On a point of order, Mr. Martin. During yesterday's debate on clause 30 and discussion on amendment No. 2, a Labour Member said that the statutory instruments relating to clause 30 were available and asked whether I had seen a copy. I had not, and I raised the matter as a point of order at the end of the debate on clause 30 because no copies of those statutory instruments had been deposited in the Library yesterday; nor were they available in the Vote Office.
The Paymaster General responded later by saying:
We have checked what happened—they were placed in Derby Gate, in the House of Commons Library and in the House of Lords Library. We are not sure why they were not there when he looked for them".
The Paymaster General went on:
I reassure him that we have arranged for additional copies to be deposited—no doubt he will be able to collect them after the Division."—[Official Report, 27 April 1998; Vol. 311, c. 109.]
I was not able to collect the draft regulations after the Division, and I was not able to collect them this morning. I have just been to the Library and they are still not there, and they have not been deposited in the Vote Office.
This is contempt not only of this Committee and the House, but of the wider public who are waiting to see the contents of the regulations before they are debated. The documents should have been available before yesterday's debate, and they are not even available now.
May I deal with the point of order first? The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) raised a point of order yesterday, and it was explained to the Committee that copies of the draft regulations were placed in Derby Gate, which is where they are, and in the House of Lords Library—they are there also. Four copies were deposited in the House of Commons Library at 3.30 pm on Friday.
I cannot explain why all the copies went missing from the House of Commons Library, but they were deposited, and the Government are not treating the House with contempt. Extra copies have been placed in the Library. I apologise to the hon. Gentleman for the difficulties that he is experiencing with the Library in respect of these draft regulations. I shall ensure that we find out exactly why this has happened, as the hon. Gentleman should be given an explanation.
Draft regulations are slightly different in that they have no reference number and hon. Members must ask correctly for the specific item. However, the draft regulations are there for scrutiny. If the hon. Gentleman was so desperate, he could have gone to Derby Gate, as the documents are certainly there as well—[Interruption.]
Clause 1 will increase the rate of duty on beer in line with inflation from 1 January 1999. The rate will increase from £11.14 to £11.50 per hectolitre per cent. of alcohol in the beer. The change does not represent a increase in real terms, but is needed to maintain revenue. Between January 1994 and January 1998, beer duty fell by 6 per cent. in real terms, and it is now at its lowest level in real terms for 15 years. The increase will prevent a further erosion of revenue in real terms.
Several hon. Members are keen to speak in the debate. I shall listen carefully, and reply to any specific points.
Today's debates will generally be about items that make life a little bit more enjoyable—not just beer, but tobacco and gambling. However, the Government seem to regard those items less as a source of pleasure than as a source of revenue. In a savagely tax-raising Budget and Finance Bill, the Chancellor could not resist raising almost all such indirect taxes by the maximum amount that he thought he could get away with.
I must declare an interest in beer, as I am a member of the parliamentary beer club, which has a distinguished patron—Madam Speaker. Perhaps you, too, are a member, Mr. Martin? I am delighted that you are. It is the biggest, or best attended, of all parliamentary clubs, so there is a great deal of expertise about beer—and, perhaps, considerable alarm about the increase in duty. We accept that it is not a real-terms increase, but it will nevertheless be damaging, for reasons that I shall outline.
The background to this nominal increase is a worsening of smuggling and excise fraud, persistent problems that I do not claim have arisen over the past year or two. The origins of smuggling lie far back in time, when, for various reasons, the United Kingdom had a structure of excise duties that were comparatively high against those of our continental neighbours, which relied on raising equivalent revenues by other means.
Whatever the reason, there is a substantial gap between the rate of tax on beer, and most other alcoholic duties in this country, and the rates prevailing on the continent, particularly in France and Belgium. That encourages people to go over to those countries to do their shopping—quite legitimately. There is some entirely legitimate cross-border shopping, and an increasing problem of smuggling and excise fraud. The two are linked, but distinct, phenomena.
The previous Government moved to ameliorate the problem. The substance of our charge is that the present Government, through not just this year's but last year's Budget, are making it worse. That is why we have tabled amendments intended to delete the increase.
The single European market creates, in effect, an open border. The legitimate trade, in Calais typically, but also in other continental shopping centres where people buy large quantities of drink—and tobacco, which we shall debate later—has created a huge retailing business in France. We are not just talking about retailing, however. Shoppers going abroad often buy drinks—beer, in this instance—that are not manufactured in this country. Those people are responding to a market signal. The Labour party, which now believes in market economics, cannot be terribly surprised when people respond to cheaper prices and lower duty rates on the continent. The United Kingdom beer tax is 32p in the pound whereas in France the equivalent rate is 5p, and that difference drives the huge and increasing habit of cross-border shopping.
There are two solutions. We can restrict the amount that people can bring into this country, which is not possible under the rules of the single market, which we support, or we can reduce the high rate of duty. That cannot be done quickly or easily and it does not need to be done completely. No one suggests that duty rates should be standardised, but somehow the clear incentives must be tackled.
In debates on the Finance Bill last year, the hon. Gentleman gained the reputation of making helpful interventions, and that one is no exception. I shall explain exactly why the Government can afford not to increase duty this year, contrary to the situation that we faced in government.
The hon. Gentleman will recall that, in the previous Parliament, the Conservative Government faced a persistently high —in some ways, alarmingly high—budget deficit. Nevertheless, we managed to freeze alcohol duty, and in our last two years in government we cut the duty on spirits. This Government face a different situation. The rates of duty are to come into effect on 1 January 1999, and in the financial year on which we have embarked the Government envisage a large budget surplus.
The comment by the hon. Member for Dudley, North (Mr. Cranston) about the low proportion of duty ignores the fact that there is still a gap between continental and United Kingdom duties, and that that is driving the phenomenon of massive cross-border shopping and the smuggling and other illegalities on which I shall shortly enlarge. There is a problem, and it is no defence to say that the proportion of duty on a pint of beer is lower than it was before. If the hon. Gentleman thinks that there is not a problem, he should talk to publicans and owners of off-licences in his constituency, who I think will tell a different story.
We attempted to tackle the problem. We froze the duty and, over time, that would have led to erosion of the differential. The Government have increased duty in nominal terms, not just in the Bill but in last year's Budget. They are making a bad situation worse. There is a gulf which, if anything, is widening. Matters have got worse not just because of the Government's failure to pursue our policy of freezing duties but because of the strength of the pound, which is a potent element in the equation. A strong pound makes it even cheaper to buy drink in Calais and elsewhere. I could speak at length about the Government's responsibility for that, but perhaps that it is a topic for another debate. That problem, plus the duty differential, is creating a crisis.
I have spoken about cross-border shopping. The second major element is illegality, which hits legitimate trade in all our constituencies and means that often alcohol is sold in an uncontrolled way, perhaps to those under the legal drinking age. It has also contributed to the demise of the British pub. I do not want to over-emphasise that. I have been in politics too long to accept all lobbying comments at face value. Beer drinking is experiencing a secular decline, which cannot be attributed solely to the habit of buying drink abroad or from illegal sources. Marginal pubs, which are nevertheless socially important, are shutting. One reason is that they are undermined by illegal trade.
An estimated 1.4 million pints of beer are brought across the channel every day. That amount is thought to be increasing. I cannot be certain about that, because the Government have not produced recent figures, despite promising to conduct a study.
That leads me to another Labour broken promise. This is quite a startling one, because it comes from the top—from the Prime Minister. He wrote in The Licensee, the main trade magazine, on 1 May 1997—a significant date—that the Government should
initiate an urgent independent and comprehensive study, analysing the extent and effects of both smuggling and illegal cross channel shopping".
He also said:
We are not going back on a single promise, not a single promise.
Well, he broke that one. He has not set up an urgent, independent and comprehensive study. Instead, a Customs and Excise study was announced in the pre-Budget report last November. That report is not available to the Committee.
I asked the Financial Secretary to publish the report. I received a written reply on 25 March that did not answer the question. She simply said:
The Government will be taking action to clamp down on smuggling and fraud and … will announce their Proposals for doing this as part of the outcome of the Comprehensive Spending Review."—[Official Report, 25 March 1998: Vol. 309, c. 202.]
She said that nothing would be published before then. She did not say whether the study by Customs and Excise would be published and, if not, why not.
The Government have published a slightly hilarious document called "Your Right to Know". It was produced by the Chancellor of the Duchy of Lancaster and prefaced by the Prime Minister, setting out all sorts of wonderful ways in which the public—and presumably the House of Commons—would be better informed. In his introduction, the Chancellor of the Duchy of Lancaster says:
Openness is fundamental to the political health of a modern state.
He also says:
It is a new balance with the scales now weighted decisively in favour of openness.
The Prime Minister talks disparagingly about the traditional culture of secrecy and how all that will be broken down by giving people the legal right to know. Of course, that was all just waffle.
I shall obey you, Mr. Martin. I should love to give the hon. Member for Dudley, North his answer. When we see the Bill, I shall tell him whether we will support it.
The Government have published an expensive glossy saying that we all have a right to know. It is obvious that we have a right to know only what the Government think that we ought to know. Although the smuggling and illegality in the smoking and drinks trade are important matters that concern the Committee, we clearly have no right to know the conclusions of the Customs and Excise review.
That would not matter if the Prime Minister had kept his promise and initiated that
urgent, independent and comprehensive study",
which would not be conducted by Customs and Excise because, although it is a splendid department, it is part of the Government. This is a particularly stark example of a promise being broken by the Prime Minister that is very much to the detriment of the House. It will impoverish our debate on this important subject.
