Clause 1 — Rates of Tobacco Products Duty

Finance (No. 2) Bill – in the House of Commons at 4:11 pm on 6th April 2005.

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Question proposed, That the clause stand part of the Bill.

Photo of Mark Francois Mark Francois Shadow Economic Secretary (Treasury) 4:30 pm, 6th April 2005

I will make a few brief remarks on the clause, but before doing so I also want to refer to the Chief Secretary to the Treasury. I paid tribute to him when I wound up for the Opposition on the evening of Monday 21 March during the Budget debate, and the House will be pleased to hear that I do not propose to reprise all of that now. But I should point out briefly that the shadow Paymaster General, my hon. Friend Mr. Tyrie, reminded the House a few minutes ago that a major power cut has taken place in south London today. To paraphrase Lord Grey, the lights are going out all over Britain for this Labour Government, so the Chief Secretary—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The clause under discussion is actually "Rates of tobacco products duty".

Photo of Mark Francois Mark Francois Shadow Economic Secretary (Treasury)

Thank you, Mrs. Heal. I was simply going to say that I wish the Chief Secretary to the Treasury all success in the future, and he has clearly picked the right time to get out.

We are now in Committee and in the curious position of having to deal with 106 clauses, in what is still a 1 inch thick Bill, in barely half an hour. Given our constrained circumstances, I will make just a few quick points on each of the clauses that we Conservatives wish to highlight.

On clause 1, I want to press Ministers on what actions they are taking to combat tobacco smuggling. That issue has been raised with me on a number of occasions, particularly by small retailers, who are seriously suffering from the effects of such smuggling. I am thinking of organisations such as "Retailers Against Smuggling", which have made several representations on that point. I also have a letter from the chief executive of the Tobacco Manufacturers' Association, who wrote very promptly—as recently as yesterday—about the matter. He said:

"I write to you with some urgency, as I understand that certain sections of the Finance Bill including the clause on increased tobacco tax, are soon to be debated in the House. We were disappointed that the Chancellor proposed increases in taxation, particularly the rises on hand rolling tobacco, where 73 per cent. consumed in the UK last year were non duty paid i.e. they avoided UK taxes.

The Treasury sub-committee warned in their recent report that the smuggling of hand rolling tobacco was 'out of control'. Furthermore we estimate that 28 per cent. of cigarettes consumed avoided UK duty . . . The Treasury sub-committee also reported that one in four shopkeepers were considering closing down as a result of the impact tobacco smuggling was having on their business . . . In the limited opportunity left to you because of the restricted time I would urge you to question Her Majesty's Government's thinking on this subject, and speak up for the small retailers whose livelihood is severely threatened as a result of these Budgetary proposals."

On that basis, I would like to ask the Financial Secretary[Interruption.] Oh, I see that the Economic Secretary, who has direct responsibility for these matters, is now in his place[Interruption.] He was in his place only for part of the debate, but has just re-entered the Chamber. Perhaps he will listen to my three questions and either he or the Financial Secretary will reply to them.

First, what further actions does the Treasury propose to combat tobacco smuggling in general? Secondly and more specifically, what measures are proposed to combat the smuggling of hand-rolled tobacco, which has become a particular problem? Clearly, small retailers are suffering disproportionately from the smuggling of that form of tobacco and Conservative Members want to know exactly what the Government propose to combat it. Thirdly, how will the Government ensure that controls remain in place, given the impending merger of Her Majesty's Customs and Excise and the Inland Revenue? I ask that question because, with any merger, it is sometimes the case that important measures can fall between two stools during the period of transition. That cannot be allowed to happen. I hope that the appropriate Minister will answer those three specific questions in a specific manner.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

I was hoping to speak when we reached stamp duty land tax, but perhaps I have an opportunity to say a few words now. We have in the House, though unfortunately not for much longer, the world's greatest living expert on stamp duty land tax—the Chief Secretary to the Treasury. He took the brief at the last minute and, as usual, he acquitted himself with great style and verve. He is unfailingly courteous and I view his leaving the House as a very sad loss, indeed. I want to pay tribute to him for his courteousness, his expertise and his pleasant convivial demeanour. He has added greatly to the proceedings of this place.

