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8.14 pm

Mr. Robert Walter (North Dorset): I draw the House's attention to my entry in the Register of Members' Interests--not that I think that the Bill will make any difference, although my right hon. Friend the Member for Fylde (Mr. Jack) had some interesting proposals, which would have made a slight difference. Alas, he is no longer a Treasury Minister.

Introducing the Bill, the Chief Secretary spoke of a balanced approach, and made quite an issue of that. In a number of areas, the Bill and its proposals present a precarious balance, especially in respect of excise

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duties, where the balance is still tipped in favour of the criminal and foreign business, and against the law-abiding, otherwise successful British business.

Since the implementation of the single market, the failure of Government to recognise the enormous divergence between excise duties in Britain and those in the near continent has encouraged the smuggler and damaged British business. In my North Dorset constituency, three pubs have closed in the past two months. That had nothing to do with foot and mouth, although that is having a devastating effect on pub takings. It had much to do with business rates, council tax increases and the minimum wage. Most of all, the availability of cheap booze, both legally and illegally acquired, has brought about the closure of The Silent Whistle at Shillingstone, The Sir Winston Churchill at Wimborne and The Damoury Arms in Blandford.

I am grateful to Mr. David Woodhouse, the managing director of Hall & Woodhouse, an extremely successful independent family brewer in Blandford, for providing me with up-to-date data on the subject. As a premium beer producer, the firm has just won the Tesco "Beer of the Year" competition with a new brew, "Golden Glory", which goes on sale next month. Mr. Woodhouse faces the possible closure of more pubs in the future. Outside the House, I mentioned to my hon. Friend the Member for West Dorset (Mr. Letwin), the shadow Chief Secretary, a pub in his constituency, which is under serious threat.

The Government will claim that they have not increased beer duty this year. However, the problem has not gone away. The problem is the fact that beer is significantly cheaper in France and, in a single market, the population will seek to arbitrage the difference if there is an economic benefit to be gained. Let us consider the price advantage of duty-paid imports of beer from France.

Many factors affect the net profitability of duty-paid imports: the type of beer imported--whether it is canned or bottled, whether it is premium or standard beer, and whether it is a French or a UK beer; the destination in the UK to which the beer is being taken; the capacity and type of transport being used; and the type of operation--whether it is a smuggling gang, a lone bootlegger or just a home shopper. I shall deal in a moment with those three very different but not untypical types of importer, all of whom have a similar net profitability, which is estimated to be about 8p a pint.

Since the start of the single market, four major factors have changed that price advantage. There have been changes to the rate of UK beer duty--thankfully, no change in the upward direction this year; changes to French beer duty, which has gone up, and exchange rates; higher ferry fares, following the end of the duty-free allowances in July 1999; and the recent increasing success of Her Majesty's Customs in deterring smugglers from using their Transit-style vans, thereby increasing confiscation rates.

Data for the past five years indicate that volumes have borne a close relationship to the net price advantage. The exception was in 1999, when smuggling volume was particularly high, but that was probably distorted by those stocking up for the millennium celebrations. In the first three years after the single market was established, volumes were lower than might be expected, which

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probably reflects the time taken by importers and suppliers fully to recognise and exploit the financial opportunities.

Many factors have altered the profitability of personal imports of beer from France to the UK over the past decade. The rate of UK beer duty was increased by a penny a pint in 1993, 1995, 1998, 1999 and 2000. The change of the duty system in July 1993 meant the equivalent of a further penny on a pint.

On the other side of the equation, France increased its rate of beer duty in 1995. The abolition of duty-free sales in July 1999 resulted in increased ferry fares, which raised the cost of the average day trip by about £10. For the average day tripper, that was the equivalent of about 7p a pint. As I mentioned, in recent years, Customs and Excise has deployed increased resources at Dover to stop and confiscate a fair proportion of the larger vehicles, such as the Transit vans used by smugglers. That has forced many smugglers to use smaller and less conspicuous vehicles. It has also added to the smugglers' costs over the past four years. It has been estimated that their costs have increased by about 9p a pint.

Does that mean that the Government are winning this war? I should like to demonstrate that they are not winning it. The spectrum of duty-paid beer imports covers a wide range of importers and products. I should like to give three short examples. Although they relate to different types of enterprise that involve the importation of widely different loads and types of beer, I want to show that the net profit in each case is less than 8p a pint.

