Edward O'Hara (Knowsley South, Labour)

I remind the Committee thatwith this we are discussing the following amendments: No. 11, in page 2, line 16 [Vol I], after ‘likely', insert

‘on a balance of probabilities'.

No. 12, in 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 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 page 3, line 2 [Vol I], after ‘specified', insert ‘and reasonable'.

No. 15, in page 3, line 28 [Vol I], after ‘may', insert

‘after seeking to establish the facts of the case with the manufacturer'.

No. 16, in page 4, line 17 [Vol I], after ‘state', insert ‘fully'.

No. 17, in 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 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 page 4, line 46 [Vol I], leave out from ‘notice' to end of line 2 on page 5.

No. 20, in page 5, line 4 [Vol I], leave out

‘(or are taken to have confirmed it)'.

No. 21, in page 5, line 43 [Vol I], after ‘may', insert

‘after consulting the Commissioners, manufacturers and other interested parties'.

Philip Dunne (Ludlow, Conservative)

Mr. O’Hara, I thank you for calling me after the intermission. I am particularly grateful for the point of order, too, because it has given the hon. Member for Wirral, West (Stephen Hesford) time to take his place. I was in mid-sentence and using his intervention in the previous sitting to illustrate not the point that he was trying to make but the reverse. If I interpreted his remarks correctly, he suggested that it would be possible to identify whether foreign-based manufacturers were likely to be selling to customers who might smuggle cigarettes or tobacco products into this country. The nature of the local market would indicate in itself whether the sale was of sufficient scale for the market to be prone to smuggling.

Some nations are small but active traders. This country has established most of its economic heritage on the back of trading with other larger and smaller nations. From my own experience, I know for example that the market of Hong Kong, with 6.5 million residents, is an entrepot to the market of greater China, with its more than 1 billion inhabitants.

I should be interested in whether the hon. Gentleman’s test was relevant to a customer of a tobacco-importing business in Hong Kong determining whether smuggling into this country was likely. I venture to suggest that it is an irrelevant test. The point remains, however, that the thrust of the clause is directed at UK-based manufacturers, rather than foreign manufacturers where the bulk of smuggled goods comes from.

Stephen Hesford (PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office; Wirral West, Labour)

The hon. Gentleman amazes me, because the test that I set out in a few words is the one that is included in the Bill and to which I referred his hon. Friend the Member for Braintree (Mr. Newmark).

Philip Dunne (Ludlow, Conservative)

I am grateful for that observation, but my point remains perfectly valid. It will be down to the measures that the Government impose on foreign-based manufacturers to prove that the manufacturers are not likely to be smuggling. That will be a difficult test for the Government to establish in the absence of the greater use of measures such as the memorandums of understanding with those individual manufacturers

In relation to the stand part debate, why are the Government seeking to use such measures to combat  smuggling when they are not using the full forceof existing laws to combat smuggling in our constituencies? I accept that this is a Finance Bill, and that I may be referring to an example that strays beyond its confines, but if you will indulge me,Mr. O’Hara, I want to point out that we suffer from a particular problem in my constituency—the blight of the car boot sale. I am sure that the hon. Member for Wolverhampton, South-West (Rob Marris) will nod his assent that it affects the area between our constituencies. Several operators use the very limit of the law to provide car boot sale facilities for many of his constituents, and mine. On the rare occasions that they are raided by the police, significant quantities of contraband goods—such as tobacco products, CDs and other goods—are found in large numbers. If effort was expended by this Government on cracking down on venues for the sale of illegal goods, they would find that smuggling rates would decline more rapidly than will be the case under this measure.

Stephen Hesford (PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office; Wirral West, Labour)

With respect, the hon. Gentleman was wrong about his last point, but this point is even more confusing. Is it his policy and that of the Conservative party to prohibit car boot sales?

Philip Dunne (Ludlow, Conservative)

I shall not indulge your good nature,Mr. O’Hara, by requesting that you allow me to respond in too much detail to the hon. Gentleman.

Edward O'Hara (Knowsley South, Labour)

It would help because I would rule you out of order anyway.

Philip Dunne (Ludlow, Conservative)

I simply say that I do not believe that my first point was incorrect. It was valid, and I look forward to the Financial Secretary’s response to it. I am certainly not arguing that we should stop car boot sales. I am arguing that the legislation that exists to deal with what is sold at car boot sales should be enforced.

