[Sir Alan Haselhurst in the Chair] — Clause 1 — Rates of Tobacco Products Duty

Part of Finance Bill – in the House of Commons at 2:30 pm on 13 May 2003.

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Photo of John Baron John Baron Conservative, Billericay 2:30, 13 May 2003

I welcome you to the Chair, Mrs. Heal. I want to focus on the adverse effects of tobacco smuggling in support of one or two previous contributions, most notably that made by my hon. Friend Mr. Osborne. Smuggling will increase because of the measures in the Bill, and there are many dire effects of that.

Clause 1 sets out the new rates of tobacco duty, which increased by 2.8 per cent. from 9 April, in line with inflation. Conservative Members share the Government's desire to reduce tobacco consumption in this country. No one disputes the harmful effects of smoking—it is the single largest cause of preventable illness and premature death in the United Kingdom. As we have heard, it kills approximately 120,000 people every year and causes 85 per cent. of deaths from lung cancer. The Government have confirmed that tobacco is the only legal product that kills one in two people who use it.

I urge the Government to think carefully about how they intend to address one of the main drivers that affects tobacco consumption in Britain, especially among the more vulnerable groups in our society: tobacco smuggling. There is a flourishing trade in black-market tobacco products in the UK and one cannot escape the fact that that is caused, to a large extent, by the substantial price differential between cigarettes sold in the UK and in other European countries. A packet of 20 cigarettes is about £2 cheaper in France than here. It is little wonder that the National Audit Office has estimated that the number of cigarettes smuggled in 2001 rose from 14 billion to 17 billion and that more than one in five cigarettes consumed in the UK are smuggled. The proportion of consumed cigarettes that are smuggled has increased from 3 per cent. in 1997 to 21 per cent at present. That is a phenomenal increase.

There are two profound consequences of that. First, there is a tremendous loss of revenue to the Exchequer. As my hon. Friend Mr. O'Brien said, the combined effect of a steep rise in smuggling and cross-border shopping means that about 28 per cent. of cigarettes and 69 per cent. of hand-rolling tobacco do not attract UK duty. Estimates suggest that the total revenue lost since 1997 is something like £15 billion. Indeed, the NAO recently published a report claiming that Customs and Excise is losing up to £7 billion a year owing to fraud and lost taxes and that half that is lost owing to tobacco smuggling. That sum of money is enormous. How many hospitals could be built and how many extra doctors and nurses could be recruited with that money? That is certainly worth thinking about.

Secondly, the increase in smuggling has been a major contributor to the fact that the long-term downward trend in cigarette consumption has been broken. Indeed, one could argue that consumption might be on the rise and that the problem is underestimated. For example, a survey published in the British Medical Association's journal "Tobacco Control" at the end of last year revealed that one in five children aged under 16 are regular smokers, which is twice the Department of Health's original estimate.

There is little point increasing taxes and thus creating an ever-larger differential with prices across the channel if we do nothing to stop the smuggling that undoubtedly ensues from that. It is a silly policy that is costing this country many billions of pounds in lost revenue. The policy is contributing to the increase in cigarette consumption, especially among our young, because cheaper smuggled tobacco products and cigarettes are now so prevalent in the UK. In other words, because smuggled cigarettes are so much cheaper, they are swamping the market and consumption is rising. That is the exact opposite of what we are trying to achieve.

The Government should take the issue more seriously and re-examine their assumptions. Without a real clampdown on smuggling, the policy of ever-higher taxes will lead to a market that is increasingly supplied with cheaper smuggled cigarettes. That will encourage a long-term increase in consumption, although I believe that that has already started, and a consequential loss of life. I hope that the Government will re-examine their policy.