My first example is that of the genuine personal shopper and day tripper. Although the indicative limit that is imposed by the customs is 110 litres of beer per head, most people bring back far less. The average quantity brought back by legal shoppers is about 10 litres per head. My example assumes a load of 13 cases of beer, which can be packed relatively easily into the boot of a family saloon car, but represents slightly more than six months' average consumption for a UK adult. Although most of the gross profit of such an exercise is spent on travel, the day tripper makes a small saving and has a free day out in Calais. He would bring back bottles of beer at 86p a litre, which he can buy at Tesco or Sainsbury's in Calais. As he is bringing back 13 cases, he will have bought about 78 litres. That represents a saving on Tesco's prices here of about £66, which consists essentially of duty. The ferry will have cost about £40, and let us say that his petrol will have cost £15, if he was travelling from London. That produces an overall saving of £11 on an investment of £122, which is a net saving of 7.7p per pint.

Let us now consider the more serious side of the equation, and turn to the criminal fraternity. I want to speak about those who are in the business of bootlegging and smuggling. My second example is that of the bootlegger who sees the financial opportunity of smuggling. He buys the cheapest possible beer and fills his estate car with as much as it can hold--usually about 60 cases. He will not use a Transit van, because of the risk of being obvious to Customs as he comes back through Dover. The weight of 60 cases of beer is almost a tonne--a load that makes the car illegal and potentially dangerous. Our bootlegger then sells his cheap beer to his friends and neighbours when he gets back, but to do so he must offer better value than the traditional source, which is the supermarket. To beat that competition, he

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must undercut the supermarket price by at least a third, so he is unlikely to achieve a profit of more than about £5.50 a case.

Nevertheless, the bootlegger will expect to make from his beer a profit of about £50 on a trip. He will probably supplement that gain by trading in tobacco and cigarettes, about which I shall speak more in a moment. Of course, he runs the risk of vehicle confiscation and imprisonment, but he will probably not factor that risk into his calculation, on the assumption that it only ever happens to somebody else. His arithmetic is likely to be as follows: he buys the cheaper beer for £3.70 a case, probably from Eastenders in Calais. He fills up his D-reg Volvo or Peugeot estate with 360 litres of beer, or 60 cases. The average UK price is probably about £8 a case, but he will sell the cases on at £5.50 each, making a gross profit of £1.80, or £108 for the trip. After he has taken out his travel costs, he will have made a profit of £48 on an investment of £282, with a margin of 7.6p a pint.

Now for the real criminal: Mr. Big. My third example is the organised gang of criminal smugglers. They are remotely controlled by Mr. Big, who hires drivers to import his beers in Transit vans, or, increasingly, in pick-up trucks. The beers will usually be English brands, as they can be resold in the UK without arousing suspicion. They might have been legally exported to French shed warehouses, of which there are many within striking distance of Calais, Cherbourg and so on. To maximise the load, the smuggler will probably bring back 12-litre cases of cans, which weigh less than glass. His pick-up truck will have been fitted with specially stiffened springs to enable it to carry a load of more than a tonne. The observations of the Brewers and Licensed Retailers Association suggest that 90 cases would be a typical load for such an operation.

Mr. Big may run a fleet of up to a dozen such vehicles, with arrangements for transfer on to a lorry near Dover for onward transportation to the midlands and the north. With a fleet of that size, he would expect probably to lose a vehicle a week to confiscation by Customs. Such losses will be built into his calculations. As he is dealing in UK brands, the saving is essentially the duty difference between the UK and French rates. The beers will be distributed via a large network of cornershop off-licences, van sales on housing estates and so on, but the retailers will need a reasonable incentive to risk their licences by selling illegally imported beers, so there is an estimated sales cost of, say, £2 a case.

The criminal in question will be bringing in more than 1,000 litres of beer in his pick-up--or 90 cases--and saving duty of about 50p a litre. Obviously, he will have ferry costs and he will have to pay the driver and perhaps a mate, which will probably add another £60. He has probably built into his costs a premium for losing the occasional vehicle--perhaps one in 20--of about £75, and there will also be sales costs. That means a net profit of about £145 to £150 a trip. On an investment of £1,300 or £1,400, that is a profit of about 7.5p a pint.

So, it is clear that, for beer, the margin remains. That margin is revenue lost to the Treasury. It is the criminal smuggler who is in business, but it is my business men, my brewer, whom I mentioned, and my publicans who are losing money and, in some cases, going out of business. The margin is not the 26p duty differential

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between Britain and France. As my figures demonstrate, the margin--the bootlegger's margin--is less than 8p a pint.

On Friday I spoke to another publican in my constituency, Mr. Charlie Hancock, who runs the Fleur de Lys in the village of Cranborne. His concern related to tobacco duty. Five years ago, his off-sales of liquor and tobacco amounted to about £1,000 a week, three quarters of which were accounted for by cigarettes and tobacco. They are now virtually zero. The story is repeated in pubs, off-licences, convenience stores and village shops in my constituency and, indeed, throughout the country.

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