Prepared: 0:23 on 28th March 2012
Westminster Hall
Tuesday 27 March 2012
[Nadine Dorries in the Chair]
Illegal Alcohol and Tobacco Sales
Motion made, and Question proposed, That the sitting be now adjourned.—(Angela Watkinson.)
Jesse Norman (Hereford and South Herefordshire) (Con): It is a pleasure, as always, Ms Dorries, to serve under your chairladyship today.
I am grateful to colleagues from across the House for their support in this debate, and to the Economic Secretary and shadow Economic Secretary, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), for attending. Many issues will be raised in this debate—including, I am sure, the issue of duty and minimum alcohol pricing. I will restrict myself to describing and discussing the core issue of the illegal smuggling of tobacco and alcohol.
Such smuggling is becoming a serious issue in Herefordshire, particularly in Hereford city itself. My investigations have made clear to me what will already be apparent to many Members—namely, that such smuggling is only the tip of an iceberg and only the beginning of a much bigger problem nationwide. In that context, I especially want to pay tribute to PC John Yarwood, who is the Hereford city beat manager; to Councillor Mark Hubbard, who first brought this issue to my attention; and to the trading standards team at Herefordshire council, who have been fighting to keep the smuggling under control.
The problem is easily stated. A number of shops in my constituency persistently sell illegal tobacco and alcohol under the counter. A regular pattern is emerging: the shops are raided by the police and HM Revenue and Customs, goods are seized and fines are imposed. But weeks later, exactly the same thing happens again—the shops are raided, goods are seized and fines are imposed. And so it goes on. In the past 18 months, some 360,000 cigarettes have been seized in Herefordshire alone.
That pattern does not happen by accident. There is a simple explanation—the profits to be made from illicit sales far exceed the losses from fines and seizures. A single lorry-load of cigarettes can be worth £1.5 million in profits to the smugglers. Costing just 9p, a pack of 20 cigarettes has something like a 4,000% mark-up when it is sold on the street.
It has been reported that HM Revenue and Customs seizes some 1.7 billion illegal cigarettes every year. As a whole, tobacco trafficking is estimated to cost the taxpayer £2 billion a year and alcohol trafficking £1.2 billion a year. So this is very big business. In effect, the fines and seizures have become just another cost of doing business—literally, a licence to smuggle. It appears that they have little or no deterrent effect. Many of these shops have had their alcohol licences revoked, but that has proven to be little or no deterrent against illegal sales.
These actions make a mockery of the law and our law enforcement agencies, and they need to be stopped. They cause a huge loss of tobacco and alcohol duty to the taxpayer, they undermine the sales of law-abiding businesses on the high street and of distributors, and there is nothing to prevent under-age sales and illegal working in these shops; one man arrested in a raid in Hereford last year had been awaiting deportation since 2008. They also create serious additional hazards to health.
Someone smoking a smuggled cigarette could be smoking anything, just as someone drinking a smuggled bottle of spirits could be drinking anything. These products are not subject to the same rigorous controls as the legal products. Generally, they are made in backstreet premises in countries far distant from the UK, and they are specifically made to be smuggled. Moreover, there is evidence that illegal tobacco and alcohol outlets are often used to fund organised crime on a far wider scale.
However, the problem goes much deeper than that. There appears to be no way in law to prevent these shops from reopening and no clear line of accountability within Government. The issue sits unhappily poised between HM Revenue and Customs, which reports to the Treasury; the UK Border Agency and the police, which report to the Home Office; and licensing policy and trading standards officers, which report to local councils. I am extraordinarily grateful to the Economic Secretary for coming today, but she cannot be expected to answer questions about policing or border controls. Those topics are for the Home Office, not the Treasury.
I am aware that the Government have taken important steps to address the issue in recent years—providing extra resources during the next four years to increase investigations, intelligence and enforcement; expanding the work of HMRC overseas to tackle importation into the UK at source; and developing new technology and resources to strengthen our borders. I am also aware that, at least in theory, HMRC has a range of penalties at its disposal, including the seizure of goods, civil penalties, fines of up to £5,000, criminal prosecution and the recovery of criminal assets. However, those penalties are not anything like enough. I repeat that a single lorry-load of cigarettes can be worth £1.5 million in profits to the criminal rings behind it.
Furthermore, recent history has not been encouraging. Far from raising their game during the past 10 years, I understand that HMRC and the UK Border Agency have been doing worse over that time: they seized fewer cigarettes and less rolling tobacco in 2008-09 than in 2000-01; they have seized fewer vehicles; and fewer people have been sentenced for tobacco smuggling.
What can we do? I suggest three things. First, we need more information. Is it true that HMRC has been less effective and not more effective during the past few years? How many prosecutions have there been? We need regular and detailed data on prosecutions and seizures. Secondly, it is not enough for the police and HMRC just to be able to seize goods and impose these relatively modest fines. They need to be able to close down premises for significant periods when there have been repeated violations of the law. That may require new law-making.
