Orders of the Day — Finance (No. 2) Bill

House of Commons, 28 April 1998.

RATE OF DUTY ON BEER

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

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.

Dawn Primarolo (Labour, Bristol South)

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.]

Dawn Primarolo (Labour, Bristol South)

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.

David Heathcoat-Amory (Conservative, Wells)

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.

Ross Cranston (Labour, Dudley North)

If the amendment is carried, how will the revenue gap be filled? The real value of beer duty is lower than for 15 years, partly as a result of the single market.

David Heathcoat-Amory (Conservative, Wells)

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. 4 pm 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.

Ross Cranston (Labour, Dudley North)

rose—

David Heathcoat-Amory (Conservative, Wells)

I am sure that the hon. Gentleman wants to be helpful again.

Ross Cranston (Labour, Dudley North)

I thank the right hon. Gentleman for giving way yet again. I should like to be helpful. Will he support the freedom of information legislation?

David Heathcoat-Amory (Conservative, Wells)

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.

David Heathcoat-Amory (Conservative, Wells)

I apologise, Mr. Martin, although the effect will be the same if we vote against clause stand part.

Anne McIntosh (Conservative, Vale of York)

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.

Dawn Primarolo (Labour, Bristol South)

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.

Anne McIntosh (Conservative, Vale of York)

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.

Anne McIntosh (Conservative, Vale of York)

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.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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. 4.15 pm 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.

Jacqui Lait (Conservative, Beckenham)

I am interested in those figures, which are the lowest that have been produced for a long time. Where did the Treasury get them?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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.

David Heathcoat-Amory (Conservative, Wells)

Dream on.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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.

Nicholas Soames (Conservative, Mid Sussex)

Where does the hon. Gentleman propose raising the revenue shortfall that would accrue from the transaction?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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.

Nicholas Soames (Conservative, Mid Sussex)

It will not.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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.

Archie Norman (Conservative, Tunbridge Wells)

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.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Are those the total figures for alcohol and tobacco? The figures that I quoted related to beer, with which the clause deals.

Archie Norman (Conservative, Tunbridge Wells)

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.

Dawn Primarolo (Labour, Bristol South)

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?

Archie Norman (Conservative, Tunbridge Wells)

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.

Derek Twigg (Labour, Halton)

Can the hon. Gentleman tell us how the previous Tory Government helped the situation by cutting severely the number of customs officers?

Archie Norman (Conservative, Tunbridge Wells)

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.

Ross Cranston (Labour, Dudley North)

Can the hon. Gentleman explain why the previous Government increased the rate on beer in 1995 after they lost the VAT on fuel decision? Does the logic of his argument favour a uniform European Union duty on beer?

Archie Norman (Conservative, Tunbridge Wells)

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.

Chris Leslie (Labour, Shipley)

To clarify that point, will the hon. Gentleman cite, with chapter and verse, the source of his information on developments over the past few months?

Archie Norman (Conservative, Tunbridge Wells)

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.]

Andrew Robathan (Conservative, Blaby)

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?

Archie Norman (Conservative, Tunbridge Wells)

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.

Derek Twigg (Labour, Halton)

Can the hon. Gentleman quote figures on smuggling in other European nations, given that they are so different from UK figures?

Archie Norman (Conservative, Tunbridge Wells)

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.

Barry Gardiner (Labour, Brent North)

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?

Archie Norman (Conservative, Tunbridge Wells)

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.

Ross Cranston (Labour, Dudley North)

Is the hon. Gentleman making the accusation that many small shopkeepers in this country are handling contraband?

Archie Norman (Conservative, Tunbridge Wells)

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.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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?

Archie Norman (Conservative, Tunbridge Wells)

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.

Nicholas Soames (Conservative, Mid Sussex)

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 at ports. 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.

Jacqui Lait (Conservative, Beckenham)

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.

Dawn Primarolo (Labour, Bristol South)

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?

Jacqui Lait (Conservative, Beckenham)

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.

Dawn Primarolo (Labour, Bristol South)

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?

Jacqui Lait (Conservative, Beckenham)

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.

Nicholas Soames (Conservative, Mid Sussex)

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.

Jacqui Lait (Conservative, Beckenham)

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.

James Plaskitt (Labour, Warwick and Leamington)

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.

Jacqui Lait (Conservative, Beckenham)

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.

Ross Cranston (Labour, Dudley North)

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?

Jacqui Lait (Conservative, Beckenham)

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.

Barry Gardiner (Labour, Brent North)

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.

David Heathcoat-Amory (Conservative, Wells)

To spare the hon. Gentleman embarrassment, may I point out that that is not our amendment. If he glances at the amendment paper, he will see that the amendment is in the name of the Liberal Democrats.

Barry Gardiner (Labour, Brent North)

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.

Nicholas Soames (Conservative, Mid Sussex)

There is nothing mid about my socks—they are full length.

Barry Gardiner (Labour, Brent North)

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.

David Ruffley (Conservative, Bury St Edmunds)

Did the hon. Gentleman support the decision by the previous Chancellor to freeze beer duty in the November 1996 Budget?

Barry Gardiner (Labour, Brent North)

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.

Andrew Robathan (Conservative, Blaby)

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.

Nicholas Soames (Conservative, Mid Sussex)

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?

Andrew Robathan (Conservative, Blaby)

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.

Nick St Aubyn (Conservative, Guildford)

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.

Dawn Primarolo (Labour, Bristol South)

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.

Jacqui Lait (Conservative, Beckenham)

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?

Dawn Primarolo (Labour, Bristol South)

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.

Archie Norman (Conservative, Tunbridge Wells)

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.

Dawn Primarolo (Labour, Bristol South)

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.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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?

Dawn Primarolo (Labour, Bristol South)

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.

Archie Norman (Conservative, Tunbridge Wells)

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?

Dawn Primarolo (Labour, Bristol South)

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.

Andrew Robathan (Conservative, Blaby)

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.

Dawn Primarolo (Labour, Bristol South)

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.

Anne McIntosh (Conservative, Vale of York)

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?

Dawn Primarolo (Labour, Bristol South)

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.

Archie Norman (Conservative, Tunbridge Wells)

Will the Minister please confirm that her colleagues in the Home Office are not complaining that smuggling is a worsening problem, and that they are satisfied that it is contained and is static?

Dawn Primarolo (Labour, Bristol South)

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—

Archie Norman (Conservative, Tunbridge Wells)

rose—

Dawn Primarolo (Labour, Bristol South)

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.

Archie Norman (Conservative, Tunbridge Wells)

I thank the Minister for attempting to reply to my question. Will she confirm her assertion that smuggling and fraud have not worsened at all in the past 24 months? That is in direct contradiction to claims made by other members of the Government.

Dawn Primarolo (Labour, Bristol South)

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.

David Heathcoat-Amory (Conservative, Wells)

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. 5.45 pm 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.

Rates of Duties And REBATES

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 12, in page 3, line 39, leave out '£0.4926', and insert '£0.48'. Even in the context of a tax-raising Budget, the impost on road fuels was particularly savage. The amendment seeks to moderate the increase to bring it back into line with the so-called escalator that we left behind when we lost office. The private motorist and commercial road users face steep increases, and, as ever, the Library has been helpful in working out the implications of the new transport fuels policy that was announced in the Budget. The increase in the escalator from 5 to 6 per cent. in real terms, the fact that the Government have brought forward the implementation date, and an extra increase in the duty on diesel and super unleaded petrol, add up to an additional tax burden of £9 billion over this Parliament. By any standard, that is a huge additional burden, and it is an inefficient way to reduce car use, if that was the intention. Of course it has an effect on the private motorist and a most unfortunate effect on those in rural areas where many people must have cars—there is no realistic alternative to the car for getting to work or for use in the course of daily routine. Against the huge, almost staggering, increase in the overall tax burden, the £50 million that is to be allocated to rural bus services over three years is gesture politics at its worst. It is an insult to people who live in those areas. Mr. Dafydd Wigley (Caernarfon): Does the right hon. Gentleman agree that the burden will hit rural areas at a particularly inopportune time, in view of the severe decline in farm incomes? A reduction of 89 per cent. has been reported in a study in Wales in the past year. This is the worst time for such additional impositions to be placed on rural areas.

David Heathcoat-Amory (Conservative, Wells)

I entirely agree. The right hon. Gentleman and I have rural constituencies. I represent the second main dairy county in Britain, and the hon. Gentleman's area has a marked concentration of agricultural and allied industries, both of which are suffering grievously from reduced prices and subsidies and the strength of the pound. The increase in fuel duty on top of those factors is a burden that people find hard to understand from a Government who talk much about their inclusiveness and their aim to help what they call rural communities.

Ross Cranston (Labour, Dudley North)

I should like to draw the Committee's attention to what the right hon. Member for Wells (Mr. Heathcoat-Amory) said in January 1995 when this issue was being addressed: I accept that some things are more expensive in rural areas. Some things are more expensive in urban areas. That is the interplay of a market and the inheritance of the past."—[Official Report, 23 January 1995; Vol. 253, c. 104.] Would the right hon. Gentleman like to comment on that?

David Heathcoat-Amory (Conservative, Wells)

That was an entirely different debate. I conceded at that time—and I have always recognised—that those who live in rural areas rely more on cars. That is the issue that we are debating. It is undoubtedly true that some services are more expensive in rural areas, and nothing that the Government can do could alter that. What I said at that time is right, and I withdraw nothing whatever from it. It does not contradict my point that the increase in petrol and other fuels, which affect everyone, are especially burdensome for people in rural areas who are already damaged, as the right hon. Member for Caernarfon (Mr. Wigley) said, by the poor state of farming.

John Bercow (Conservative, Buckingham)

The hon. Member for Dudley, North (Mr. Cranston) mentioned the debate of 23 January 1995. Is my right hon. Friend aware that, on that day, the Financial Secretary, who was then in opposition, said of an increase in fuel duty: People living in rural areas will be badly affected."—[Official Report, 23 January 1995; Vol. 253, c. 99.] She also said that to portray such a measure as environmental was cynical. Was she wrong then, is she wrong now, or does not she know which?

David Heathcoat-Amory (Conservative, Wells)

The difference is that, in 1995, the hon. Lady was not in a position to do anything on this matter. Now that she is in office, she is able to deliver. During the debate, we shall see whether her words were hollow or whether she intends to deliver on her intentions at that time. We are debating the effects on rural areas of the increased duty, but the increase will also affect industrial costs, which are also incurred in rural areas, and the United Kingdom's entire distribution chain. All raw materials have to be moved and all goods distributed; the fuel that propels most of that movement is diesel, the fuel of industry. The Budget signals a duty increase on diesel higher than that on petrol. Furthermore, the Red Book signals that future Budgets will widen the gap and that diesel duty will go on increasing at a higher rate than the duty on petrol in spite of the fact that diesel duty in the United Kingdom is already the highest in the European Union. The Freight Transport Association reports that it is 70 per cent. above the average of EU member states, so there is a competition point. Industry and exporters in particular are suffering because of the high pound, and the Government are burdening them with a tax increase that goes to the heart of the productive economy. It is not hard to see what will happen. Not only will competitiveness, investment and the capacity to create new jobs be hit; there will be every incentive to hauliers conducting international business to fill their tanks abroad. That is not a trivial problem. If all the lorries that go to the continent leave with empty tanks and return with full ones, there will be a significant drain on the Revenue. When working out the yield from the increase in diesel duty, the Financial Secretary must have estimated the effects of what will be lost through hauliers and others filling their tanks overseas. There will be a significant loss of revenue if big articulated lorries with empty tanks fill up in France rather than in this country.

