John
Healey: Let me respond to the hon. Member for Wycombe (Mr.
Goodman). I know Mr. Patel. I met him before the Budget and wished him
well. He has recently taken over as chair of the Tobacco Alliance, and
I discussed with him the Government’s interest in working with
him and his network of small retailers to see how we can improve the
public information that warns people about the dangers of counterfeit
cigarettes and smuggled tobacco. Having published the Budget, we will
do that work jointly with his organisation. As the hon. Gentleman said,
small shopkeepers such as Mr. Patel are concerned, because cigarettes
and tobacco bring into their shops people who then buy other
things—the footfall, as Mr. Patel puts it. That trade is
affected by the availability of illegal, smuggled tobacco. One of our
principal reasons for giving such priority to the anti-smuggling
strategy is that legitimate, honest businesses are undermined by the
bootleggers and smugglers who make available cut-price cigarettes and
tobacco.
Small retailers also face a
number of other trends, not least the increasing range of retail
products available at garages, and the patterns of shopping that,
increasingly, take people to supermarkets and out-of-town centres,
rather than to their local high streets and corner
shops.
Mr.
Goodman: The hon. Gentleman is right. However, I just want
to be sure that he acceptsMr. Patel’s key point, which
is that there is a relationship between the rate of duty and
smuggling.
John
Healey: I shall come to that point. Thehon.
Members for Ludlow and for Braintree(Mr. Newmark) both tried
to probe the relationship between price—underpinned in part, but
not entirely, by duty—patterns of smuggling and patterns of
consumption. That is clearly complex, but I shall deal with it when I
refer to the detailed modelling that the Government economic service
has done. In addition
to the Tobacco Alliance, the hon. Member for Wycombe mentioned the
Tobacco Manufacturers Association. We work closely with that
organisation. Our analysis is that the illicit market trend is
consistent, but the precise figures sometimes differ. The counterfeit
figures—I am not sure whether they were the
TMA’s—that the hon. Gentleman cited certainly differ, and
we believe that the anti-fraud measures that we have put in place are
making a great impact.
It is
important to consider—as the hon. Gentleman encouraged us to
do—the modest measure of retaining the real value of tobacco
duty in clause 1 in the wider context of the anti-tobacco smuggling
strategy, which we launched in 2000-01. Between then and 2003-04, we
succeeded first in halting the rapid rise, then in stabilising it and
then in beginning to reduce the illicit market. By 2003-04, the illicit
market was still too big, but it was down to 16 per cent. Since the
launch of the anti-tobacco smuggling strategy in March 2000, the number
of cigarettes smuggled into this country each year has been reduced by
more than 5 billion, and we have cut the illicit share of cigarettes by
a quarter and protected almost £6 billion in revenue to the
public purse. Without that action, and the investment that we have been
prepared to put in, the illicit market would be not 16 per cent. but 36
per cent. We still have to do more to clamp down, because smuggling
gangs change their tactics and their methods very rapidly. Part of what
we have to do, and which we set out in the publication “New
responses to new challenges: Reinforcing the Tackling Tobacco Smuggling
Strategy”, published alongside the Budget, is to deal with the
increasing levels of counterfeit cigarettes and the persistently high
levels of smuggled hand-rolling
tobacco.
Mr.
Newmark: What analysis does the hon. Gentleman have that
lies behind those projections, which show that the number would have
been 36 per cent. as opposed to the 16 per cent.? What is the detailed
analysis behind that differential?
John
Healey: The hon. Gentleman brings me neatly to one of the
documents that we published about18 months ago. I will send
him a personal copy.
John
Healey: I am not sure that the hon. Gentleman wants me to
do that. The publication is the most rigorous attempt to model and
assess the often complex combination of inter-relationships in which
the Committee is interested. It contains much of the information for
which he and the hon. Members for Ludlow and for Wycombe have been
asking. If the hon. Gentleman has time, I suggest that he study
it. The model’s
main findings show that, with tobacco, we are close to the revenue
maximisation point with cigarette duty. That means that any large real
increase in duty rates would increase smuggling and start to reduce,
not increase, revenues. Duty cuts wouldnot produce
proportionate reductions in tobacco smuggling. Only a large cut in duty
would be likely to have any significant impact on the behaviour of
consumers and suppliers. The Government economic service tobacco
model—this is the answer to one or two of the points that the
hon. Gentleman has made—shows that a 1 per cent. real increase
raises, in revenue terms, only about £5 million
pounds.
