Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023
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Baroness Penn
That the Grand Committee do consider the Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, the order will enable trading standards to fully exercise its investigative powers to check compliance with the Tobacco Products (Traceability and Security Features) Regulations 2019. Smoking is the single leading cause of preventable death and disease in the UK, accounting for approximately 76,000 deaths a year. The Government are committed to addressing the harms of tobacco and have announced an ambition for England to become smoke-free by 2030, supported by a package of measures to cut smoking rates.
Alongside that approach, HMRC has a role to play in charging duty on tobacco products to deter smoking, as well as raising revenue to cover the cost to the NHS. HMRC has another key role in tackling the illicit market. One of the main challenges in tackling smoking prevalence, aside from the addictive nature of nicotine, is the illegal trade in tobacco products. That increases both the affordability and health risks for smokers.
The UK’s tobacco track and trace system, introduced in 2019, helps to prevent the illegal trade in tobacco products by making it more difficult for smugglers and counterfeiters to operate. The system provides a way to verify the authenticity of tobacco products and ensures that they have been legally procured and distributed. Tobacco products are tracked from point of manufacture through to point of retail, and at all stages in between.
To supply tobacco for sale in the UK, an entity must be registered for tobacco track and trace and must obtain an economic operator ID. Over 50,000 businesses are already registered, but there are inevitably those who deliberately choose to operate within the illicit supply chain, and we need to tackle such activity.
At Budget 2020, the Government announced plans for tougher, more effective sanctions to tackle the sale of illicit tobacco. An HMRC consultation which ran from December 2020 to February 2021 proposed that the sanctions be linked to the tobacco track and trace system and available for use by both HMRC and trading standards. HMRC and trading standards already work closely together to tackle the illicit tobacco market—for example, through their joint initiative of Operation CeCe. Under that initiative, illegal tobacco products are seized from retail and residential premises, disrupting the market, and preventing fraud.
Respondents to HMRC’s consultation supported the introduction of tougher penalties for illegal products found in retail and residential premises. They also supported extending powers to trading standards to better tackle non-compliance.
Primary legislation providing the powers to make regulations to introduce the new sanctions was introduced in the Finance Act 2022. Its provisions include powers to make regulations to issue penalties of up to £10,000, seize product involved in a contravention, and exclude retailers from the tobacco track and trace system, thereby restricting their ability to buy duty-paid tobacco for retail purposes.
The consequent regulations required for these sanctions to take effect will be achieved by the making and laying of two statutory instruments. The first is the Tobacco Products (Traceability and Security Features) (Amendment) Regulations, which was laid on 12 June. It sets out the detail of the new sanctions and how they will be implemented. It confers investigation functions on trading standards specifically related to track and trace. The second SI is the Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023, which we are debating. This will make a small amendment to the Consumer Rights Act 2015 to allow trading standards to exercise its existing powers under the Act in relation to the investigative function conferred under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023.
That function will see trading standards investigating breaches of tobacco track and trace and referring them to HMRC, which will administer the sanctions. This approach will play to both organisations’ strengths. Trading standards will have an additional tool to deal with what it finds during its compliance visits. It will then be able to refer information to HMRC, which will administer the penalties and ensure that the most appropriate sanction is applied and enforced. These sanctions will serve as a strong deterrent against businesses involved in street-level distribution of illicit tobacco, helping to protect the public and our economy. I therefore beg to move.
Lord Livermore (Lab)
My Lords, we support this measure. I shall reiterate a couple of facts mentioned by the Minister. Smoking is the biggest cause of preventable death in the UK. It accounts for some 76,000 deaths each year, with half of all smokers dying of a smoking-related illness. It is estimated that smoking costs NHS England over £2.5 billion every year. Alongside high-level policy, such as the smoking ban introduced by the last Labour Government in the Health Act 2006, evidence suggests that high duty rates have had a positive impact by reducing the number of people who start smoking and increasing the numbers seeking to cut down and quit.
With 21% of cigarettes sold in the UK currently illicit, clearly the illegal trade in tobacco products undermines these important contributions to public health. It deprives the Exchequer of vital revenue and reduces the deterrent effect of high duty rates. We therefore support harsher penalties for those who seek to avoid paying such duties and commensurate powers for trading standards to tackle those who procure, supply and distribute illegal tobacco and profit from the illegal trade.
