Mr.
Stuart: My hon. Friend is giving a fascinating exposition
on a subject on which he is clearly an expert—doubtless he will
build on his expertise. Has he ever considered or will he consider
joining one of those pack expeditions, so that he can see for himself
how it is
done?
Mr.
Hands: I have left my smoking days behind me, but I think
it would be quite interesting. I have seen—as I am sure those
involved in the issue and the Minister have—examples of what
those packs look like. Superficially, they appear convincingly like a
real brand of cigarettes and I suppose, in a sense, they are a real
brand of cigarettes. Nevertheless, one packet in particular seems to be
deliberately designed to look a little bit like Benson and Hedges Gold.
If I were given the option, I would take up the offer of joining such a
visit.
Mr.
Jeremy Browne: Further to the previous intervention, has
the hon. Gentleman done any research on the propensity of supporters of
different football clubs to
smoke non-branded or misleadingly-branded items? Indeed, if he wishes to
cast aspersions on organisations other than football clubs, does he
know whether those people who go to pop concerts are more or less
likely than football supporters to smoke cigarettes that are
inappropriate?
The
Chairman: Order. May I ask the hon. Member for Hammersmith
and Fulham not to be led down that
path?
Mr.
Hands: Thank you, Mr. Atkinson, for what I am
sure is very correct advice.
I was
interested by a piece in the Manchester Evening News last week
about myself and the hon. Member for Taunton. Some journalist on the
newspaper does a count of the number of words that MPs use that might
be used by people in Manchester when talking about their everyday
lifestyles; I think that that is the point. There is a word count of
the use of words such as “beer” and
“football”. I must say that the hon. Gentleman did
extremely well. Normally, he features quite heavily in the newspaper.
On this one occasion, however, thanks to my marathon speech on beer
during a Committee of the whole House he was trumped
completely. I
know that I am testing your patience, Mr.
Atkinson.
Mr.
Gauke: For clarification, it might be useful to say that,
as I understand it, the Manchester Evening News word count
process applies only to the main Chamber.
The
Chairman: Order. The hon. Gentlemen are testing my
patience now.
Mr.
Hands: I will not respond to that last
intervention.
Returning to
the issue of “cheap
whites”— Mr.
Mark Hoban (Fareham) (Con): Will my hon. Friend give
way?
Mr.
Hands: Yes, of course.
Mr.
Hoban: I know that my hon. Friend is just limbering up on
this topic. [Laughter.] However, can he clarify
whether the sale of these fake brands or “cheap whites”
is legal or illegal in the UK?
Mr.
Hands: That is a very interesting question, which I hope
the Minister will respond to in due course. It is a very interesting
question about how we control this level of activity. The person who
has imported the produce is almost certainly committing an offence.
However, it is unclear if the person at the point of sale is also
committing an offence. I am told that most of the sales of these goods
happens in places such as pubs or street markets. I would be grateful
if the Minister gave a precise explanation of what illegalities have
been committed in the sale process and, if there have been any, when
and by who?
Returning to
the issue of “cheap whites”, I am told that a brand
called Jin-Ling is the most prevalent, but there are dozens of
different brands. Oddly enough, it appears that smokers who buy their
cigarettes on the
black market still appreciate a bogus aura of authenticity, which I have
already referred to by giving the example of the lookalike B&H
product. Some
of the eastern European manufacturers of these products oblige their
customers by replicating the UK health warnings on the packet. I am not
sure what that says about the effectiveness of the health warnings.
However, it will be interesting to see if these manufacturers stop
copying the health warnings when they start to include images, which I
think will be used in due course.
So,
non-domestic brands are a serious problem. They cannot be tackled
through the agreement of the big UK suppliers that has helped to bring
down the quantities of illicit tobacco in recent years. Getting the
Governments who host these non-domestic brand manufacturers to take
action is difficult, but it will be crucial.
Again, I will
just give the example of Jin-Ling, which I think is manufactured in
Kaliningrad. That itself raises an interesting question. Kaliningrad is
part of the Russian Federation but it has a very interesting legal
structure. I know that, having been there. I will not stray into the
realm of discussing my wife’s family, but I happen to know a
fair bit about Kaliningrad. Consequently, I would be interested to know
what representations the Minister, or the Foreign Office on her behalf,
have made to other countries—not only Russia but
Poland—about strengthening the border controls near Kaliningrad,
with reference to tobacco smuggling.
