Illegal Alcohol and Tobacco Sales

Brandon Lewis Excerpts

Tuesday 27th March 2012 Westminster Hall

[Brandon Lewis (Great Yarmouth) (Con)]

Thank you, Ms Dorries, for calling me to speak. It is a pleasure to serve under your chairmanship today.

I congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on securing this debate on a hugely important issue that is particularly timely, following the Budget. I will focus my remarks specifically on the Treasury-covered area of duty stamping. In itself, it could do a great deal to help prevent some of the illegal sales that we have discussed—certainly the illegal sale of alcohol.

One of the questions about smuggling, mentioned by my hon. Friend the Member for Burton (Andrew Griffiths), is that there is some debate—even within the alcohol industry—about how much is actually smuggled in. There is a debate about the amount that is physically smuggled in as opposed to paper movements, whereby the product never actually leaves the country and the paperwork is simply moved between countries to avoid duty. That can create a huge issue that is impossible for the UK Border Agency, or indeed any form of border control, to manage, as it is basically a paper shift.

Excise duties on alcohol generate about £9.5 billion a year; they certainly did in 2010-11. However, there is also a Treasury estimate of a tax gap of up to £1.2 billion each year due to duty evasion, principally through fraud. As has already been mentioned, about 10% of the beer sold in this country in 2009-10 was estimated to have been sold illegally. Data from wholesalers show that beer and wine sales have fallen, while those of spirits, which are now duty stamped, have increased. Those are more likely to be legal sales, as duty stamping has reduced illegal sales. Duty stamping brings an increase in duty for the Treasury; at a time when we are looking to plug an economic gap, such an increase could be hugely beneficial.

I have talked to wholesalers and retailers. In particular, the Federation of Wholesaler Distributors has done a lot of work in this area, and it is clear that there is now a correlation between beer and wine. If the Government are considering introducing duty stamping—I welcome the measure in the Budget to consult on it—I hope that they look at beer and wine together, as it is becoming clearer and clearer that those are now direct competitors, certainly where choosing whether to drink beer or wine at home is concerned. Of what men drink, it is estimated that about 60% is beer and cider and 25% is wine. The figures for women are more like 57% wine and 19% beer and cider, so a significant amount of alcohol can be covered through duty stamping.

The retail industry has experienced a significant loss in beer sales over recent years—particularly of products, such as Stella Artois, which are more subject to illegal smuggling and fraud. There is an opportunity to have a huge impact through the health service: a reduction in the amount of cheap beer available through the small outlets that get it through the grey market would be beneficial to the Department of Health through reduced alcohol-related illness. The increased revenue from duty stamping could be used by the Department to increase awareness of alcohol. I hope that, in the consultation on duty stamping, we look not so much at whether it is taken forward by the Government, but at how.

Multi-packs are a particular issue for the beer industry. How can duty stamping be done cost-efficiently and effectively and deliver what we want without it preventing the industry from exporting its product? I appreciate that there are some technical issues and I hope that, working with the industry, the Government will be able to deal with them, so that we can have increased revenue for the Treasury of about £1 billion and also a beneficial impact on health.

The measure may well go some way towards dealing with the issue that police in Norfolk have outlined to me. My hon. Friend the Member for Hereford and South Herefordshire mentioned it, and I know that the Economic Secretary reads about such things. The huge number of issues that the police deal with on a weekend evening, when people are out and about, are not due to alcohol consumed in public houses and clubs, where people are generally more responsible—certainly the landlords and owners are—but to preloading with cheap alcohol, much of which is bought on the grey market at a lower price than should be allowed. I hope that the Government will move forward with duty stamping. It is something that could be welcomed, and it would help not just the Treasury but the health of our nation.

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[Stephen Williams]

Absolutely. I saw my hon. Friend just last night responsibly consuming beer in the Strangers Bar downstairs.

