(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 6

Part of Finance Bill – in a Public Bill Committee at 1:30 pm on 10 May 2007.

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Photo of John Healey John Healey The Financial Secretary to the Treasury 1:30, 10 May 2007

I have two things to say on that. I am sorry that the hon. Lady was not present for this morning’s debate, because it was quite a detailed debate about the elasticities and inelasticities of demand, and how they differ for beer, cigarettes, cars and houses. That is the economic reality. The other fact is that within our beer duty regime we tax according to the strength of beer and lager, so that strong lagers are taxed more heavily than weak ones. So an element of the system of tax on beer and lager already reflects the concerns that she has.

Alongside our duty decisions there is the prospective smoking ban in public places in July, the NHS stop smoking services and the fact that, in October, we shall raise the minimum age at which young people can buy tobacco from 16 to 18. I want to pay tribute in passing, Mr. Gale, to my hon. Friend the Member for Barnsley, East and Mexborough (Jeff Ennis), whose constituency  sits between mine and that of your co-Chairman. He has been one of the leading advocates and campaigners for just such a rise.

We are very conscious when we set the duty levels about the potential impact on smuggling. We are confident that this inflation-only increase will not lead to a rise in smuggling. The impact of the anti-smuggling strategy since we introduced it in 2000 has been quite significant. It first of all stabilised and then drove down the illicit market share. It is clear that we need to do more on hand-rolling tobacco, as we announced in the Budget last year. We are also tightening up the provisions we put in place through the memorandum of understanding and the legislation last year. I was asked specifically about the Philip Morris International agreement. Apart from the fact that that was negotiated between the European Commission and 10 of the member states, as was pointed out to the Committee earlier, in part by dropping legal proceedings against the company in the US, the main strengths of our legislation to control the supply chain contrast with the Philip Morris agreement in various respects.

First, our arrangements apply to all tobacco manufacturers, not just to Philip Morris. Secondly, the Philip Morris agreement excludes any tobacco products on which duty is paid in another member state. Nearly all hand-rolling tobacco in the UK comes from other parts of the EU and has duty paid in those countries, so it would not be touched in this case. Thirdly, unlike in many other member states, Philip Morris has only about a 5 per cent. share of the market in the UK. Fourthly, as I explained to the hon. Member for South-East Cornwall, our penalties can range up to £5 million if companies under our arrangements are not following their obligations. Finally, as I have also pointed out, the Philip Morris agreement does not cover counterfeit tobacco, and counterfeit is clearly a growing problem about which we and manufacturers are concerned.

In relation to questions of track and trace and markets, we announced at the Budget—I hope that members of the Committee will not have missed it, but judging by some of their comments they may have done—that we had reached an agreement with the tobacco manufacturers in this country voluntarily to introduce covert markings on packs of tobacco products. That will enable the counterfeit products to be identified and traced more effectively. I expect those markings to begin to be introduced on packets during the course of the year. The hon. Member for Wycombe asked how we came to that judgment and this agreement. We consulted very widely, including with ASH, the tobacco manufacturers, other countries and potential suppliers of the sort of technology that we were interested in using.

In summary, this is a duty increase that continues our policy of maintaining a high price for cigarettes without hampering our efforts to tackle smuggling. It will help to reduce smoking. It will help to lower the costs associated with smoking. I am glad of the indication from both the Liberals and the Tories that they will not seek to oppose this clause.