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The Viscount of Oxfuird: My Lords, before the noble Lord sits down, perhaps he could answer my question and tell the House his intentions in this regard or those of his party.
Lord Eatwell: My Lords, our intentions are to maintain the fiscal probity which will give this country the level of monetary and fiscal stability which it deserves but which this Government have failed to provide.
7.52 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, we have had an interesting debate. Perhaps I may advise my noble friend Lord Oxfuird that the real answer to the question that he has just asked is that the party opposite is saying that in the unlikely event that it becomes the Government, it will over the next two years follow the expenditure totals laid out by my right honourable friend the Chancellor in his Budget. That means inevitably that there will be no further spending above that which we have planned. I take that to be a vote of confidence by the Opposition in the spending plans that Her Majesty's Government have laid out for the next two years.
I cannot resist starting with the noble Lord, Lord Eatwell, who as usual was extremely good at scattering your Lordships' Chamber with questions. He then said that he would answer some questions, but I suspect that some of your Lordships who asked him a question will feel that you did not receive much, if anything, in the way of an answer. Perhaps I may try to answer some of those questions. Inevitably, however, I shall not be able to answer all of the questions put by the noble Lord because he can ask questions at a far faster rate than
I am capable of answering them and given the time limit on this debate, I do not think that I shall manage to answer all of the detailed questions that he asked.This has been an interesting short debate and I congratulate my noble friend Lord Northesk on introducing the subject. From the Treasury's point of view, the yield on duty alone last year from alcoholic drinks was £5.5 billion and £8 billion from tobacco. That gives a total on duty alone of £13.5 billion. If value added tax is added to that, we are talking about a total of £19.5 billion from those two sources alone. I must advise some of my noble friends that significant reductions to those duties would leave an awkward gap to be filled by increased taxation elsewhere. I shall read the comments of the noble Lord, Lord Eatwell, with interest because I was puzzled about whether he was suggesting that we should reduce the duty and value added tax on those items. That would certainly add to the £12.5 billion hole which we already know to be in Mr. Gordon Brown's theoretical Budget.
If we were to reduce the rates in this country to French levels, it would cost in the region of £7 billion--I underline the fact that that is the figure for duty. I repeat that £7 billion of the £13.5 billion would be lost if we were to reduce our rates to the level of the French. That would be a significant budgetary problem and we would have to find that sum from taxation elsewhere. As I shall show later, it would also have significant social consequences for the policy that we are pursuing on smoking.
I understand that since January 1993 cross-border shopping and smuggling problems have caused difficulties for British retailers and, to a lesser extent, for British industry. In his last Budget, the Chancellor took careful account of those issues when reaching the decisions that he did. Indeed, in his 1996 Budget, for the second Budget running, the duties on beer, on most wines and on most ciders remained unchanged and the duty on spirits was reduced. I believe that my noble friend Lord Oxfuird mentioned that. However, the duty on alcopops was increased in order to meet two objectives: first, to remove the duty advantage and, secondly, to address public concern regarding teenage and under-age drinking of those products.
Turning to smoking, the Budget increased the duty on hand-rolled tobacco in line with inflation by 2.1 per cent. All other tobacco duties were increased by 5 per cent. in real terms. I suspect that I am in a minority in this debate in being not only a non-smoker but someone who has never smoked. I am not sure whether that makes me a minority of one--but perhaps I am in a minority of two because the noble Lord, Lord Eatwell, is signalling that we agree on that at least. As we do not agree on much else, it is nice to find something on which we do agree. That is in line with the Chancellor's undertaking that tobacco duties will on average be increased by at least 3 per cent. a year in real terms, thus using taxation to reduce smoking and the number of people who take up the habit.
I must advise the noble Lord, Lord Harris of High Cross, that I object to being accused, even mildly, of political correctness. I belong to that minority which
believes that a "chair" is an inanimate object on which one sits and that the person who sits on it is a "chairman". Therefore, the noble Lord was a bit wide of the mark in suggesting that I was being politically correct.Although this is not really an argument for this evening or this debate, I believe that the argument against tobacco smoking can be made entirely on health grounds. Although I suspect that the noble Lord, Lord Harris, will not agree with me, I believe that the case is unanswerable. Hardly anyone argues against the proposition that tobacco smoking is one of the major causes of cancer, heart disease and other horrible diseases such as emphysema. Tobacco smoking is undoubtedly a major cause--in some cases, it is the major cause--of some of those problems. If a food is discovered to be severely carcinogenic, governments around the world will take steps to prevent it getting into the food chain or to remove the carcinogenic element. I do not make any apology to either the noble Lord, Lord Harris, or to some of my noble friends for saying that I agree absolutely with the arguments advanced by my right honourable friend the Chancellor on tobacco smoking and health, as do vast numbers of the medical profession; and, dare I say, people who, following a lifetime of smoking, in my view self-inflicted and self-decided, proceed to take the tobacco companies to court. I saw on television this morning that there was quite a stir in France along just those lines.