There is
another interesting question. Which Governments have duty receipts that
far outstrip the domestic consumption of these brands? That should
certainly act as a warning signal for those countries; they will know
at that point that they have a problem.
I know that
the Treasury is aware of this issue and the joint smuggling strategy,
published by HMRC and the UK Borders Agency in November,
identified it as the key threat in the future. It would be helpful if
the Minister could outline what steps have been taken since November in
relation to the products’ countries of
origin.
3.15
pm Returning
to the structure of tobacco taxation, there are important questions
outstanding to which we are owed a response. First, why have the
Government seemingly reversed their own policy on ad valorem duty?
Secondly, do they recognise the problems that has caused and which, in
effect, they predicted in their submission to the European Commission?
Thirdly, why did they not address them in the Bill? Fourthly, will they
re-band the structure of cigarette taxation in January 2010, when VAT
is raised
again? Ironically,
the Commission’s draft directive supports the shift towards
specific duty that the Government outlined in their submission. The
draft calls for minimum rates of taxation to be increased and
proportional rates to be lowered. In conclusion, do the Government
still want what they asked for when they made their submission to the
EU as part of their consultation in 2008?
Mr.
Jeremy Browne: I feel there is not much that I can add to
that rigorously researched contribution, although I thought it was thin
on the different types of tobacco
manufacturing in different parts of the Russian Federation. I would have
appreciated greater detail before deciding whether I wish to support
clause 12, but I will have to operate in the dark, so to speak, and
make that decision less well informed than it might otherwise have
been. I
will ask three brief questions. The first is on the issue drawn out at
length by the hon. Member for Hammersmith and Fulham: differentials
between premium brands and lower-price brands. He put figures on them,
but—anecdotally—one can see displays of cigarettes in
shops and the prominence afforded to the lower-price brands compared to
10, 15, or 20 years ago, when the big household name brands such as
Marlboro would have been more prominent and consumed more space on
retailers’ shelves. That is a serious problem, partly because
young people who wish to smoke more are likely to be drawn to the lower
premium brands for price reasons, and partly because the Government are
losing revenue even if the total number of cigarettes sold is the same.
The Minister needs to address
that. The
second issue is smuggling. The hon. Member for Hammersmith and Fulham
estimated that 37 per cent. of cigarettes smoked in the United Kingdom
had not had UK duty paid on them. Some of those cigarettes would have
been entirely properly brought into this country by someone returning
from holiday, for example, but it is well known that a large number of
cigarettes are smuggled into the country. A number of problems
associated with that. One is that the Treasury makes no revenue on
those cigarettes at all. The other problem is that smuggling penalises
legal retailers of
tobacco. It
must be extremely galling to sell cigarettes and comply with the law
only to have someone outside the shop or round the corner selling the
same cigarettes, or a very good replica, at a substantially reduced
price, which risks putting the conventional retailer out of business.
Even though it ought not to be a temptation, the inducement is for
legal retailers to sell non-legal smuggled products under the counter.
They might conclude that they would like to have a share of that
market. If all the people in that locality buy cigarettes illegally,
the only way that retailers can remain viable as a business is to seek
to move into that illegal part of the market. That puts them in a
severe moral quandary, and I do not want people put in that
position.
