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Session 2007 - 08 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks
† attended the
Committee
Public Bill CommitteeThursday 15 May 2008(Morning)[Sir Nicholas Winterton in the Chair]Finance Bill(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)9
am
The
Chairman:
I welcome all hon. Members to our sitting on
this rather dull day. I apologise that the weather has broken, but at
least it is a little cooler, so perhaps we will make even faster
progress.
Clause 10Rates
of tobacco products
duty
Question
proposed, That the clause stand part of the
Bill.
Justine
Greening (Putney) (Con): I want to make a few comments
about the clause. We recognise that it introduces an inflationary
increase to maintain the price of cigarettes and hand-rolled tobacco,
and we support that. However, will the Minister give us an update for
the record on where we are in terms of duty in relation to tax revenue
maximisation, and how the proposed increase relates to that?
During the Public Bill
Committee debate on last year’s Finance Bill the then Financial
Secretary, the hon. Member for Wentworth (John Healey), said
that
“any big rise in
the rates of tobacco duty will reduce revenue and increase smuggling,
so that is a central consideration for us as we weigh up these duty
decisions.”——[Official Report, Finance Public
Bill Committee, 10 May 2007; c.
73.]
It would be helpful to have
the Minister’s statement on whether that is still the
Government’s position and whether the aim of this inflationary
increase is to continue to be somewhere close to the tax revenue
maximisation point. In addition, will the Minister give us a brief
update on the Revenue’s understanding of the impact of the
smoking ban on consumption and
duty?
A key point is
that the Government are considering their smuggling strategy, having
had one in 2003-04, but it seems that progress on
bearing down on smuggling has plateaued, although I recognise that
there was some progress. I understand that that is why the Government
are considering the matter again. However, the Tobacco
Manufacturers’ Association
said:
“The
increase in tobacco tax announced today will do little to reduce the
level of tobacco smuggling and cross border shopping which lost the
Treasury £4.5 billion in revenue last year. The decision helps
to maintain the UK’s position as one of the world’s most
profitable destinations for tobacco smugglers and this is of great
concern to the TMA and its member companies.”
We can put those
comments in the context of who is making them, but smuggling takes a
hell of a lot of money that would have gone to Her Majesty’s
Revenue and Customs in duty. The latest estimates show that up
to 18 per cent. of cigarettes and 62 per cent. of hand-rolled tobacco
consumption is smuggled, and that 70 per cent. of all large-scale
cigarette seizures are counterfeit. On top of that, many other
smokers choose to buy their tobacco products from elsewhere in the EU
where taxes and prices are considerably lower. That is another
statistic provided by the Tobacco Manufacturers’
Association.
Smuggling
is not an issue only for the Treasury, and I am interested in
the Minister’s response because of my broader concerns. Other
people who are hit by smuggling are smaller tobacconists and
shopkeepers, and those who trade in legitimate cigarettes but are often
undercut by those who do not.
I understand that much of the
smuggling strategy is focused on border control and some of the more
major mainstream franchises or smuggling outfits—the big
business involved in smuggling. The end destination of cigarettes and
hand-rolled tobacco is often small traders, and I want to find out
whether the reworked smuggling strategy will have more focus on
tackling smaller traders who are happy to sell
smuggled products and often undercut competitors and small shopkeepers
who prefer to sell only legitimate cigarettes. Can the Minister give us
some clarity on that?
I want to follow up some
parliamentary questions that I tabled a few months ago and perhaps to
get some clarity from the Minister on the issues raised in
them. I tried to find out the level of
resourcing for the smuggling strategy and how many customs officers
there were in HMRC. I assumed that the answer would be quite
straightforward until I got an answer back
saying:
“There
is no separate group of staff identified as ‘customs
officers’.”—[Official
Report, 18 December 2007; Vol. 469, c.
1482W.]
To help me table
parliamentary questions that will get answers, let me say that I was
talking about the men who are generally at ports and airports and who
tend to be dressed in
uniforms—
Justine
Greening:
And women. As we go through customs, these
people tend to stop us and occasionally go through our luggage to see
whether we are smuggling cigarettes. My assumption was that they are
called customs officers, but if the Treasury does not agree, I would be
keen to know what they are called so that I can table parliamentary
questions that will get a proper answer. I look forward to hearing what
the Minister has to say.
Mr.
Jeremy Browne (Taunton) (LD): Good morning, Sir Nicholas.
Tomorrow is the 10th anniversary of my giving up smoking, so I do not
know whether I need to declare an interest any longer. If I might say
something unfashionable, however, I quite enjoyed smoking and I
sometimes regret that I gave it up in the first place. However, giving
up was no doubt good for my health.
I have two
brief points. First, will the Minister confirm that the purpose of
tobacco taxation is twofold—to disincentivise people to buy the
product and to raise revenue? Will he also confirm that those two
objectives
are not incompatible? The second point has already
been touched on by the hon. Member for Putney. What is the
Government’s assessment of the impact of tobacco taxation on the
smuggling of illegal tobacco products? What impact does that have in
turn on the legitimate retailing of tobacco
products?
The
Exchequer Secretary to the Treasury (Angela Eagle):
It is
a pleasure to respond to the debate. It is a pity that the day is dull,
although that was fairly predictable, given that this is the first day
of the test match between England and New Zealand. An awful lot of
disappointed people, myself included, will be looking at the skies this
morning.
Clause 10
increases the duty rates on all tobacco products in line with
inflation. Together with VAT, the increase is equivalent to 11p on the
price of a typical pack of 20 cigarettes and 4p on a pack of five
cigars. Our decision to raise duty rates, which the Committee does not
oppose, is in line with inflation in the Budget and will maintain the
real price of such products. It will thereby continue to encourage
people to smoke less or to give up, as the hon. Member for Taunton did,
and I congratulate him on his ability to break the habit.