David Gauke (South West Hertfordshire, Conservative)

It is difficult to argue the case that the clause is unduly harsh on the tobacco industry because that is not the most sympathetic of causes. We will not often see senior politicians in open-necked shirts visiting cigarette factories, saying what a marvellous job they are doing for the British economy. Along with nearly all my colleagues, I am a non-smoker. It is certainly true that the lawyers here outnumber the smokers, on these Benches at least. It is not very often that the tobacco industry is treated particularly sympathetically by politicians. The only instance I can think of in recent years was in 1997 when Formula 1 was exempted from the ban on tobacco advertising, but we know that particular circumstances were involved in that case.

My hon. Friend the Member for Rugby and Kenilworth (Jeremy Wright) made several good points about the difficulties that exist in the clause. It is worth dwelling on them, not so much from the point of view of the tobacco industry, but from the Government’s point of view and that of Her Majesty’s Revenue and Customs. There are one or two circumstances where  there must be some concern as to whether everything in the clause will be enforceable.

My hon. Friend raised the point earlier regarding the degree of uncertainty that must exist when determining the intention of the purchaser of the cigarettes. It is difficult to test the intention of that individual or that entity: in some circumstances it may be clear, but in others it will not be. Therefore, there is a fundamental uncertainty in the law. One questions whether the provisions might be vulnerable to a challenge under human rights legislation, and I would be interested to hear the Financial Secretary’s views on that point.

A second area of potential concern relates to the£5 million fine. The procedures set out in clause 2 are more of an administrative nature than a criminal one, and there may be concerns that problems will exist under human rights legislation as a consequence.

I am also slightly concerned about the broader issue of the way in which the Government increasingly use private businesses to perform the role of policeman. There may be a good reason for doing it. A private business, such as the tobacco industry, may be in a stronger position to regulate smuggling than the law enforcement authorities. However, that increasingly places great regulatory burdens upon private business, and has one or two other potential dangers. The police are democratically accountable, although not as democratically accountable as some of us would like, but none the less an accountability mechanism exists. However, no such mechanism exists for a business in the way that it enforces rules.

The hon. Member for Wolverhampton, South-West also raised the issue of judicial review in a different context, and public bodies are liable for judicial review. There is a different mechanism and a well established, sophisticated way with which law enforcement and public authorities are dealt. We are passing on public duties to private companies, which can cause problems.

Looking at the clause earlier, I was reminded of the provision on money laundering under the Proceeds of Crime Act 2002, an area of law that I once knew somewhat better than the law on tobacco smuggling. I refer, in particular, to the imposition of a reporting regime for the regulated sector. There is a different approach to money laundering than is applied to tobacco smuggling under clause 2, which says that the businesses must avoid dealing with potential smugglers.

The approach proposes a positive obligation on tobacco firms because, in doing so, they have to draw up a policy and investigate the potential counter parties. It is more than simply avoiding matters; it is a positive duty. I am not complaining about that. However, it does cause difficulties. Within the money laundering regime, if the private business is suspicious, it does not have to be judge and jury about whether the entity or transaction that it is dealing with involves money laundering. The private business must follow the rule and report the matter to the authorities.

As for tobacco smuggling, rather than the potential difficulties involved with imposing a duty toavoid entering into certain transactions, has any consideration been given to whether the problem should be looked at on the basis of reporting? The memorandum of understanding might already contain  details of the reporting obligations, but could the Government consider beefing them up? That may prove to be a more satisfactory way for tobacco companies to deal with the matter.

It seems reasonable to say to a tobacco company, “You should have suspicions in these particular circumstances. You are entering into a transaction and you should inform us, the law enforcement authorities.” It should then be for the law enforcement authorities to pursue the matter, rather than for the tobacco industry to say, “We have to decide. We may have some guidance, but we are not really in a position to make a judgment”.

There may already be some provision on how reporting works that I am unaware of. However, I wonder whether clause 2 is going down the wrong route. Given the considerable uncertainty that exists within the current provision, it may be difficult for tobacco firms to comply with the clause. For example, they may face difficulties at a human rights law level and, therefore, the Government should establish a reporting, rather than an avoiding, regime.

Brooks Newmark (Braintree, Conservative)

I shall be brief because I can tell from the looks of those onthe Government Front Bench that they are anxiousto proceed. I thank the hon. Member for Wolverhampton, South-West, who taught me, almost a year ago in my first debate on the Finance Bill, the wonders of explanatory notes.