I return to the amendment before us. The point which I wish to leave with the Committee is that, although we recognised in government that there was no quick fix in this respect, we nevertheless recognised, in freezing duty on beer, that the gap between duties had eventually to be closed. As an interim measure, when I was doing this job in the Treasury, I committed additional resources to tackling smuggling and illegality on the ground. That was never going to be a substitute for tackling the causes of crimes.
When in opposition, the Prime Minister used to talk about tackling not just crime but the causes of crime. As the great economist Adam Smith first pointed out, smuggling is largely a crime induced by the Government. If they establish through the taxation system a clear incentive to smuggle, they can hardly be surprised that people take advantage of it. The only solution is gradually to move in the direction of continental rates of duty. As a very large budget surplus looms, this Finance Bill is a very good opportunity to make such a move.
I know that one or two of my hon. Friends wish to contribute to the debate, so I simply urge the Committee to support the amendment.
I hope that my comments will be helpful to the Government but will support the remarks of my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory).
I am concerned about the problems of bootlegging—otherwise known more politely as smuggling—which are not addressed in clause 1. The differentials between duty paid in this country and in other European Union member states invite people to smuggle on an increasingly large scale. The worry for the Financial Secretary to the Treasury must be that the loss of revenue to the Treasury is as high as it is. From the figures that I have, I believe that revenue to the Treasury would increase if rates of duty went down and volume of sales in this country correspondingly went up. In addition, the costs of the increased number of Customs and Excise agents used to apprehend suspected smugglers would be saved. I know that we are still waiting for proposals.
So that I do not misunderstand the hon. Lady's point, will she say whether the economic model to which she is referring is the Oxford model commissioned by the Brewers and Licensed Retailers Association? Knowing that will help me in my response.
I might need to do some more research, but from work which I did earlier, I understand that the loss of revenue to the Treasury is £978 million—regardless of the cost of the agents whom the Government are minded to introduce to apprehend smugglers.
I am also concerned that, at this quite late stage of the British presidency of the Council of Ministers, the Government are so far not using their office to act to remove the distortion of trade and competition caused by divergence between rates of excise duty in different member states. I understand that the Financial Secretary or her colleagues could instruct the Commission to prepare a report that the Council could discuss. Without that instruction, the Council is open to a charge of neglect of duty, because it is obliged to report every two years on the distortions to competition and trade caused by the differentials in duty.
The rates of duty paid in the UK distort the market in drinks—particularly wines, beers and spirits—between the UK and other European Union countries. I understand that Customs and Excise admits that, if it is lucky, it catches only 5 per cent. of suspected smugglers. There is a huge loss to the Revenue in terms of excise duty, but there is also a large cost to the Treasury of employing existing Customs and Excise agents and any future agents yet to be appointed.
It seems odd that the approach of the Government discriminates against home-produced wines, beers and spirits. I regret the fact that clause 1 refers only to the problem of wines. I wish to give an example from this year's statistics on Scotch whisky. The excise duty on a 70 cl bottle of Scotch whisky—which costs £10.70—is £5.48. The VAT is £1.59, making a total tax of £7.07—66 per cent. of the cost of the bottle. That means that Scotch whisky is taxed more heavily than any other alcoholic drink—particularly with regard to alcoholic volume.
I am most grateful for your guidance, Mr. Martin, but the point which I am trying to make is that clause 1 should address excise duty charged on the alcohol content of each alcoholic drink. I am against clause 1 because it fails to do so. The duty charged on beer, wines and spirits is higher in the UK than the duty charged on any other European Union-produced products in their own country. The Government are directly discriminating against our own products in their home market, so I cannot support clause 1.
All of us would want to claim some expertise in this area. As a new Member of Parliament, find the temptation to list all the wonderful pubs and publicans in my constituency almost too great to resist. However, I am sure that you would intervene, Mr. Martin, and call me to order should I do so.
I want to address the main point of principle. The issue for any Government setting excise duties for beer—and other alcohol or tobacco products—is to try to strike a balance between the need to raise revenue, the need to ensure that health and social issues are properly dealt with, the need to support the strength and well-being of the industry, and the need to prevent too great incentives for smuggling.
The Government have got it right in the Bill. There is a very modest increase nominally—which is not an increase at all in real terms—and a very small amount of revenue is being raised. On balance, the Government have got the different factors right.
There are concerns on the health and social side which can be tackled in a number of ways, one of which is price. If we saw a significant reduction in alcohol duties—which seemed to be the implication of the proposals from the right hon. Member for Wells (Mr. Heathcoat-Amory)— there would be worrying side effects in terms of alcohol consumption, particularly by young people. We need to bear that in mind. However, there are other ways in which to pursue those health and social objectives. I hope that the Government will examine them.
In my short time as Member of Parliament for Kingston and Surbiton, I have noticed some problems in the licensing laws. This matter does relate to the clause, Mr. Martin, because it is one alternative to seeking higher increases in duty. In Surbiton, a rash of new pubs has opened. The local authority, magistrates and local police have opposed the granting of the licences. The Government inspector, sitting in Bristol, far away from Surbiton high street—[Interruption.] The Financial Secretary to the Treasury seems to be concerned. This is not an anti-Bristol, but an anti-licensing regime, point.
As the Government inspector was in Bristol, clearly he had no idea of the impact on the local community of that significant increase in a short period in the number of pubs in Surbiton' s high street. Elected representatives in Surbiton were well aware of that impact and, working with police and magistrates, wanted to reduce the significant increase in licensed premises because of its bad social side effects.
The Government do have other powers open to them, should they wish to use them. I urge them to examine the licensing regime, to give local representatives and local magistrates working with the local police more powers to intervene, and to ensure that those powers cannot be overridden by a faraway, unaccountable Government inspector, who does not know the local position and cannot react quickly to it.
Smuggling is the other issue that the Government have to balance in deciding what the duty should be. We have heard much about that, and I am sure that we will hear more from right hon. and hon. Members who are yet to speak, but the question that we have to debate is whether the current duty level has caused the alleged increase in smuggling, whether there are other causes and, most important, whether a significant reduction in alcohol and tobacco excise duties would lead to an increase in revenue.
That has been the contention of some hon. Members, particularly those who spoke on Second Reading. They would need to show two factors before they could defend their case: first, that there was mass evasion, to the effect that revenues were seriously undermined, and therefore that a reduction in duties would make good those revenues; and, secondly, that attempts to persuade European Union partners to level up duties had been completely exhausted. Indeed, there is a third factor: they would need to show that there were no alternative measures that Her Majesty's Treasury could implement to tackle smuggling, such as reorganisation of Customs and Excise.
For this debate, I have considered the evidence produced in parliamentary answers from the Financial Secretary and in other papers available to hon. Members. It is clear that the estimate of the amount of revenue that has been evaded by cross-border shopping and lost because of smuggling is very small. Indeed, the estimate seems to be much smaller than that of the losses from evasion of other taxes. Government estimates for 1997 show that, in total, £165 million was evaded and that £120 million was lost. Those figures were reached by using new estimating procedures, which are run jointly with the industries in Great Britain, so the figures are not disputed by them.
The House of Commons Library took them directly from estimates published by Customs and Excise, based on surveys and estimates made jointly with the industry. If the hon. Lady disputes the figures, I am more than happy to hear what she has to say.
Beer duties represent about 3 per cent. of the total revenues from excise duties, which is a very low figure. Those who want to slash the duties must provide more convincing figures, which I do not believe are available.
For the benefit of France and other European Union member states, the Government should try to persuade them to level up their duties. That would also have an effect.
The right hon. Gentleman may be sceptical, but I still think that that avenue is worth pursuing. Perhaps, with the much warmer relations that the Government claim to have with our European partners, they will have more success than their predecessors.
I do not believe that there would be a revenue shortfall from what I am proposing. My proposal was that France should raise the duties on beer.
The hon. Gentleman may say that it will not, but it is for this Government to see whether they can be more successful than the Conservative Government. We have yet to find out.
I read with interest the Alcohol Concern report "Who Creates the Bootleggers' Profits?". Before the industry can lobby effectively for significant reductions in alcohol duties, it will have to answer some of the points that are well set out in that research paper. Alcohol Concern research conducted this March comparing the different prices charged in supermarkets and off-licences in Dover and Calais showed that there was a 21p price difference on a unit of alcohol for beer, of which 9p could be put down to differences in duty, but of which 12p apparently related to differences between the industries in France and in Britain.
The difference is partly explained by the way in which beer is sold in Calais, where there is a "pile it high, sell it cheap to the day trippers" mentality. It would be possible for enterprising people in this country to pile it high and sell it cheap in a warehouse in Dover. They would not have the 9p price incentive to add to the 12p differential that is caused by our industry's inefficiencies, but there is still a margin that they could arbitrage away. The industry still has a case to prove.
That does not mean that the Liberal Democrats do not take smuggling seriously. It is illegal and has bad effects, because unscrupulous individuals who break one law are likely to break others by selling alcohol to minors and engaging in other dangerous activities.
Rather than merely cutting duty, which is a simplistic approach and may not be effective, the Government should consider changes in Customs and Excise. In a press release in September last year, the Economic Secretary talked about some of the extra resources that she had allocated to Customs in Dover. That was welcome, as there are clearly problems in Dover, including a lack of space to expand the facilities, which is a logistical problem which I hope Customs and Excise management can address. I hope that, when the results of the comprehensive spending review come out, we can go much further.
