Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 260-279)



  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.


  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

11   Ev 54 Back

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