Clause 4 - Rates of tobacco products duty
Finance Bill
9:45 am
Mr Oliver Letwin (West Dorset, Conservative)
I do not intend to spend an undue amount of time on the clause. There is nothing terribly new to say about it, but I want to rehearse the reasons why the Opposition believe that it is a mistake to go on raising the rates for tobacco. I accept the point that the Financial Secretary makes about relative indexation, and if I can be allowed so unusual a departure, I confess to having made the mistake last year of believing that the Government intended to continue with the asymmetry in a direct line rather than following the swings and roundabouts principle. This year they have followed the swings and roundabouts principle, and we should be grateful for that. I withdraw some of the remarks that I made last year on that subject.
Our underlying difficulties with the idea of progressive nominal rises in tobacco duties remain. There is a particular force to this argument, because this year appears to be the year in which the fiscal crossover, which I believe that the Liberal Democrat Members, alongside the Government, thought would not happen, has happened. The Financial Secretary might give an explanation for the decline in revenues that differs—it would be worth listening to—but, as far as we can determine, the duty differentials that have opened up because of the UK's poor competitive position on duty have led to yet another significant increase in smuggling, as we expected.
Let me begin by stating a few points on which we agree with the Government, before moving on to those on which we clearly do not agree. We agree that smuggling is a bad thing. I know that we agree because we both support taking considerable steps to try to stop it. The Government would not be spending large sums of money to try to stop smuggling if they did not think that it was a bad thing. I suspect that we agree that the reason why people smuggle is not that they enjoy it as a pleasant pastime on a Saturday afternoon but because they are trying to make money from it, which they are able to do because of the duty differential. So far, I am being uncontroversial—at least I hope so.
I suspect that we agree with the Government—we certainly agree with the hon. Member for Truro and St. Austell (Mr. Taylor); his report remains in obscurity, but the contents of it become clearer and clearer over time—that the cause of the intensity of the smuggling is the size of the duty differential. In other words, normal market economics, albeit in a subterranean and illicit form, have prevailed. The supply of smuggling has arisen because the price advantage of smuggling has grown. So far, I suspect that we are on common ground.
I believe that we also agree—I have never been sure about the Government's position, but whether or not they agree, it is true—that the effect of that kind of smuggling not only deprives the Revenue of money but criminalises large numbers of people in the UK who probably lead perfectly blameless lives otherwise, at least in relation to the law.