The UK is a leader in tobacco control, and I want our country and the coalition Government to remain at the forefront in that area. We have seen huge progress over the past couple of decades in the limitation of tobacco companies’ opportunities to market their products. Checking carefully around the room, I think that all of us, perhaps with the exception of the Economic Secretary, remember popular television tobacco advertising, with catchy tunes. They are now a thing of distant memory, and we will see further changes shortly. I am sure that many of us will visit supermarkets in our constituencies during the Easter recess, and we will no longer be able to see displays of tobacco products because all large shops will have to cover them up. Some shops in my constituency have already pressed ahead with doing so, including the Tesco superstore in Eastville on the edge of my constituency.

The next necessary stage in tobacco control is introducing what has been called plain packaging for cigarettes, although that is to some extent a misnomer. The design of plain packs shows that they are anything but plain, but they would be of a standardised design in order to remove what is essentially the last opportunity available to tobacco companies to promote their products: the design of packs, of packaging within the cardboard pack and of cigarettes, which now come in many shapes, sizes and colours to attract the next generation of gullible young people attracted by glitzy products that they think it is cool to consume. Of course, it is anything but.

I am sure that tobacco companies will fight tooth and nail to prevent standardised packaging from being introduced in the United Kingdom. The Department of Health is about to start a consultation exercise on plain packaging on behalf not only of central Government but of the devolved Administrations. I am sure that tobacco companies will come up with all sorts of reasons why plain and standardised packaging should not be introduced. One reason will be that it could increase the opportunity for the sale of illicit and counterfeit cigarettes, which is the topic of this welcome debate.

I doubt whether the introduction of plain packaging will increase the opportunity for counterfeiting. If it does, it will only do so because the tobacco industry inflicts that problem on itself. Most or all tobacco companies already put covert markings on their packs to protect their legal sales from illicit sales in a market where their brands are clearly visible. Their brands will no longer be clearly visible on packs if plain packaging is introduced, as I hope it is. Instead, the packs will have prominent health warnings and standardised colours and fonts. The fact that they will still have covert markings, bar codes and other measures to counteract the best efforts of those who wish to smuggle cigarettes into our country should mean that moving from branded packs to standardised plain packs will not increase the opportunity for illicit sales.

[Brandon Lewis]

I am not a cigarette smoker, but surely one potential problem with plain packaging is not whether experts and officials can check a code to see whether the product is illegal but whether the public who buy the packs can spot it easily. With plain packaging, the codes will be less easy for the public to spot. Therefore, it will be less easy for them to report counterfeit packs, increasing the opportunities for illegal and counterfeit sales.

[Stephen Williams]

I thank my hon. Friend for his intervention. As I mentioned, the Government are about to embark on a consultation exercise about the various issues that must be considered before we move ahead to a plain packaging regime for the sale of cigarettes. I am sure that that point will be tested with all the current enforcement agencies to see whether it is indeed a legitimate worry and concern. If so, we will have to take measures to ensure that the design of standardised packs makes it easy for the public to distinguish a bona fide, legally sold product of a tobacco company from a bootleg or imported product that does not meet UK standards.

I have just thought of a direct answer to my hon. Friend’s point. At the moment, there are few regimes in the world where plain packaging is the norm. To the extent that the UK follows Australia’s lead, we will be the first in the European Union to adopt it. People who currently import lorry loads or white van loads of tobacco and other products, as my hon. Friend the Member for Hereford and South Herefordshire mentioned, and who make enormous profits as a result, will not be able to import branded products from the rest of the European Union, because those products will not be legally saleable in this country unless they have a standardised pack design. It could be argued that standardised packaging will limit the opportunities for people to import van loads of material supposedly for their own personal consumption, much of which we must suspect is diverted into the illicit market.

It would be wrong of us to assume that the trade is rampant at the moment. It is certainly highly profitable, as my hon. Friend the Member for Hereford and South Herefordshire said, but the various Government agencies, working together, have driven down the share of illicit tobacco over the past decade. Her Majesty’s Revenue and Customs estimates that 10 years ago, in 2000-01, the share of tobacco packs sold on the illicit market was just over one fifth, at 21%, but by 2009-10, that market share had been halved to 10%. Unfortunately, the market share of hand-rolling tobacco, which is easier to counterfeit, is still shocking. Some 46% is sold on the illicit market, without any control and at a tax revenue loss to the Treasury.