I am not an expert in the managerial structure and operational routines of Customs and Excise, but from first principles, one imagines that Customs and Excise has a tradition in history of operating purely out of the ports—coastal ports and airports—and that its organisational structure has been biased towards tackling smuggling at the ports. That is probably a different culture from that which exists on the continent. Our partners on the continent have long land borders and they are much more used to exercising anti-smuggling measures inland. I suggest to the Financial Secretary that there may well be some benefit in seeing whether Customs and Excise can redirect some of its efforts to tackling smuggling inland. I hope that it does that in any case, but the extra marginal investment in its services may be best directed to internal controls.
For all the reasons outlined, I feel that what is before us in clause 1 is a modest increase. The problems that need to be tackled in setting alcohol duties—health and social problems, and smuggling—can be tackled in other ways. Therefore, Liberal Members will support the Government if the Committee divides.
I, too, want to talk about beer duty but, before doing so, I remind members of the Committee that I have an interest in the matter as chairman of a supermarket group responsible for a large proportion of the legitimate beer sales in this country. The issue at hand is not the interests of large supermarkets or, for that matter, large brewers. It is very much a question of the little guy, the small independent retailer, the small pub and the small brewer. It is a question of the British pint—part of the British way of life—and the price of that pint to ordinary working people.
We are looking not only at an excessive tax on the daily fare of ordinary working people but at a broken promise. My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) quoted the Prime Minister. I have another quote from the Prime Minister. In May 1997, he wrote:
Labour accepts that there is a problem and that the Government should act urgently to strengthen Customs and Excise, tackle the illicit sale of contraband, stand up for UK consumers, jobs and businesses when rates of duty are considered by the European Council and initiate an urgent independent and comprehensive study".
As my right hon. Friend said, the study may have been initiated, but we have not seen much by way of the outcome. I hope that the Financial Secretary will tell us exactly when she expects the study to be published. Perhaps she would be kind enough to give us some insight into its content. There is widespread suspicion in the industry that the content is unhelpful to the Government's case, and that that is why it has not been disclosed.
The fact is that it is a bad tax. The motivation for the tax is entirely driven by revenue income. That, in and of itself, is not a sufficient reason for taxing a specific good or product. The tax is exploitative, selective and there for the wrong reasons.
The Financial Secretary has already made a minor announcement about strengthening the fines and the actions that can be taken against offenders in instances of smuggling. That announcement is welcome, but it tackles only the tip of the iceberg. The fact is that the sheer profitability of smuggling has increased enormously in the past year as a consequence of the increase in beer duty and the increase in the value of the pound. It has become a large-scale industry for organised crime, and is also profitable for the little guy and the small-time smuggler.
The impact has now gone beyond a level that is sustainable. That is the issue. The question is not whether there should be duty but what is a sustainable long-term level of duty. The hon. Member for Kingston and Surbiton (Mr. Davey) has already mentioned the estimates for loss of revenue. My estimates, published by the Government, are rather different from his, and I know that some of my hon. Friends have different estimates again. However, as I recall, including duty-paid imports, the Treasury is losing half a billion pounds of duty and VAT revenue every year, according to its own figures. I believe that the figures from HM Customs and Excise show a visible loss of £300 million. I shall be corrected by my colleagues if that is not right.
Are those the total figures for alcohol and tobacco? The figures that I quoted related to beer, with which the clause deals.
The hon. Gentleman may correct me, but I understand that the total figure for alcohol and tobacco—£960 million—is greater. We are talking about rough estimates; it is not possible to estimate the true loss as a result of contraband sales, because the only reasonable way to do so is to estimate the amount of smuggling. I am advised by my friends in the brewing industry that the best way to do that, is to count the white Transit vans coming off the channel ferries, which would be an inexact science.
If that is the most effective way to assess the amount of smuggling, why did not the previous Government do that, and why did they not agree with the trade's figures?
The Financial Secretary makes the important point that the profitability of smuggling has increased enormously in the past year. The actions of the Government in respect of macro-economic policy, the level of the pound and the increase of duty have greatly worsened the impact on the industry. She is a member of the Government, and it is up to her to explain to hon. Members how to count and measure the loss to the Revenue before assuming that it is not great.
The hon. Gentleman knows that the previous Government intended to freeze duty on beer and reduced duty on spirits—there was an attempt to tackle the problem. No one is saying that it could be resolved easily because it is complex, but it has gone beyond a sustainable level and a judgment must be made about what level is sustainable.
Various economic models, such as the Oxford one, have been mentioned. The Financial Secretary, if we might have her attention for a second, has explained that, in her judgment, that model does not prove that there would be material short-term loss of revenue as a result of the increase in duty, but this is not a short-term problem—it is a long-term problem that is growing rapidly.
As so often in Government dealings with business, the long-term effects are widely misunderstood. They are: decline in investment in the United Kingdom brewing industry, especially among small brewers; decline in the number of pubs and therefore in the capacity to sell British beer at full-paid duty; reduced availability of full-paid duty beer in this country; and changed drinking habits, because the switch in price and value means that it is cheaper to import foreign beer. A lot of contraband beer is foreign, which is tipping the scales against the British industry.
The best response to the hon. Gentleman's latter point is to acknowledge that, as long ago as 1992, the members of the EU agreed that alcohol taxation across the EU should move towards the reference rate of 8p a pint. Labour Members keep referring to the previous Government, but the problem has been exacerbated greatly in the past 24 months by the increase in the value of the pound and by the increase in beer duty—it has gone beyond a sustainable level.
My information comes from real life: I have talked to brewers and pub owners; I have listened to what the Government and the hon. Member for Dudley, North (Mr. Cranston) have said, and quoted it back to them. I have also looked at the Oxford economic model and other economic models—something that I strongly commend to the hon. Member for Shipley (Mr. Leslie), because, if he read them, he would become better informed on the subject.
The subject is easy enough to discuss in the ivory tower of the House of Commons, but in the pubs and off-licences and on the streets of Britain, it is affecting ordinary working people and their way of life. I recommend that Labour Members leave their economic models and get to grips with the people outside who are attempting to buy the ordinary British pint for an honest price. [Interruption.]
Is it not strange that Labour Members laugh when they hear that my hon. Friend gets information from real life, instead of from the smoke-filled rooms of Labour party politics?
It is not strange at all, because the facts of real life are often inconvenient to those in government, as the Labour party is now discovering.
The other salient fact to bear in mind is that ours is the only European Union country that suffers on such a substantial scale from the problem of smuggling and contraband. The reasons for that are: the disparity in duty is great; enforcement has been ineffective in the past; and the logistics of bringing product across the channel are far easier to handle than they would be in, say, Ireland, where the levels of duty are also extremely high.
The hon. Gentleman will know that we discussed earlier the fact that reliable published statistics are not readily available; however, that there is a problem is well known. The hon. Gentleman may wish to discuss the issue with representatives from the Irish brewing industry.
Any brewer in the country will say that the industry is under attack because of the growing volume of imports resulting from the escalation in the value of the pound and the effect of increased smuggling and contraband. That is not a small effect, even though Labour Members think it trivial and the hon. Member for Kingston and Surbiton tries to explain that it does not cost the Treasury much. It is estimated that 15 per cent. of all the beer sold in the off-licence trade in Kent is contraband, and that that volume is growing at approximately 15 per cent. a year; compounded, that figure will double in five years.
When looking at economic models, what we have to worry about is not what happens today, but what will happen if the trend continues. In her response, the Financial Secretary might like to tell us not only whether the Government are prepared to reconsider the most recent increase in duty, but what their intentions are in respect of further increases in duty in years to come.
Given that, at 30 per cent., the percentage of the price of a pint of beer that is taken in tax is now lower than at any time in the past 30 years, does the hon. Gentleman agree that the explanation for the rise in smuggling—which is a major problem that we all recognise—must therefore be attributed to some other cause than the duty on beer?
No, I do not agree with that. As a shopkeeper, I must advise the hon. Gentleman that he cannot bank percentages; what he can bank is pound notes. It does not matter what the percentage is: if the pound note profit is higher per Transit van-load of contraband, the exercise is more profitable. The costs have not risen greatly, but the benefits have increased considerably. As I said, it is estimated that the benefits are to the tune of £600 per white Transit van coming off a cross-channel ferry.
The profits have risen considerably over the past year, as they have done over the past five years. The problem is now out of hand and is having a long-term corrosive effect on a British industry that is worth protecting because it is part of the British way of life. In a sense, smuggling has also become part of the British way of life: it has become what is popularly called yellow-line crime and is widely participated in.
The number of people employed and engaged in crime as a result of the duty is great, and smuggling has become semi-legitimised in some communities and certain sections of British culture. It is contributing, on a widespread basis, to the growth in under-age drinking, because, inevitably, small retailers who knowingly sell these goods are also prepared to sell to those who are under age. Labour Members have confirmed that they are worried about that issue.
Contraband goods are now so widespread on the street—I assure the Committee that it is the case in any retail community, especially around Christmas—that small shopkeepers, to be price-competitive on beer sales, often feel that they must handle contraband. Many of those small businesses—in the north, in Scotland, in Liverpool, in the Manchester conurbation or in Yorkshire—are already under pressure to survive, and to keep themselves going and keep themselves price-competitive they must handle contraband. The level of duty is effectively pushing people into a form of yellow-line crime.