I should like to say a few words about tobacco products duty. I may be somewhat jumping the gun because clauses 2 and 3 refer to alcoholic liquor duties. The Economic Secretary and I have discussed at length the problems of London City Bond and Mr. Justice Butterfield's report on the hundreds of millions of pounds lost through liquor duty fraud. I am anxious to hear that Ministers have got a grip on this situation; we cannot allow such fraud to continue.

The First Deputy Chairman:

We shall reach clauses 2 and 3 after we have finished debating clause 1, so the hon. Member will have an opportunity to comment further then.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

I am grateful: I believe that the smuggling involved cigarettes as well as liquor, but I could be wrong and stand to be corrected. I shall give Ministers ample advance warning—about a minute—that I hope to hear what they have done in respect of the Butterfield report and its recommendations. We cannot allow any recurrence of this sort of fraud when hundreds of millions of pounds are lost to the Revenue. When that happens, who picks up the Bill? It is our fellow citizens and taxpayers of this country.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

I rise briefly to follow up the point made by my hon. Friend Mr. Francois about the report of the Treasury Sub-Committee on excise duty fraud. Given how little time remains for the Government to reply, it would be helpful if a Minister clarified whether we will receive a full Government response to our recommendations, which are very relevant to the three questions that my hon. Friend proposed. Before the House dissolves on Monday, perhaps we could have such a reassurance.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The inflation increase in clause 1 maintains the high real price of cigarettes. The aim is to encourage people to smoke less or to quit, and to discourage children and young people from taking up the habit. The organisation Action on Smoking and Health has welcomed the proposal.

Mr. Francois is right to raise the issue of smuggling. The Government have acknowledged that that is a pressing and important problem, and we have taken effective action over an extended period to address it. As a result, tobacco smuggling is being contained. In the past four years, Customs and Excise has succeeded in halting the previous rapid growth in cigarette smuggling, and in reducing the market share for illicit cigarettes to the current level of 15 per cent. That is still too high, but it is significantly lower than previously.

The total number of cigarettes smuggled into the UK each year has been reduced by more than 5 billion sticks, a fall of more than a third. In the same period, when cross-channel passenger smuggling was cut by more than three quarters, there has been a rise of 33 per cent. in legal cross-border shopping for alcohol and tobacco. That clearly shows that an effective balance has been struck between maintaining the rights and opportunities of shoppers and cracking down on smuggling.

The hon. Member for Rayleigh mentioned hand-rolling tobacco specifically. As he will know, the Budget statement acknowledged explicitly that the pattern of smuggling for such tobacco is different, and made it clear that the Government are responding accordingly. I can reassure him that the very effective focus on tackling smuggling will be maintained through the forthcoming merger of the Customs and Excise and the Inland Revenue. I agree that it is important that that focus is not lost, and assure him that it will not be.

Photo of Mark Francois Mark Francois Shadow Economic Secretary (Treasury)

I heard what the Minister said, and do not wish to detain the House for long, given the present circumstances. He acknowledged the specific problem in relation to hand-rolling tobacco—on behalf of the industry, I thank him for that—but made no specific suggestions for further Government action to combat it, which will disappoint retailers around the country. With an election pending, it is only fair to warn him that we intend to do what we can to warn retailers that the Government do not take their concerns seriously.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

That is a very unfair response. The Government have brought about a very dramatic reduction in the smuggling of tobacco and cigarettes. The problem is being contained, and that certainly was not the case under the previous Conservative Government. That is a reflection of the vigour with which we have pursued the problem, and we will ensure that we continue to apply the same vigour in the future.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

On a point of order, Mrs. Heal. I have been asking all day for a copy of the regulations governing inheritance tax on pre-owned assets, which were published a week or two ago. Vote Office staff have been unable to get hold of those regulations, even though they will be debated in connection with clause 98. I should be grateful if you would do all that you can to ensure that a copy of those regulations is made available to the Committee.

The First Deputy Chairman:

Ministers on the Treasury Bench will have heard what the hon. Gentleman had to say, but I am afraid that there is nothing that I personally can do. However, I think that the message will have been conveyed.

Clause 2 ordered to stand part of the Bill.