In closing, I urge the Government, as well as moving to standardised and plain packs, to adopt some other measures. First, all the various agencies that wish to control illicit tobacco should work effectively together. HMRC has a responsibility. The Economic Secretary to the Treasury, who is with us today, has a direct responsibility to work more closely with the UK Border Agency, which, as my hon. Friend the Member for Hereford and South Herefordshire mentioned, also has a key role.

The Government should also work with local authorities. I am all in favour of localism—I have been an evangelist for localism for a long time, and I am pleased that our coalition Government are pressing ahead with it—but we must make it clear as part of the Government’s national public health strategy that local authorities have a duty to use Government public protection officers more effectively in areas of tobacco control. Of course, the police have a role as well. Police and crime commissioner elections are being held in November, and I will certainly ask all the candidates in Avon and Somerset what they will do to stop the sale of cigarettes to underage people and the sale of illicit cigarettes to anybody.

Secondly, there should be a more effective registration scheme for retailers, so that we can separate rogue from responsible retailers. Thirdly, the Government should work with the World Health Organisation to develop more effective tracing of tobacco packs as they travel around the world. The tobacco industry is now global, and many of the cigarettes sold in this country are manufactured elsewhere.

I thank my hon. Friend again for giving us the opportunity to discuss these important issues. Driving down the smoking rate is good for public health outcomes in our country, and driving down illicit cigarette smoking while a legal trade still exists will be good for the public finances.

[Ian Paisley (North Antrim) (DUP)]

I, too, congratulate the hon. Member for Hereford and South Herefordshire (Jesse Norman) on securing this important and timely debate.

The House should face up to the reality that the smuggling of and trade in illicit cigarettes, tobacco and alcohol is a multi-million-pound criminal enterprise. It is not some car boot sale nonsense; it is a significant endeavour. The House will have its head in the sand if it does not recognise that fact. It loses the Treasury tens of millions of pounds in revenue, which could be spent on our schools, roads, hospitals and other areas, and we must recognise that.

I serve on the Select Committee on Northern Ireland Affairs, which recently took evidence on the trade in smuggled tobacco and alcohol. One company supplied evidence to show that, in Northern Ireland alone, 170 million illegally gotten cigarettes are smoked every year. That loses the Treasury £42 million every year and has lost the company whose product has been counterfeited £12.5 million. That is a staggering loss in one little part of the United Kingdom.

I thought that it was significantly bad that 17% of all cigarettes smoked in Northern Ireland had been illicitly traded, but in parts of England and the border counties the figure is 24%. In Devon and Cornwall, it is 13%, and in London, it is 20%. This is a massive criminal endeavour and some of the people who make money out of it are the worst, most cantankerous, nasty and evil people imaginable: as quick as they would sell people cigarettes, they would slit their throats. The House has to wake up to the fact that they are engaged in a serious, criminal endeavour. The Government should exercise the most serious measures against them, and we should encourage the Treasury and the Government in that regard.

As I have said, the timing of the hon. Member for Hereford and South Herefordshire in securing the debate could not be better. The Northern Ireland Affairs Committee today published its report on the smuggling of counterfeit cigarettes, tobacco products and alcohol and on the illicit fuel trade. This massive trade is central, so we need to take off our gloves and get stuck into countering it.

[Brandon Lewis]

I agree wholeheartedly with the hon. Gentleman. Does he agree that evidence from around the world shows that increasing regulation, whether via plain packaging or by putting up duty on cigarettes and tobacco, can simply increase the illegal trade? Ireland’s budget of 2010 recognised that by not putting up duty. Rather than increase duty or introduce plain packaging, the Government should follow the model suggested by my hon. Friend the Member for Hereford and South Herefordshire and use the UK Border Agency and other agencies to crack down properly on the illicit trade itself.

[Ian Paisley]

The hon. Gentleman will find that I am not arguing against his views—he is right—but we need to set out clearly how significant the problem is. Do we tax the product to the extent that it makes the smuggler’s job all the more easy, or do we recognise that there are things that the Government and we as a nation can do to address the problem?