The hon. Gentleman makes a very good point for me; welcome to the problem. Anyone who has been out on the street buying alcohol in the run-up to Christmas, dealing with small shopkeepers, talking to people in the industry about where the product comes from, knows that that is the case. Shopkeepers are obliged to take that route to stay in business. Because up to 15 per cent. of alcohol sold in the Christmas period comes in through contraband sources, if those shopkeepers did not do so, they would no longer be price-competitive. It is a very seriou's problem on the street but, if the hon. Gentleman recognises it, perhaps we are at last starting to get to grips with it.
Smuggling is becoming large-scale crime. It is acknowledged by Customs and Excise that the organisation of smuggling is now a large-scale business, which is contributing revenue and profits to the coffers of people who otherwise handle drugs and other more serious products. The profitability of large-scale crime is being fuelled by very high duty and a failure to enforce the Customs and Excise provisions.
I am delighted to hear the hon. Gentleman say that. I am glad that we are getting to grips with the issue. Will he tell us his proposals and by how much he wants to slash duty?
I thank the hon. Gentleman for his question, but I am coming to that point shortly and I shall address it in a moment.
I do not want to leave this point without telling the Committee that I know, having worked in the industry and spoken to people who handle the product, that this is a widespread, well-known situation throughout the wholesale and retail industries. Moreover, figures for the growth—or lack of growth—in sales of British product show that supply is being eroded by competition from foreign imports, which cannot be sufficiently accounted for by legitimate imports.
It is well known, and I know from our experience, that, in the run-up to Christmas, it is possible to buy, at very low prices, not white Transit van-loads but lorry-loads of contraband—spirits as well as beer. Whisky may be bought for £5 a bottle. It is an extremely serious problem, not to be taken lightly, and has a widespread effect on the structure of the industry and the nature of price competition.
Among the side effects of the problem are that competition in the beer industry is geared to price, and that people are investing less money in the quality and diversity of British beer. It has a corrosive effect, not just on society and on pubs and off-licence outlets, but on the nature of the products that the industry invests in.
It is also well known that a large proportion of contraband never leaves the country. That can happen only when the crime is widespread and highly organised. The estimated figures on white Transit vans take into account only what is known to come back into the country. What never goes out does not come back in and cannot be counted, and there are no reliable estimates, but wholesalers and retailers throughout the country know that the scale of the problem is now so great that it is obvious to anyone with their feet on the ground who deals with the industry that a significant proportion of the product now never leaves the country. We are dealing with widespread fraud, which requires a far firmer response than greater fines for white Transit vans and proposals to confiscate vehicles, because vehicles that never left the country and never came back in cannot be confiscated.
This is not an issue of whether duty should be levied. It is an issue of the level of duty that is sustainable, not in the short term—not just for the Oxford economic model—but in the long term. It is a question of whether we should support the industry. Should we support the British pub, especially the little guy—the independent? Should we support the small brewer? Should we support the small retailer? The big retailers can handle anything; we can compete despite the problem. It is the little guy who is penalised by excessive Government interference, regulation and taxation, and the little guy is being penalised by this increase in duty.
It is not just a question of fighting fire with fire—of fighting excessive duty with excessive regulation and excessive penalties. It is a question of recognising when the tax has gone far enough. Enough is enough. This is a bad tax. It has gone too far. It is not working, and the increase should be reversed.
I shall be brief. I congratulate my hon. Friend the Member for Tunbridge Wells (Mr. Norman) on his excellent speech. I was shocked by the incontinent and wanton levity that some Labour Members showed toward what is not only a serious commercial problem but becoming, as my hon. Friend rightly said, a moral hazard.
It ill becomes the House of Commons, which has always been a gathering from every part of the land, from every interest and from every position of life, if its Committee does not listen carefully to someone who has run, with tremendous success, one of the biggest retailers in the country and who has a great and profound understanding, not only of the consumer's requirements and wishes, but of the difficulties that arise in putting together a pattern of legislation that enables us to have a fair system. I whole-heartedly congratulate my hon. Friend on his admirable presentation.
The interests of the much smaller brewers are often trampled, especially in the House and by the Labour party. I speak from experience of my part of the south of England, which my hon. Friend the Member for Tunbridge Wells knows well and which the Financial Secretary also knows very well, because she is the distinguished alumnette of an excellent school in my former constituency and well knows the two breweries in the south of England, King and Barnes in Horsham and Harvey's of Lewes. Both breweries have seriously suffered as a result of the increase in smuggling.
We definitely support any steps that the Financial Secretary is taking to be tougher on this issue. I acknowledge the fact that she is building on the achievements of my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), the former Paymaster General, who was responsible for those matters, who, in a letter to my hon. Friend the Member for Vale of York (Miss McIntosh) last year, wrote of the steps that customs has taken
to further imp rove the rate of detection
These include a programme of enhanced training, improvements to intelligence systems, increased staffing levels … together with redeployment elsewhere to reflect more accurately the degree of risk in each area.
Without a shadow of doubt, the implementation of clause 1 will increase the amount of contraband smuggled into the country. The Financial Secretary knows that that is the case. It is pointless for Labour Back Benchers to talk about what the Conservatives did when we were in power; disappointingly, we are no longer in power. No doubt, when we were in power, we made many mistakes, but a Labour Government are now in power, and it is for them to resolve this tricky problem.
I shall make two or three respectful suggestions to the hon. Lady. First, the proper policing of the problem depends upon an increase in the amount of intelligence presented to Customs and Excise. My constituency used to comprise Gatwick Airport, and I know the work of Customs and Excise extremely well. I have immense respect for it: it is a remarkable uniform service whose officers do a very good job. Much customs work is based on intelligence, which is assessed and used wisely.
In this country, we have some of the best intelligence services in the world, and it might be worth while attempting to make available to Customs and Excise more intelligence facilities that will enable it to penetrate some of the large rings that are smuggling beer into Britain. My hon. Friend the Member for Tunbridge Wells was absolutely right: not just private individuals in white Transit vans, but gangs and vast organisations are involved in bringing in contraband, to the great disadvantage of companies such as the two brewers in the south of England that I mentioned.
That should be a matter of grave concern to the Government. We must not allow smuggling to become a way of life that is accepted as custom and practice. People should not think that smuggling the odd load in a Transit van is fair game. It is not; it is breaking the law, and it must be dealt with using the full rigour of the law. The Government cannot be allowed to say, "It is all very difficult because we do not have enough customs people or the facilities to do it, and only the smaller retailers are damaged, so we don't have to worry about it."
I hope that the hon. Lady will pass on to Customs and Excise my admiration for the number of detections that it has made in the course of the year. However, much more illegal contraband is getting through than Customs and Excise can detect. We must do more. I suggest that more intelligence work should be done to penetrate those gangs. I know that Customs and Excise does a great deal of work in that area, but I should like to see more.
Secondly, I should like to see more customs officers deployed at Dover. It is not good enough for the Government to defend their deployment policies by claiming that they must maintain a balance between the various threats and risks to this country and to our integrity. The fact is that Dover is clearly under-resourced as far as Customs and Excise is concerned—even though I know that more people have been employed in that area.
As I said at the beginning of my speech, I welcome any measures—this is not a party political matter—that the Government may take to pursue this crime. However, they should not believe that they can brush the matter aside lightly. My right hon. Friend the Member for Wells was correct to suggest that duty should be frozen, because that would hold the duty imbalance at a lower level. Parliament should deplore and vigorously oppose anything that encourages the wanton increase of smuggling into this country. If it is not deplored by the House of Commons, where else will it be so deplored?
I whole-heartedly support the views expressed by my right hon. and hon. Friends. I hope that the Financial Secretary will consider extremely seriously the knowledgeable and expert speech by my hon. Friend the Member for Tunbridge Wells.
Like my hon. Friend the Member for Mid-Sussex (Mr. Soames), I congratulate my hon. Friend the Member for Tunbridge Wells (Mr. Norman) on an excellent speech, which rehearsed all the issues in great detail and to great effect. He spoke with enormous authority. I also endorse the stand taken by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) in opposing clause stand part.
I am known for supporting a reduction in duty as the only sensible solution to this problem. It was with shock that I noted the levity on the Government Benches when my hon. Friend the Member for Tunbridge Wells outlined some practical solutions to the problem. During debate last week on the Finance Bill, suggestions that the problem could be solved by reducing duty were also treated with levity.
I hate to remind the Financial Secretary of her words—which I fear will return to haunt her—in the debate on the Finance Bill on 23 January 1995, but she said:
Beer smuggling is an enormous threat to the industry. It is a relatively new trade, if I may call it that, and we cannot estimate the extent to which the gradual build-up in the past 18 months has led to the undermining of the industry. The problems that are visible now are a fraction of the problems that will confront us in a few years' time if action is not taken."—[Official Report, 23 January 1995; Vol. 253. c. 64.]
I venture to suggest that that time is up, and that the Treasury is facing a problem that will not be solved by introducing further prevention measures.
I share the admiration expressed by my hon. Friend the Member for Mid-Sussex for the job that is done by Customs and Excise and by the police. Using the tightest of resources, they are doing a first-class job and, as far as they are able, prosecuting the larger cases. However, we must recognise that, when a person is apprehended and charged, customs and police become involved in the paper chase associated with prosecution. That immediately prevents those officers from doing other proactive work. The more criminals the customs and police prosecute, the fewer new smugglers they will be able to catch, because they are already tied up in the court process.
