Mr.
Goodman: I am very happy to give way to another hon.
Member whom we also look forward to hearing from many times in
Committee.
Gordon
Banks: You mentioned the Northern Ireland situation? Do
you not acknowledge that this year many tens of millions of
cigarettes—
The
Chairman: Order. May we establish at the outset that
remarks must be addressed through the
Chair?
Gordon
Banks: The hon. Gentleman mentioned the situation relating
to Northern Ireland. Cannot it be accepted that tens of millions of
cigarettes have been seized in Northern Ireland this year? That
showsthat the Government are trying, and succeeding
significantly, to get a grip on the
issue.
11
am
Mr.
Goodman: If I deal with that point in detail, I am
concerned that the hon. Member for Wolverhampton, South-West (Rob
Marris) will accuse me of delving into clause 2. However, the hon.
Gentleman is right; the Financial Secretary has reported progress in
that field, and I am delighted, as I said earlier, that customs
officers from both sides of the border were involved in the recent raid
on the farm of Mr. Thomas “Slab” Murphy.
Stepping away from the issue of
smuggling and the perils of becoming entangled in clause 2, we, like
the Government, believe that it is right in principle to use the tax
system to discourage smoking. It is also reasonable, in principle, to
use taxes on tobacco to raise revenue. We also note that the
consumption of tobacco continues to decline, albeit slowly, and that
the Treasury has brought down revenue losses from
smuggling.
Stephen
Hesford (Wirral, West) (Lab): Given that the Financial
Secretary indicated that the rise is in line with inflation, I am not
clear what point the hon. Gentleman is making. If there is some
elasticity and the rise is the result of inflation, what other increase
would he make? Would it be less than
inflation?
Mr.
Goodman: I do not know what rise, freeze or reduction my
hon. Friend the Member for Tatton(Mr. Osborne) will propose
when he introduces his first Budget in 2009, but I hope that the hon.
Gentleman will recognise that there is a relationship between the level
at which a duty is set and smuggling. If the Government were not
concerned about smuggling or about the level of the increase, we would
hear the first noises in Committee from the Economic Secretary to the
Treasury, whom I congratulate on his promotion. I am glad that his hon.
Friends are as enthusiastic about the issue as I am; doubtless he is,
too.
Mr.
Newmark: Is not one of my hon. Friend’s key points
the fact that our tobacco price is among the highest in the European
Union? That high price is driving the smuggling industry and putting
many shopkeepers out of business.
Mr.
Goodman: My hon. Friend is right. We are considering the
relationship between the high price, smuggling and counterfeit goods.
That is the best answer that I can give to the hon. Member for Wirral,
West (Stephen Hesford).
Before the Government Back
Benchers became so enthusiastic, I was moving on to make a point in the
Government’s favour. Although losses from smuggling rose last
year, they fell to £4 billion in 2002-03—from £4.2
billion in the previous year and £4.3 billion in the year before
that. It is at least possible to believe that HMRC will begin to reduce
the figure in future years. For that reason, while we want to hear what
the Financial Secretary says, we have no plans to oppose the tax rises
in line with inflation that are proposed in clause 1. However, we would
like him to address the questions about the rate of duty, and to tell
us whether he accepts that there is a point beyond which, if the
tobacco duty were raised, revenues would fall and
smuggling would increase. Given the high prices and duty levels to which
my hon. Friend referred, we would like the Financial Secretary to give
us an indication as to the Treasury’s thinking about how close
we are to that
point. Mr.
Philip Dunne (Ludlow) (Con): I, too, would like to express
my enthusiasm about serving on this Committee under your chairmanship,
Mr. O’Hara, and that of Sir John Butterfill.
I declare that I have a
prejudicial interest that is not shown in the Register of
Members’ Interests. I am a fervent and passionate anti-smoker.
If that colours my remarks on the clause, I am sure that Committee
members will at least understand. I am curious about the increases in
the rates of duty, because they are somewhat at odds with the
Government’s stated policy. I welcome the proposed increase in
line with inflation, but I am concerned. Recently, we in the House have
advanced proposals banning smoking in public places on grounds of
public health, and the Financial Secretary has argued that duty
rates are being increased to discourage smoking on the same grounds.