If the
Government decide that all cigarette displays are illegal, all
cigarettes will be sold under the counter. There will probably be even
less differentiation between smuggled, illegal cigarettes and legal
cigarettes, when all are being bought in such a surreptitious way. The
inducement to behave improperly, however regrettable, will probably be
greater. I
note that the Minister and the Government
talk—always—about measures to strengthen border controls,
inspections and so on. That is important, but it would be interesting
if the Minister also engaged on the question of price, because the
biggest inducement for anyone to smuggle, or to behave improperly in
any other area, is the financial incentive for doing
so. I
would be interested if the Minister touched on what was not covered by
the hon. Member for Hammersmith and Fulham, who had to cut short his
remarks and was therefore not able to cover all the ground—the
impact of the duties in clause 12 on different income groups. The
Minister touched on young people, who tend to have less money than
middle-aged smokers, but I would
be interested to know his assessment of the impact of clause 12 on the
top decile by income, as opposed to the bottom
decile. My
suspicion is that the duty brought about by clause 12 and similar
clauses in previous years has a much more profound effect on people in
the bottom decile, certainly in terms of the percentage of their
overall disposable income, but I suspect even in absolute terms. That
has a social impact on those people. It may be that the Minister
regards the adverse impact on people’s finances to be justified
in terms of the beneficial impact on their health, but there are
problems with trying to effect behavioural change through pricing.
Everyone recognises that, whether the attempt is made through
congestion charges in London or the pricing of tobacco products, the
economic impact on people with low incomes can be profound. I would be
interested if the Minister touched on that point as
well.
Angela
Eagle: Albeit late in the day, as it has taken a day or so
to get to my first response in the Finance Bill Committee, I welcome
you to the Chair, Mr. Atkinson, probably just as you are
dreaming of getting out of it as quickly as possible after a day of
duty. Clause
12 increases the duty on cigarettes and all tobacco products by 2 per
cent. Together with VAT, that will add 7p to the price of a
typical packet of 20 cigarettes and 3p to a pack of five
cigars. The clause also puts into legislation the increases in tobacco
duty announced in the pre-Budget report. Tobacco rates will remain
unchanged after the VAT rate returns to 17.5 per cent. in
January
2010. Before
I go on to answer some of the specific points made in the debate, it is
wise to put on the record that smoking is the biggest single cause of
preventable illness and early death in the UK. It contributes
significantly to inequalities in life expectancy, which the hon. Member
for Taunton may take as a signal of my response to the last of his
points. Maintaining high levels of tobacco duty, alongside continuing
action to clamp down on the threat of smuggling, is a proven part of
the Government’s strategy to reduce smoking prevalence. Tobacco
is also an important contributor to public
finances.
Mr.
Stuart: We have heard varying figures, such as Imperial
Tobacco’s that 37 per cent. of the UK market consists of
cigarettes on which duty has not been paid in the UK. Have the
Government looked at where illegal cigarettes—in the social
deciles that the hon. Member for Taunton referred to—tend to be
bought and sold? In other words, could it be that illegal cigarettes
are going to a particular area of society and perhaps exacerbating the
health impacts and social
injustices?
Angela
Eagle: There is more than one sort of illegality.
There are counterfeit cigarettes and those that have been smuggled in,
and they are not always the same. Legally produced cigarettes are
smuggled but they are also brought into the country legally through
cross-border shopping. There are also counterfeit goods, which, given
the lack of assurance about what has gone into them, we would prefer
were not available at all. There is a range of
issues. The
only way of knowing in detail where the illegal product ends up is by
undertaking the surveys that the hon. Member for Hammersmith and Fulham
talked about earlier, and some spot checks. There are various
ways to attempt to get a handle on what by its essence is an illicit
phenomenon and come up with a reasonable idea of its scale, but there
are no Office for National Statistics figures on counterfeit
products. Mr.
Stuart: Can I come back
again?
Angela
Eagle: When I have finished answering the hon.
Gentleman’s initial question, I shall of course let him
intervene
again. There
are no rigorous official statistics about such things simply because
the phenomenon is illegal and underground. All we can do is have
surveys carried out. We all probably have our own view, because we have
had particular experience of what is going on in our constituencies or
what is available in the communities in which we
live.
Mr.
Stuart: The Minister is making a very fair point. If
smuggled cigarettes were being used more extensively by the lower
income decile groups, putting up duty could, in fact, exacerbate that
tendency and thus the likelihood of such people, who are particularly
vulnerable to all sorts of other social and health problems, to
increase their smoking. It is a matter of teasing out whether the
Government have looked at the matter seriously and whether it could be
an issue, because it would go against all policy if it turned out that
the most vulnerable in our society were ending up more likely to smoke
as a result of the Government’s policy, which all of us here
were thinking did the
opposite.
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