As my noble friend Lord Liverpool has said, if harmonisation or approximation of duties across the European Union comes about, cross-border activity and fraud will wither on the vine (if I may put it that way). We very much favour some movement towards convergence. Equally, we are determined to maintain the position where taxation remains a matter for each member state. I want to make that point clear to the noble Lord, Lord Eatwell. I was not sure whether he was saying that we should give away our tax-raising powers to the European Union, which would be one way of moving towards convergence. For example, we should like to see beer levels move up in countries where they are low at present. The French have just increased their rates, and that is a hopeful sign. We should also like to see the introduction of a positive minimum rate on wine and secure an upward convergence on the duty rates for tobacco. But, like all member states, we have strong views about excise taxation and unanimity is required on tax matters.
There are other potential allies on the Continent. Denmark, Finland and Sweden have high excise duties and much higher VAT. A few years ago Denmark, in order to counter cross-border shopping, brought down its duty rates on beer and wine considerably and as a consequence lost a great deal of revenue. The inevitable result was the introduction of compensation tax increases in other areas. Of course, legitimate cross-border shopping goes on and the excise duty loss there is about £200 million per year. Balanced against that, there is other cross-border shopping that works the other way. For example, in particular people from Scandinavian countries come to Scotland. I have seen
Scandinavians arrive by plane at Glasgow airport in order to do very high value shopping. They come to the north-east of England--the Newcastle area--because of the ferry links. I am informed that people come from France to Kent to take advantage of the supermarkets there. It is difficult to decide those issues on the basis of a balance sheet, but we should not turn a blind eye to the fact that there are some advantages in the other direction.As to illegal activity, it is difficult to determine the exact quantity. In the case of cigarettes and tobacco products we believe that it accounts for about 1.5 per cent. of the market. The smuggling of hand-rolled tobacco is a cause for concern. It accounts for about 60 per cent. of UK consumption. It was for that reason that the Chancellor did not increase duty on hand-rolled tobacco at the same rate as for other tobacco products.
Clearly, there is an effect on the retail drinks trade but I do not believe that the picture is a simple one. Since 1993 sales through legitimate UK outlets have increased for all drink categories with the exception of spirits. Most major and many regional brewers report increased profit levels. There have been pub closures particularly among smaller pubs that rely mainly on beer sales. Cross-border shopping aside, there are a number of other reasons why this has happened. We can all see the shift of public taste upmarket as hotel chains, restaurants and wine bars increase their stake in the eating and drinking-out markets. The off-licence trade has over the years taken business from the pubs; and within the off-licence sales sector supermarkets have increased at the expense of specialist off-licence shops, as my noble friend Lord Liverpool said.
Other factors include a shift in drink preferences from beer to other drinks such as wine. More people are drinking at home because of drink-driving laws, home entertainment but, most significantly, cheaper drinks from off-licences and supermarkets than can be obtained in pubs. It is important that these longer-term trends are recognised and that not all the changes that the industries are experiencing are a direct consequence of the single market. There is loss of trade and duty, but that is only part of the argument.
What are we doing about smuggling? Our top priority is to catch smugglers. The ordinary consumers who go to another EU member state to buy for their own consumption are doing nothing illegal. Smuggling goods from another member state with the intention of reselling them is a crime; dealing in smuggled goods is a crime; buying smuggled goods is a crime. Customers estimates that the revenue evaded through smuggling from other member states is £210 million for alcoholic goods and £560 million for tobacco products. Some of these figures will represent additional consumption. It is interesting to note that, according to Customs estimates, the volume of smuggled wine is less than 25 per cent. of that represented by legitimate cross-border trade. There is no available estimate of smuggling from outside the EU, but evidence from seizures suggests it is not on the same scale as intra-EU smuggling.
In his November Budget the Chancellor announced proposals for the deployment of a further 70 officers specifically to target excise smuggling and illegal trade throughout the country. This will take the number of Customs' single market excise anti-smuggling staff to more than 330 over the next year. Front-line officers are backed up by a specialist intelligence and investigation teams whose resources are also being increased.
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