My right hon. Friend the Member for Wells argued that a reduction in duty is the only solution to the problem. While there is a big duty difference, putting more officers on the front line will halt only temporarily the increase in bootlegging and smuggling. As long as there is profit in it, people will smuggle and bootleg. The Government must reduce or remove that profit through a national strategy.
Will the hon. Lady explain to the Committee how much further she would take the logic of her argument? If people persistently flaunt the law, rather than enforcing the criminal justice system, does she advocate legalising their actions?
I have no wish to legalise their actions. I contend that the Treasury has created a problem because of the duty differentials. We should reduce duty levels until smuggling and bootlegging stops.
That brings me to the most interesting point to which the hon. Member for Kingston and Surbiton (Mr. Davey) referred. The hon. Gentleman cited revised figures for the amounts of duty evaded, to which he claimed that customs and the industries have agreed. On 23 April, I received a document from the Tobacco Alliance—I may return to it when we discuss tobacco— confirming figures that I had already seen. It stated that Customs and Excise has estimated that £950 million in duty is evaded. If I understood the hon. Member for Kingston and Surbiton correctly, he reduced that figure—I am afraid that I did not catch the details, as my jaw dropped because I was so aghast—to £124 million. I got the impression from the hon. Lady's body language that she agreed with that figure.
If duty evasion is so low, why are so many people involved in smuggling? As my hon. Friend the Member for Mid-Sussex said, gangs are controlling smuggling operations—it is not just the mules in the white vans. The police suspect that some terrorist gangs are involved in the trade as well. The Treasury seems to condone that level of involvement in the trade. The Financial Secretary clearly disagrees with me; I suggest that she speaks to the Home Office, the Metropolitan police and the police specifically tasked with the job.
Will the hon. Lady explain to the House whether the £900 million figure that she quotes relates only to beer, to beer and all alcohol, or to all alcohol and all tobacco products?
As I understand it, the figure represents the Customs and Excise estimate of all tobacco and alcohol products brought in through British sea ports. That leaves large holes. If one speaks to customs officers, as I have done, they will say officially that it is a major underestimate. If one speaks to them unofficially, they will multiply it by a considerable factor.
Does my hon. Friend agree that, in exchanging estimates of the size of the problem, we are dancing on the head of a pin? I am sure that the Financial Secretary will give us the correct figure and disabuse us of our misapprehensions. Whatever the figure, we know that there is a huge gap. A huge sum is going out by way of lost duty and smuggling. It matters less what the figure is than what the Government intend to do to prevent an increase in such smuggling, in the light of the clause, which will merely lead to more smuggling.
I entirely agree. According to the Customs and Excise official figures, the loss equates to almost ½p on income tax or 0.5 per cent. on VAT. It is reprehensible for any Government to condone that level of tax loss.
I should therefore expect the rate of duty to come down in successive years, until the profit is taken out of smuggling. The people involved should no longer be considered to be acting illegally. Customs should be allowed to get on with the much more important job of stopping drug smuggling. There was some levity when I suggested last week that drug smuggling was more important than tobacco and alcohol smuggling, on the ground that tobacco and alcohol are also drugs. That might lead to an interesting debate, but we should be ruled out of order.
Does the hon. Lady not see the dangerous logic in her argument? She is in effect arguing that law breakers should be allowed to dictate the Government's fiscal policy.
That is one of the problems that I have encountered since I first took up the issue, with my own Government and to an even greater extent with the current Government. Smuggling should not be a crime. It is a crime induced by the Government. The Government are responsible for solving the problem. It is not just a revenue issue. It is an issue of health policy and of the rule of law and its place in a civilised society.
While people are encouraged by our own Government to break the law, do hon. Members expect the police and customs to be respected by the rest of society? It is a mark of civilised society that the rule of law is respected. The rule of law clearly is not respected in this instance because of the sheer level of bootlegging and smuggling.
I do not follow the logic of the hon. Lady's argument. The logic seems to be that the French Government are creating the problem, by imposing a lower duty. There will always be people who break the law. That does not necessarily lead to the conclusion that we should do away with the law. Would the hon. Lady suggest that we should legalise heroin, because some people break the law in that respect?
It may have escaped the hon. Gentleman's notice that there is no duty on heroin.
For years our Government have had a high-tax policy on alcohol and tobacco. In a single market, that encourages smuggling. We have seen it in the past, in the 18th and 19th centuries. The only thing that reduced smuggling and bootlegging to sustainable proportions in the 18th and 19th centuries was the cutting of duty.
I am suggesting that we cut the duty year on year gradually, until the profit comes out. That will end the encouragement of under-age drinking. There is ample evidence of French lager being drunk throughout the country—it is not a south-east problem. The role of Customs and Excise and the police will be respected once again.
It remains a great sadness to me that Labour Members consider this a matter for hilarity.
The hon. Member for Beckenham (Mrs. Lait) said that the only solution to the problem was for duty to be cut year on year, and that that was the only effective way to stop smuggling. Forgive me, Mr. Martin, for drawing the Committee back to the amendment tabled by the Opposition. Far from suggesting that duty should be cut year on year to stop smuggling, it suggests that the Treasury should continue with the rate as set, but only one month after a report has been presented to Parliament to tackle cross-border smuggling. A great lacuna seems to be developing between the hon. Lady's argument and the clause that she purports to support.
I apologise to the hon. Lady. However, the force of her argument does not address the real issue. I shall focus on that. I agree with her and other Conservative Members who emphasised the problem that the smuggling of beer and other alcohol poses for retailers in the United Kingdom.
I know that my hon. Friend the Minister has recently given interviews to magazines such as Asian Trader, in which she discussed that problem and outlined the way in which the Government believe it should be tackled. Asian Trader is the magazine for small retailers throughout the country, exactly the sort of retailers referred to by the hon. Member for Tunbridge Wells (Mr. Norman) and the hon. Member for—I was not sure whether it was Mid-Sussex or mid pink socks, when his feet appeared over the parapet.
Mid pink stockings, in that case.
There is a real problem for the small retailer—the street corner shopkeeper throughout the country. The thrust of the Opposition argument is that the duty equates with a rise in smuggling. That is clearly a fallacy. In real terms, the excise on beer is lower than it has been for 15 years. Between January 1994 and January 1998, it fell by 6 per cent. Therefore, one cannot simply equate the increase in duty with the rise in smuggling. That was the force of my intervention earlier in the debate.
I was not in the House at the time. In my capacity as a beer drinker I would have supported that measure, but not in respect of the needs of the Treasury and fiscal policy. If the Opposition oppose the increase in duty by the equivalent of 1p on a pint, they must explain where they would raise the revenue, which amounts to £20 million in the fiscal year 1999–2000. It is not good enough simply to oppose the extra penny in duty and to equate it with the huge increase in smuggling.
We all agree that there should be measures to control smuggling into Britain, but for the hon. Member for Beckenham to say that it should not be a crime absolutely beggars belief. That is exactly why we must have barricades and customs officials at the borders—not only to regulate illegal trade, but to ensure that the proper tax take reaches the Treasury coffers.
I shall not detain the Committee long, and I apologise for the discourtesy of not having been in the Chamber at the start of the debate. However it would have been discourteous to someone else had I rushed in.
I had not intended to speak, but I was astonished by the levity with which Labour Members were treating the issue. At least the hon. Member for Brent, North (Mr. Gardiner) acknowledged its seriousness. It involves gangs of criminal thugs who are extremely violent. Of course we wish to apprehend them, but their criminality is partly caused by the duty that is imposed on alcohol.
I welcome the Government's announcement of extra measures to catch the thugs and confiscate their vehicles, but that is not sufficient to stop the terrible trade that is inducing moral dangers within our society. Gangs of criminal thugs are causing great problems, not just in Dover but throughout the country.
Of course, the problem has resulted from the single market. I would propose that we revisit the issue and looked again at the previous regulations, but that might be contrary to European law. We might not be allowed to reintroduce small limits on what can be brought into Britain.
My hon. Friends who have spoken so far all represent constituencies on the south coast. My hon. Friend the Member for Beckenham (Mrs. Lait) previously represented the south coast. However, the problem is not confined to the south. I represent a constituency in the heart of the country. Small pubs and retailers in my constituency of Blaby are suffering just as much as those on the south coast. There are several small family breweries in the midlands. I receive letters every month from Everards, reiterating the problems experienced by small family breweries, their public houses and their sales of beer.
My hon. Friend is right to mention small family breweries. I mentioned two small breweries in the south of England—King and Barnes of Horsham and Harvey's of Lewes. Does my hon. Friend agree that, if the problem continues, the ultimate penalty will be a serious loss of employment for people working in those breweries?
I agree entirely, and I am grateful to my hon. Friend. We are talking about the livelihood of individuals in all our constituencies that may be affected. They may indeed become unemployed. The problem affects not only big breweries, but small family breweries, publicans and retailers. It also encourages criminality.
Perhaps we should institute one of the new Government's famous reviews into the issue. Certainly, I condemn all criminality. Smuggling is carried out by criminals. It is far from the romantic notion of the 18th century, when smugglers collected kegs of brandy off the coast. Smugglers are criminals who should be punished. The Government have a responsibility to fulfil, and if they do not institute an overriding review of the matter, they should at least freeze duty with a view to reducing it in future to lessen the temptation to which people are currently responding.
May I also apologise to the Committee for having left the Chamber during such an important debate? When I returned, the discussion raging between the two sides of the Committee was reminiscent of past debates about high levels of income tax.