Chris Leslie (Labour, Shipley)

While we are talking about loss of revenue, perhaps the right hon. Gentleman will tell us the cost to the Exchequer of his amendment. I understand that it might be in the region of £400 million. Will he confirm that? How does he plan to raise that extra money?

David Heathcoat-Amory (Conservative, Wells)

I shall come to the amendment in due course. To put the hon. Gentleman out of his misery, I assure him that we are merely returning the escalator to what we left behind in our Red Book. The Labour party has taken over all our expenditure commitments. Why cannot it take over our taxation estimates as well? If the hon. Gentleman supports that, he will support an amendment that would reduce the extra burden of taxation and return to the estimates that we left behind. There would be no loss of revenue, but a continuation of the revenue that we wrote into our last Budget. I am grateful to the hon. Gentleman for his intervention. The effect of the annual increase in fuel duties is estimated as equivalent to 1 p on the basic rate of income tax every year. Those increases affect not just industry and distribution, but public services. Labour Members sometimes overlook the fact that ambulances and police cars run on the more expensive fuel. Without compensation, the increases in duty represent a real-terms cut in expenditure on those public services. The Government's excuse for the increase in diesel duty is to encourage the use of low-sulphur diesel. We all know that the compounds produced when sulphur combines with oxygen are part of the pollution problem, particularly in cities, but instead of creating an incentive by reducing the cost of low-sulphur diesel, the Government have increased the duty on that fuel by more than the increase on petrol. It has gone up by 9.4 per cent. That is the second increase in less than a year. The only incentive is that the duty on ordinary diesel has gone up by even more—by 11.7 per cent. That is also the second increase in eight months. They are using a stick rather than a carrot. The policy is particularly stupid given the Government's professed concern about global warming. My information from the industry is that taking a tonne of sulphur out of diesel releases 20 tonnes of carbon dioxide into the atmosphere because the procedure is very energy-intensive. There is then also the problem of disposing of the sulphur. Diesel is a more efficient fuel than petrol for carbon dioxide emissions. A vehicle can go further on a gallon of diesel than on a gallon of petrol, and the combustion of the fuel produces less carbon dioxide. If the Government are concerned about global warming, why are they encouraging an industrial process that releases more carbon dioxide? Why are they encouraging the use of petrol rather than diesel?

Geoffrey Clifton-Brown (Conservative, Cotswold)

Does my right hon. Friend agree that, in balancing petrol against diesel, the Government have also forgotten about the cancerous effects of the benzine and benzine-related compounds in petrol, which are absent from diesel?

David Heathcoat-Amory (Conservative, Wells)

My hon. Friend is probably right, but we do not know what the Government have forgotten, because they will not tell us. We could have had the answers to my hon. Friend's question if the Government had fulfilled their promise to accompany their Budget with a green book setting out the environmental implications of Government policy. As the Treasury Committee has recently observed, no green book was forthcoming, despite a promise by the Financial Secretary that one would be published. Perhaps she will fulfil that promise when she answers the debate. Even if she cannot produce the book this afternoon, she can at least tell us when it will be published, in line with her earlier assurance. The Government are in a muddle. They are setting up contradictory incentives. Their environmental goals are not clear. The amendment would return the duty increase to the 5 per cent. escalator that we set in motion, and would restrict its implementation to once a year. The arithmetic in the amendment may not be exact—it is for the Government to improve on it if they can—but our intention is clear. We have taken approximately two thirds of the 5 per cent. increase that we left behind in recognition of the fact that this is the second increase in eight months. We are reducing the escalator, because we should get back to annual increases rather than trying to squeeze them in every eight months. That would lift the burden of the £9 billion extra hit on the private motorist and the productive sector of the economy caused by the Government's new policy on the taxation of fuel. If the amendment is accepted, as it should be, we shall strike a blow for industry, public services and the private motorist.

Nick St Aubyn (Conservative, Guildford)

I support the amendment. The Government are in danger of devaluing an important principle. The previous Government fully endorsed the principle of using economic levers up to a point to change behaviour. We encouraged people to switch to unleaded petrol by changing the rates of duty between unleaded and leaded. A measured increase in petrol duties was part of a programme of persuading people to use their cars less and to use public transport more. The Government must explain why increasing the scale on which the duties are raised from 5 per cent. to at least 6 per cent. will make any difference. I do not believe that it will. A measured rise in duty is helpful as part of an overall programme to encourage people to switch from using their cars to using public transport, but on its own it is not an answer. With their excessive rise in petrol duty, the Government are putting too much faith in one policy. That will not work. The huge increases in traffic through my constituency despite increases in duty in recent years show that the use of the private car will not be influenced by the price of petrol alone. A huge convenience factor must be addressed before we can hope to stem the increase in traffic. On Friday, we debated the Road Traffic Reduction (National Targets) Bill. It is evident that there is support on both sides of the House for measures that discourage motor traffic, but they must be carefully considered. The Government's proposal is an attempt merely to cap the previous Government's policy by taking it that step further, but without thinking through the consequences. I am sure that we shall hear from hon. Members who represent rural areas, such as Cornwall, where I used to live, which will be very hard hit by the scale of the increase that the Government have proposed for all road users without thinking through what other measures are needed. The extra burden on the car driver will not make any difference to the increasing traffic in lanes around Guildford. It will not save us from problems on Halfpenny lane in Chilworth or through villages such as Compton and Puttenham, where the massive increase in traffic is causing tremendous disquiet. If the Government's only response is to raise petrol duty, it is simply not good enough. That will not solve the problem.

John Bercow (Conservative, Buckingham)

Does my hon. Friend agree that, if the Government think that an increase in duty will reduce the use of the private motor car, they owe it to the House and to the public to publish an estimate of what they believe that reduction will be? If they fail to do so, we can assume that they do not expect a reduction in usage, and that the proposal is just a smash-and-grab raid on taxpayers.

Nick St Aubyn (Conservative, Guildford)

I thank my hon. Friend for pointing out that what really lies behind the Government's proposal is greed. They simply want to grab as much money as they can from the taxpayer. It is old-fashioned socialist greed. The implication is that those with the largest cars will pay the most. The calculation is spinning through the brains of Labour Members as we debate the issue. I would go further than my hon. Friend: the Government should not only publish estimates of how much the additional levy will reduce road traffic but tell us how they will spend the additional revenue to encourage alternative uses. I should like to draw the Committee's attention to some very interesting alternative means of transport in my constituency that are at the forefront of thinking on the issue. They demonstrate the inadequacy of the Government's response in clause 7. The concept of an ultra-light railway system has been promoted by a firm based in Guildford that gave a presentation in the House only a few weeks ago. The system could have a significant impact in town centres such as Guildford by encouraging people not to use their cars. The concept relies not only on increases in duty but on new technology. More to the point, it is a purely market-driven solution, which requires no public subsidy. The Temporary Chairman: Order. We are discussing rates of duty; I am sure that the hon. Gentleman knows that.

Nick St Aubyn (Conservative, Guildford)

I am just contemplating how the additional revenue that the Government are planning to raise through the excessive increase in duty might be put towards a constructive policy of discouraging the use of the private motor car. If the Government cannot come up with such a policy, the idea that the motorist should be arbitrarily penalised clearly becomes highly debatable.

Nick St Aubyn (Conservative, Guildford)

I am grateful for your excellent guidance, Mrs. Dunwoody. We should emphasise that the Government are proposing a very narrow-minded policy that does not go nearly far enough towards solving the problems that face this country. Behind the example of the ultra-light railway is the fact that we shall solve the problems of excessive traffic through market solutions.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Will my hon. Friend call on the Government to publish the specific environmental benefits of not raising the escalator, as we propose in amendment No. 12? No figures have been published either in the notes on clauses or in the Red Book to indicate specific environmental gains in terms of carbon dioxide emissions.

Nick St Aubyn (Conservative, Guildford)

My hon. Friend makes a very valid point. I hope that the Financial Secretary is making careful notes because recent interventions show just how far short the Government have fallen of what they should be achieving. If they want any support in the Lobby tonight, they must show that there is a purpose behind imposing additional levies on the motorist. The purpose must surely be traffic reduction. We must come forward with market-driven solutions. As a result of the policy instituted by the previous Government, there is evidence that although an increase in petrol duty may form part of a comprehensive strategy, it cannot be the whole strategy. If it cannot be the whole strategy, it is simply not fair, particularly on less well-off people in rural areas who depend on cars, to penalise the motorist by proposing such taxes.

John Swinney (Scottish National Party, North Tayside)

I support the amendment because some moderation of the Government's proposed increase is better than nothing. I calculate that the percentage increase recommended by the Conservatives was of the order of 6 per cent., against the 9 per cent. that the Government propose. It is important that we do something to moderate the proposed severe increase in petrol duty. There has been much double-talk in this debate from Conservative spokesmen who have denounced measures that they were quite happy to introduce when they were on the Government Benches. I shall spare the Committee any further points on the hypocrisy of both main parties on this issue.

David Heathcoat-Amory (Conservative, Wells)

The hon. Gentleman has just said that he wants to return the duty increase to the level that applied under the previous Government, which is exactly what the amendment proposes. Why, therefore, is it hypocritical for us to get together on the same issue?

John Swinney (Scottish National Party, North Tayside)

Although I am grateful for that intervention, it is a curious way to welcome friends into the body of the kirk, as we would say in Scotland. I would have much preferred the amendment tabled by my hon. Friends and myself—or, possibly, that tabled by the Liberal Democrats. Unfortunately, those amendments were not selected.

John Bercow (Conservative, Buckingham)

It is sour grapes.

John Swinney (Scottish National Party, North Tayside)

It is not sour grapes. It is just a recognition that the Conservatives, as usual, are offering us a second-best solution to the problem, which I am happy to support. If the clause is passed without amendment, we will have witnessed two inflation-busting increases in 12 months, totalling three in 18 months. As a Member of Parliament who represents a very large part of Scotland and a diverse rural constituency, I know that the increases are very damaging to the health of the rural economy. I have listened carefully to, and comprehend, the Government's arguments at different stages in the Bill's passage on why it is necessary to go down such a route to reduce vehicle use and traffic congestion, protect the environment, reduce emissions, and all the rest of it. On Second Reading, I questioned the Chief Secretary on that very point. I asked him what information the Government had at their disposal to suggest that increasing duty on petrol reduced car use. I thought that was a straightforward question. The Chief Secretary replied: The matter has been looked into. If fuel duties are increased, there is a reduction in car use and lower carbon dioxide emissions."—[Official Report, 21 April 1998; Vol. 310, c. 609.] That sounded clear, but, to make sure, I thought that I would ask a written question to get the information out into the public domain. I asked the Chancellor what data he has evaluated indicating that increasing the duty on fuel results in lower car use; and if he will make the studies available in the Library. The Financial Secretary kindly responded: I shall let the hon. Member have a reply as soon as possible. That did not suggest to me that there was compelling evidence in the Treasury to suggest that increasing the cost of petrol resulted in less car use. I am sure that the full answer is in the post. I question the central thrust of the Government's strategy in the clause, which is that increases in the cost of petrol will result in lower fuel use. The arguments are much more closely related to a balanced debate on road pricing, increasing parking charges in city centres such as London, and differential levels of vehicle excise duty in different parts of the country. I do not believe that the Government's approach of increasing duty disproportionately beyond the rate of inflation will work.

Ross Cranston (Labour, Dudley North)

Did the hon. Gentleman also ask the Financial Secretary about the benefits that his constituency will receive from the £50 million a year for bus services for the next three years?

