Examination of Witnesses(Questions 260-279)
MR RICHARD
BROADBENT AND
MR MIKE
WELLS
MONDAY 29 APRIL 2002
260. You could make a bob or two if you sold
them.
(Mr Broadbent) We would not achieve our outcome target
if we sold them.
261. I prefer to get the money back and see
your target suffer slightly. Is there not a better use that could
be made of them than that? I know it sounds jocular but it is
not entirely jocular. It seems a nonsense when you have something
that is a marketable product which people find it worthwhile to
go to extreme difficulties to smuggle into the country costing
you billions of pounds and when you manage to get your paws on
some of it you then go and stick it in a power station furnace.
(Mr Broadbent) I think if it leaked back on to the
legitimate market we would be in a self-defeating circle because
we would be displacing the product.
262. Perhaps they would get the message then.
(Mr Broadbent) The reason why we are quite pleased
with the new way of destroying it is instead of just destroying
it we do actually get paid. We sell it in a form which cannot
be reused to power stations as fuel.
263. What is the going price per tonne of cigarettes?
(Mr Broadbent) I would have to come back to you on
that.
264. I would be fascinated to see the figure.
Will you also express it as a percentage of £2.8 billion.
(Mr Broadbent) It will be a very small percentage.[10]
265. So we can see it in perspective. Let us
then come to the question of the revenue loss and the remedial
expenditure. The revenue loss of £2.8 billion, that works
out at £8 million a day. I know you are quick on figures.
I have read your CV, I know you understand figures very well.
It is £8 million a day which I think you told me was the
total penalties imposed by the courts last year.
(Mr Broadbent) £8 million was the benefits determined
by the courts which is the prelude to a confiscation order.
266. So one day's loss of revenue is all that
the courts found it appropriate to reclaim in penalties for smuggling?
(Mr Broadbent) The numbers, I think, will be rising
quite sharply. Although the year just finished has only just finished
it is clear already, I think, that the numbers will be materially
higher. I am confident that they will go on rising. There is a
sort of pipeline effect with anything to do with the courts and
it may be several years before we get this number up but I am
confident now it is going to be a multiple higher for the year
just ended than the previous year.
267. Incidentally, what is the effect of tobacco
burning on global warming? Is it a green fuel or is it a polluting
fuel?
(Mr Broadbent) I thought it was going to be a health
and safety question for a moment.
268. There will be other departments that will
be interested to know the answer to this.
(Mr Broadbent) I do not believe that the fuel it substitutes
for has a differential effect on greenhouse gases, materially
anyway.
269. I understands that by the end of this year
you will have, it tells us in the document, your total network
of scanners in place and it says in the document there are 12
at the moment. "Customs expect to have in place their planned
network of scanners by the end of 2002." All these machines
are classified as mobile and you said that 20 was the envisaged
total.
(Mr Broadbent) 20 was the provisional number we have
begun with. We have 12.
270. It says that in the Report, I know that,
it is okay. You did say 20, unless you want to change that now?
(Mr Broadbent) No.
271. 20 it was and 20 it is, which represents
a maximum cost of £38 million capital cost. These scanners
last a year or two, do they not?
(Mr Broadbent) About 10 years.
272. So, in effect, the capital cost is equivalent
to about £4 million a year over their life, which is the
equivalent to half a day's loss of revenue from smuggling. While
we have been sitting here £1 million of revenue has been
lost by your Department—not by your Department, that is
not fair, it is not your fault—
(Mr Broadbent) We could say that £1 million has
been saved but, I agree, the sums are large.
273. Unfortunately it has not.
(Mr Broadbent) The sums are big I agree.
274. But seriously, how can you expect to deter
when at a negligible capital cost, as Mr Steinberg pointed out,
there are 43 ports or approved points of entry—that is excluding
airports and excluding rail terminals—and yet despite that
and despite the small relative cost of the equipment in relation
to what you are suffering, you are still only planning to have
less than one scanner for every two points of entry?