I was intrigued when my right hon. Friend the Member for North-West Hampshire (Sir George Young) pointed out that there were annual revenue losses of £2.9 billion, which an extraordinarily large figure. In note 31 of the explanatory notes to clause 2, there is mention of a package of measures to reinforce the tackling tobacco smuggling strategy. There is a lot of conversation about cigarettes, and we read in the notes that it is estimated that one in six cigarettesis smuggled, which is an extremely high number. However, what really struck me was that half of all hand-rolling tobacco for roll-your-owns is actually illicit. That is an extremely high figure. I would like to draw out from the Financial Secretary which of the measures referred to in note 31 focus particularly on the smuggling of hand-rolling tobacco, because that figure of 50 per cent. seems extraordinarily high. I look forward to his response.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

You,Mr. O’Hara, and the Financial Secretary were absolutely right to say this morning that our consideration of this issue has been curious in thatour debate on the amendments has preceded a stand part debate on the substance of the clause. However, our debate on the amendments had in part to address the substance. Following your advice, Mr. O’Hara, I propose to speak to clause stand part. The Financial Secretary will then respond, and then I will make it clear whether we intend to press our amendments to a Division. I welcome the hon. Member for Falmouth and Camborne (Julia Goldsworthy) to the Committee,  because we did not have the chance to do that this morning, although the Paymaster General welcomed her in absentia.

Before I turn to clause stand part, I point out that—as the Committee has already heard, and as my hon. Friends have already all made clear when touching on points of real substance—these are important and controversial clauses. This morning, I listed the Chartered Institute of Taxation, the Institute of Chartered Accountants and the Institute of Directors, all of which have concerns about the measures. In fact, in the break between the morning and afternoon sittings, I found among my e-mails a further briefing from the Law Society that was not present when I left for Committee this morning.

The Financial Secretary made the point that all those bodies are involved directly with taxation and are not tobacco manufacturers, and I make two brief points in response to that. First, obviously, it does not follow that their concerns are mistaken—nor did he suggest that. Secondly, tobacco manufacturers have privately related concerns about some of the provisions to me, although I say plainly to the Financial Secretary that there have not been as many from those manufacturers as from the other bodies.

The concerns basically fall into four parts. First, the organisations are concerned that the proposals may be unnecessary in that they appear to duplicate existing information-gathering powers, money-laundering rules and parts of criminal law relating to aiding and abetting and conspiracy. You will already see,Mr. O’Hara, that this debate is another paradise for lawyers. Secondly, the organisations are concerned that the proposals may be ineffective in that they appear—certainly in the view of the Chartered Institute of Taxation—to contravene EU treaties and the European convention on human rights, a point that my hon. Friends referred to earlier. Thirdly, in so far as the measures are necessary and effective, they are none the less excessively subjective. Fourthly, they createa disproportionate administrative burden on manufacturers and break new ground in obliging businesses to take active steps to help to police the criminal laws intended to prevent tax loss—a point made by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) a moment ago. However, there is no legal duty on citizens actively to enforce laws against crimes that are no less serious, such as crimes that cause death or injury, or theft of private property. Let me deal with each of those points in turn.

First, there is the question of whether the proposals are necessary. There are already measures in civil law under the law of tort in England and delict law in Scotland that would allow the HMRC to recover any damages arising from the fact that a business had acted recklessly and as a result allowed a person to escape duty. There are also laws such as the Customs and Excise Management Act 1979 and the Tobacco Products Duty Act 1979 that already apply to those sections of the Government’s proposals that require information about importation or exportation. Therefore, I ask the Financial Secretary to explain what parts of the proposals are not already covered by those Acts. It is the opinion of some bodies that have commented on the proposals that they are in part already covered in law.

Secondly, there is the question of whether the proposals will be effective, particularly in respect of EU law. That concern is shared by the Institute of Chartered Accountants. Although excise duties are not subject to harmonisation measures such as those found in EU directives, they are still subject to EU VAT law in the context of the right to freedom of establishment. The proposals may concern transactions between UK businesses and businesses carrying on a trade in a country other than an EU country, a point alluded to by my hon. Friend the Member for Ludlow(Mr. Dunne). The proposals therefore may affect intra-community trade.