John Swinney (Scottish National Party, North Tayside)

I would not need the Financial Secretary's advice to get my calculator out to start working my way through that £50 million over three years for a number of large and diverse rural constituencies. I got into some trouble in a recent radio debate involving the hon. Member for Gordon (Mr. Bruce), when I suggested that there were no public transport services in my constituency. That was careless, because the next day I received a letter from the Stagecoach bus company telling me how many buses went through my constituency.

David Heath (Liberal Democrat, Somerton and Frome)

The hon. Gentleman's constituency has some similarities to mine in terms of its rurality. Many households need more than one car to go about normal life, because public transport does not exist for them. Does the hon. Gentleman agree that one way of making the imposition fairer on rural areas would be a drastic reduction in vehicle excise duty, with that package being presented to the rural motorist as environmental, but fair?

John Swinney (Scottish National Party, North Tayside)

Such a solution would take account of the differences between areas. Petrol prices in London are substantially lower than in parts of my constituency, such as Blairgowrie, Pitlochry and Forfar. The essential nature of cars in rural communities was outlined by the Scottish Office in 1987, which said: "a car in a remote area may be both highly unreliable and barely affordable but nevertheless essential to survival and any households without a car in remote areas must be at a severe disadvantage." Statistical evidence shows that, on average, 57 per cent. of households in Scotland have one car. In the highlands, the figure is 68.5 per cent.; in Grampian it is 68.3 per cent.; and in the northern isles it is 70 per cent. By my calculations, when above-inflation increases are taken into account, the increase proposed in the Bill means that an average rural car user will have paid about £60 extra a year since 1993. That is about £400 over that period for rural car users—an enormous burden for people who survive on fairly modest incomes, particularly in the current financial climate. Earlier, the hon. Member for Shipley (Mr. Leslie) intervened on the right hon. Member for Wells (Mr. Heathcoat-Amory) and referred to a quotation from 1995. One of the points that I would use to shore up the argument that the right hon. Gentleman made is that, when petrol increases are introduced, the effect on small shops and the price of commodities—which is already higher in rural areas than in urban areas—is severe. That must be appreciated when decisions of this nature are made. I have looked at the information on travel-to-work patterns in rural areas of Scotland provided by Highlands and Islands Enterprise. In the UK, about 9.85 per cent. of people travel to work by bus; in the highlands and islands, the proportion is 6.6 per cent.—showing a further differential in the availability of public transport and the essential nature of the car. The Government have embarked on a route that—as has been drawn to their attention in the Budget debates, at Second Reading and again today—is damaging the rural economy at a time when it is at one of the most fragile stages of its development. I urge the Government to think again and to give greater consolation than the £50 million over three years. [HON. MEMBERS: " fifty million a year."] I stand corrected. If that amount is broken down into individual constituencies—and the type of work required to build effective public transport services in fragile rural areas is considered—it will not take us very far on the bus.

Malcolm Bruce (Liberal Democrat, Gordon)

Is the hon. Gentleman aware that the city of Aberdeen is discussing a possible cross-city commuter railway service, using the existing railway line? It is estimated that that would cost £30 million to £50 million. One project in one city could use the entire amount—and that is a project to bring rural people to work.

John Swinney (Scottish National Party, North Tayside)

The hon. Gentleman makes a valid point, which touches on the impact on cities such as Aberdeen of the growing commuter belts outwith the major cities. The same problem exists in Perth and Dundee. I conclude with some information on comparative petrol prices, which was kindly provided—I could not quite believe the source—by BBC Ceefax in April 1998. This country has the fourth largest average price for unleaded petrol in the EU, and many other countries operate with lower petrol prices. The Government, by pursuing the measures in the clause, are entrenching a problem which is felt by many people—particularly, and most severely, people in rural areas.

David Hanson (Labour, Delyn)

Scotland and Wales.

David Ruffley (Conservative, Bury St Edmunds)

I refer to the hon. Members who are here in their places and not to those who are not.

David Hanson (Labour, Delyn)

There are no Conservative Members in Scotland.

David Ruffley (Conservative, Bury St Edmunds)

Labour Members representing Scotland and Wales are not in their places at the moment; the hon. Gentleman should listen to what I say. The fact remains that many lower-income families have smaller, perhaps quite old cars and are not very wealthy by any means, but they need a car to travel large distances. For example, outlying villages in my constituency—those in the Norfolk-Suffolk borders such Hinderclay and Redgrave—are miles away from any nodal transport. That has always been the case. In that part of high Suffolk, for 50 years public transport has not been as good as perhaps it should have been. I do not imagine that it will be any different under this Government, but that is a hard fact of life. The inhabitants there know that they need cars, sometimes more than one car. It is beyond belief that a Government who believe in governing supposedly for the many and not the few can ignore large swathes of the rural populations in Scotland and Wales.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Will my hon. Friend consider the fact that, if the Government really want to represent rural areas, they should in some way balance the amount of money that they give to rural community bus services with the amount of duty that they raise on petrol?

David Ruffley (Conservative, Bury St Edmunds)

My hon. Friend makes an interesting point.

John Bercow (Conservative, Buckingham)

My hon. Friend's charm and courtesy in giving way are well established throughout the House. Does he agree that, if Labour Members representing rural constituencies are to prove that they are independent spirits and not craven lickspittles of the party leadership, they should be prepared to get up and denounce this vicious attack on country dwellers?

David Ruffley (Conservative, Bury St Edmunds)

My hon. Friend makes a typically robust and eloquent point. Perhaps the Financial Secretary to the Treasury, once she has finished shuffling through her brief, will be able to take note of his excellent point and reply to it in her winding-up speech. What on earth do the Government think they are doing by raising the escalator in this fashion? What do they think that will do to rural communities and to poorer people who rely on cars as a necessity, not a luxury? That brings me to the point that my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) raised in relation to public transport subsidies. The £50 million was a gross insult to rural communities. I know that Labour Members may not have many regional newspapers to which they bother sending Walworth road and Mandy towers press releases, but many of us do take a great interest in what media and newspapers in the shire counties say. They laughed the proposal for £50 million out of court. These are newspapers with no political bias of any description. [Interruption.] If hon. Members think that the East Anglian Daily Times is a party political newspaper, they are more incompetent when it comes to analysing political runes than I thought. These are independent shire newspapers that take a dim view of the rhetoric of governing for the many, not the few, and of the Government's actions in hammering people who are least able to take on board tax increases of the sort that are outlined in the clause.

Ross Cranston (Labour, Dudley North)

Will the hon. Gentleman give way?

David Ruffley (Conservative, Bury St Edmunds)

I happily, but reluctantly, give way to the hon. Gentleman.

Ross Cranston (Labour, Dudley North)

I thank the hon. Gentleman, perhaps reluctantly, but he took the name of my constituency in vain earlier. Before he draws his remarks to an end, will he say something about the environmental impact? He has gone on for almost 10 minutes and has not mentioned the environment once. Does he agree that transport is the fastest growing contributor to carbon dioxide emissions? Is this measure not one step—one step admittedly—in trying to reduce those emissions?

David Ruffley (Conservative, Bury St Edmunds)

As far as I am aware, the Rio targets in relation to carbon dioxide emissions were set under the previous Administration and were well on their way to being hit; indeed, I think that they were hit. Although there is always scope for environmentally friendly taxation, I am not convinced that the case has been made at all for increasing the escalator to 6 per cent. It certainly does not begin to answer the questions that those in shire counties ask about the impact on people who rely on their cars. Many companies in rural and shire communities have fleets of vehicles. They are concerned about the impact that this unjustified tax hike to 6 per cent. and the increase in diesel will have on their businesses. The hon. Member for North Tayside (Mr. Swinney) made a good point about the impact on village shops and village retail. There is no doubt that this pernicious tax hike will affect people in rural areas. I wish that, in the spirit of openness, the Labour party would—if it is going to play with an even deck on this—admit that this petrol tax hike does cause a problem in rural areas, instead of just ignoring it, pretending that things are all right and using warm words. The Government certainly have ambitions for a new Britain. They have ambitions to increase the 6 per cent. even more. Many of the business men I know believe that this is only the start of a smash-and-grab raid in future years. It is 6 per cent. this year. What about future years? Conservative Members know that the best way in which to cap and to stop what could be a remorseless attack, particularly on rural areas, through these tax hikes, is to support the amendment.

Dale Campbell-Savours (Labour, Workington)

I oppose the amendment, because I believe that 5 per cent. is insufficient. I support the Government's position that the figure should be higher.

John Bercow (Conservative, Buckingham)

Six per cent.

Dale Campbell-Savours (Labour, Workington)

Yes, that is higher than 5 per cent. The hon. Gentleman can count. I congratulate him. I should have gone even higher. I want to comment on leaded petrol and the distorting effect on petrol prices arising from the profile of taxation. I drove down the Embankment the other day and stopped at the first filling station. It seems to me that a lot of misrepresentation is going on about fuels and fuel prices nationally. That may arise in part because the previous Government provided in legislation for a commitment to a 5 per cent. increase. Fortunately, we have now removed that commitment. Leaded four-star petrol at that filling station was 73.5p a litre, while super unleaded was 79.5p. As far as the general public are concerned, the reference to unleaded petrol, although it is marked as super, implies that it complies with what we would regard as unleaded criteria. There is a distortion in the way in which such products are being marketed: the public are led to believe that they are buying an unleaded fuel when they are effectively buying a leaded fuel.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Most garages selling super unleaded also sell unleaded, which is more commonly bought by consumers and costs less than four-star.

Dale Campbell-Savours (Labour, Workington)

I understand that, but my point is that super unleaded petrol is regarded by the general public as an unleaded fuel, but it costs 6p more than four-star petrol. Many hon. Members, including myself, will have gone into a petrol station and purchased super unleaded in error, paying 6p more than for four-star leaded, in the belief that we were protecting the environment. The reality is that purchasing the leaded fuel would have done more to protect the environment, because that fuel, as I understand it, is less damaging. A total misrepresentation is going on at fuel pumps throughout the United Kingdom as to what super unleaded petrol is. My appeal tonight is for people to stop buying it; they are being overcharged and it is probably more damaging to the environment than the leaded four-star petrol, which is a substitute petrol.

John Bercow (Conservative, Buckingham)

I am sorry to learn that the hon. Gentleman incurred that additional cost. Is it not wrong to assume that, simply because he has such poor judgment in those matters, the same can be said of his constituents, who are probably altogether more discerning?

