Finance Bill

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Mr. Mark Hoban (Fareham): I add my welcome to those of other hon. Members, Mr. Gale, and I look forward to working under your chairmanship in the weeks ahead. I tackle my first Finance Bill with some trepidation, having had occasion from time to time, as

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an accountant, to bemoan its predecessors for their impact on the clients that I dealt with.

On cigarette duties, I hope that the Government explain in more detail how they have come to consider the revalorisation of excise duties on tobacco. Valid points have been made about the impact of the increase on smuggling. It would be valuable if the Financial Secretary explained what process the Government went through and their thinking on the balance between the impact of increased tobacco duties on smuggling and on consumption in respect of those who buy tobacco from normal outlets. That is an important issue, although I wish to avoid a debate on elasticities that I last encountered as an economics student at university. There are important trade-offs to consider here.

As the hon. Member for Wimbledon (Roger Casale) said, in addition to the more normal smuggling routes, such as white vans crossing the channel, there is now the internet, which facilitates more efficient and perhaps more anonymous cross-border cigarette transactions. In the context of the Government's tobacco smuggling strategy, what action are they taking to reduce the internet's impact on smuggling and importing cheap tobacco to the UK to avoid the very high duty rates incurred in this country?

The hon. Member for Dundee, East alluded to the resources available for Customs and Excise to tackle smuggling, referring to north-east Scotland. Will the Financial Secretary outline what additional resources will be available to Customs and Excise to tackle any smuggling increase and to ensure that we claw back some of the lost revenue to which my hon. Friend the Member for Christchurch referred? Tackling smuggling is important, but my concern is that Customs and Excise is under-resourced for that, so I should be interested to hear in more detail what plans there are to tackle it. If we increase tobacco tax, that will increase the incentive to smuggle to avoid the high duty. We must ensure that counter-measures are in place to restrict that.

Mr. Boateng: We have had an interesting debate, with a parade of smokers and non-smokers—past and present, reformed and unreformed, repentant and unrepentant and, in the case of the hon. Member for Christchurch, deep-dyed blue and unreconstructed. If that is the tone and nature of the contributions that we can expect from that quarter in the weeks ahead, we shall have a very interesting time indeed.

I turn straight to the—

Mr. Bercow: Kernel of the argument.

Mr. Boateng: I would not choose to use that word; I would prefer to use the word hub.

Mr. Bercow: That is not focused.

The Chairman: Order.

Mr. Boateng: I shall refer to the hub of the proposition made by the hon. Member for Christchurch—that this is, somehow, all Labour's fault. I suspect that, whatever we are debating, we shall hear from the hon. Gentleman that it is all Labour's fault. [Hon. Members: ''Hear, hear''.] That

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is the level of intellectual engagement with the Finance Bill that we shall have to tolerate in the weeks ahead.

On reflection, the hon. Gentleman might want to revisit that argument. Why people smoke, why they give up smoking and why people's inhibitions over breaking the law when it comes to cheating the Excise are, perhaps, lower than in other areas of law-breaking are interesting questions raising complex issues. Over smuggling, there is a misplaced romantic notion of baccy for the parson, brandy for the squire. [Laughter.] I see that the hon. Member for Arundel and South Downs, no doubt of the squire class, thinks that that is rather a good idea, but for some of us, who do not aspire to the lofty heights of the squirearchy, the breaking of the law is not to be sanctioned under any circumstances. I know that the hon. Gentleman accepts that; I am just pulling his leg.

Mr. Flight: I greatly thank the Financial Secretary for giving way and I endorse what he said. However, does he therefore think that it has been a good idea to follow tax policies that have led to large numbers of people thinking that it is okay to break the law?

Mr. Boateng: I shall come to that. I do not think that an examination of the policies on tobacco, or on anti-fraud and avoidance strategies generally, that Labour Governments have pursued since 1997 bears that interpretation. I do not want immediately to get into the hurly-burly of party political debate, but I feel that I must respond to the suggestion that we are soft on smuggling. My hon. Friend the Paymaster General had responsibility for that area way back in 1997 and has a very long institutional memory. When she assumed her responsibilities, one of the first things that she had to do was to reverse a cut of 300 front-line staff that had occurred during the tenure of office as Financial Secretary of no less a person than the right hon. Member for Fylde. The Conservative Government had cut 300 staff and were going to cut another 300. She had to reverse both of those cuts.

That fact says something about the priority that has been given to the issue of smuggling. I should not suggest that all smuggling prior to 1997 was the fault of the Tories because that would be grotesquely simplistic. As the right hon. Member for Fylde knows, the matter is not as simple as that. It is not, however, fair to suggest that we are soft on smuggling because we have sought to bear down on it by taking the necessary measures.

The hon. Member for Kingston and Surbiton called for the ferocity required—I think that those were his words—to deal with the issue. His contribution was interesting and I appreciate his constructive approach. I must say that I heard a different story from a deputation of Liberal Democrat MPs from the south-west.

Mr. Bercow: Ah!