(Mr Broadbent) There are two issues. One is that you
can cover a very high percentage of total traffic with less than
a scanner in every port because if you send a container through
a backwater port they are going to be spotted anyway. Thus you
can capture much bigger percentages of traffic without covering
every single port. That is important for the second point. The
biggest constraint I have is not buying scanner—and I have
always said that money is not the only issue—it is generating
enough intelligence to mean the scanners find the goods. That
takes an enormous amount of intellectual and other resource to
achieve.
275. I was going to come to that. It is a very
serious issue. I know that this intelligence has to be logical
and it has to be a shared resource. Do you yourself have committed
overseas sources of intelligence or do you work with wider networks?
(Mr Broadbent) No, we have taken the quite expensive
step of putting our own staff overseas because we want them to
be doing exactly that job. In particular, we want to be able to
task them because what we have found is if you have liaison officers
overseas they tend to have an in-tray and an out-tray and what
you want overseas is to keep them tasked and that has proved much
more effective for us.
276. You are probably going to say it is not
possible to calculate this (and I am not criticising you if you
do say that) but we are concentrating on the £2.8 billion
which is the revenue that we the taxpayers have lost. Do you have
any sort of assessment—and obviously they are sold at a
discount to be worth smuggling them—of the market value
of cigarette smuggling? What is the total revenue to the smugglers
approximately?
(Mr Broadbent) We have tried to answer that. The best
estimate we can make is of the order of £1 billion pounds
of revenue. Profit would be slightly different but the revenue
would be £1 billion. The profit margin on smuggling is something
we are trying to understand much better and it varies very widely
according to the route and the nature. That £1 billion of
revenue to smuggling would then translate (it depends what sort
of smuggling) into a number which is less than half or more than
half to the smuggler in terms of profits.
277. This is my very final question because
my time is very nearly up. We recently had your report on smuggling
from Eire in relation to alcohol. Do we have any matching figures
in relation to tobacco smuggling from Eire or is it not a big
issue?
(Mr Broadbent) We have figures for seizures by region
which I will be happy to let you have if that would be helpful.
278. Do you think it is significant?
(Mr Broadbent) The illicit market penetration varies
by region and probably there are one or two regions, probably
Scotland and the North-West of England being amongst the two worst.[11]
Mr Williams: Thank you very much.
Chairman
279. Just a couple of questions from colleagues.
Mr Nick Gibb, who apologises, he had to leave to attend the launch
of the Francis Maude think-tank. I hope that is not an illicit
activity. He wants to know why is 800 cigarettes the indicative
limit as what is regarded for personal use? He has worked out
that someone smoking 20 cigarettes a day would consume 7,300 a
year, a husband a wife would consume 14,600. So if Nick Gibb as
a single person turns up at Dover with 7,300-odd or Mr and Mrs
George Osborne turn up with 14,600, what would your officers say
to them?
(Mr Broadbent) First of all, the indicative level
is actually set by the EU, it is not a level we set, it is an
EU-wide level. Secondly, cigarettes do have a limited shelf life.
You may buy a few thousand for the year but they will be pretty
stale by the end of the year. I think our officers would say to
these individuals "How often do you travel to France? How
many do you smoke? What brand do you like?" and they would
seek to ascertain they genuinely were heavy smokers. If they satisfied
them they would be satisfied. As I say, the majority of people
who are stopped over the indicative level are allowed to proceed
with their goods.
10 Note by witness: Tobacco seized by Customs
is shredded, mixed with other waste and pelletised to form a fuel
that can be burnt in power stations. Destroying tobacco in this
way is less costly than landfill and ensures that the product
cannot be re-processed. Customs currently pay a private contractor
£205 per ton to cover the cost of handling, shredding, security,
transport, pelletising and burning of all seized tobacco. The
department spent around £300,000 in 2001-02 on tobacco disposal. Back
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