Dale Campbell-Savours (Labour, Workington)

If only that were the case. My constituents fall into the same consumer trap. Perhaps they are not blessed with the hon. Gentleman's intelligence. The question of the ceiling and how it is working relates also to diesel. Last week, I spoke about ultra-low-sulphur diesel, which, I am informed, diesel drivers should now use, but which is almost entirely unavailable in the United Kingdom. There are only a few places where it can be bought. I am in favour of as many outlets as possible acquiring the right to distribute it, and selling it at a lower price, but the problem is that they do not have access to it. I have rung garages in my constituency and further afield in Cumbria, and they tell me that it is almost totally unavailable. My plea to the Government is: please get on to the manufacturers and tell them that the public want it, that taxpayers' interests are served by their buying it, and that the interests of the environment are served by their using it. It should be made available as soon as is humanly or physically possible. We know that the pumping facilities exist on the forecourts, and there is no reason at all why companies should not begin the process of switching pumps from diesel to the new low-sulphur diesel. When I allude to one other little reform, I hope that you will not rule me out of order, Sir Alan. I know that I am getting right to the margin of your forbearance. We shall raise additional revenue from the tax increase that is being introduced, and that is welcome for environmental reasons, but there is another way of protecting the environment. We must make sure that people pay: that they get their MOT certificates, pay their road fund duties and insure their vehicles. Why do we not simply have one disc, in three parts, with three different inserts, dealing with vehicle excise duty, MOT and insurance? If we did that, and the date of expiry was marked on each part of the disc, a great number of vehicles, many of which are responsible in the greater part for the pollution that we so deprecate, would immediately be removed from the road. Many vehicles are on the road that should not be. Let us not only raise taxes but enforce measures that already exist, because my view is that we could thereby be more environmentally friendly.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

My view is that the hon. Gentleman just about got away with that.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am glad to hear you say that, Sir Alan, because I want to support what the hon. Member for Workington (Mr. Campbell-Savours) said: there are ways in which we can force some of the polluting cars off the road. I understand that the fines for not having a car properly insured are fairly minimal and that, in some cases, especially for youngsters, whose insurance costs would be significant, they are almost the same as the costs of a decent motor insurance policy. That seems ludicrous, as it offers no incentive to be insured. Increasing the fines might have a similar effect to the proposal of the hon. Member for Workington. I want to cast the Committee's mind back to the incisive and robust speech of the hon. Member for Bury St. Edmunds (Mr. Ruffley). He focused our minds on a key aspect of the debate: the cumulative effect of the increases in fuel duties. We should think of the increases that have already happened in the past 12 months, because, if we add them to the new increases, as he said, the increase in taxation, over and above what was planned by the previous Government, is up to £9 billion. That significant increase was not foreshadowed in the Labour manifesto. Cumulatively, the duty on leaded petrol has gone up by 8.9p and on unleaded petrol by 8.4p. For leaded petrol, that is a 21.4 per cent. increase in less than 12 months. As I understand it, the Government's inflation forecast is about 2.5 to 3.5 per cent. When they increase duty by more than 20 per cent. and claim that the increase is 6 per cent. above inflation on an escalator basis, they seem to be more pessimistic about the prospects for inflation than we have seen in their macro-economic forecasts. The cumulative effect of the two Budgets and two Finance Bills amounts to a swingeing increase. Unfortunately, the conclusion of the hon. Member for Bury St. Edmunds was weak. He maintained that the amendment went far enough towards rebalancing the injustice of the increase. While Liberal Democrats will be supporting the amendment because it is the only show in town, it does not go anywhere near compensating people who will be affected by the large increase. The Government are making the mistake of their predecessors. They are being narrow-minded in their approach to environmental taxation. It is important that we build popularity for environmental taxation and build consensus among the population. We shall do that only if people see benefits from the environmental taxes imposed on them. If we are to encourage people to change their behaviour and support those measures that will change their behaviour, we must give them some incentive and some benefit. 7 pm When the Liberal Democrats impose an environmental levy such as this one, we always propose offsetting measures to protect those on low incomes who have no alternative but to pay the extra tax. We ensure that the environmental measures are revenue neutral and neutral in their effect on the economy as a whole. We have done that rigorously over the years. The hon. Member for Cotswold (Mr. Clifton-Brown) was right when he intervened in the speech of the hon. Member for Bury St. Edmunds. It is important that there are offsetting measures. The Government have proposed two offsetting measures. One is being implemented quickly. They are making available £50 million a year for rural public transport. As other hon. Members have said, £50 million goes nowhere near compensating rural motorists who will be affected by the increase of more than 20 per cent. in 12 months in fuel duty. The money being raised by the Government is in billions of pounds. Seeing that side by side with £50 million shows that the Government do not accept the principle of offsetting measures. That is a great shame. The Government have said that they will consult on a second measure. It is not in the Finance Bill, and that is a great shame. They have said that they are minded to consult on introducing vehicle excise duty at a starting rate of £100 for the least polluting cars. I presume that that consultation will happen later this year. It is a shame that it is being delayed, because compensation delayed is not really compensation for people paying higher fuel duties now. The Red Book merely states that the Government are interested in introducing a reduced starting rate of £100. 1 hope that they will go much further. The Liberal Democrats have argued for some time that vehicle excise duty should be graduated far more than by the suggestions on which the Government propose to consult. We should like vehicle excise duty for the smaller-engined, more fuel-efficient cars to be reduced to just £10 in order to offset the impact of higher fuel duties, especially on rural motorists who need to use their cars and have no alternative. The Government should be taking offsetting measures first before imposing these swingeing increases. The timing is of great significance. The right hon. Member for Wells (Mr. Heathcoat-Amory) mentioned the plight of agriculture and the rural economy as a result of the level of the pound and the problems caused by the decline in the beef industry as a result of the BSE crisis. I accept that the BSE crisis is not the Government's fault. I am happy to agree that the Conservative Government failed to tackle that problem sufficiently, but it has left the rural economy in dire straits. So to impose increases in fuel duty on the rural economy when they will be most directly felt and will have the most swingeing impact—increases of more than 20 per cent. in less than 12 months—is clearly a wrong-headed policy. Liberal Democrats will support amendment No. 12 and vote against clause 7 stand part. In spite of what some Conservative Members have said, the Government have published an environmental assessment of the measures on fuel duty and have given some details of the effect of the increases on the environment. I refer right hon. and hon. Members to page 78 of the Red Book. There is a column on the environmental impact on the reductions in nitrous oxide and various other pollutants. I cannot quite describe it from what is written because it is in scientific shorthand that I do not understand, but the bit that I do understand is where the Red Book states that the fuel duty increases will result in a Reduction of around 3 billion car kilometres". However, there is a note saying: These estimates are subject to significant margins of uncertainty. I am sure they are. [Laughter.] The Financial Secretary laughs, and she is right to do so. The more serious point is that that is all that we have—one page; a little line on those massive increases in duty. I am afraid that that does not go anywhere near meeting the promise that the Financial Secretary made recently. Of the promise of a green book setting out the Budget's environmental consequences, she said: We have every intention of keeping that promise from the first full Budget."—[Official Report, 10 July 1997; Vol. 297, c. 1062.] In Labour's 1994 pre-election environmental policy paper "In Trust for Tomorrow", it made a commitment to a green book. We have not had it in this Budget. That is a great shame. We are not able in this Committee to make a proper analysis of the environmental effects of the Government's measures unless the Government start meeting their pledges. So the Liberal Democrats will vote against the Government on amendment No. 12 and clause 7 stand part because the clause will have a damaging impact on the rural economy, and one that has not been offset by alternative measures. The Government have failed to put before the Committee any serious analysis of environmental impact.

Shaun Woodward (Conservative, Witney)

I am in favour of the amendment because I represent a rural constituency. There is no question but that clause 7 is punitive and cynical and shows that the Government do not understand one bit the needs of rural constituencies. That is the reason for the amendment. The Government do not understand that 75 per cent. of people in rural areas depend on their cars to go to work. They do not understand that rural people have to travel 50 per cent. further than people who live in towns, and that they depend on their cars. Cars for those people are a necessity, not a luxury. The Government made much of the process of public consultation before the Chancellor's statement. Yet again, that reveals that they are a cynical Government with a cynical practice of public consultation. Had the Chancellor come to my constituency and taken the opportunity to consult businesses in the rural area, he would have seen a survey that we conducted of 300 small businesses. Of those 300 businesses, 97 per cent. told us that they disapproved of the increases last July. The Chancellor would also have discovered that, when asked whether they thought that a 5 or 6 per cent. increase was right, only 1 per cent. of those businesses agreed.

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman give way?

Shaun Woodward (Conservative, Witney)

I shall give way in a moment. When they were asked whether they thought that the increases would be bad, neutral or good, 94 per cent. said that they would be bad.

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman give way on that point?

Shaun Woodward (Conservative, Witney)

The hon. Gentleman will have an opportunity in a moment. Why have the Government imposed that increase, which will hit the elderly, poor and sick in my constituency?

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman give way?

Shaun Woodward (Conservative, Witney)

In a moment. I wish to make some progress. My constituency contains three community hospitals—Burford, Chipping Norton and Witney. The Government, who promise great things on the health service, are to close Burford hospital. The people who use it will have to travel 11 miles to Witney hospital, and those who live in rural areas will have to pay extra money to get there. The Government propose to close 25 per cent. of Witney hospital's beds, so people will have to go on to Oxford. That is a tax that will hit the sick, the vulnerable and those who live in rural areas.

Chris Leslie (Labour, Shipley)

I am grateful to the hon. Gentleman, who is so generous in giving way. He mentioned a survey, which I am sure was statistically and methodologically correct, about the opinions of rural businesses about a 6 per cent. increase in road fuel duty. Did they give an opinion about the 10 per cent. increase in road fuel duty in 1993 which was introduced by Norman Lamont, the former Chancellor?

Shaun Woodward (Conservative, Witney)

I am grateful to the hon. Gentleman for his question, because we made it clear that the road fuel escalator was a constructive tax, so long as the market could plan for it. The difference between the previous Government and this one is that this Government are cynical tax-grabbers who have introduced two increases through the road fuel escalator in 12 months and who are interested only in grabbing money from people's back pockets, front doors and back doors, and now from their car doors.

Nick St Aubyn (Conservative, Guildford)

Does my hon. Friend recall that the previous Government increased petrol duty against a background of significantly falling oil prices? The Government are introducing larger increases when oil prices have bottomed out.

Shaun Woodward (Conservative, Witney)

My hon. Friend is exactly right, and it is interesting that the hon. Member for Shipley (Mr. Leslie) has not sought to intervene again. Perhaps he has learnt the lesson that he needs to learn.

Chris Leslie (Labour, Shipley)

I listened carefully to the hon. Gentleman's point and should like an answer. Norman Lamont, the former Chancellor, increased road fuel duty by 10 per cent. in 1993. Was it useful in achieving the hon. Gentleman's objective of helping rural areas?

Shaun Woodward (Conservative, Witney)

I am grateful to the hon. Gentleman for asking his question again, because he clearly did not hear what my hon. Friend the Member for Guildford (Mr. St. Aubyn) said. When hon. Members intervene to make what they perceive to be clever comments, they must consider them in context. As my hon. Friend the Member for Guildford said, if Labour Members examined the overall fall in the price of oil and pump prices at petrol stations, they would realise that the Chancellor is hitting the poor, the sick and people in the countryside. The Government do not care about them.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman mentioned the price of oil. Will he comment on BP's reduction of its pump price, which acknowledges the falling price of oil? That did not happen in 1993.

Shaun Woodward (Conservative, Witney)

The Financial Secretary makes a valid observation—BP responded to a request from the Chancellor. At a time when petrol prices have been cut in rural communities, it is kind of him to shove petrol prices up left, right and centre. The Institute of Fiscal Studies has studied a sample of households to discover what the effect of the tax would be. The Government claim to protect the poor, but the IFS has shown that the wealthy will not suffer, because there will be only a 1 per cent. cut in their average living standards. The income of the poorest 10 per cent. will be cut by 2.25 per cent. by this increase alone—so much for a Government whose rhetoric claims that they care about the poor. The measure is taxation by a Government who promised throughout the election campaign not to raise taxes. They have taken another opportunity to hit the British public in rural communities as hard as they can, which shows that they have no understanding of the needs of the rural economy and people who live in rural areas.

Geraint Davies (Labour, Croydon Central)

What a load of toffee we have heard from Opposition Members. I draw their attention to an authoritative study published on 3 March, which compared the cost of travel by different modes of transport between 1974 and the present day. The cost of travelling by train has gone up by 68 per cent. and the cost of travelling by bus has gone up by 57 per cent., but the cost of travelling by car has gone down by 7 per cent. The Opposition spin the line that the marginal increase in petrol cost for cars will spiral the economy down into recession and hurt the rural poor. It is complete rubbish.

