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Session 2002 - 03
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Delegated Legislation Committee Debates

Excise Duties (Personal Reliefs) (Revocation) Order 2002

Third Standing Committee on Delegated Legislation

Thursday 21 November 2002

[Mr. Eric Illsley in the Chair]

Excise Duties (Personal Reliefs)

(Revocation) Order 2002

9.55 am

The Economic Secretary to the Treasury (John Healey): I beg to move,

    That the Committee has considered the Excise Duties (Personal Reliefs) (Revocation) Order 2002 (S.I., 2002, No. 2691).

Mr. Michael Jack (Fylde): On a point of order, Mr. Illsley. I am sorry to start our proceedings with a query, but in trying to find out more about the business before the Committee this morning, I turned to the explanatory note on the back of the order. Do hon. Members agree that it adds nothing by way of explanation? It states the obvious and is of little use to parliamentarians in interpreting what the business is about. In future, if the Government are going to put matters such as this before a Committee, will they provide proper explanation?

The Chairman: I understand that the explanatory note is not part of the order that we debate this morning. It is obviously for the Government to decide what information to provide. The Minister has heard the right hon. Gentleman's comments and will bear them in mind for future orders.

John Healey: I welcome you to the Chair, Mr. Illsley. We share the privilege of representing neighbouring constituencies in south Yorkshire, but I have never had the privilege of serving under your chairmanship on a Committee. However, we both know about the problems caused by bootleg tobacco and booze that can occur in our inland pubs, clubs and communities. The issue is not related only to customs activity in the channel ports and not confined to those who represent constituencies on the south coast of England, although the problem there is more intense.

In answer to the right hon. Member for Fylde (Mr. Jack), I thought that the explanatory memorandum was rather good. However, I take his point and, perhaps to the chagrin of my colleagues, I will expand my explanation of the order to give him the background and understanding that he feels he needs.

We debate the new legislation laid before Parliament on 29 October, to repeal the Excise Duties (Personal Reliefs) Order 1992—PRO—and the Excise Duties (Personal Reliefs) (Amendment) Order 1999. I will explain the detail in response to the right hon. Gentleman's request. For the benefit of the Committee, however, I will first provide some background information that explains why the legislation is necessary. I recognise that hon. Members in all parties have been concerned about the issue in recent months.

The previous Conservative Government introduced the PRO in 1992 on advice from the European Commission. However, at the end of July this year,

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in a case involving Hoverspeed, the High Court found the legislation to be incompatible with European Union Council directive 92/12/EEC. The PRO provided for a system based on relief from liability to pay excise duty—the very system that the High Court said was not compatible with the directive. The order is therefore necessary to revoke the PRO. The replacement legislation will be the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002. Those regulations were laid before Parliament on 29 October this year to come into force on 1 December 2002, and are subject to the negative procedure.

The amendment regulations take full account of the findings in the Hoverspeed judgment on the legislative flaws in the PRO. They amend the Excise Goods (Holding, Movement Warehousing and REDS) Regulations 1992, the Beer Regulations 1993 and the Tobacco Products Regulations 2001.

The new regulations will make it clear that tobacco and alcohol purchases on which tax is paid elsewhere in the European Union are not liable for duty if they are imported into the United Kingdom for people's own use. They will also make it clear that tobacco or alcohol products that are imported for payment, in cash or in kind, for profit or reimbursement, are subject to UK duties.

The revocation of the PRO will mean that consequential changes must be made to the Channel Tunnel (Alcoholic Liquor and Tobacco Products) Order 2000, which applies the control zone for the channel tunnel in France at Coquelles. Many UK Customs checks are carried out in Coquelles so it is important to ensure that the new provisions apply equally to goods held there. That is the purpose of the Channel Tunnel (Alcoholic Liquor and Tobacco Products) (Amendment) Order 2002, which was also laid before Parliament on 29 October.

Mr. Jack: I seek clarification. The Minister said that goods on which duty and tax had been paid in another European Union country could be imported by an individual for personal use without further payment. Would there be no restriction on quantity?