Why, then, are the Government limiting themselves this year to an
increase in line with inflation
alone? I have done a
bit of research into the increases in tobacco duty under this
Government. I understand that between January 1998 and March 2006
tobacco duty has been increased from 131.9p per 20 cigarettes to
210.2p, which is a rise of 59.4 per cent. in nominal terms and an
increase of 14.9 per cent. in real terms using March 2006 prices.
However, we are presented with no increase in duty in real terms,
despite the Government’s stated
intent. In trying to
understand what may be lying behind this modest increase, I have
considered the incidence of smoking under this Government. In the 2004
general household survey, published in December 2005—the one
most recently available from the Office for National
Statistics—table 8.6 refers to the prevalence of cigarette
smoking in Great Britain between 1978 and 2004 in persons aged 16 and
over. The incidence of smoking across the population as a whole has
declined from 27 per cent. in 1998 to only 25 per cent. in 2004, which
is a modest decline given the Government’s ambitions.
The table helpfully goes back
to 1978, the period immediately before the last Conservative
Government, so I should like to set the issue in context. I remind the
Committee that at that point the proportion of adults smoking was 40
per cent., but that declined to 27 per cent. in 1998. That was during a
period of the Conservative Government who were clearly more successful
in bringing down smoking for a number of reasons. I am not claiming
that tobacco duty is the sole reason why the incidence of smoking
declined. None the less, the previous Government had a more successful
record. I invite the Financial Secretary to comment on the elasticity
of demand for cigarettes related to duty and why the Government are
being so modest with this
measure.
Mr.
Breed: The hon. Member for Ludlow(Mr. Dunne) has
said much of what I was going to say about the strategy behind the
rates of duty.
Duty can be lowered, frozen or
raised. Raising it in line with inflation would perhaps be the minimum
amount that a Chancellor could do to preserve the amount of revenue
received. However, it is the Government’s desire and
wish—and the wish throughout the House—for this duty to
contribute to a general reduction in smoking and, let us hope, to
discourage young people, in particular, from
starting. Like the
hon. Gentleman, I ought to declare an interest, because I have never
smoked anything. I am not certain whether that makes me anti-smoking.
Nevertheless, I think that we all want to reduce smoking, because of
the health
effects. Bearing in
mind that the Government have, as the hon. Gentleman said, introduced
with a huge amount of support in the House and the country the measure
for no smoking in public places as a drive to reduce smoking generally,
perhaps it was a surprise that the duty on tobacco products in the
Budget was raised only in line with inflation. Paragraph 8 of the
explanatory notes
states: “The
estimated revenue yield from these changes is nil against an indexed
base.” I assume that
that is because it has been raised only in line with inflation.
However, given the Government’s proposals for driving down
levels of smoking, which have been largely supported, one might have
assumed that in the next year levels of smoking would reduce and that
therefore fewer cigarettes would be purchased. That, in turn, would
reduce the tax revenue. That might well be considered a
success. The
Government could have considered combining different legislation. For
instance, the Scottish Parliament has banned packs of 10 in an attempt
to make certain that young people, who are one of the principal
purchasers of packs of 10, are unable to buy them and therefore have to
spend more money on packs of 20. The hope is that that will reduce the
numbers of young people smoking. There is alsothe idea of
increasing to 18 the age of purchase. So the Government could have
reinforced their proposals with other
measures. As has been
said, price is a main driver. As it goes up, fewer people will want or
be able to purchase cigarettes. That could spur reduced consumption.
Perhaps the Chancellor might have been a little more ambitious by
increasing duty further, but we support the overall contention of
maintaining the real
value. As has been
pointed out already, the real problem is that as we drive up the price,
we almost encourage continued smuggling. I am sure that we will discuss
that in much greater detail during consideration of the next clause,
but a year or two ago, I and other hon. Members visited a business in
Belgium that dealt exclusively in what I suspected were smuggled
tobacco products. The man who ran the business told me that all he
needed for his business to thrive was for the Government over here to
keep driving up the price of
cigarettes. Until we
can get agreement on the way in which tobacco is taxed, particularly in
other parts of the European Union, that problem will continue. The
Government should not be deflected or bow down, but should try to stop
the smuggling. Certainly, we do not
want to give smugglers any encouragement, even if we are going to
increase the
price. Rob
Marris: To take the hon. Gentleman back a couple of
sentences, is he suggesting tax
harmonisation?