John Swinney (Scottish National Party, North Tayside)

rose—

Shaun Woodward (Conservative, Witney)

rose—

Geraint Davies (Labour, Croydon Central)

I shall give way in a moment, but only after I have provoked three hon. Members at once. The Government are setting off on a path of environmental sustainability with an holistic view of economic competitiveness in the global economy. Within that wider context, and given that a transport White Paper is forthcoming, the changes should not be interpreted by Conservative Members in such a farcical way.

John Swinney (Scottish National Party, North Tayside)

I am grateful to the hon. Gentleman, who knows that I represent a large rural constituency. I tell him the truth—petrol prices are higher there than in urban areas. He quotes average figures showing that the cost of motoring has come down by 7 per cent., but he must understand that it has come down by more for some people, primarily those in urban areas, and by much less for people in rural areas, who have no alternative to public transport. Will he reflect on the toffee that he is talking?

Geraint Davies (Labour, Croydon Central)

The hon. Gentleman is obviously not a statistician. There is a difference between regional differentials and average rates moving down. At all times there has been a higher price in the countryside, but for virtually everyone there has been a reduction of 7 per cent. in the cost of car use which is geared into the technology of new cars and the depreciating costs of old cars as well as the average cost of fuel. The Government took a balanced approach in the Budget, which refocuses the burden of taxation on usage rather than on ownership, in the interests of maintaining jobs. A more sophisticated incentive scheme towards sustainability will emerge as the strategy develops. Graduated excise duty will achieve preferential treatment for clean fuels and for clean vehicles, and I hope that there will be more incentives for gas-powered vehicles as part of a wider strategy. Conservative Members shake their heads, but there are 1 million gas-powered cars in Italy and only 4,000 in this country because the previous Government failed to lead the market by setting up a system of incentives in a context within which the economy could adjust to be competitive and environmentally sustainable. We do not have all the information, because we await the launch of the transport White Paper by my right hon. Friend the Deputy Prime Minister, who will put the issues in the wider context discussed at Kyoto. I support the Government's position. The amendment is myopic and pedestrian, and should be rejected.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I support the amendment. The increase through the escalator is a real increase, over and above inflation. The Government's helpful notes on clauses say that this measure alone will increase inflation by 0.28 per cent. Over 10 years, the pure compounding of the inflator will result in an increase of 3.3p per litre; and the actual increase in hydrocarbon duties of 4.4 per cent. a year gives a 44p per litre increase. Adding to that the increase in VAT take—VAT goes on top of the increase in hydrocarbon duties—means that the tax regime that the Government have established for petrol will amount to a staggering 50p a litre over 10 years. The measure will have a disproportionately injurious effect on certain classes of the community—I am thinking particularly of the low-paid, Mr. Deputy Speaker. It is all very well for us and other groups in the public sector and elsewhere who are able every year to get pay increases that nearly match the rate of inflation; but for those who are low-paid or pensioners, whose incomes do not increase with inflation, it is an especially savage measure. In my rural constituency, Mr. Deputy Speaker, that inflator—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman should remember that we are in Committee and that I should not be addressed as Mr. Deputy Speaker.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I apologise, Sir Alan. I should know better. The increase of the inflator will have a disproportionate effect on those groups in society who are unable to make up their income to an indexed level. My hon. Friend and neighbour, the Member for Witney (Mr. Woodward), made the point especially well that, to those in rural areas—particularly pensioners and those who are low paid or disabled—the car is not a convenience but a necessity. The Government should think carefully about the regime that they have put in place. I wish to make one or two points about the environmental effects, Mr. Deputy Speaker, as the Financial Secretary is bound to crow about that aspect when she answers the debate. Some of the claimed environmental effects are dubious, as are the figures on page 75 of the Red Book. I shall ask Sir John Bourn, the Comptroller and Auditor General at the National Audit Office, to use his new powers and new methodology to examine the figures and determine whether or not they are accurate. I suspect, Mr. Deputy Speaker, that those figures are mainly based on the fact of improved technology. Major reductions in carbon dioxide and nitrogen dioxide emissions have come about in the past few years through improved technology such as lean-burn engines and catalytic converters; the reductions have little or nothing to do with fiscal instruments introduced by the Government. The hour is late, so I shall make only one more point, which is the competitive effect of the inflationary increases on heavy goods vehicles. In coastal areas, we shall find hauliers who have come from the continent with large spare tanks that were filled up on the continent; inland, they will have an unfair advantage over domestic hauliers because of the duties and increases that the Government have wrongly introduced in the Budget. That is why I shall support the amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I hope that, with the assistance of the editors of the Official Report, the hon. Gentleman will be able to delete all references to Mr. Deputy Speaker, which he continued to make throughout his speech.

Dawn Primarolo (Labour, Bristol South)

This has been a long debate and, with your guidance, Sir Alan, I should like to deal with both the amendment and the substantive clause in one go, if that would be in order. The hon. Member for Cotswold (Mr. Clifton-Brown) referred to what he thought would be the likely impact on the retail prices index. I refer him to the answer given in Treasury questions last week, which gave the figures from 1990 on the impact of the escalator and fuel price rises, including the figures relating to the 10 per cent. increase imposed by Norman Lamont, to which my hon. Friend the Member for Shipley (Mr. Leslie) referred. Those figures do not bear out the hon. Gentleman's calculations.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Will the Financial Secretary give way?

Dawn Primarolo (Labour, Bristol South)

I should like to make some progress. This has been a long debate and hon. Members are keen to discuss other clauses.

Geoffrey Clifton-Brown (Conservative, Cotswold)

On a point of order, Sir Alan. I quoted the inflationary rise from the Government's own notes on clauses. Paragraph 12 of the notes on clause 7 states that the impact of the increase on inflation is 0.28 per cent.—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman knows that that is not a point of order for me.

Dawn Primarolo (Labour, Bristol South)

Perhaps the moral of this story is, give way and so avoid a spurious point of order. The whole point of the Budget, including the increases under clause 4, was that it would be good for Britain. An overwhelming 53 per cent. of the population agreed; they accepted the principles that are now enshrined in the clause. My right hon. Friend the Chancellor is the most popular Chancellor ever after a Budget—Conservative Members obviously lament their failure to achieve such a record in government. By far the largest number of submissions to the Government in response to the pre-Budget report were in connection with the environment. Those submissions encouraged the Government to make progress on environmental protection, and especially on achieving our targets on carbon dioxide emissions. Opposition Members clearly did not want to refer to the fact that the Kyoto agreement will be legally binding on us. It is an international agreement whereby we have to achieve a reduction in carbon dioxide emissions, and the clause is part of our strategy to do that.

Malcolm Bruce (Liberal Democrat, Gordon)

Will the Financial Secretary give way?

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman chose not to speak in the debate; I shall give way to him later if there is time, but, in fairness to hon. Members who did participate in the debate, I should address their points. My hon. Friend the Member for Workington (Mr. Campbell-Savours) spoke about market definition in respect of super unleaded, but he appears to have been misled by the name of that product. He is right to say that there is a higher duty level on super unleaded, but that is because of the damage caused by the much higher benzine emissions. Super unleaded is used by a very small section of the community and is being phased out, as is leaded petrol. My hon. Friend went on to refer to the availability of ultra low-sulphur diesel—

Geoffrey Clifton-Brown (Conservative, Cotswold)

Will the Financial Secretary give way? She is wrong again.

Dawn Primarolo (Labour, Bristol South)

I give way.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Financial Secretary might not have understood her brief. The higher the lead levels in petrol, the lower the benzine levels, so super unleaded has a lower level of benzine than ordinary petrol.

Dawn Primarolo (Labour, Bristol South)

I am clear on the fact that super unleaded contains more carcinogenic compounds. If the hon. Gentleman would care to debate the point with me in the Tea Room tomorrow morning, after I have been to the Select Committee on the Environment, I should be happy to oblige. My hon. Friend the Member for Workington went on to refer to the availability of ultra-low-sulphur diesel. He is right to say that the Government's strategy of increasing the differential is designed to encourage wider availability of ultra-low-sulphur diesel. However, there has already been improvement: the Sainsbury supermarket chain, which started making ultra-low-sulphur diesel available in response to the previous Government's introduction of the mechanism, now provides it at more than 200 petrol stations and plans to extend that. Obviously, the Government are keen to ensure the availability of that product. Elsewhere in the Bill, the Government have tightened the definition of ultra-low-sulphur diesel to ensure that the Bill delivers on the environmental objectives that we set out. The general tenor of the debate seems to be, on the one hand, to complain that the Government have increased the fuel escalator and, on the other, to complain that we have not, and that we are not doing enough, quickly enough, to deal with CO2, emissions and to deliver on the environmental commitments that the Government have and were elected on. For every argument that the escalator is too high at 6 per cent., others are advanced by the environment lobby, to the effect that it is not high enough and that more rapid progress is needed. The Government have sought to strike a balance, so that we deliver on our commitments on CO2, reductions and study the fuels and their emissions to make progress on urban air quality as well as on CO2, emissions. 7.30 pm Several hon. Members said that there should be a reduced vehicle excise duty rate for rural areas alone, to recognise dependence on cars in rural areas because of the lack of public transport. A specific reduction for rural motorists would be incredibly expensive and cumbersome to administer within the system, but wide open to abuse, because other people could register in rural areas. The Government took the view—confirmed in today's announcements by my right hon. Friend the Minister of Transport—that we should invest in a transport fund for rural areas. Hon. Members may complain that that is not enough, but it is a huge increase on the money made available specifically for rural transport projects under the previous Government. The previous Government made available only £1 million. For all their concerns and worries about rural communities, and despite the fact that they had a 5 per cent. escalator—as opposed to our 6 per cent.—they made available only £1 million for rural initiatives, and now they have the cheek to say that we are not doing enough. As many hon. Members said, car owners buy approximately the same amount of fuel regardless of where they live. We have sought to ensure that all car users are making a contribution to the attainment of our environmental objectives. The United Kingdom is taking a lead internationally in promoting action to reduce greenhouse gases, and duty must be a vital element in that strategy. We have put forward, in the Budget and in the Bill, a duty rate regime that recognises the damage that leaded petrol does, and increases pressure against its use. It recognises the damage that diesel does to the environment, and the need to encourage ultra-low-sulphur diesel, and therefore to adjust the duty rates for those two fuels. We have ensured that gas oil and heavy fuel oils have increased by the same percentage as petrol and diesel. Duty for fuel gases is frozen again. We are considering commitments to introduce a vehicle excise duty regime that encourages people to have smaller vehicles which are more efficient, less polluting and better for the environment. That consultation is proceeding, but it takes time. When there was criticism of the escalator, the previous Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), said: Any critic of the Government's tax plans who claims also to support the international agreement to curb carbon dioxide emissions will be sailing dangerously near to hypocrisy."—[Official Report, 30 November 1993; Vol. 233, c. 939.] Post Kyoto, to deliver on our commitments, we need to increase the escalator to deliver the cuts in carbon dioxide. We were asked whether it would have an effect. Institute of Petroleum figures show that, in the first nine months of 1997, inland demand for petrol fell. It did so only slightly, but it fell, and the escalator is feeding through into results. The Government have ensured that the increase in the escalator is part of our environmental objective, and that we have a twin strategy to tackle the problems of transport in rural areas. Amendment No. 12 does not live up to the Conservatives' professed commitment to the environment. They have not told us how they would achieve the necessary reduction in CO2 emissions if the amendment were accepted. Simply, they must decide whether they want to be committed to the environment and the difficult decisions that must be taken to deliver on that commitment, or whether they want to continue to make cheap political points across the Chamber. I had hoped that, given Conservative Members' commitments to the environment when they were in government, they might recognise the importance of this measure in the Government's strategy. I ask the Committee to reject the amendment, not only because the revenue lost to the Government would be crucial, but because—most important—it would undermine our commitment to reach our CO2 emission target, a Kyoto target which is steep, and, under the Government's commitment to the 20 per cent. reduction in particulates, very demanding. The strategy must start now, and clause 7 makes that start. I urge my hon. Friends to reject the amendment and to support the clause.