John Healey: The short answer is yes, provided that the goods were for personal, and not commercial, use. That right has existed under the terms of the single market since the early 1990s. The regulations do not change that. They are intended to make the procedure clearer for the traveller and for Customs. We are trying to draw a distinction between the shopper and the smuggler, and to make it easier to apply the difference between the two.

The new legislation is part of the package of measures that I announced three weeks ago to reinforce both the rights of shoppers within the European single market, which is the point about which the right hon. Gentleman is concerned, and the action that we are taking to stop cross-channel smuggling of alcohol and tobacco. It forms the next stage of our strategy to combat cross-channel excise smuggling, which was first launched in March 2000 by my right hon. Friend the Chancellor of the Exchequer. The strategy is designed to be fair to shoppers, tough

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on smugglers, and clear about the difference between the two groups.

I shall remind the Committee about the crux of the problem: tobacco smuggling. There was a dramatic increase in tobacco smuggling during the 1990s. By 2000–01, a staggering 17 billion cigarettes were smuggled into the UK, which accounted for more than 20 per cent. of the British tobacco market and cost the British taxpayer £3.5 billion that year. The growth was driven by large-scale worldwide freight smuggling, which is a highly sophisticated and big criminal business. Low duty rates are no defence against that because Spain, Italy and other EU countries suffer serious problems of tobacco smuggling. Although cross-channel bootlegging occurred on a relatively small scale during 2000, it was significant. It cost the British taxpayer more than £1.5 billion in lost revenue and there was an increase in associated gang warfare, shootings and violence, especially near our channel ports. Increasing levels of lawlessness discouraged the free movement of honest travellers and shoppers who wanted to take advantage of their rights under the European single market.

Norman Lamb (North Norfolk): I want to understand better what the Minister said about low duty in other European countries being no defence against the problem of smuggling. Surely smuggling occurs if a product can be brought in at a lower cost than the price of the product in the country to which the product is brought. If the differential is reduced so that the price of a product is pretty similar throughout an area, the problem of smuggling must decline because the profit element is removed. Will the Minister explain further what he means?

John Healey: The great problem with tobacco smuggling is the large-scale freight smuggling through our container ports. Most of the tobacco that is smuggled into the UK and other European countries in that way is not purchased in European countries and generally has no tax paid on it. Simply to focus on duty rates as a way of tackling smuggling is to miss the main point of the problem. I understand the simplicity of the argument that is often advanced, but reducing duty rates to make them level with those in some other European countries would not solve our smuggling problems because Spain, Italy and other European countries also have a serious smuggling problem. The most smuggled brand of cigarettes in the world is not a problem for us here; it is consumed in Germany. I hope that helps to explain the problem to the hon. Gentleman.

Mr. James Wray (Glasgow, Baillieston): Does my hon. Friend agree that this provision makes things easy for smugglers? What is to prevent a person from hiring a dozen cars with different drivers from different parts of the country, who come in with £3,500 worth of stuff? Surely cutting the amount that people could bring in would have a better effect. I cannot see how increasing the amount to £3,500 worth will help. I think that that will increase smuggling.

John Healey: My hon. Friend may be referring to what we call the indicative, or guideline, levels that people use, and which Customs uses, as an indicator, or starting point, in terms of personal use. The changes

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that I announced, with immediate effect, on 29 October were designed to help draw a better distinction between those who are likely to be smuggling and those who are likely to be shopping for themselves. These changes are not limits—we abolished limits with the single market in the early 1990s—they are simply one factor that Customs officers will take into account when they make difficult judgments about whether somebody is bringing alcohol or tobacco in for their own, or for commercial, use.

We will be able to continue to deal with, control and reduce the scale of tobacco smuggling by having a regime in place that makes that distinction clearer and allows us, as I announced with a series of extra measures on 29 October, to take a tougher line with those who smuggle. It will make it clear that we have no interest in interfering with the rights of honest shoppers. I believe—I would not have made the decision otherwise—that increasing in the UK the indicative levels that we use for hand-rolling tobacco and cigarettes will help, rather than hinder, our fight against smuggling.


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