Finally, there is a clear case for having a Minister who is specifically charged with dealing with the issue and able to work across Departments to be as effective as possible. I note that the Minister with responsibility for broadband, my hon. Friend the Member for Wantage (Mr Vaizey), works across both the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport. Perhaps there is scope for similar joint-reporting lines across HMRC, the Treasury and the Home Office in this area.
Andrew Griffiths (Burton) (Con): I thank my hon. Friend for securing this debate. As the chair of the all-party group on beer, I recognise his commitment to the brewing industry; he has been a great supporter of it since he has been in this place. Does he share my concern about the Government’s recent estimate of alcohol smuggling into this country? They estimated that the equivalent of 28,000 lorry-loads of alcohol come into this country every year, which is about 538 illicit movements per week. If so, does he also share my view that if such a massive amount of alcohol is being smuggled into this country, the problem lies with the customs authorities, which are not policing our borders efficiently and effectively?
Jesse Norman: I thank my hon. Friend and colleague for his intervention and questions. He puts his finger on the scale of the problem and he must also be right that the UK Border Agency is not being as effective as it should be in preventing this illegal importation of goods. That is a further element to be addressed by a Minister with the kind of joint-reporting lines that I described earlier.
Let me sum up my argument. Better information, new powers and better co-ordination between Government agencies are all required. Those three steps could make a crucial contribution to tackling the scourge of alcohol and tobacco trafficking, and I am sure that I speak for all Members in Westminster Hall today when I urge the Government to consider those steps carefully as they develop their thinking in this area.
Brandon Lewis (Great Yarmouth) (Con): Thank you, Ms Dorries, for calling me to speak. It is a pleasure to serve under your chairmanship today.
I congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on securing this debate on a hugely important issue that is particularly timely, following the Budget. I will focus my remarks specifically on the Treasury-covered area of duty stamping. In itself, it could do a great deal to help prevent some of the illegal sales that we have discussed—certainly the illegal sale of alcohol.
One of the questions about smuggling, mentioned by my hon. Friend the Member for Burton (Andrew Griffiths), is that there is some debate—even within the alcohol industry—about how much is actually smuggled in. There is a debate about the amount that is physically smuggled in as opposed to paper movements, whereby the product never actually leaves the country and the paperwork is simply moved between countries to avoid duty. That can create a huge issue that is impossible for the UK Border Agency, or indeed any form of border control, to manage, as it is basically a paper shift.
Excise duties on alcohol generate about £9.5 billion a year; they certainly did in 2010-11. However, there is also a Treasury estimate of a tax gap of up to £1.2 billion each year due to duty evasion, principally through fraud. As has already been mentioned, about 10% of the beer sold in this country in 2009-10 was estimated to have been sold illegally. Data from wholesalers show that beer and wine sales have fallen, while those of spirits, which are now duty stamped, have increased. Those are more likely to be legal sales, as duty stamping has reduced illegal sales. Duty stamping brings an increase in duty for the Treasury; at a time when we are looking to plug an economic gap, such an increase could be hugely beneficial.
I have talked to wholesalers and retailers. In particular, the Federation of Wholesaler Distributors has done a lot of work in this area, and it is clear that there is now a correlation between beer and wine. If the Government are considering introducing duty stamping—I welcome the measure in the Budget to consult on it—I hope that they look at beer and wine together, as it is becoming clearer and clearer that those are now direct competitors, certainly where choosing whether to drink beer or wine at home is concerned. Of what men drink, it is estimated that about 60% is beer and cider and 25% is wine. The figures for women are more like 57% wine and 19% beer and cider, so a significant amount of alcohol can be covered through duty stamping.
The retail industry has experienced a significant loss in beer sales over recent years—particularly of products, such as Stella Artois, which are more subject to illegal smuggling and fraud. There is an opportunity to have a huge impact through the health service; a reduction in the amount of cheap beer available through the small outlets that get it through the grey market would be beneficial to the Department of Health through reduced alcohol-related illness. The increased revenue from duty stamping could be used by the Department to increase awareness of alcohol. I hope that, in the consultation on duty stamping, we look not so much at whether it is taken forward by the Government, but at how.
Multi-packs are a particular issue for the beer industry. How can duty stamping be done cost-efficiently and effectively and deliver what we want without it preventing the industry from exporting their product? I appreciate that there are some technical issues and I hope that, working with the industry, the Government will be able to deal with them, so that we can have increased revenue for the Treasury of about £1 billion and also a beneficial impact on health.
The measure may well go some way towards dealing with the issue that police in Norfolk have outlined to me. My hon. Friend the Member for Hereford and South Herefordshire mentioned it, and I know that the Economic Secretary reads about such things. The huge number of issues that the police deal with on a weekend evening, when people are out and about, are not due to alcohol consumed in public houses and clubs, where people are generally more responsible—certainly the landlords and owners are—but to preloading with cheap alcohol, much of which is bought on the grey market at a lower price than should be allowed. I hope that the Government will move forward with duty stamping. It is something that could be welcomed, and it would help not just the Treasury but the health of our nation.