Mr. Boateng: Ah yes. Those MPs came to see me in the Treasury and said that our measures were too draconian. [Interruption.] I know—I was surprised. They said that far too many white vans were being stopped. However, the contribution by the hon. Member for Kingston and Surbiton will be there for all to see in Hansard, and I shall draw it to the

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attention of the next deputation from the Liberal Democrats that makes its way to the Treasury. His contribution was, nevertheless, important and I accept his analysis. It is important to have an appropriate focus on the problem. The approach taken by Customs and Excise has been described in the High Court as reasonable and proportionate, and is a reasonable response to a menace that undermines legitimate trade.

11.45 am

Had we not taken tough action to tackle tobacco smuggling, according to estimates confirmed by the National Audit Office, the market share of smuggled cigarettes would have reached 25 per cent. in 2000–01 and risen to 35 per cent. in 2003–04. Instead, as a result of our anti-tobacco-smuggling strategy, the market share of smuggled cigarettes was 21 per cent. in 2000–01 and early indications are that Customs has reached its key target of reducing the market share of smuggled cigarettes to 20 per cent. by 2003–04, which is 15 per cent. lower than it would have been without the necessary action. As part of the routine annual publication of figures and estimates, we shall publish the detailed outcome of the strategy for this year in due course.

Mr. Jack: For the benefit of the Committee, will the Financial Secretary tell us the retail value of the one fifth of the cigarette market to which he referred?

Mr. Boateng: I will certainly drop the right hon. Gentleman a line to give him the exact figures on the value of one fifth of the market. If he will excuse me, I do not have that figure immediately at my fingertips.Given the strong upward trend in smuggling before the strategy was implemented, reducing the smuggled market share by 2003–04 was an ambitious target and meeting it would be a considerable achievement. We do not underestimate the scale of the problem. Right hon. and hon. Members who have drawn attention to the corrosion that such lawlessness causes to the social fabric of our country make a good point. We must roll it back and we are determined to do so.

The hon. Member for—

Mr. Bercow: Fareham.

Mr. Boateng: The hon. Member for Fareham made an interesting point about tobacco smuggling through the internet. It is important always to be one step ahead of those who engage in such fraud and as part of our strategy for tackling it, Customs and Excise has developed a co-ordinated response involving increased operational activity designed to seize as many cigarettes as possible, advertising on the internet to inform would-be purchasers that cigarettes bought through the internet are subject to United Kingdom duty and VAT and that cigarettes purchased without UK duty would be seized, contacting the websites to inform them of the correct legal procedures for supplying tobacco over the internet, contacting internet service providers to ask whether those websites conform to their conditions of trading, and working with other Government Departments and enforcement agencies in the UK and abroad to identify what further action can be taken against those

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websites. The hon. Gentleman was right to identify the problem and we are determined to stay ahead of those who seek to use the internet to break the law.

Mr. Hoban: On internet smuggling, will the Financial Secretary outline the locations that have been used as a base for suppliers of cigarettes through the internet? Will he explain whether they are based in Europe or outside and what co-operation exists with European Union agencies to tackle the matter?

Mr. Boateng: I am able to say that some are in the EU and others are outside. There is a concerted EU strategy on smuggling and there is real concern among our partners in Europe to find ways of working together. I and my hon. Friend the Paymaster General have been in contact with other Ministers and the European Commission. China is a source of much tobacco from outside the EU and we have good relations with Ministers and Customs and Excise in China in bearing down on the problem from that end. The problem is one of international criminality and the criminals involved are determined and ruthless, and operate at various levels.

I am grateful to my hon. Friend the Member for Dundee, East for drawing attention to the problem in Scotland with its islands and remote coastal areas. We have developed a flexible and mobile UK response that is intelligence-led and can move to areas under assault to provide a determined response to those who try to breach frontiers. At any one time, we have a cutter in Scottish waters that can intercept illicit contraband that is being taken to Scotland's shores. The problem involves not just the supply on estates and from the back of vans, but bringing the stuff in along the coastline. Therefore, it is a national problem. I was asked about the level of new resources applied to tackling it. Some £209 million has been invested in a strategy to tackle the problem, and we are confident that that will help to deliver challenging targets.

I know that hon. Members do not want me to go on at great length about the issue of elasticity, but I cannot ignore it completely. Customs and Excise estimates that a 10 per cent. real increase in price results in a 3 per cent. decline in consumption. The right hon. Member for Fylde will be interested to know that Customs and Excise does not make, as I suspect that it did not do in his time—he may be able to share his experience with us—separate estimates for different age groups. Perhaps that should be considered a useful piece of work, if it could be done at reasonable cost. We know from other research, as I recall from my time in the Department of Health, that young women, in particular, are taking up smoking much faster than young men. We do not know why. It will not be enough for the hon. Member for Christchurch to say, ''It's all down to a Labour Government'', and I am sure that even he would not suggest that. We do not know why, but they are doing so. That requires a response and it may be well be that, as part of that response, we should commission research into the effect of a price rise on that section of the market.

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This year's inflation-only increase is designed to meet our historically higher level of taxes, with the expectation that demand will not increase. I was asked why there was a reduction in the Red Book for next year. Revenue receipts are forecast to decline slightly next year as a result of a range of factors, including an estimated small decline in consumption. Recent estimates show that the proportion of the population who smoke has fallen a bit. Again, we do not know why, but we welcome the fact that it has fallen from 28 per cent. in 1998 to 27 per cent. in 2000. That makes about 12.55 million adult smokers in the United Kingdom—still too many. I give way to one.

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