Clause 1
Finance (No.2) Bill
10:45 am
Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)
It is a pleasure to see you in the Chair, Mr. O’Hara. Unlike the Financial Secretary, I have not had the pleasure of serving under your chairmanship before. Although I am sure that, in the course of these proceedings, the Financial Secretary and I will not agree on everything, he was right to pay tribute to your chairmanship, and I look forward to your guiding us in our transition through today’s clauses in a dignified, orderly and efficient manner.
The clause that we are considering invites us to approve the tax rise proposed in the Chancellor’s Budget. As the hon. Gentleman said, new clause 1 would have the effect of compelling the Chancellor to publish a review in relation to the effectiveness of tobacco duties. You, Mr. O’Hara, will be pleased to know that I do not intend to discuss the proposed review in detail, and the hon. Gentleman will be pleased to hear that too. I want to refer to what he said about the quantity and quality of the information already published by the Treasury; he was right to draw attention to that. The proposed new clause seeks to draw an assessment from him of how all those documents come together in terms of the effectiveness of the Government’s strategy with regard to the duty.
We need to explore the effectiveness of that strategy in some detail. Any tax needs to be effective; it must achieve its aims. The Financial Secretary made it clear that the aim is to discourage smoking. That is an aim that we share. However, he did not mention the other aim of the clause, which is to raise revenue for the Exchequer—[Interruption.] He did. I apologise to him. We are covered so far as aims go.
The Financial Secretary will be mindful of that great law in relation to taxation and many other matters, the law of unintended consequences, as well as of the effect that raising a tax beyond a certain point might have on expected consequences, namely that it might not discourage the behaviour that it seeks to discourage. If raised beyond a certain point, it might raise less revenue than it would if it were not increased or if it were decreased. Raising it beyond a certain point could cause such unexpected consequences as evasion, in this case tobacco smuggling, which we shall discuss in more detail when we debate clause 2.
At present, according to the Tobacco Manufacturers Association—which would like duties to be frozen, not unusually—smuggling increased between 2002 and 2004, the last few years for which the organisation has figures, resulting in a rise in revenue loss from£2.6 billion to £2.9 billion. The Minister will doubtless point this out when he replies, so I shall point it out for him: it is true that the cross-border element has fallen from £1.4 billion to £1.3 billion. However, when both figures are added together, the result is a rise from£4 billion to £4.2 billion. The Tobacco Manufacturers Association suggests that those developments threaten the Government’s smuggling targets. I am sure that the Minister will want to respond to that point too.
According to a Gallaher monthly pack swap survey, the consumption of counterfeits has risen slightly, from 2.4 per cent. to 2.8 per cent. of total consumption. It is worth standing back from the figures for a moment and looking at them in context. According to the TMA, cigarette prices in the UK are already the highest in Europe, and the UK’s excise duty burden is the highest in the EU. The rising number of freight movements and visits within the EU, good things in themselves, naturally increases opportunities for smuggling. There has also been a significant rise in UK consumption of hand-rolling tobacco.