Malcolm Bruce (Liberal Democrat, Gordon)

As the Financial Secretary was not willing to give way to me, I thought that I would speak briefly on the issues. The Government appear to be making a strong case for increasing the tax in order to deliver what they regard as environmental benefits. It has been powerfully argued that many people in rural areas have no alternative to using the car, so they are obliged to pay more and continue to create the same amount of emissions. The Financial Secretary well knows that transport initiatives between towns and in cities are needed to reduce those emissions, and that, if the extra revenue were diverted to such initiatives, it would make a much more substantial contribution than it will if it is pocketed by the Treasury. In the unamended version of the Red Book, it was projected that, by the year 2002-03, the escalator effect of the petrol increase would take the Government's receipts as a percentage of gross domestic product to more than 40 per cent.—the highest, apart from one year, that we would ever have achieved. Two questions hang in the air. First, if the Government are so keen on the environmental benefits, why are they not using the money for the necessary transport? Secondly, if they are arguing that they need the revenue, how come they are finishing the year in which the forecast public sector borrowing requirement of the previous, Conservative, Chancellor was £19 billion in the red, and the out-turn is just under £1 billion? The Financial Secretary tells us that the Government are desperate for the revenue. Obviously, the position is improving, and the Government are simply taking more taxes from the taxpayer, neither offsetting them with tax cuts elsewhere nor delivering measures that would provide real help for people, many of whom have no alternative to the car. We support amendment No. 12, because the Government must balance their claim that fuel duty is a green tax with real green measures, which will bring about the desired changes; and, potentially, they must offset a reduction in taxes elsewhere for the very substantial extra revenue that they are enjoying.

David Heathcoat-Amory (Conservative, Wells)

It is obvious from the Financial Secretary's response to the debate that this tax-raising measure has little to do with protecting the environment and everything to do with increasing the Treasury's tax revenues. The Financial Secretary has failed to answer our questions about the environmental consequences of the tax increases and the perverse incentives that are being introduced that could, in some cases, damage the environment. She has broken her promise to bring forward an environmental Green Book with the Budget statement. It is up to the Opposition to protect the British people and British industry from a wholly unnecessary and damaging £9 billion tax increase during this Parliament from the increase in road fuel duties alone. The measure will raise taxes, damage competitiveness and hit all of those who rely on transport. I urge my right hon. and hon. Friend and others to support the amendment.

RATES OF TOBACCO PRODUCTS DUTY

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 13, in page 5, leave out lines 24 to 30 and insert— '1. Cigarettes An amount equal to 22 per cent. of the retail price plus £75.46 per thousand cigarettes. 2. Cigars £112.62 per kilogram 3. Hand Rolling tobacco £87.74 per kilogram 4. Other tobacco products £49.52 per kilogram.'. Tobacco is subject to wholly unnecessary extra taxation in this massive tax-raising Finance Bill. Many of the arguments that I might deploy are similar to those that we used in the earlier debate on beer duty, so I shall not go into them in detail, but I shall allude to them. The same phenomenon of cross-border shopping, combined with escalating illegality, occurs in the smuggling of both alcohol and tobacco. Again, there is evidence of increasing illegality, which is of great concern to the trade in general and smaller tobacconists in particular. All hon. Members who are in touch with trading interests in their constituencies will have been approached in recent weeks by representatives of the legitimate trade. Traders feel threatened and their businesses are undermined by an escalating tide of illegally supplied tobacco goods. Estimates are inevitably somewhat speculative. The trade quotes a Customs and Excise figure of £690 million having been lost last year to tobacco smugglers. That figure comes from a written reply in Hansard on 17 February 1998 at column 528, so it has certainly been quoted by Ministers. The trade points out that the true figure could be a great deal higher, but, by definition, what is illegal is difficult to measure. Evidence comes not only from cigarette sales, but from the prevalence on our streets of brands of hand-rolling tobacco that are not legally on sale in this country. There is a brand called Drum, as I recollect from my time in the Treasury, which, as far as I know, is not retailed under that name in this country. Of course, it is possible that smokers legally and legitimately buy it overseas and bring it back, but I am afraid that the bulk of it comes in illegally, as it is easy to compress, hide and smuggle, and it is then resold as contraband. Another feature of the tobacco tax is that it is not just a matter of known smuggling at ports and airports. There is also a worrying persistence of large-scale duty frauds. That does not involve people stuffing a few packets of cigarettes or hand-rolling tobacco pouches down their trousers and walking through customs; it involves sophisticated gangs who are manipulating a product, the cost of which, when it is legitimately sold, is more than three quarters duty. When the majority of the retail price is made up of duty, that is an invitation to people to take advantage of the situation fraudulently. That can take the form of cigarettes or tobacco designated for export, on which duty is therefore not paid, finding their way back on to the home market. Recently The Times reported a haul of 18 million cigarettes, which was intercepted by Customs and Excise investigators at Heathrow. According to the report: The cigarettes were originally bought for export without duty being paid. Instead the smugglers planned to use the European Union's liberal freight transit controls and a paperwork fraud to divert them on to the domestic market… The result would have been a loss of more than £2.5 million in taxes… Customs intelligence officers say that gangs have abandoned smuggling drugs such as cannabis and started cigarette operations, because the penalties if they are caught are far lower and the profits are still good. The trade is therefore characterised by two features: smuggling by individuals and small gangs in vans, and large-scale fraudulent operations by sophisticated gangs. Together, they cost the Revenue large sums and undermine the legitimate trade. The position is getting worse. Not only are the Government putting up duty, but, as noted in our previous debates today, the strong pound has made it that much cheaper to buy abroad. The trade not only affects the legitimate business, particularly small, high street traders, but has a damaging effect on children. When the cigarettes and tobacco are sold in an uncontrolled market, there is, by definition, no control over who buys them.

Michael Spicer (Conservative, West Worcestershire)

Before my right hon. Friend leaves the subject of smuggling, is he aware of what is happening in other countries? In Sweden, smuggling has become so bad that, having tried massive indirect taxation on tobacco, the Government have now reduced taxation by 27 per cent. as a direct response to smuggling. I understand that Denmark is thinking of following suit. I hope that my hon. Friend will ask why the Government are not contemplating that, instead of the minor action that they are taking to stop smuggling.

David Heathcoat-Amory (Conservative, Wells)

My hon. Friend is right. He may have seen the report in the Financial Times on 15 April that Sweden has cut its excise duty on tobacco products by 27 per cent., precisely because it is threatened by cheap imports from its neighbours. We cannot realistically expect other European countries to increase their tobacco duties and close the gap between their rates and ours, as they are threatened by even cheaper supplies, typically from eastern Europe or the Mediterranean countries. British Ministers sometimes ask countries with lower tobacco duties, such as Germany, to raise them for health reasons and as a useful source of revenue if, for instance, they are trying to comply with the requirements of the Maastricht treaty on the single European currency. They get the response, "We would like to, but we can't, as it would create in our country exactly the same problems that you face from smuggling and cross-border shopping." There are severe constraints on member states and other countries caused by cross-border shopping and the prevalence of smuggling across what are increasingly open borders. Those who understand market economics realise—and even welcome—the discipline imposed by those constraints. The penalty that is borne by high-tax countries is much more effective than enforced harmonisation by the European Commission or anyone else. If we step out of line, we pay a penalty through loss of revenue caused by cross-border shopping and increased illegality through smuggling. That is what is happening in Britain. The Government are making a bad situation worse by ratcheting up the duties in pursuit of revenue, despite the evidence of the damage that is being caused. Before the Government took office, they were apparently aware of that. In an earlier debate, I referred to the Prime Minister's pledge, as Leader of the Opposition, to conduct an urgent, independent and comprehensive study of the issue. However, the Government have not honoured that pledge. Customs and Excise has conducted a review, which the Government are keeping secret, on tobacco and alcohol smuggling, but it has not been published; so it is not the urgent, independent and comprehensive study that was promised; it is a serious broken promise by the Prime Minister. Will the Financial Secretary make available the report by Customs and Excise? If she is unwilling to do so, will she say why, as it flies in the face of all the assurances from the Government on taking office that they wished to be open and give the public a right to know, that they had nothing to hide and wished to generate a well informed public debate? If they are sincere about that, the very least that they can do if they are not prepared to keep their pre-election promise of an independent review is to publish the one that has already been conducted by part of the Minister's Department. Who will pay for the extra taxation on tobacco? An interesting ' study has been carried out by London Economics, a group of economists who have taken evidence, assembled information and published a review on the incidence of tobacco duty. It reveals a marked regressivity about the tax. The report comments on the fact that increasing tax has a deterrent effect on smokers. I always knew that, but I had not realised the extent of it. That is intuitively rather obvious. It points out: It is mainly the better off (the top thirty per cent of householders by income) who have given up tobacco"— presumably for other social reasons and pressures. The less well-off have not done so. The report comments that the tax is "extremely regressive" and becomes more so with each increase in duty. The report includes research based on the family expenditure surveys for 1995–96 and 1996–97, and reveals that, in the latter of those two financial years, the poorest ten per cent of United Kingdom households spent almost 14 per cent. of their income on tobacco taxes whilst the richest 10 per cent. spent less than half per cent. The survey includes non-smokers. If one concentrates entirely on those who smoke, the figures are rather startling. The data suggest that the poorest ten per cent of smoking households spend as much as a quarter of their income on tobacco compared to a little more than one per cent for the richest. The report estimates that savings to consumers from the one-off reduction in VAT on fuel, from eight per cent to five per cent"— we hear about that constantly from Labour Members— may have been cancelled out by the first of the planned five per cent real annual increases in tobacco duty. Not only are the Government taking back what they have given, but they will do so every year, while the reduction in VAT on fuel was a one-off measure. Perversely, they are encouraging smuggling in a way that does the most damage to the poorest people we represent. Presumably that worried the Financial Secretary in opposition when she said on 23 January 1995: We have made clear our views on the health aspects on curtailing smoking and encouraging people not to smoke, but taxation is not the way to do that."—[Official Report, 23 January 1995; Vol. 253, c. 106.] At that time, she did not feel that ratcheting up taxation on tobacco was a good way of achieving a health objective.

Chris Leslie (Labour, Shipley)

During that debate on 23 January 1995, the right hon. Member for Wells (Mr. Heathcoat-Amory) said:

David Heathcoat-Amory (Conservative, Wells)

That is exactly what I said a few moments ago. Had the hon. Gentleman been listening, he would have heard me quote from a report that reached exactly that conclusion, although it pointed out that price rises had a much greater effect in deterring smoking in better-off households than in poorer households. I am willing to repeat what I said when the hon. Gentleman was nodding off: it is obvious that, if one increases the price of something, people will buy less of it. That is not a particularly remarkable observation. However, the increase does the most damage to poorer households. I am sure that the hon. Gentleman must have constituents on very low incomes who are hit in precisely the way that I described. The measure is flying in the teeth of a serious law and order issue, whereby smuggled tobacco is resulting in uncontrolled sales to minors, in pubs and clubs and on street corners, and illegally to small tobacconists who sometimes cannot resist the opportunity to buy cheap supplies. All that must worry the Government, who, at least nominally, are committed to law and order. Our amendment reduces the increases back to 3 per cent. in real terms. I am fully aware that the difference between 3 and 5 per cent. will not cause the difficulties that I have outlined to evaporate, but we are approaching breaking point, and that is why a review is important and why it is disappointing that the Prime Minister's promised review has not taken place. Meanwhile, I urge that the Committee revert to the previous escalator, which will at least avoid the more damaging implications of the Government's present policy.