EU law does not prevent member states from taking action to prevent fraud and evasion, but limits have emerged from case law on what can be done to prevent fraud. In representations made to me, the recent Optigen case has been cited. It saw Optigen Ltd pitted against Customs and Excise commissioners. Even though I am not a lawyer, I have some apprehension of the principle of proportionality, which is the key legal principle involved, as it has been imported into law in recent years. In the view of the Chartered Institute of Taxation, the measures taken are disproportionate to the aim intended to be achieved because the size of the penalty exigible for non-compliance, which proposed new subsection 7C(2) sets at a maximum of£5 million—a considerable penalty, which my hon. Friend the Member for Rugby and Kenilworth referred to earlier—is, in the institute’s view,

“on such a scale as to be criminal in nature. It is questionable whether it is right for the tax legislation to convert a supposedly civil offence into the equivalent of...aiding and abetting a crime. Accordingly, it is improper to allow such a penalty to be imposed by what is in effect an administrative decision.

The penalty is exacerbated because, to the extent that a business is required to avoid carrying out transactions likely to result in smuggling, it is required to curtail its business with a consequential loss of profits. While this may be justified where smuggling is almost inevitable it will, because of the subjective nature of the decision to be made, lead to transactions declined even though no fraud is involved.”

I take it that that is a reference to what could happen if a firm is involved in legitimate activity but also in activity that may subsequently be judged to be illegitimate. There could be an effect on the legitimate business of the firm.

The institute continues:

“There would appear to be potential conflicts with other law e.g. a transaction might be potentially reportable under the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003 since a money launderer might seek to use legitimate transactions such as an ordinary sale of goods to launder money. In such cases, a business could be faced with the dilemma that confirming a transaction is contrary to the TPDA 1979, but not doing so might amount to ‘tipping off’—a rather more serious offence.”

The institute adds:

“It is also necessary to bear in mind the difference in the levels of knowledge which a business might have”—

that touches on another point raised earlier—

“and which the tax authorities—who have access to a wider range of information—may have. The judgment of HMRC might therefore be different to that of a business, yet it is HMRC...who will decide whether”—

to quote proposed new section 7B(1) of the Tobacco Products Duty Act 1979—

“they ‘think that a manufacturer has without reasonable excuse failed to comply’. It is difficult to conceive of how a tax officer deeply involved in countering tax fraud can place himself in the shoes of the business to decide whether there is compliance or not. Moreover HMRC will be operating with the benefit of hindsight, whereas the tobacco manufacturer will not have that advantage.”

What legal advice has the Financial Secretary received on the matter of subjectivity?

Fourthly, there is the question of the administrative burden that the proposals will place on manufacturers. Does the Financial Secretary share the view of the Institute of Chartered Accountants that unless tobacco manufacturers are content with the wording of the clause, it risks being subject to lengthy litigationin the UK and at the European Court of Justice?What legal advice has he taken, particularly on proportionality and the relation between the proposals in the Bill, the recent Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003?

The Institute of Chartered Accountants points out that clause 2 has territorial problems—which relates to the point made by my hon. Friend the Member for Ludlow—that the HMRC might be open to claims for damages and that there seems to be no adequate provision for independent review of the HMRC’s actions. What assessment has the Financial Secretary made of any new vulnerability in the HMRC to claims for damages? Can he guarantee that any review carried out by the HMRC under section 7C(3) will be carried out by someone other than the officer who authorised the report? That goes back to another point made this morning by my hon. Friend the Member for Rugby and Kenilworth.

Finally, given that the new proposals seek to place new duties on tobacco manufacturers, I am curiousto know the Government’s further thinking on the matter. Are they considering extending those duties to manufacturers of other products vulnerable to fraud, such as alcohol?

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

I shall deal first with the series ofpoints made by the hon. Member for Wycombe(Mr. Goodman), and then try to answer the points made by other hon. Members.

The hon. Gentleman asked me whether the Government had taken legal advice on a series of matters before framing the clause. The short answer is yes. The slightly longer answer is, “Of course we have.” We have taken advice on the questions of proportionality and compatibility with European Union legislation. We have also taken advice on the question whether other laws would give us powers to control supplies of tobacco. Our judgment and knowledge is that such laws do not exist.