One could well imagine the debates in which Labour Members proposed a rate of income tax of 90 per cent.— I think that at one point it was above 100 per cent.—and argued that those who were not prepared to pay that level of income tax were positively anti-social. Over a number of years, we have persuaded the country—eventually the penny dropped even among Labour Members—that a lower rate of tax can generate more revenue and create a more productive society. The arguments about duty—albeit in a different context—are exactly the same. We are discussing the most efficient level of duty which will raise the maximum revenue for the Exchequer.
The evidence that we have heard this afternoon and that many of us have garnered before shows that the level to which the Government are now pushing beer and other duty is becoming inefficient. Perhaps it is because of the difference between the Inland Revenue and Customs and Excise. It is well known that the customs service is regarded as the rough end of the trade. The contrast between the work of an Inland Revenue officer and a customs officer often resembles that between "The Knock" and "Dixon of Dock Green". However, despite the difference of approach, we want customs officers to do their job extremely well and to concentrate their resources where they are really needed.
If the resources of Customs and Excise are devoted to trying to maintain what may prove to be unrealistically high levels of duty, on drinks such as beer, it may thereby be precluded from devoting sufficient resources to attacking the real menaces in society—including drugs—where its efforts are sorely needed. That is why the ramifications of the Government's approach of ratcheting up duties without thought for the real economic consequences may well be to the detriment of our entire society.
We have had an interesting debate covering an important subject, and we have identified two main problems, neither of which the Government take lightly. The first is smuggling—the scale of the problem, the criminal activity, the loss of revenue and the health and social consequences. The second is duty and whether there is a causal relationship between the rate of duty and the increase in smuggling. I shall do my best to deal with all the points that have been raised.
Each year, Customs and Excise conducts a survey, and the resulting figures are agreed with the trade and published in September. Everyone will agree that, by the nature of the issue, estimates are exactly that. However, the Government have not picked figures out of the air with which the trade disagrees. The figures are the result of a survey.
Conservative Members do not do justice to the serious problem of smuggling by inflating their arguments about the likely effect of a 1p increase in duty on a pint of beer. They seem to have a problem distinguishing between the loss of revenue resulting from legitimate cross-border shopping and the loss of revenue resulting from smuggling.
The amount of revenue lost as a result of legitimate cross-border shopping was estimated at £235 million in 1996, compared with £230 million in 1995. I acknowledge that that is £5 million more, but the catastrophic picture that some Opposition Members painted of a Government who completely ignored the consequences of the illegal trade does a disservice to them and the Committee. It is not true. Those figures are made up of all excise duties.
The amount of revenue evaded illegitimately was £900 million in 1996 and £950 million in 1997. Again, I acknowledge that the second figure is larger than the first, but the catastrophic picture that Conservative Members painted is not true, and nor are their claims that the Government are immune to the important arguments against smuggling.
The Financial Secretary has probably cleared up the confusion about the amount lost as a result of cross-border shopping, but no Conservative Member has questioned such losses. Our concern relates to the duty evaded as a result of smuggling and bootlegging, and that is the much larger sum of £950 million. If we agree on that, will the hon. Lady also confirm that that is equivalent to a reduction of about ½p on income tax and 0.5 per cent. on VAT each year?
The largest amount comes in the tobacco category, particularly hand-rolled tobacco, which we shall debate later, so perhaps I can deal with the matter then.
In defence of small business, the hon. Member for Tunbridge Wells (Mr. Norman) went on at some length about prices in Asda, that well-known corner shop. The hon. Gentleman, like several other Conservative Members, sought to advance the case that the only influence on price is duty.
The right hon. Member for Wells (Mr. HeathcoatAmory), in committing himself to freezing beer duty, did not mention that, in March 1992, March 1993 and January 1995, the Conservative Government substantially increased beer duties. Why has the Conservative party changed its view now?
The RPI figures show that, when this Government increased duty on a pint of beer by 1p, the increase to the consumer was 7p. For four cans of lager—we are told that canned drinks pose a particular problem for the corner shop—the real price increase was 12p. There does not seem to be a direct correlation between duty and price. Price will clearly have an impact on cross-border shopping.
Has the Minister, in her estimates of the duty lost, taken into account the extent of fraud? Will she comment on the official import and export figures, which highlighted the problem? I understand that, in 1994, 322,000 hectolitres of beer were exported to France, but the French reported receiving only 148,000 hectolitres, the implication being that the difference is accounted for by fraud.
I was about to come to the hon. Gentleman's point about diversion fraud. That relates to how much the Exchequer loses, not the producers who are selling the goods and whether they leave the country. I am not suggesting that producers collaborate in diversion fraud; we discussed diversion fraud with them during the review. The hon. Gentleman will know that a high-level EU group is considering the matter, because it does not affect only Britain.
I want to comment on who is responsible for the price increase. Has the hon. Lady had a chance to read an article in yesterday's issue of The Licensee and Morning Advertiser which, on page 1, under the headline "Price-rise blow for duty campaigners", deals with the issue and with some of the cant and hypocrisy that we have heard from Conservative Members?
I get the general drift of the hon. Gentleman's point. I avidly read many publications, but I cannot recall reading that particular one yesterday. However, I am delighted that it acknowledges, as I think the industry would, that price is the result of a number of complex issues, not just duty.
The hon. Lady confirmed the considerable problem of duty fraud. Does she agree that one of the difficulties of duty fraud and contraband is that they distort the marketplace in that it is much easier for the big brewers to participate in the export market and therefore receive the benefits of reimportation or—inadvertently and without intention, of course—the benefits of the fraud trade, whereas the small brewer, who is not packaging and selling into the export trade, is disadvantaged?
I wanted to deal with the question of smaller brewers in reply to the comments made by the hon. Member for Mid-Sussex (Mr. Soames), so I shall come back to that important point. Hon. Members went on to suggest that the change in the drinking habits of the drinking public and the demise of the British pub were the Government's fault. The hon. Member for Beckenham (Mrs. Lait) suggested that the Government were actively encouraging criminal activity, which is not the case. I will explain later what action the Government are taking on smuggling.
I assure the Financial Secretary that I, for one, am not pointing the finger of blame at this Government, and that I and other Conservative Members lobbied the previous Government on the problem of smuggling. My point is that the problem is growing and needs action. Far from helping to solve the problem, which has many facets, increasing duty will make it worse. We are not accusing the Government of encouraging criminality; we are accusing them of not taking action.
With respect, the hon. Member for Beckenham did accuse the Government of actively encouraging criminal activity. I am trying to be fair to those hon. Members who, I know, take seriously smuggling and criminal activity, and who wholeheartedly support the Government's actions.
The hon. Member for Vale of York (Miss McIntosh) mentioned the Oxford economic model. The brewers' suggestion in the model is that, if we cut duty, we shall boost consumption and shall not, therefore, lose money in the long term. That suggests that the short-term impact of a tax cut might be to boost demand, and that lower taxes are likely to increase personal disposable income and temporarily boost GDP. Almost any tax cut would have a similar effect. We dispute—as, I am sure, does every hon. Memberx2014;the brewers' suggestion of a free lunch and the implication that, by continually cutting indirect taxes, we would indefinitely raise output and reduce inflation. That would clearly not be the case.
The hon. Member for Kingston and Surbiton (Mr. Davey) made a helpful contribution about health and tax issues. He made several points about young people and alcohol consumption, which must be part of the wider policy debate conducted by the Government. He will be aware that, yesterday, my right hon. Friend the Leader of the House announced in a statement that a cross-departmental ministerial committee will consider the growth in alcohol consumption by young people, as well as that in smoking, to which I will return.
The hon. Member for Kingston and Surbiton went on to make points about the licensing regime. I know that people think that the Treasury is omnipresent, but as yet, licensing regimes are not within its remit. I therefore note his points, but cannot deal with them.
I accept that there is no such thing as a free lunch, but the Financial Secretary has not replied to my questions about the fact that the Government are committed by the treaty of Rome not to a uniform rate, on which Labour Members have insisted, but to equalising the rates of duty and VAT. That is an important difference. Does she accept that the British presidency has failed in its duty to undertake that exercise and to commission a Commission study on that matter?
No, I do not accept that. The hon. Lady is aware that harmonisation of indirect taxes is not a requirement of the treaty of Rome, and that all member states believe, as we do, that it is important to continue to have the right to set the rates.
I have covered the points about price made by the hon. Member for Tunbridge Wells. I have tried to reassure him that we take smuggling seriously. He repeatedly asserted that smuggling has worsened in the past 24 months, but whatever he thinks is happening on the streets, his assertion is not supported by the information available to the Government. The significance of an increase in duty of 1 p on a pint has been tremendously inflated.
The Government do not refute the importance of smuggling and how we deal with the threats that it poses to revenue, and health and social policy: hence the setting up of the—
May I finish the answer? The hon. Gentleman must surely expect an answer to his question before he intervenes again.
The Government have made a commitment to set up the alcohol, tobacco and fraud review, and to work with the industry to start to grapple with the difficult problems of smuggling and diversion fraud. That is the first time that such action has been taken. The Opposition seem simply to be arguing that the Government are not moving fast enough, rather than disagreeing with the general direction of our policy.
I gave the Committee figures for the change in loss of revenue, which has increased from 1995 to 1996, and is therefore clearly getting worse. We need to be mindful of the scale of the deterioration and consider what would be the most effective response from the Government.
I want to ensure that Opposition Members do not use the debate on a 1 p increase on a pint of beer to imply, and state outside the Chamber, that the Government are complacent about the corrosive effects of smuggling and diversion fraud—we certainly are not.