Mr.
Breed: I am not suggesting that at the moment, but it
ought to be considered over time. There is smuggling from all sides in
Europe and certainly there is a great deal that could be done in
France, Belgium and elsewhere to prevent some of the smuggling into
Britain. At the moment, there seems to be a rather laid-back effort. Of
course, if other countries in Europe shared our views on the health
aspects of smoking, they might be encouraged to increase their prices
too. However, if we are not careful, I suspect that harmonisation would
end up with us substantially reducing our duty, which I could not
possibly accept. It is somewhat fanciful to think that they might
harmonise up to our level immediately but, over the next few years,
their broad strategy ought to be to recognise the associated health
problems. A French person’s lungs are as likely as those of an
English person to be affected by the consumption of tobacco.
I expected a modest increase in
duty beyond inflation. However, we can look at that again next year and
assess the effect on smoking levels and tax yields of the duty rise and
the ban on smoking in public
places. 11.15
am
Mr.
Newmark: I shall try to be brief and focus on the
effectiveness of duty and its impact on the elasticity of demand and
pricing. We have heard
already that we have the highest duties in the EU. As always, the hon.
Member for Wolverhampton, South-West makes a very interesting point on
tax harmonisation. However, a synthetic tax harmonisation is
effectively occurring because of the impact of smuggling, which was
mentioned by my hon. Friend the Member for Wycombe. Although in reality
taxes are not coming down, the tax take may ultimately come down as
prices increase. The tax take is becoming a synthetic tax
harmonisation, and we need to be concerned about
that. My second point
has to do with the analysis of elasticity of demand and pricing, which
the Financial Secretary probably has in hand in one of the documents
that he was waving about. Action on Smoking and Health has quite
correctly pointed out that tobacco price rises are key in discouraging
individuals from smoking, but the problem with price rises, as my hon.
Friend said, is that they encourage more and more smuggling. I should
like to focus, however, on that elasticity of
demand.
Mr.
Goodman: Does my hon. Friend agree that it is also
possible, if not likely, that there is a floor beyond which consumption
cannot go? In other words, no matter how high taxes are raised, it is
impossible to reduce consumption below a certain level, although no one
can be sure what that level is. No matter how high
Governments attempt to raise the tax, they cannot remove that floor. It
also encourages smuggling, as he
said.
Mr.
Newmark: As always, my hon. Friend makes an excellent
point. As a member of the Select Committee on Science and Technology, I
know that there is an addictive element to smoking cigarettes. I
believe that increasing prices will encourage those with extremely
addictive personalities—or, I should say, those who are affected
more strongly than others by cigarettes—to go to the black
market to buy their cigarettes at a price below the market price
effectively set by the Government. That will encourage a larger and
larger black market to satisfy the needs of a core minority of people
who need their tobacco fix. I am interested in what the Financial
Secretary will have to say on the Government’s analysis. For
every 1p increase in tobacco duties, what reduction do we see in
consumption, at least down to the rock bottom mentioned by my hon.
Friend? I am curious to hear a little more about that
analysis. As Imperial
Tobacco has said, smuggling into the UK is the direct result of the
differential in excise duties. We want to clamp down on that smuggling
or prevent it from happening. Small shopkeepers in my constituency are
no different from the shopkeepers of Leicester mentioned by my hon.
Friend, or indeed from any of the 17,000 retailers in all the
constituencies represented in this Committee. We must be sensitive to
their interests.
Clearly, the health of the
nation is paramount. As a non-smoker, like the previous two speakers, I
want to discourage smoking as much as possible. However, we need to
deal with the tension of duty increases and their effect on the black
market and smuggling. I shall be interested to hear from the Financial
Secretary what analysis the Government have done on the link between
the reduction in smoking and the increase in the tax take. What numbers
can he give us to show that the tax take is increasing, even with the
inflation-linked increase in
duty?
| 
