan.

  189. Has this fact been made known to the public and press? I would have thought it would have been very interesting to make sure that is publicised.
  (Mr Broadbent) I think I have just made it known.

  190. If you are to put pressure on Imperial, as I am sure you should if they are not co-operating in this way, then I would have thought the maximum publicity of that is bound to be beneficial to you and to the country.
  (Mr Broadbent) I think it is important for me to say that we rely on the co-operation of Imperial and there is not no co-operation, it is just that we have had some problems with timeliness, promptness, completeness of information and perhaps there is sometimes an attitude that suggests that their market share of smuggling is a consideration for them as well as the level of smuggling per se.

  191. I am delighted that we have raised this point publicly in this session and we have not had to keep it until later, if I may say so. May I ask why you have not publicised this before? It seems to me that you could have done some good perhaps by publicising Imperial's poor behaviour.
  (Mr Broadbent) Yes. We are engaged in a very intensive dialogue with Imperial, including exchanges of letters and meetings practically as we speak. I think when you are engaged in a dialogue with somebody with whom you need to work to solve the problem you do not just lash out, you try and do all you can to achieve a voluntary response, but when your patience finally gets short you find that the Chairman goes to a Committee like this and says he has concerns.

  192. I am delighted that you have done so, if I may say so. You were talking earlier about the UK Duty Paid mark and you said that the policy had been very effective because almost everything that is being sold now has the mark on it. How do we know that all the smuggled goods are not simply adding that mark as well even though they have not paid duty?
  (Mr Broadbent) There is a possible counterfeiting problem that my colleague rightly points out. To put it at its fullest, when the marks were introduced we visited retailers, we had quite a lot of seizures of non-marked packets, but the number of seizures of packets seized without marks has now dropped to very, very small levels, negligible levels, and that suggests that the retail trade is more compliant than it was. There is clearly a potential problem with counterfeiting but, of course, if you can keep the retail trade compliant and try to keep a firewall for hitting the counterfeit, the counterfeited product has got to go to the boot fairs and the informal distribution channels, which is another area for us to tackle and where we are currently focusing our effort. That is where I think the legislation, the powers the fiscal marks give us, is going to be very, very important because it makes it an offence for the owner of the premises to allow non-marked cigarettes to be traded on those premises. So if you own a boot fair then I can go to you and not just the man with his two sleeves of cigarettes. That is the area we are now wanting to pursue.

  193. Can I turn to paragraph 5.14 where you note that there have been comparatively few seizures as a result of the scanners being introduced in the first year and the reasons that are given in this report for that are all to do with the scanners having taken longer to introduce or the amount of training that had to be given and that sort of thing. May I ask whether that means that the success rate per scanner when it is in use is up to the level that you expected?
  (Mr Broadbent) The success rate per scanner when it is in use is in line with what we expected. The issues are the external ones and I think we still have a lot of work to do with port authorities to make sure the scanners can be utilised 20 hours a day with a throughput going through them and we have had our own issues of familiarising ourselves with new technology, particularly image interpretation. I have brought a few images with me that I will be happy to show you afterwards. It is not easy to spot actually.

  194. The scanners themselves are working well is what you are saying?
  (Mr Broadbent) The scanners have worked well and when they are working well the rate is in line with output.

  195. Can I turn to 5.18 where the Report indicates that in one case where a scanner was introduced the amount of seized goods fell to about a fifth of what it was, only 20 million as compared to 100 million. That looks very good, it reduced the problem by four-fifths. Does that indicate that smuggling is also down, in fact, or is it just seizures that are down in some way?
  (Mr Broadbent) I think there are several issues there. In that particular case, as it happens, our own analysis was that a lot of that decline related to an associated operation in Hong Kong because a lot of the Hong Kong traffic was coming through Southampton. It is always a little difficult to know what is cause and effect but we do know that we interdicted high levels of tobacco in Hong Kong at about the same time the scanner started work.

  196. So it may not have been the scanner working that had this effect?
  (Mr Broadbent) As always, there is not always cause and effect. This is why I am so careful about saying that is this, or that. The second thing is, and there is no doubt, we have some knowledge of this, the scanners act as a deterrent. Some of our covert operations tell us that the scanners have a deterrent effect and smugglers will try and switch their trade to avoid them.

  197. But you have not got scanners at all ports.
  (Mr Broadbent) We have not got them in all ports yet.

  198. Just the major ports.
  (Mr Broadbent) We have got them in the big ports. What is important about the latest tranche of scanners is we are going to start moving them around a bit more. It is quite interesting, for example, very recently we had one scanner covering both Hull and Immingham and we switch it backwards and forwards and we can sometimes see the traffic trying to guess where we are going to be in the morning, it gets down to that level. We have got to be very adept at this. I think we need to get more adept at it but we will get better at it I think.

  199. So where you have been able to introduce other scanners have you found a similar fall in the number of seizures?
  (Mr Broadbent) No, I think Southampton was unique and I think it was associated with some other activities as well as the scanner.

7   Note by witness: Customs do not retain statistics that clearly define the percentage of `opportunists' involved in tobacco smuggling. Given the funding and distribution requirements, organised criminal gangs are clearly responsible for large-scale freight smuggling which accounts for around 70-80% of all tobacco smuggling into the UK. Tobacco smuggling by air and cross-channel passengers and through internet sales delivered by post, account for the remainder. Both organised criminal gangs and `opportunist' smugglers are involved in these types of smuggling, though there is no method of accurately identifying the appropriate proportions. Back

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