I am grateful to the hon. Member for Mid-Sussex for his generous comments about Customs and Excise—particularly the operation at Gatwick airport—and its continuing success in dealing with smuggling. He made some suggestions about how customs activity could be expanded to increase our ability to deal with the problem.
The hon. Gentleman also made a special plea for small brewers. He quoted two from his area, but there are several throughout the country. We have recently received proposals from the Society of Independent Brewers for a sliding duty scale for small brewers. The Government are examining those proposals, because we wish to ensure that we respond fairly to the entire industry and to the special pleadings of small brewers.
Ministers have studied the review report. We greatly value the input from the trade, which has been exceptional and very helpful. However, as I have told hon. Members before, in view of the possible public spending implications, the Government will announce their proposals as part of the outcome of the comprehensive spending reviews and when they can be evaluated, as hon. Members have required us to do in this afternoon's debate, against all the Government's priorities. They will be published at that stage. I have always told hon. Members and the trade that that would be need to be subject to questions of commercial confidentiality.
The Opposition sought to characterise the Government as the hate figure of the trade. I shall give one example of how the trade has responded positively to the Government's actions on smuggling. On 27 April, the Wine and Spirit Association of Great Britain and Northern Ireland wrote to me:
I am writing to say 'thank you' to you and the Department's team for the action you are taking to reduce cross border smuggling and the pernicious effects that it has on the legitimate trade.
The trade recognises that the Government's strategy is correct. However, with the exception of the hon. Member for Kingston and Surbiton, Opposition Members cannot bring themselves to acknowledge that the Government are achieving what the Conservatives failed to achieve in 18 years of government. The clause is a reasonable measure to defend Government revenue. The Government have a strategy and a proportionate response to deal with smuggling and to start tackling diversion fraud.
We have heard some exceptional speeches by my hon. Friends. In such debates, hon. Members often revert to type—the only Liberal Democrat solution that we heard from the hon. Member for Kingston and Surbiton (Mr. Davey) was to try to persuade other EU member states to increase their rates of duty in line with ours. As usual, the Liberal Democrats go for the high-tax, harmonised solution, which is simply a pipe dream. We should try, even slowly, to reduce our duty rates in the direction of those on the continent if we are to remove the cause of the illegality and smuggling.
A number of my hon. Friends spoke in this debate. My hon. Friend the Member for Vale of York (Miss McIntosh) has pursued this matter in the European Parliament as well, and my hon. Friend the Member for Tunbridge Wells (Mr. Norman) brought to bear an unrivalled knowledge of the retail trade. In a Chamber that is not over-burdened with practical business experience, his speech was particularly telling and valuable.
My hon. Friend the Member for Beckenham (Mrs. Lait) has pursued this matter over several Parliaments. Her comments were largely ignored in the Minister's wind-up speech. The chief point stressed by my hon. Friends the Members for Mid-Sussex (Mr. Soames), for Blaby (Mr. Robathan) and for Guildford (Mr. St. Aubyn), all in different ways, was the seriousness of what is happening. That contrasted starkly with the attitude of Labour Members, who seemed almost to deny that a problem was being experienced either as a result of massive cross-border shopping—a huge new industry has been set up in France selling drink back to us and therefore denying us business, profit, jobs and duty to the Treasury—or as a result of large-scale smuggling and duty fraud.
Labour Members' comments show how quickly, in government, they have become out of touch with their constituents. They have only to go into their local off-licences or pubs to discover what people are saying.
The problem is serious and getting worse. The Financial Secretary gave some figures that show that the problem is escalating and that the loss of duty is increasing. That is happening even before the increase in duty as a result of last year's Budget and the increase when the clause comes into effect. When those duty increases work through, in contrast to the freeze in duty in the last two years of the Conservative Government, the situation really will get worse. Moreover, the strong pound makes cross-border shopping all the more attractive.
The Minister did not answer the point about the broken promise on the review. The Prime Minister promised, in the main trade journal, that there would be an urgent, independent, comprehensive study of the problem. He has broken that promise. There has certainly been no urgent study, because even the one carried out by Customs and Excise has not yet come out. In any case, it is not independent, because it has been carried out by a Government Department. It is not comprehensive because the trade report said that Customs and Excise has, on the instruction of Ministers, ruled out examination of the two main measures that could control the problem—either the reinstatement of border controls or the approximation of duty rates.
All we have is a secret study, which has not been published, despite Government words about openness, accountability and the public's right to know, but has been carried out within the Government. We await that study—even if it could not be published on time at the end of last year, it would inform our debates at later stages. As my hon. Friend the Member for Tunbridge Wells said, if we do not have it, we shall strongly suspect that its conclusions are embarrassing to the Government and critical, of their policy.
They might well be critical, because, in our last two years in office, we froze duty rates. Despite a large budget deficit, we moved, albeit slowly, to narrow the gap between rates of duty and thus provide a disincentive to the illegal trade and cross-border shopping. That contrasts with the actions of this Government who, despite their looming budget surplus, have again increased those rates of duty. I shall invite my hon. Friends to vote against the clause.
|Division No. 258]||[5.46 pm|
|Abbott, Ms Diane||Cox, Tom|
|Adams, Mrs Irene (Paisley N)||Cranston, Ross|
|Ainger, Nick||Crausby, David|
|Ainsworth, Robert(Cov'try NE)||Cummings, John|
|Alexander, Douglas||Cunliffe, Lawrence|
|Allan, Richard||Cunningham, Rt Hon Dr John|
|Anderson, Donald(Swansea E)||Cunningham, Jim (Cov'try S)|
|Anderson, Janet (Rossendale)||Cunningham, Ms Roseanna|
|Armstrong, Ms Hilary||(Perth)|
|Ashton, Joe||Dafis, Cynog|
|Atherton, Ms Candy||Dalyell, Tam|
|Atkins, Charlotte||Davey, Edward (Kingston)|
|Baker, Norman||Davidson, Ian|
|Ballard, Mrs Jackie||Davies, Rt Hon Denzil (Llanelli)|
|Banks, Tony||Davies, Geraint (Croydon C)|
|Bayley, Hugh||Dawson, Hilton|
|Beckett, Rt Hon Mrs Margaret||Denham, John|
|Beggs, Roy||Dewar, Rt Hon Donald|
|Bell, Stuart(Middlesbrough)||Dobbin, Jim|
|Benn, Rt Hon Tony||Dobson, Rt Hon Frank|
|Bennett, Andrew F||Donohoe, Brian H|
|Benton, Joe||Dowd, Jim|
|Best, Horald||Drew, David|
|Betts, Clive||Drown, Ms Julia|
|Blackman, Liz||Eagle, Angela (Wallasey)|
|Blizzard, Bob||Eagle, Maria (L'pool Garston)|
|Borrow, David||Ellman, Mrs Louise|
|Bradley, Peter (The Wrekin)||Ewing, Mrs Margaret|