I would like to ask the Minister three questions. First, she mentioned that the combined application of fines, powers to seize illicit products and the new sanctions is designed to have a deterrent effect on retail outlets and street-level distributors. This point was also made by the noble Baroness, Lady Kramer. Are there any plans to communicate these powers to potential offenders so that the deterrent effect might be enhanced? Secondly, where illicit product is sold through retail outlets, what data exists on whether the owner of a retail outlet is aware of such sales versus illicit sales carried out surreptitiously by an employee, and therefore whether enforcement measures are always correctly targeted? Finally, what communication, co-operation and co-ordination exists between HMRC and the Border Force to tackle the supply of illicit product at source?
Baroness Penn (Con)
My Lords, I thank both noble Lords for their contribution to this short debate. I am afraid that the speed of our debate might mean that I will need to write to them regarding some of their questions. I will address the ones I can.
The noble Baroness, Lady Kramer, asked whether the cost of living pressures have caused an increase in the illicit market. My understanding is that there has been a negligible increase in it. Some smokers are switching, for example, to hand-rolling tobacco from ready-made cigarettes to save money. That is the kind of behaviour shift we are seeing.
As for when we will be implementing the provisions provided for in the two statutory instruments, trading standards will start work on 20 July when the tobacco tracking and security SI commences.
Regarding the types of tobacco that will be covered, I can say that the tobacco track and trace system applies to only cigarettes and hand-rolling tobacco, but this makes up approximately 97% of the tobacco market. The system and the penalties are intended to be extended to other tobacco products, such as cigars, cigarillos and shisha, but that will be from May 2024. There is a plan to extend over the remaining market.
Both the noble Baroness, Lady Kramer, and the noble Lord, Lord Livermore, asked about the deterrent effect. We should see a decrease in the current tax gap for tobacco duty. We anticipate that we will see an increase in compliance activities undertaken by trading standards. The visibility of businesses selling illicit products being penalised will have the deterrent effect that both noble Lords asked about.
Tackling this issue at the smaller scale, where trading standards visits premises—the noble Baroness, Lady Kramer, also talked about links to more organised crime—will continue to be a focus. Activity in that area is driven by HMRC, which is the delivery partner, rather than trading standards.
The noble Baroness asked whether outlets engaged in underage sales will be targeted under this measure. My understanding is that, in each local area, trading standards looks at the priorities for targeting enforcement activity. It has powers when it comes to underage sales. The effect of this SI is to ensure that trading standards can make use of the enforcement mechanisms under track and trace, in addition to its powers on underage sales, plain packaging and other consumer issues. The priorities for trading standards visits are set locally, rather than nationally.
The noble Baroness, Lady Kramer, asked about e-cigarettes and vapes. Track and trace does not apply to them but, as she may be aware, we have a call for evidence open at the moment that focuses particularly on the use of vapes among underage consumers or children, which will look at that issue more closely.
On the question of the public health benefits of this measure versus revenue protection, they are mutually reinforcing. Illicit tobacco can have health implications, because it is not subject to the same health and safety regulations as legitimate products. It has been found to contain arsenic, mould and rat droppings, for example, so that issue is at play. The availability and affordability of tobacco products also impacts on smoking rates, which is why the duty that we have in place helps to reinforce our strategy to stop smoking. Making sure that people do not engage in the illicit market also reinforces that strategy.
I will not pretend that protecting the duty owed to the UK Government is not an important objective for HMRC; it is one that we continue to support. However, it mutually reinforces the wider ambition for England to become smoke-free by 2030. As I said, the Department of Health and Social Care announced a package of measures to cut smoking rates, acknowledging that we need to go further in this space. They include expanding access to new treatments, rolling out a national incentive scheme to help pregnant women quit, and using a new approach to health warnings.
I am conscious that I have not answered all noble Lords’ questions, but I undertake to follow up in writing. There is broad support for the SI, but I am sure that the answers to those additional points will help your Lordships to understand how it will have the impact that we all hope it will have. I therefore commend this instrument to the Committee.