The hon. Gentleman asked about HMRC review. HMRC practice on any regime for which it is responsible is that the review of a taxpayer is conducted by HMRC officers independent of those who are involved in pursuing that taxpayer or, in this case, undertaking the clause 2 process.

The right hon. Member for North-West Hampshire (Sir George Young) asked about the impact ofclause 2, and about its benefit to the Treasury. The clause is based on and complements the memorandums of agreement that are currently in place with the three major UK-based tobacco companies, which supply the majority of the UK market. The memorandums of understanding, reinforced by the clause, will make it harder for smugglers to source large quantities of cigarettes and of hand-rolling tobacco for the purposes of smuggling and selling within the UK.

The existing memorandums of understanding have resulted in a significant fall in the proportion of genuine manufactured tobacco in cigarettes that have been seized by HMRC. Because the supply of genuine tobacco is being choked off, it has been replacedby counterfeit tobacco. In 2001-02, 85 per cent. of cigarettes seized were genuine—albeit diverted, rerouted or smuggled in some way—but by 2004-05, the proportion was about a half. In other words, legitimate sources have been choked off at theirorigin by arrangements and close co-operation with manufacturers. Smugglers have therefore had to adapt their techniques and have increasingly used counterfeits as their source.

It was the pre-Budget report that originally set out the impact on combined revenue of clause 2, together with the measures and new initiatives that were set out in “Reinforcing the Tackling Tobacco Smuggling Strategy”, the document published alongside the Budget. The report indicated that there would be positive impact of £50 million this year, £90 million in 2007-08 and £115 million in 2008-09. If the hon. Member for Braintree wants to see our other proposed measures, including those in relation to hand-rolling tobacco, he should consult chapter 5 of the pre-Budget report and the document that we published alongside the Budget in March.

Stewart Hosie (Spokesperson (Chancellor of the Exchequer; Home Secretary); Dundee East, Scottish National Party)

The Financial Secretary said that the purpose of the clause is to choke off the supply of large quantities of cigarettes and hand-rolling tobacco to smugglers. That is perfectly reasonable, but the lobby notes also saythat clause 2 imposes a duty on tobacco manufacturers not to facilitate smuggling, and that tobacco manufacturers will be required to avoid supplying cigarettes or hand-rolling tobacco to those likely to resupply to those likely to smuggle. Do tobacco and cigarette companies have the necessary due diligence skills to determine whether potential resupplying companies may be functioning legally in their place of operation?

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

The short answer is that the memorandums of understanding already contain a commitment on precisely that point and the tobacco companies, working with HMRC, are increasingly able to do that.

The hon. Member for Rugby and Kenilworth asked about the burdens that would be placed on manufacturers. There should not be any significant additional costs to tobacco manufacturers that have already put agreed memorandums of understanding in  place, because the clause mirrors those existing working arrangements. In meetings with HMRC, some tobacco manufacturers have indicated that they may incur some additional costs, because they intend to inspect all seizures that are notified by HMRC intelligence communications. They have not tabled any estimates, nor have they put forward any objections on grounds of cost during the formative stages of the clause.

The hon. Gentleman then argued that the provisions needed to be clearer and more specific. He referred, in particular, to the limits that the manufacturers may be able to exert on the supply chain when they have sold to the principal primary customer. We accept that there is a limit to what manufacturers can do to control the supplies beyond that first customer, but there have been instances when the volume of tobacco supplied to certain markets has significantly exceeded the legitimate demand in those markets, including even the permissible requirements of the travelling customers. As I said, manufacturers can encourage their customers to adapt their supply chains and are doing so in some cases. They can contractually oblige their customers to adapt their supply chain policies and similarly are beginning to do so in some cases.

We shall set out more clearly some of the expectations and requirements in the regulations and guidance that we are producing. We will do so not under primary legislation, in order to give ourselves greater flexibility. It will benefit the industry and ourselves to be able to change the provisions should that be required without primary legislation in the future. That is especially important in the area of smuggling, where the methods, tactics and routes change rapidly.

My hon. Friend the Member for Wolverhampton, South-West traded on his lawyerly background by urging more elegance in the drafting. Size of supply is the terminology that we tend to use in the memorandum of understanding. We have tried to mirror the clause on the memorandum of understanding. Manufacturers are used to it; they understand it. It is a sensible approach. The Government’s lawyers are satisfied and content that the terminology covers the purpose for which the provision is designed. The nature of supply is broad. It is intended to include such issues as unusual or convoluted transit routes, large cash payments and changes in buying patterns that may warrant further investigation.