Chris Leslie (Labour, Shipley)

Listening to the right hon. Member for Wells (Mr. Heathcoat- Amory), one might forget that smoking kills people and that the rate of death and disease from smoking is far too high and needs to come down. It is essential that people, particularly young people, are deterred from smoking, and we must try to find ways of ensuring that tobacco consumption is reduced. The new Government's commitment to the 5 per cent. escalator annually is extremely welcome. In 1993, the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke) said that the tobacco duty escalator is the most effective way to reduce smoking."—[Official Report, 30 November 1993; Vol. 233, c. 939.] The higher tobacco duty escalator is widely accepted, certainly in my constituency—I have had no representations opposed to the 5 per cent. escalator—as necessary in the wider public interest for health and public protection. If we can stop people smoking, we can consider redirecting resources currently used within the NHS for treating tobacco-related illnesses to other health care priorities. This fiscal measure is central to the Government's approach to public health and protection. In 1994, the then Minister of State, Department of Health, the right hon. Member for North-West Cambridgeshire (Sir B. Mawhinney), pointed out: every 10 per cent. increase in price— of tobacco— produces about a 3 per cent. to 6 per cent. decrease in consumption."—[Official Report, 11 February 1994; Vol. 237, c. 617.] That is an important example of cause and effect. One cannot compare VAT on fuel with tobacco duty, because heating is good for people and tobacco consumption is bad. The right hon. Member for Wells was wrong in that regard. The annual escalator is a serious and strong deterrent. It is not an astronomical amount. It is a fair but firm amount, and it strikes the right balance in preventing the smuggling of excessive amounts of tobacco. There are more effective ways of dealing with that issue. In particular, the Government can reinforce the work of Customs and Excise and its officers while discouraging people from this harmful habit. Conspicuous by its absence from the contribution of the right hon. Member for Wells was the cost to the Exchequer of the Opposition's amendment. The House of Commons Library tells me that £180 million would have to be found from public finances if the amendment were accepted. We hear nothing about where that money will come from. Would the Opposition cut public services, or raise taxes in another way?

David Heathcoat-Amory (Conservative, Wells)

I am a little disappointed that the hon. Gentleman is raising this matter again, because I answered him earlier. The amendment simply marginally reduces the impending surplus, which is beyond what even the Government expected in the current financial year. Therefore, there is no need to find expenditure from elsewhere in the Government's programme.

Chris Leslie (Labour, Shipley)

The right hon. Gentleman is effectively saying that he would borrow more money.

David Heathcoat-Amory (Conservative, Wells)

No, it will come from the surplus.

Chris Leslie (Labour, Shipley)

If we get into surplus we can consider that, but effectively the Opposition are looking at putting that amount on the PSBR. We have heard nothing from the Opposition about how they will make up that lost revenue. The amendment is poorly thought out and, moreover, it is not in the interests of public health and the wider need to protect people's health throughout Britain.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Member for Shipley (Mr. Leslie) makes a telling point. Conservatives call for reductions in taxes on tobacco and beer. When they produce a costed set of accounts to put before the country, we shall be interested to see whether they include these policies—and to know the British people's reactions to those priorities. The Liberal Democrats were highly critical of the Government during the previous debate, but the Government have got clause 10 about right. The right hon. Member for Wells (Mr. Heathcoat-Amory) talked about smuggling, and we heard about that in an earlier debate. It is clear from the figures for revenue lost and revenue evaded that one of the major problems is the smuggling of hand-rolling tobacco. 8.15 pm The right hon. Member for Wells did not discuss the Government's proposals in that regard, but the Government have, rightly, frozen duties on hand-rolling tobacco, and that is pertinent to our earlier debate when the hon. Member for Beckenham (Mrs. Lait) questioned the source of my figures. I can give the detailed reference for them. They were from a press notice issued by HM Customs and Excise on 26 September 1997 entitled "Smuggling of alcohol and tobacco". The breakdown of those figures makes it clear where the real problem lies for Customs and Excise. The £950 million that has been referred to today is made up primarily of losses on smuggled hand-rolling tobacco. In 1997, £540 million of revenue was evaded and £540 million lost. Of £950 million, more than half is accounted for by the smuggling of hand-rolling tobacco. Contrary to what we have heard from Conservative Members, the Government are freezing duty and cutting in real terms the excise duties on the products that are the focus of smuggling activity. I applaud the Government, therefore, because they have got the measure about right. In comparison, the loss resulting from the smuggling of cigarettes and other tobacco products is £145 million. That is a significant amount; it is a worry and Customs and Excise needs to be more effective in tackling that loss. If one compares that loss of £145 million, however, with the loss of £540 million from hand-rolling tobacco, it is clear that the Government have analysed the problem and put forward a sensible solution. Therefore, the Liberal Democrats will support clause 10 and oppose the amendment. However, we hope that the Government will rigorously analyse the workings of Customs and Excise. I shall not detain the Committee by repeating my earlier argument, but it is probably even more important with regard to tobacco than to alcohol products. The hon. Member for Shipley referred to the link between tobacco duties, and health. If anything, we would have supported the Government in further increasing tobacco duties with the one caveat that the resources thereby raised should be earmarked to go directly into the health service. That might have breached the spending limits inherited from the previous Government, but my constituents, and the constituents of many Labour Members, would not have worried about that. They would have welcomed extra cash for the health service, because it would have brought down waiting lists. Every week, I receive letters from constituents, many of them elderly, who are being told by Kingston hospital that they will have to wait a little longer for their operation. The staff at Kingston hospital are working their hardest to reduce those waiting lists—and I congratulate them on their hard work—but, despite their best efforts, the lack of cash and the cuts, inherited from the previous Government but nevertheless severe, are affecting the standard of living of my constituents who are having to wait many months for operations for conditions that are causing them great pain. If the Government had proposed to increase tobacco duty even more than they have done, and had put the money straight into the health service to tackle waiting lists, they would have had even more support than we are prepared to give them. Their overall strategy is right, but if they want to find other measures to solve public spending problems—although, with the massive war chest that they are amassing, there cannot be too many such problems, and they could have found resources elsewhere—they could use that route to try to sort out the mess in which the Conservatives left the national health service.

Jacqui Lait (Conservative, Beckenham)

I am somewhat uneasy in this debate on tobacco because I am not a smoker—I loathe smoking—and I believe that the most effective policy is a high tax policy. The problem is that the level of smuggling and bootlegging means that we do not have a high tax policy. Trying to get organisations such as Action on Smoking and Health, and the Government, to recognise that we do not have such a policy is a bit like beating one's head against a brick wall, but I will continue to do so in the hope that eventually the penny will drop. I am concerned that the Treasury does not grasp the scale of the problem. The Financial Secretary is aware, because she answered them, that I have tabled a series of questions on tobacco and alcohol smuggling and bootlegging. I was chilled by the apparent lack of interest in grasping the problem. I have asked questions about what action the Government are taking in their EU presidency to try to end the subsidy to tobacco farmers and what progress they are hoping to make in ECOFIN. I have also asked Departments to estimate the number of people whose benefits have been withdrawn because they were found to be smuggling and bootlegging. I have asked the Driver and Vehicle Licensing Agency what has happened to licences, and cars and vans involved in smuggling and bootlegging. I have asked how many licences have been withdrawn from licensed premises because they were retailing smuggled and bootlegged goods. I accept that not all those issues are the responsibility of the Financial Secretary, but answers have come there none, so it is difficult for the Treasury, let alone the poor Back Bencher, officially and graphically to describe the effects of smuggling. I found in the Red Book an interesting point, which I followed up with a question to the Financial Secretary, about the forecast excise receipts. They showed that, for both alcohol and tobacco duties, the Treasury was expecting a reduction in income of £100 million in each case. I sent the Financial Secretary a note asking whether she could explain that, and answer has come there none, so perhaps the Treasury does not understand what is happening. Other organisations—for example, customs, which is on the front line—know exactly what is happening and are trying hard to cope. An incident in Dover in October was reported in the Sunday Mirror, which said that Customs made a raid in which the bootleggers fled as £70,000 of illegal booze and cigarettes were seized. But after a heavy drinking session at a nearby pub, the gang returned … and tried to get their haul back. 'We were cataloguing everything we had seized, when the smugglers stormed the place,' said one Customs official. The history of smuggling and bootlegging immediately brought to mind a parallel situation in 1747, when smugglers tried to regain bootlegged goods in the Poole customs house. We are reverting to what happened 200 years ago, and there are strong parallels to show what should be the proper response. The police have conducted an analysis of people involved in smuggling and bootlegging whom they have caught. They are not members of big gangs, but poor mules. The analysis shows that 90 per cent. of those involved are unemployed and drawing benefit, so the Department of Social Security should be able to answer my questions. Seventy per cent. of those involved have a criminal record; 40 per cent. are from outside Dover; 25 per cent. of crimes such as burglary and car theft in the Dover area—

Jacqui Lait (Conservative, Beckenham)

Indeed, Sir Alan, I will. I accept your guidance, but I am trying to build up a case to show why the amendment will help to reduce smuggling.

Jacqui Lait (Conservative, Beckenham)

I will, with pleasure. The police have analysed the problem, and it cannot be beyond the wit of the Treasury to do so. Another point of which the Government have made great play and with which I have great sympathy is the effect on health of increased smoking. High levels of duty mean that, when youngsters can get hold of cheap tobacco, they are likely to do so. I asked the Library for information about the worrying increase in the number of young smokers. We must remember that the single market started on 1 January 1993. The number of young smokers peaked in 1984 and dropped until 1988. Between 1988 and 1993, the figure was stable. In 1996, the level of smoking among youngsters was as high as it had been in 1984. I suggest that, although there are complex reasons why youngsters smoke, there is a clear correlation between the opening of the single market and the subsequent availability of cheap tobacco, and the number of youngsters who smoke. All those factors show the need to deal with the problem caused by the high levels of taxation of tobacco. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said, the problem is worsening. There has been a noticeable increase in the smuggling and bootlegging not only of hand-rolling tobacco, which the hon. Member for Kingston and Surbiton (Mr. Davey) mentioned, but of cigarettes. Dave West, who runs the Smoking Warehouse in Adinkerke in Belgium, said that before last December's rise in cigarette prices, he was selling a negligible number of cigarettes. He is now describing what happened on 1 December as a gold rush, and he is looking forward to his second gold rush this December.

Ross Cranston (Labour, Dudley North)

Can the hon. Lady explain the results of a 1996 MORI survey, which showed that the preferred cigarette brand among young people was Benson and Hedges—the most expensive—and that consumption by young people was attributable more to advertising than to smuggling, which was not even considered in the survey?

