Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

During the previous Parliament, we had many debates in this Committee on proposals to increase tobacco duty. The Liberal Democrats gave qualified support to the Government's proposals gradually to raise tobacco duties, and the Conservative party was against that. The hon. Member for Christchurch has not made it clear whether the Conservatives are against the measure, and said that that depends on the Government's reply to this debate. I look forward to their reaction to that reply. I want to put on the record that the Liberal Democrats remain in favour of the Government's policy of increasing excise duty on tobacco products, primarily for health reasons. Every year, 120,000 people die of tobacco-related illnesses, so the matter is serious.

During the previous Parliament, we had many debates on whether that policy was beginning to have the reverse effect of that intended and whether the proliferation of smuggling was resulting in children and adults having access to cheap tobacco and smoking more than they would have done if duties had remained unindexed or been cut. Those debates backed the Government's position, but gave them a warning.

We had a long debate on elasticity of demand, the tax elasticity of smuggling, cross-priced elasticity and revenue elasticity to duty rates. I shall not reiterate that debate, but the conclusion was that if the Government raised duties there would be a net gain to the Exchequer, so they are justified in continuing that policy. However, the hon. Member for West Dorset (Mr. Letwin) made a powerful argument about the social effect of undermining law and order with the increase in smuggling. He argued that unless the

smuggling were tackled, whether or not there was a revenue gain for the Government from increasing excise duty on tobacco, there would be an undermining of social order and that that should be costed into the Government's equations. He was right to make that point and he did so powerfully. That was the major reason for us saying loudly to the Government that their anti-smuggling policy must be shown to work and be continued with persistence and ferocity.

The pre-Budget report suggests that that policy is beginning to work. We were told that Customs and Excise seized nearly 2 billion cigarettes in 1999–2000 and nearly 3 billion in 2000–01, which clearly indicates that there have been greater seizures, although it also shows that smuggling is still there. I wonder what happens to those 3 billion cigarettes.

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