Mr.
Dunne: I am most interested in what the hon. Gentleman is
saying. If possible, may I receive a copy of the document? Will he look
back at the historic impact of the real increases in the past and
explain how effective they were in raising revenue versus the increased
smuggling?
John
Healey: I shall be delighted to ensure that the hon.
Gentleman receives a copy. If any other Committee members would like a
copy, it is available through the Vote Office.
According to our calculations,
a 4 per cent. increase in duty would increase smuggling by about 1 per
cent. It would have a negligible impact on consumption. The assessment
suggests that it would hit consumption by 0.2 per cent. only. It would
increase revenue by only about £10 million pounds and that is
the point at which we would reach the revenue maximisation point on
cigarette duty.
Mr.
Newmark: I very much appreciate the analysis that the
Financial Secretary has explained. However, there is a slight
contradiction, or perhaps, if he could clear it up for me, it is not a
contradiction after all. He said that a 1 per cent. increase in duties
would increase tax take by £5 million pounds. However, he also
said that there is a point of diminishing returns; that one cannot keep
increasing duties ad infinitum. I am curious about the analysis in that
document. What is the actual tipping point? Are we there now or do we
need to increase duties by another 2 to 3 per cent.? Clarification
would be helpful on where that tipping point is and the point at which
we meet those diminishing
returns?
John
Healey: I do not want to repeat myself. Perhaps the hon.
Gentleman did not catch my words when I said that we are very close to
the revenue maximisation point on cigarette duty at present? Were we to
increase the duty on cigarettes by 4 per cent., we would raise
only an extra £10 million or so. We believe that that is the
level at which we would hit the revenue maximisation point.
In his intervention and his
contribution, the hon. Gentleman argued that our smuggling problem is
principally a product of the fact that our tobacco duty rate is high
compared with that of our European Union counterparts. I do not really
wish to refer him to other documents, but if I did he would see that
the vast majority of illegal cigarettes are smuggled into the UK in
freight from outside the European Union. No duty is paid on those
cigarettes anywhere, let alone in the European Union, so to concentrate
on the difference in duty between Britain and Belgium, Spain or France
is to miss the point. It is misleading as a focus for analysis. I am
not sure whether the hon. Gentleman advocates cutting the duty in the
UK to a rate that is comparable with those that prevail in the rest of
the world, but his Front Benchers might be interested in that
proposition financially—because it would cost billions of
pounds—and in terms of health, because it would lead to an
increase in
smoking.
11.30
am
Mr.
Newmark: On a point of clarification, I would never make
any suggestion that would contradict my Front Bench, or the aspirations
of my fellow Opposition Members.
John
Healey: I think that we have heard the first public job
application from the hon. Gentleman. I wish him well in supporting all
the positions that his Front Bench takes during the course of these
proceedings. If he does not disagree with the hon. Member for Wycombe,
he certainly does with the hon. Member for Ludlow. While he was arguing
that rates should be lower, the hon. Member for Ludlow said that the
price of cigarettes and the duty on them should be higher. There is
clearly an interesting discussion taking place behind the hon. Member
for Wycombe. All hon. Members will be interested in the fact that the
UK has long maintained high levels of duty so as to keep prices
relatively high in order to try to affect consumption. Other countries
in Europe, such as France, Germany and Ireland, are
beginning—both for public health reasons and for revenue
reasons—to follow our lead.
As part of his
contention that we should increase tobacco duty in real terms, the hon.
Member for Ludlow is rightly concerned, as all hon. Members will be, to
bring about further reductions in smoking in this country. It has been
the policy of successive previous Administrations and this one to use
duty rates to maintain high cigarette and tobacco prices. That has
undoubtedly been a significant factor in the reduction in the number of
smokers in the population, which has dropped from 35 per cent. in the
early 1980s to some 25 per cent. now.