Jacqui Lait (Conservative, Beckenham)

The hon. Gentleman may care to know that the cost of UK cigarette brands from Dave West is £1.80. Compared with the cost in the UK, that has a much more significant effect on people's consumption of cigarettes than advertising. As I have already been called to order on the issue of smuggling, I dare not go down the route of the advertising debate. I shall draw my remarks to a close in the hope that some of the information that I have provided to the Financial Secretary will bring home to her the scale of the problem of tobacco smuggling and bootlegging. We need a clear policy on reducing the profit from smuggling and bootlegging tobacco. The policy that affects duty on tobacco in this country comes from Belgium, not from the British Government, and we need to take that fact into account when thinking about how to deal with the problem of the nation's health. I shall sum up by quoting Adam Smith, who was a customs commissioner. He said: The high duties which have been imposed upon the importation of many different sorts of foreign goods, in order to discourage their consumption in Great Britain, have in many cases served only to encourage smuggling; and in all cases have reduced the revenue of the Customs below what more moderate duties would have afforded. I hope that the Financial Secretary will put in train some of the inquiries surrounding the broader issue of the health of the nation, which have been brought about by high tobacco duties, and look favourably on our amendment.

Dawn Primarolo (Labour, Bristol South)

The right hon. Member for Wells (Mr. Heathcoat-Amory) ignores all the health arguments and proposes that, to help the poor, the escalator on cigarettes should be reduced from 5 per cent. to 3 per cent. As my hon. Friend the Member for Shipley (Mr. Leslie) said, the health consequences of smoking are at the heart—if hon. Members will excuse the pun—of our strategy. It is worth reminding the right hon. Member for Wells—who clearly needs reminding—of them. Some 80 per cent. of the 40,000 deaths from lung cancer each year are attributed to smoking, and 20 per cent. of the 180,000 deaths from heart disease each year and 80 per cent. of the 30,000 deaths from bronchitis, chronic obstructive airway diseases and other types of illness are attributed to smoking. There is a 20 per cent. higher risk of death to babies born to mothers who smoke. Women who smoke run a ten times higher risk of heart attack, stroke or cardio-vascular disease, and smoking may affect fertility. We know that babies born to mothers who smoke are lighter, and that paternal smoking also makes babies lighter through passive smoking once the baby is born. Smokers lose, on average, more than one day of their life each year. About half of all regular smokers in developed countries are eventually killed by cigarette smoking. The growth in smoking among teenagers and young adults has a dramatic impact on their life expectancy. The risk of dying from lung cancer is associated with the length of time a person smokes, as well as with the amount that he or she smokes. Even when a person has given up smoking, the consequences to his or her health remain higher than for those who have never smoked. That is the context in which the Government set their policy of raising the escalator on cigarettes and tobacco products excluding hand-rolling tobacco. Opposition Members referred to smuggling. I take your guidance, Sir Alan—this is not the subject of the clause—and I do not intend to speak at length on it. The Government recently announced their intention to deal with persistent offenders, to ensure that more people face disqualification from driving and that the criminals who smuggle pay compensation for the revenue evaded through smuggling. Publicans and off-licence and restaurant owners could, after prosecution, find their liquor licences revoked. I cannot give the hon. Member for Beckenham (Mrs. Lait) answers about the consequences of those actions, because the Conservative Government did not pursue such policies. I feel a little frustrated by today's debate because Conservative Members cannot, or perhaps will not, understand that this Government have a strategy that their Government failed to put in place. We should be clear about the scale of the problem. The right hon. Member for Wells pointed out that the Government of which he was a member were committed to using taxation as part of their health policy. The then Secretary of State for Health repeatedly referred to the importance of taxation in deterring people from smoking. I agree that it is important, but it should not be done in isolation. We need health education and strategies to ensure that not only tax but other methods are used to encourage people not to start smoking or, if they already smoke, to stop. The hon. Member for Beckenham referred to reducing smoking among young people. We absolutely agree with her about the importance of that. The Government's strategy moves in parallel with our tax strategy to reduce smoking among young people. It is set out in detail in the tobacco control White Paper, which will be published later this year. Opposition Members complain that we have not done enough in 12 months, not that we are moving in the wrong direction. I presume that tonight's discussion is to fill up time on the Floor of the House rather than to make genuine suggestions about an alternative strategy. I shall not be tempted to discuss whether Opposition Members care about the poor. It is an insult to poor people that, having been in power for 18 years, Conservative Members have only just noticed that they exist and that taxation policies have an impact on them. The right hon. Member for Wells was a Minister in both the Foreign Office and the Treasury. His sudden discovery that policies might impact on the poor is breathtaking. Where has he been, not to have noticed after all this time the impact that the Conservative Government's policies had on the poor? The hon. Member for Kingston and Surbiton (Mr. Davey) spoke about the importance of freezing duty on hand-rolling tobacco. We are continuing to pursue our policy with regard to cigarettes, but recognise that, as part of the strategy that we are developing to tackle smuggling, there are special problems with hand-rolling tobacco. May I say to the hon. Member for Beckenham that the idea that those engaged in smuggling are poor mules, feckless people or Jack the lads is ridiculous. People who buy goods from smugglers put money in the back pockets of criminals and deny revenue to the Treasury, which means that it cannot be spent on public services. Instead of advocating that the Treasury should cut moneys available to public services by cutting duty rates, the hon. Lady should join us in decrying the criminal activity of smuggling and encourage and support the Government's action.

Jacqui Lait (Conservative, Beckenham)

May I ask the Minister to add to her reading list some books about smuggling in the 18th and 19th centuries? That would indicate to her the solution to the problem. "The Albion Tree", one of the best, is available in the House of Commons Library.

Dawn Primarolo (Labour, Bristol South)

If the hon. Lady is seriously telling me that smuggling has been around for a very long time, I must say that I agree with her. If she is saying that we need complex strategies to tackle it, I also have to agree with that. However, I would encourage her to find a solution in this century rather than seeking refuge in the past. She might pay a little more attention to the strategies that the Government are deploying rather than lamenting the fact that we are not behaving as if we were in the 17th century: I leave that to her hon. Friends. Several points were made about the Swedish Government's announcement on 14 April that they intend to reduce duty on cigarettes by 27 per cent. in 1999. They will achieve that by reducing specific rates. I was asked why we do not take similar action in the United Kingdom. First, we would lose £2.4 billion in a full year, which is the equivalent of l½p on the basic rate of income tax. We are not prepared to countenance the loss of that revenue. Secondly, I do not know the hon. Lady's position on Europe, but she seemed to imply that we should allow other member states to determine our duty rates. She prayed in aid the Swedes' activities in reducing their rates, as did the right hon. Member for Wells. That is a solution to their problem, but information from Customs and Excise and the tobacco industry suggests that the problem of smuggling in Sweden is much greater than the problem here, much as we regret our own. Customs and the Tobacco Manufacturers Association are discussing reliable methods of trying to estimate the overall scale of cigarette smuggling—a problem that, as the hon. Lady and others have said, is beginning to emerge. In the light of our earlier debate on beer duty, it frankly beggars belief that the hon. Lady and others say that we have no enthusiasm for tackling smuggling and the problems that it causes. Imported cigarettes and smuggling are a problem not only for the UK and other European Union member states with high-duty regimes; they are also a problem for those with low-duty regimes. The hon. Lady's causal connection between duty and smuggling is not a fair representation of the complexity of the problem. The Government have made it clear that, on health grounds, our policy is correct. We have given more money to the health service than we would have done by linking the escalator to money moved across to the health service, as the hon. Member for Kingston and Surbiton suggested we should. I remind him that the Government have already given an extra £2 billion to the national health service. Our commitment to funding health and education is clear, in terms of priorities. I ask the Committee to reject the amendment, which would reduce duty to 3 per cent., and to support the duty of 5 per cent. and our phrasing on hand-rolled tobacco, as they are the best ways to deliver the Government's health policy. That would recognise that we are dealing vigorously with the problems of smuggling and will not allow that criminal activity to continue to undermine public expenditure and public revenue.

David Heathcoat-Amory (Conservative, Wells)

We have heard the Financial Secretary at her worst. She either could not or would not answer our questions. I remind her that she said in the House in 1995—I gave the quotation earlier—that increasing taxation is not the way to reduce consumption of tobacco or to deal with the health effects. I asked the hon. Lady what had caused her to change to her mind. Switching from Opposition to Government has clearly had an extraordinary effect on her attitudes. Apparently she now thinks that there is no way of dealing with this problem other than by increasing prices and taxation. It has occurred to my hon. Friends and me that the Government have changed their mind on another way of tackling tobacco consumption—through advertising. The Committee will remember that the Labour party won the election on a clear pledge to stop advertising on formula one racing cars. The Prime Minister changed his mind, and broke that pledge. It was later discovered that Bernie Ecclestone, who persuaded him to do so, had given £1 million to the Labour party. Lucky old Bernie got his bung back on that occasion, but we are left with a broken promise and the fact that the much heralded ban on tobacco advertising has not come into effect. Perhaps that is why the Government are relying more on increasing duty on tobacco. My knowledgeable hon. Friend the Member for Beckenham (Mrs. Lait) has drawn attention to the seriousness of the smuggling or bootlegging problem and the culture of illegality to which it has led. The Financial Secretary said that she was concerned about that, but she clearly is not grappling with the problems. The proposed increases widen the gap between continental rates of duty and our own, which will make the situation worse. The Financial Secretary said that there was a problem of young people taking up smoking, and, during our debate, other hon. Members have recognised the seriousness of that problem. If tobacco products are smuggled in, they are made available outside Government controls on the sale of tobacco to minors. It is an unruly and anarchic market, and it leads to young people taking up smoking. For that pure health reason alone, the Government ought to think twice before increasing the escalator to 5 per cent. Opposition Members have shown how savagely regressive this policy is. The Financial Secretary appeared entirely ignorant of that. If she did recognise it, she seemed entirely uninfluenced by it. We conclude that the Government's concern about the poor and those on low incomes is entirely synthetic. The figures 1 quoted earlier showed that smoking households in the bottom decile spend up to a quarter of their income on tobacco products. That ought to worry members of a party that, until fairly recently, had at least a published concern for the needy and the disadvantaged. My final point, which the Financial Secretary continues to avoid, is that the Prime Minister recognised, before the election, that there was a problem. He said so when he was looking for votes in the tobacco industry and related industries. He promised an independent, urgent and comprehensive study. He has broken that promise. When will the hon. Lady publish the substitute study, by Customs and Excise, to inform our debates, and the public, about the real facts behind the Government's taxation policy, which is driven entirely by revenue considerations? The health issue is purely a smokescreen; it is revenue that the Government are after. If they disagree, let them publish a report on the matter.

Patrick Hall (Labour, Bedford)

Will the right hon. Gentleman give way?

David Heathcoat-Amory (Conservative, Wells)

The hon. Gentleman has not contributed to the debate, and I do not propose to give way to him. In any case, it is not from the hon. Gentleman that I shall get an answer to the following question, because he is not in a position to give one. When do the Government intend to fulfil their pre-election promise, on which the hon. Gentleman and others stood, to undertake an investigation of this issue and publish the results? Until that happens, we shall conclude that the clause is revenue-driven. I urge the Committee to accept our amendment.

RATES OF GAMING DUTY

Michael Fallon (Conservative, Sevenoaks)

I beg to move amendment No. 14, in page 5, line 33, leave out subsection (1) and insert— '(1) In the Table in section 11(2) of the Finance Act 1997 (rates of gaming duty) the figures in the left-hand column under the heading "Part of gross gaming yield" shall be increased on 1 April each year in line with the increase in the retail index of prices over the previous twelve months.'.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this, it will be convenient to discuss amendment No. 15, in page 5, line 39, leave out '£1,500,000' and insert '£3,500,000'.

The rest of the debate is in Hansard.