The hon. Member for Ludlow referred to car boot sales. It is part of the operational pattern and strategy of HMRC to tackle the illicit supply of goods, whether at car boot sales, car parks, pubs or clubs. If the hon. Gentleman is coming across car boot sales in his constituency where such activity takes place, I encourage him to ring the Customs confidential hotline on 0800 595 000. In order to tackle the supply of smuggled hand-rolling tobacco and cigarettes, it is necessary to intervene and clamp down at each stage of the supply chain. That is precisely what HMRC does. It has about 2,000 operational staff who are deployed as front-line officers at the borders and inland to intercept and deal with the supply routes. If the hon. Gentleman consults the Budget document that we published, he  will see that an extra 200 people will be deployed this year specifically to step up our efforts to deal with hand-rolling tobacco.

I say to the hon. Member for South-West Hertfordshire that the reason why it is hard to argue that such provisions are unduly harsh on United Kingdom tobacco manufacturers is that they are not arguing that themselves. As I said earlier, they may not like the clause, but they accept that it builds on what we have done already on a voluntary basis and that it will make a further contribution to choke off and reduce the supply of legitimate tobacco and cigarettes to the smuggled market.

I hope that I have dealt with the questions asked about the consistency with human rights legislation. For the hon. Gentleman’s information, the Chancellor signs the human rights statement in respect of the Finance Bill. I have signed the regulatory impact assessment that relates to the provisions as being compatible with human rights legislation, so if serious questions arise, it is I in the first instance who will have to answer for the judgment that I have already made. In making that judgment, we take on board careful and comprehensive advice from the lawyers, and in respect of what the hon. Member for Wycombe is concerned about, we are confident that the provisions of the clause are compatible. On that basis, I hope that the hon. Gentleman will withdraw his amendment, and that the Committee will agree to clause 2 standing part of the Bill.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

It became evident in earlier exchanges between the Financial Secretary and me that these amendments were intended to be probing amendments. The Financial Secretary dealt satisfactorily with many of the points that were raised. For example, he made it clear that “likely” means

“on a balance of probabilities”,

and that has saved the hon. Member for Wolverhampton, South-West and I from being locked together in some Dantean circle arguing over the matter indefinitely. Also, in relation to amendment No. 16 and the word “state”, the Financial Secretary made it clear that there is no need to insert the word “fully” because “state” implies “fully”.

However, there is one specific concern arising from the Financial Secretary’s response that we may wish to raise later. He probably will not be surprised to hear that it is in relation to the memorandums of understanding. The Financial Secretary said thathe did not want to give an undertaking that manufacturers who enter into memorandums of understanding will receive any different treatment in the Bill from any other manufacturer who has them first because he wanted a level playing field—he wanted equality of treatment for all. He then explained that there is a process in respect of the signing of these undertakings.

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

Perhaps I did not make myself clear. The point I was making was that those manufacturers that already have a memorandum of understanding in place with us in a sense have a head start, because they have in place the information provisions and the relationship with HMRC on which the provisions and  requirements of clause 2 will be based. The point about clause 2 is that the obligations that it will contain and the sanctions that may potentially apply will apply to all manufacturers that may be supplying the UK market, not just those that have memorandums of understanding already in place. I hope that that helps the hon. Gentleman.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

I was coming to that point, but if I am correct I think the record will reflect the fact that the Financial Secretary did say that he did not want written into the Bill any special treatment for those manufacturers who had signed memorandums of understanding, which would mean that they would not have to go through exactly the same procedures as other manufacturers who had not signed. He did of course say that those who had signed these memorandums of understanding would be in a better position; that is true.

However, my concern is about what the Financial Secretary said about writing into the Bill a provision that if a manufacturer had previously agreed a memorandum of understanding, that manufacturer would be exempt from some of the procedures in relation to, for example, notices being provided in writing. He said that that would send the wrong signal. I am not quite so sure about that; I think it might actually send the right signal were a manufacturer, or manufacturers, able to enter into memorandums of understanding that would make it clear to the authorities what they were prepared to do to counter fraud, and if they did so it might actually be helpful to them to be able to come to that kind of arrangementto be able to circumvent some of the procedures in clause 2.

I am not going to press the amendment to a Division at this stage, but we might return to this matter in due course.