Select Committee on Treasury Written Evidence


Memorandum submitted by the Tobacco Workers' Alliance

INTRODUCTION

  The Tobacco Workers' Alliance is a coalition of workers in all the unions involved in the tobacco manufacturing industry, comprising members from Amicus, Transport and General Workers Union and the GMB Union. The General Secretaries of these unions fully support the Tobacco Workers' Alliance in their campaign to defend the jobs of their members.

SMUGGLING AND THE EFFECT ON THE ECONOMY

  1.  We cautiously welcome the Chancellor's decision to make only an inflationary rise in tobacco taxation. We are encouraged by the added investment in HM's Customs and Excise and the apparent, but small, decrease in tobacco smuggling. However, despite the best efforts of Customs Officers, smuggling is still of major concern to UK manufacturing jobs, legal sales and law and order.

  2.  The revenue loss to the Treasury is still at an extraordinary level. The Treasury is losing over £3 billion in unpaid duty.

  3.  European tax harmonisation does not look like a possibility in short to medium term. The cigarette tax burden compared with the overwhelming majority of our EU competitors is increasing as is the tax differential.

  4.  The idea that a reduction in tax would cost the Treasury money is without a doubt false. An increase in tax on tobacco at this stage will increase the smuggling market and decrease the retail market. This would surely not meet the criteria of a successful policy towards tobacco.

  5.  The Government's policies towards tobacco are making only a small impact on what is still a major concern for those that are employed in the industry. The Tobacco Workers' Alliance believes that public policy should be a two-way street. If a Government policy is not working it should listen to those involved as to why and act accordingly.

Points to note:

    —  Treasury is losing over £3 billion a year in unpaid duty

    —  Pack of cigarettes is £3.30 cheaper in Spain

    —  50g pack of hand rolling tobacco costs £9.32 in UK, same pack in Belgium costs £2.50

    —  Smuggled cigarettes can be widely bought in the UK for around £2.50 a packet.

    —  Terrorists and criminal gangs are estimated to be making a billion pound profit each year from smuggled cigarettes.

RECOMMENDED ACTION

  6.  The Tobacco Workers' Alliance calls upon the Government to take immediate steps to protect British tobacco manufacturing jobs by tackling the threat posed by bootlegged tobacco. These are:

    —  An immediate reduction or at least freeze in duty on tobacco products

    —  A full review of British tax policy on all tobacco products

  7.  We believe a reduction in tax could substantially reduce smuggling whereas a freeze in duty would go some way towards stabilising the rate of smuggling. Therefore helping to safeguard the jobs of the 7,000 people employed directly in the industry and some 120,000 indirectly, which are being put at risk by the Government's present policy on tobacco taxation.

  8.  If the Government were to regain the £3 billion, it would be enough to cover the costs of buildings and equipment for the NHS.

LAW AND ORDER—THE CRIME OF SMUGGLING

  9.  The price differential with mainland Europe is now so great that organised criminal gangs and former drug smugglers have turned to tobacco smuggling in preference to other activities, because rewards are high, risks are low and the punishments, if caught, are relatively mild. In Northern Ireland, the percentage of gangs involved in cigarette smuggling has increased by 10% from 2002. [14]

  10.  Customs and Excise have admitted that the more successful they are getting at detecting smuggled goods the more sophisticated the criminals are becoming with their smuggling techniques. The smugglers are using well established routes which are enabling them to meet the demand of the British public for cut price cigarettes. They are increasingly turning to guns and violence to protect their lucrative trade.

  11.  The Government need to understand that the smoking population of the UK are not only disgruntled with the exorbitant taxes on tobacco products but are also reluctant to assist in preventing the crime of smuggling by purchasing their tobacco from the higher priced legal vendors.

  12.  If this continues there is a very real risk to the 6,800 jobs directly provided by tobacco manufacturing throughout Britain, with the majority of plants being in areas of high unemployment.

Is increasing tobacco duties the best policy for reducing tobacco consumption?

  The answer to this is simply yes to a point but that point we believe as do many others has been well exceeded by the UK Government as can be easily demonstrated by the resultant disorderly market.

THE BUDGET AND TOBACCO TAXATION

    —  The British tobacco industry directly employs 6,800 people, supplies a home market worth £12 billion a year in sales, delivers £10 billion a year in tax revenue and achieved a balance of trade surplus of £691.5 million for the year 2000.

    —  The Government's previous policy of increasing tobacco duties by a minimum of 5% in real terms each year has resulted in the highest level of tobacco taxation, not only in the European Union but also in the world.

    —  This widening gap between Britain and the rest of the European Union has resulted in escalating levels of tobacco smuggling—estimated by Customs and Excise to have been £3.3 billion in lost revenue during 2001-02.

SOCIAL AND ECONOMIC COSTS

  13.  Disproportionate tobacco taxation has led to a variety of social and economic problems:

    —  Organised and violently competitive criminal networks now dominate smuggling operations—Kent Police state: "These are professional criminals . . . here specifically to smuggle."

    —  High, regressive taxation discriminates against the poorest sections of society

    —  Due to the increase in contraband tobacco, children are increasingly exposed to tobacco products via illegal sources—street corner smugglers are under no moral restriction or obligation not to sell to underage teenagers and young children.

    —  The resulting loss of jobs in tobacco manufacturing would place great strains on local economies that have already suffered due to the general strains on the British manufacturing sector (interest rates, strength of the pound, globalisation, etc).

    —  The destruction of the UK tobacco manufacturing sector as a result of a triumph of the disorderly market would place a great strain on the national economy—declining treasury revenue, increased law and order costs, poor balance of trade implications and increased social costs as a result of the loss of quality manufacturing jobs in areas that can least afford to lose them.

IS HISTORY REPEATING ITSELF?

  14.  The problem of spiralling cigarette bootlegging is starting to mirror what has happened to Hand Rolling Tobacco (HRT). Today an estimated 75% of all HRT consumed in Britain is from non-duty paid sources and consumption is on the rise. The price differential is so great that repeated freezes in duty have not impacted on the problem.

  15.  Trends show that the cigarette market is going the same way. It is already estimated that 22% of cigarettes consumed in Britain are from non-duty paid sources.

  16.  If the comparison with HRT is continued the result will be an increase in the consumption of cheaper continental brands, and more worryingly, unheard of brands from the Far East, South America and Eastern Europe.

  17.  This further threatens British tobacco manufacturing jobs, yet achieves nothing towards reducing tobacco consumption.

  18.  The amount of revenue lost to the Government rises as the problem of tobacco smuggling increases:

    —  1996  £680 million

    —  1997  £790 million

    —  1998  £1,700 million

    —  1999-2000  £2,600 million

    —  2000-01  £3,500 million

    —  2001-02  £3,300 million

  19.  The Government needs to address the serious issue of exorbitant taxation on tobacco products which has resulted in high levels of smuggling which is not only threatening our members jobs but also law and order.

November 2004






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