|Bradshaw, Ben||Fatchett, Derek|
|Brand, Dr Peter||Fearn, Ronnie|
|Breed, Colin||Fisher, Mark|
|Brinton, Mrs Helen||Flynn, paul|
|Brown, Rt Hon Gordon||Follett, Barbara|
|(Dunfermline E)||Foster, Rt Hon Derek|
|Brown, Rt Hon Nick (Newcastle E)||Foster, Michael Jabez (Hastings)|
|Brown, Russell (Dumfries)||Foster, Michael J (Worcester)|
|Browne, Desmond||Foulkes, George|
|Burden, Richard||Fyfe, Maria|
|Burgon, Colin||Galloway, George|
|Butler, Mrs Christine||Gardiner, Barry|
|Byers, Stephen||George, Andrew (St Ives)|
|Cable, Dr Vicent||George, Bruce (Walsall S)|
|Campbell, Alan (Tynemouth)||Gerrard, Neil|
|Campbell, Mrs Anne (C'bridge)||Gibson, Dr Ian|
|Campbell, Menzies (NE Fife)||Godman, Dr Norman A|
|Campbell, Ronnie (Blyth V)||Godsiff, Roger|
|Campbell-Savours, Dale||Golding, Mrs Llin|
|Canavan, Dennis||Gorrie, Donald|
|Cann, Jamie||Grant, Bernie|
|Caplin, Ivor||Griffiths, Jane (Reading E)|
|Casale, Roger||Grocott, Bruce|
|Caton, Martin||Gunnell, John|
|Chaytor, David||Hain, Peter|
|Chisholm, Malcolm||Hall, Mike (Weaver Vale)|
|Clark, Dr Lynda||Hall, Patrick (Bedford)|
|(Edinburgh Pentlands)||Hanson, David|
|Clark, Paul (Gillingham)||Heal, Mrs Sylvia|
|Clarke, Charles (Nowich S)||Heath, David (Somerton & Frome)|
|Clarke, Eric (Midlothian)||Henderson, Ivan (Harwich)|
|Clarke, Rt Hon Tom (Coatbridge)||Hepburn, Stephen|
|Clwyd, Ann||Heppell, John|
|Coaker, Vernon||Hesford, Stephen|
|Coleman, Iain||Hinchliffe, David|
|Cook, Frank (Stockton N)||Hoey, Kate|
|Corbyn, Jeremy||Home Robertson, John|
|Cotter, Brian||Hood, Jimmy|
|Cousins, Jim||Hoon, Geoffrey|
|Hopkins, Kelvin||Mullin, Chris|
|Howarth, George (Knowsley N)||Murphy, Denis (Wansbeck)|
|Howells, Dr Kim||Murphy, Jim (Eastwood)|
|Hoyle, Linsay||Oaten, Mark|
|Humble, Mrs Joan||O'Brien, Bill (Normanton)|
|Hurst, Alan||O'Brien, Mike (N Warks)|
|Hutton, John||O'Neill, Martin|
|Iddon, Dr Brian||Organ, Mrs Diana|
|Illsley, Eric||Osborne, Ms Sandra|
|Jackson, Ms Glenda (Hempstead)||Palmer, Dr Nick|
|Jackson, Helen (Hillsborough)||Pearson, Ian|
|Jamieson, David||Perham, Ms Linda|
|Jenkins, Brian||Pickthall, Colin|
|Johnson, Alan (Hull W & Hessle)||Pike, Peter L|
|Johnson, Miss Melanie||Plaskitt, James|
|(Welwyn Hatfield)||Pond, Chris|
|Jones, Barry (Alyn & Deeside)||Pound, Stephen|
|Jones, Helen (Warrington N)||Powell, Sir Raymond|
|Jones, Ms Jenny||Prentice, Ms Bridget (Lewisham E)|
|(Wolverh'ton SW)||Prentice, Gordon (Pendle)|
|Jones, Jon Owen (Cariff C)||Primarolo, Dawn|
|Jones, Martyn (Clwyd S)||Purchase, Ken|
|Kaufman, Rt Hon Gerald||Quin, Ms Joyce|
|Keeble, Ms Sally||Quinn, Lawrie|
|Keen, Ann (Brentford & Isleworth)||Radice, Giles|
|Kennedy, Charles (Ross Skye)||Rammell, Bill|
|Kennedy, Jane (Wavertree)||Rapson, Syd|
|Kilfoyle, Peter||Reed, Andrew (Loughborough)|
|King, Andy (Rugby & Kenilworth||Reid, Dr John (Hamilton N)|
|Kingham, Ms Tess||Roche, Mrs Barbara|
|Kirkwood, Archy||Rogers, Allan|
|Kumar, Dr Ashok||Rooker, Jeff|
|Lawrence, Ms Jackie||Roy, Frank|
|Laxton, Bob||Ruddock, Ms Joan|
|Lepper, David||Russell, Bob (Colchester)|
|Leslie, Christopher||Sanders, Adrian|
|Levitt, Tom||Sarwar, Mohammad|
|Lewis, Ivan (Bury S)||Savidge, Malcolm|
|Liddell, Mrs Helen||Shaw, Jonathan|
|Livingstone, Ken||Sheerman, Barry|
|Livsey, Richard||Sheldon, Rt Hon Robert|
|Lloyd, Tony (Manchester C)||Skinner, Dennis|
|Llwyd, Elfyn||Smith, Angela (Basildon)|
|Lock, David||Smith, Rt Hon Chris (Islington S)|
|Love, Andrew||Smith, Miss Geraldine|
|McAllion, John||(Morecambe & Lunesdale)|
|McAvoy, Thomas||Smith, Jacqui(Redditch)|
|McCabe, Steve||Smith, John(Glamorgan)|
|McCafferty, Ms Chris||Smith, Llew (Blaenau Gwent)|
|McDonnell, John||Spellar, John|
|McFall, John||Steinberg, Gerry|
|McGuire, Mrs Anne||Stevenson, George|
|McIssac, Shona||Stewart, David (Inverness E)|
|McKenna, Mrs Rosemary||Stinchcombe, Paul|
|Mackinlay, Andrew||Stoate, Dr Howard|
|McNamara, Kevin||Stott, Roger|
|McNulty, Tony||Strang, Rt Hon Dr Gavin|
|Mactaggart, Fiona||Stringer, Graham|
|Mallaber, Judy||Swinney, John|
|Mandelson, Peter||Taylor, Rt Hon Mrs Ann|
|Marsden, Gordon (Blackpool S)||(Dewsbury)|
|Marshall, David (Shettleston)||Taylor, Matthew (Truro)|
|Marshall, Jim (Leicester S)||Temple—Morris, Peter|
|Maxton, John||Thomas, Gareth(Clwyd W)|
|Michael, Alun||Thomas, Gareth R (Harrow W)|
|Michie, Bill (Shef'ld Heeley)||Tipping, Paddy|
|Michie, Mrs Ray (Argyll & Bute)||Tonge, Dr Jenny|
|Milburn, Alan||Touhig, Don|
|Mitchell, Austin||Trickett, Jon|
|Moffatt, Laura||Truswell, Paul|
|Moonie, Dr Lewis||Turner, Dennis (Wolverh'ton SE)|
|Moore, Michael||Turner, Dr Desmond (Kemptown)|
|Morgan, Ms Julie (Cardiff N)||Turner, Dr George (NW Norfolk)|
|Morley, Elliot||Twigg, Derek (Halton)|
|Morris, Rt Hon John (Aberavon)||Tyler, Paul|
|Mudie, George||Wallace, James|
|Walley, Ms Joan||Wills, Michael|
|Watts, David||Winnick, David|
|Welsh, Andrew||Wise, Audrey|
|Wicks, Malcolm||Wood, Mike|
|Wigley, Rt Hon Dafydd||Wray, James|
|Williams, Rt Hon Alan|
|(Swansea W)||Teller for the Ayes:|
|Williams, Alan W (E Carmarthen)||Mr, Greg Pope and|
|Willis, Phil||Mr. David Clelland.|
|Ainsworth, Peter (E Surrey)||Lansley, Andrew|
|Ancram, Rt Hon Michael||Leigh, Edward|
|Arbuthnot, James||Letwin, Oliver|
|Atkinson David (Bour'mth E)||Lewis, Dr Julian (New Forest E)|
|Baldry, Tony||Lidington, David|
|Bercow, John||Lilley, Rt Hon Peter|
|Blunt, Crispin||Lloyd, Rt Hon Sir Peter (Fareham)|
|Bottomley, Peter (Worthing W)||Loughton, Tim|
|Brady, Graham||Luff, Peter|
|Brazier, Julian||Lyell, Rt Hon Sir Nicholas|
|Brooke, Rt Hon Peter||MacGregor, Rt Hon John|
|Browning, Mrs Angela||McIntosh, Miss Anne|
|Burns, Simon||MacKay, Andrew|
|Cash, William||Maclean, Rt Hon David|
|Chapman, Sir Sydney||McLoughlin, Patrick|
|(Chipping Barnet)||Madel, Sir David|
|Chope, Christopher||Malins, Humfrey|
|Clappison, James||Mates, Micheal|
|Clark, Rt Hon Alan (Kensington)||Maude, Rt Hon Francis|
|Clark, Dr Michael (Rayleigh)||Mawhinney, Rt Hon Sir Brain|
|Clarke, Rt Hon Kenneth||Moss, Malcolm|
|Clifton—Brown, Geoffrey||Norman, Archie|
|Collins, Tim||Ottaway, Richard|
|Colvin, Michael||Paterson, Owen|
|Cormack, Sir Patrick||Prior, David|
|Cran, James||Randall, John|
|Curry, Rt Hon David||Redwood, Rt Hon John|
|Davies, Quentin (Grantham)||Robathan, Andrew|
|Davis, Rt Hon David (Haltemprice)||Robertson, Laurence (Tewk'b'ry)|
|Day, Stephen||Roe, Mrs Marion (Broxbourne)|
|Dorrell, Rt Hon Stephen||Rowe, Andrew (Faversham)|
|Duncan Smith, Iain||Ruffley, David|
|Evans, Nigel||St Aubyn, Nick|
|Fabricant, Michael||Sayeed, Jonathan|
|Fallon, Michael||Shepherd, Richard|
|Forth, Rt Hon Eric||Simpson, Keith (Mid—Norfolk)|
|Fowler, Rt Hon Sir Norman||Soames, Nicholas|
|Fox, Dr Liam||Spelman, Mrs Caroline|
|Fraser, Christopher||Spicer, Sir Michael|
|Garnier, Edward||Spring, Richard|
|Gibb, Nick||Stanley, Rt Hon Sir John|
|Gorman, Mrs Teresa||Steen, Anthony|
|Green, Damian||Streeter, Gary|
|Greenway, John||Swayne, Desmond|
|Grieve, Dominic||Syms, Robert|
|Hague, Rt Hon William||Tapsell, Sir Peter|
|Hamilton, Rt Hon Sir Archie||Taylor, Sir Teddy|
|Hammond, Philip||Tredinnick, David|
|Harvey, Nick||Trend, Michael|
|Hayes, John||Tyrie, Andrew|
|Heald, Oliver||Viggers, Peter|
|Heathcoat—Amory, Rt Hon David||Wardle, Charles|
|Horam, John||Waterson, Nigel|
|Howarth, Gerald (Aldershot)||Whitney, Sir Raymond|
|Hunter, Andrew||Widdecombe, Rt Hon Miss Ann|
|Jack, Rt Hon Michael||Willetts, David|
|Jackson, Robert (Wantage)||Wilshire, David|
|Johnson Smith,||Winterton, Mrs Ann (Congleton)|
|Rt Hon Sir Geoffrey||Woodward, Shaun|
|Key, Robert||Young, Rt Hon Sir George|
|King, Rt Hon Tom (Bridgwater)|
|Kirkbride, Miss Julie||Tellers for the Noes:|
|Laing, Mrs Eleanor||Mr. John M. Taylor and|
|Lait, Mrs Jacqui||Mr. John Whittingdale.|