Duty rates
form an important part of the Government’s strategy to reduce
smoking prevalence to 21 per cent. by 2010, alongside measures such as
NHS stop-smoking services, the ban on smoking in public places, which
came into effect on 1 July 2007, and raising the legal age for
purchasing tobacco from 16 to 18 in October 2007. Budget 2008 retains
the reduced rate of VAT that applies to smoking-cessation products.
That point has not been raised, but the measure should be
acknowledged. When it was originally introduced, it was time limited,
but it will now continue beyond 30 June 2008.
When we set duty rates for
tobacco, the potential impact on smuggling, which has
been on hon. Members’ minds this morning, is an important
consideration. As has been acknowledged this morning, the tackling
tobacco smuggling strategy, which was introduced in 2000 and refreshed
in 2006, was very successful in reducing the size of the illicit
markets for cigarettes over the five years to 2005-06 from 21 per cent.
to an estimated midpoint of 13 per cent. Since the start of the
strategy, we have seized nearly 17 billion illicit cigarettes and more
than 1,000 tonnes of hand-rolling tobacco.
The hon. Member for Putney is
right to say that we are looking at hand-rolling tobacco, where there
is clearly an issue that needs to be dealt with. However, to
answer her question about where we are in respect of revenue
maximisation, there is always a balance between excise duties and the
smuggling phenomenon, as Committee members know. As my predecessor said
in the debate on the 2007 Budget, duty rates are close to revenue
maximisation, which is why there has been no greater increase than
revalorisation in the Budget. That means that any large real increase
in the duty rate would increase smuggling and probably increase the
availability of cheap tobacco, which would obviously be a perverse
result. That is what HMRC’s model
demonstrates.
Mr.
Mark Field (Cities of London and Westminster) (Con): As I
am sure the hon. Lady is aware, the issue in respect of smuggling and
counterfeit cigarettes is not
simply about revenue maximisation or otherwise from the
Treasury’s point of view, but about the safety of those
products. Indeed, such products are often considerably less safe. Can
she give some detail on how the success rate has been measured? She
mentioned that smuggling was roundabout the 21 per cent. level four or
five years ago and fell to 13 per cent, following Government
initiatives. On what basis is she confident that those figures are
accurate?
Angela
Eagle:
That is the midpoint of a range; that is how HMRC
tried to measure something that is difficult to measure. It is clear,
from the level of seizures, that the percentages of smuggled goods are
down, but it is hard to be deadly accurate about such things, because
one does not know how much illicit product is targeted at us. However,
we can make estimates from the illicit product that we intercept and by
checking what is on sale and what can be picked up in the country.
There are ways of doing
this.
It is also
important to make the distinction between smuggling legally made
products—our memorandums of understanding with
the tobacco-producing companies have greatly assisted us in dealing
with that—and the increasing threat of counterfeit product,
which the hon. Gentleman mentioned, which in some cases can have the
most interesting things mixed in with it that would do nothing to
improve one’s
health.
The hon.
Member for Putney mentioned her asking further parliamentary questions
about Revenue and Customs officers. We do not have Revenue and Customs
officers at UK borders whose sole purpose is to tackle tobacco
smuggling: they multi-task and do other things as well. Those officers
perform numerous roles in protecting the UK from smuggling of all
types, be it drugs or other illicit substances, people, money or other
things. Such smuggling routes can be used to transfer all sorts of
things and it makes sense to have the border authority taking over this
aspect of the work to multi-task in that
way.
We do not
differentiate between HMRC officers at ports and
those who are working from elsewhere. However, I am happy to write to
the hon. Lady on the overall figures on officers, if she wants me to,
rather than pursue the matter through parliamentary
questions.
Justine
Greening:
Obviously, one major change in the smuggling
strategy will be that the inland strategy is presumably largely
overseen by HMRC, whereas the border authority deals with smuggling
after items have entered the UK. Will the Minister tell us how the
Government plan to ensure that those two groups work together
effectively, given that I believe they will be in different
Departments? They will need to liaise closely and share
intelligence.
9.15
am
Angela
Eagle:
We have already put that in place—in fact,
in the person of the Minister for Borders and Immigration, who now has
a post in the Treasury as well to examine the UK Border Agency. I
assure the hon. Lady that a great deal of organisational work is going
into ensuring that there is proper liaison between the agency, the
Serious Organised Crime Agency and the various other crime squads in
question.
The nature of smuggling as a
phenomenon means that when one deals with it in a particular place, it
morphs into something else. There has been a marked increase in the
smuggling of counterfeit cigarettes, as the hon. Member for
Cities of London and Westminster pointed out. Some 70 per cent. of
large seizures made by HMRC are now counterfeit.
To prevent counterfeit products
from penetrating the legitimate retail sector in a bottom-up
way, which would greatly increase smugglers’ profit, covert
anti-counterfeit markings were introduced for all cigarette packs from
October 2007. That will be extended to hand-rolling tobacco products
this October, enabling us to tackle the problem from the retail supply
end as well as at the borders. I assure the hon. Lady that a great deal
of work is being done to ensure that there is co-operation both at the
border and inland to detect and seize all such
products.
With those
reassurances, I hope that the Committee will accept that clause 10
should stand part of the
Bill.
Question put
and agreed
to.
Clause 10
ordered to stand part of the
Bill.
Clauses
11 and 12 ordered to stand part of the
Bill.
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