(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 6
Finance Bill
1:00 pm
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
I am grateful for that intervention. My hon. Friend may well be right; I do not know whether hand-rolled tobacco is essentially more dangerous to people than manufactured cigarettes, but none the less it appears to be a growing market. We come back to the tension that sometimes exists, which my hon. Friend the Member for Windsor explored with regard to alcohol. Sometimes there is tension between raising revenue and discouraging a certain type of behaviour. I believe that the reason why the Government have kept hand-rolled tobacco duties at a lower level is because of the fear of smuggling. As my hon. Friend the Member for Braintree pointed out, something like half the consumption of hand-rolled tobacco is from smuggling sources. It would appear that it is easier to smuggle hand-rolled tobaccos simply because of the way in which it is packaged, and in many other European countries the rates of duty on hand-rolled tobacco, as with ourselves, are somewhat lower than for manufactured cigarettes. In relative and absolute terms, the difference is even greater, so there is a difficulty.
However, there are one or two problems, and I would be grateful if any figures are available to clarify matters. Given the relative increase in the use of hand-rolled tobacco over the last 16 or 17 years or so, what cost to the Treasury has resulted in that increase of use? Going forward, has the Treasury considered, given the different taxation systems that apply, that that relative use may increase even further, thus reducing revenues? I was also struck by the figure quoted by a number of hon. Members that the cost to the Exchequer of smuggling cigarettes was something like £2.9 billion. Does that figure take into account the fact that the duty on hand-rolled tobacco is kept low, presumably to try to reduce smuggling? I assume that it does not. No criticism is meant by that, but the problem would appear, in some respects, to be worse, given that steps are being taken to reduce it.
The Treasury’s paper on tackling tobacco smuggling refers to how, in 2000, the Government believed that the range of actions taken could be successful in reducing smuggling both of cigarettes and of hand-rolled tobacco. It states:
“However, as HMRC’s knowledge and understanding of the market has improved, it has become clear that the market for smuggling methods for HRT are different from those for cigarettes and different responses are needed.”
Specific policies were announced within that paper, which was produced a year ago, and a specific operational target was set out for hand-rolled tobacco, reducing the size of the UK illicit market by the equivalent of around 20 per cent. by 2007-08. We are now halfway through that period, and I would be grateful if the Financial Secretary could give us some information on what progress has been made.
It is also worth pointing out Sweden has abolished the distinction between the two levels of duty. They have now, in effect, a unified rate, and I do not know whether the Treasury has made any study to see what the consequence of that has been, and whether that has resulted in an increase or decrease in smuggling. As I also mentioned, there is an issue to do with a differential rate throughout the European Union, and I would be grateful to know whether the Government are in discussions with our fellow European countries on that to see whether any thought has been given to a co-ordinated approach to raising duties.
I also give the Financial Secretary an opportunity to scotch one myth, if indeed it is one. The duty on hand-rolled tobacco is lower because traditionally it was seen as being consumed by the poorest sections of society and the Government did not want to impose costs on them. I wonder whether the attitude of the Home Secretary in thinking that tobacco provides some pleasure in an otherwise unpleasurable life in certain sections of society influences Government policy. I am not saying that it does. I should be grateful if the Financial Secretary could confirm that smuggling has caused us to have a rate of duty that appears to encourage more and more people to smoke hand-rolled tobacco. It is one area in which the Government’s anti-smoking policy appears to be failing.