As the proportion
of the population who smoke reduces, further gains are harder to
achieve. While duty rates were never low—they were never the
single club in the policy bag—a number of other measures are
needed. That is why I mentioned in my opening remarks that, through the
NHS, we are making a large investment in programmes to help people who
want to
quit smoking. Hon. Members will be aware that 70 per cent. of smokers
say that they would like to quit. The cessation programmes that we have
put in place through the NHS are important in that respect. Given our
experience in Ireland and Scotland, we believe that the ban in smoking
in public places is likely to have a further impact on the overall
level of smoking in this country. I welcome the support of the
hon. Memberfor South-East Cornwall (Mr. Breed) for the
Government’s policy of a comprehensive smoking ban in public
places. I am not sure that his hon. Friend the Member for Twickenham
(Dr. Cable), as the Liberal Democrats’ shadow Chancellor, will
be quite so keen, but he will certainly be interested in his approach
to tax harmonisation.
Let me end by saying that any
members of the Committee who believe that there is merit in any of the
four new clauses should have a word with me and I shall undertake to
let them have copies of all the documents that we have published
recently that cover the relevant territory. Hon. Members may take that
as a promise or a threat, but I hope that it will help them to come to
the right decision when we finally vote on the new clauses, not just on
whether clause 1 should stand part of the
Bill.
Mr.
Goodman: As I explained earlier, the new clauses were
primarily an attempt to elicit from the Financial Secretary an
up-to-date summary of the effectiveness of tobacco duty. He has
thoroughly outlined the Government’s thinking, particularly on
the revenue maximisation point. It was useful to hear him explaining
the Treasury’s position that there is a point beyond which, if
the duty were raised, it would almost certainly not drive consumption
down, but it would drive smuggling and counterfeiting up. He was also
right to say that duties are only one club in the bag, albeit an
important club, and to give us details.
We have been given two
pointers. One is the point that was raised by the TMA that the
Government might miss their smuggling target if present trends
continue. The other relates to the Financial Secretary’s kind
offer to shower us with documents. While, as I said earlier, the
Government’s anti-smuggling strategy succeeded in reducing the
revenue loss for two successive years from 2001, it rose again last
year. I should be glad—goodness knows why I am exposing myself
to more documents in this way—if the Financial Secretary would
point me towards the sections of the document that explain clearly and
straightforwardly why that occurred. We do not intend to oppose the
proposed rise in duties and will not press the new clauses to a
vote.
The
Chairman: Order. The new clauses have not yet been moved.
At the appropriate time, the hon. Gentleman may decide not to move
them. Question put
and agreed to.
Clause 1 ordered to stand
part of the Bill.
Clause
2Tobacco
products duty:
evasion
Mr.
Goodman: I beg to move amendment No. 10, in clause 2, page
2, line 13 [Vol I], after ‘who',
insert ‘on a balance of
probabilities'.
The
Chairman: With this it will be convenient to discuss the
following amendments:
No. 11, in clause 2, page 2,
line 16 [Vol I], after ‘likely',
insert ‘on a balance of
probabilities'. No.
12, in clause 2, page 2, line 28 [Vol I], after ‘subsection
(1)', insert ‘unless that
manufacturer has previously agreed a memorandum of understanding with
Her Majesty's Revenue and
Customs.'. No.
13, in clause 2, page 2, line 30 [Vol I], at end
insert ‘unless that manufacturer
has previously agreed a memorandum of understanding with Her Majesty's
Revenue and
Customs.'. No.
14, in clause 2, page 3, line 2 [Vol I], after ‘specified',
insert ‘and
reasonable'. No. 15,
in clause 2, page 3, line 28 [Vol I], after ‘may',
insert ‘after seeking to establish
the facts of the case with the
manufacturer'. No.
16, in clause 2, page 4, line 17 [Vol I], after ‘state', insert
‘fully'. No.
17, in clause 2, page 4, line 27 [Vol I], at end
insert ‘unless that manufacturer
has previously agreed a memorandum of understanding with Her Majesty's
Revenue and
Customs.'. No.
18, in clause 2, page 4, line 28 [Vol I], at end
insert ‘unless that manufacturer
has previously agreed a memorandum of understanding with Her Majesty's
Revenue and
Customs.'. No.
19, in clause 2, page 4, line 46 [Vol I], leave out from
‘notice' to end of line 2 on page
5. No. 20, in clause
2, page 5, line 4 [Vol I], leave
out ‘(or are taken to have
confirmed
it)'. No.
21, in clause 2, page 5, line 43 [Vol I], after ‘may',
insert ‘after consulting the
Commissioners, manufacturers and other interested
parties'.
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