The problem is not helped by the fact that I can drive my car to France or Belgium, fill it to the gills with cigarettes or alcohol and bring it back to this island and sell those products illegally. There should be a complete stop on a person being able to bring back a boot full of wine, alcohol and cigarettes and claim, “These are for me.” That is utter nonsense. Everyone knows that they are being brought back to be sold either on the street illegally or to their friends and neighbours. We have to make sure that such activity is stamped out.

The Government should be rigorous and ensure that, if people buy cigarettes and alcohol, they should buy them in this nation, pay tax on them in this nation and smoke and drink them in this nation, rather than allowing them to circumvent tax policies. It makes sense that I can probably buy twice as much legally in every other part of Europe than I can buy here because our tax policies are so severe. If they are severe, we need to make them work on this island.

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[Ian Paisley]

The tobacco industry is able to speak for itself, but one of the reasons why it is annoyed is that this is an infringement on its trading rights, its branding and all the things in which it has invested over the years. It would be wrong to turn around and say that we can just remove those things overnight.

The industry argues that it would damage the actual trade, so let us look at that and what it costs. In my constituency, more than 1,000 people are directly employed in the tobacco industry. In Manchester, another 800 people are directly employed in the manufacturing of cigarettes. If we are not careful, those jobs will go to eastern bloc countries and to Europe—they will move out of this country. Will that affect the number of people who smoke cigarettes? Not one jot. The same number of people will continue to smoke cigarettes, but they will be manufactured elsewhere. We will be the biggest losers, because we will have lost the jobs, the tax and the pay-as-you-earn tax.

[Brandon Lewis]

Again, I fully support what the hon. Gentleman is saying. The point that he has just made is backed up if we consider the packaging issue. A lot of the cigarette packaging around Europe is produced in this country, and therefore a huge number of jobs would be at risk if plain packaging were introduced. One of the reasons why companies are so protective of their packaging is brand protection. Bearing in mind that cigarette sales are legal and it is a legal product, unless the Government make cigarette sales illegal, companies feel that they have a right to protect their brand, as that is what protects sales and jobs. Companies argue that a clear definition of brand prevents some of the illegal trade that we are trying to stop.

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[Andrew Griffiths]

I would like to put it on the record that, as well as being a great supporter of the British brewing industry, my hon. Friend is a magnificent spokesman for the cider industry. We regularly do battle over whether beer or cider is best.

Let us consider the Government’s alcohol fraud strategy. In 2010, we introduced a new strategy, which has been successful. We have seen the number of illegal goods being impounded and seized increase dramatically: a 71% increase in beer, a 50% increase in wine and a 67% increase in cider. Those figures clearly demonstrate that the smuggling problem is just as prevalent with wine and cider, yet the Government do not propose to put a duty stamp on them. I struggle to understand why beer is being singled out in such a way.

Let us consider the estimated amount of illegal beer that the Government believe is coming into this country. They estimate that 28,000 articulated lorry loads of beer come into this country every year. That is the equivalent of 538 articulated lorry loads of beer every week, with an estimated profit to the smugglers of £18,000 per lorry. That is the equivalent of £9.6 million of profit to the smugglers per week. Of course, we want to stop that profit and that illegal trade. However, are we honestly suggesting that if our border controls have 28,000 articulated lorries going through them every year, the answer is to bring in duty stamps, rather than to tighten up our border controls?

[Brandon Lewis]

My hon. Friend and I have discussed this issue on a number of occasions. Is it not true that the industry feels that a lot of the trade that is, in theory, coming in on those trucks is not physically coming in, but is merely a paper movement? The product never actually leaves the UK in the first place. We need to overcome that problem as well.

[Andrew Griffiths]

I agree that that has been suggested. If we are saying that there is a problem with smuggling—importing bottles and cans of beer into the country—let us deal with that. If we are saying that there is a fraud going on in relation to some grand paper chase of virtual bottles of beer leaving the country and coming back in, let us tackle that. We need the industry and the wholesalers to work with us on that. The answer is not to implement a duty stamping of 5.5 billion bottles of beer at a massive cost to the brewing industry, because that may not solve the problem to which my hon. Friend refers. There is the phrase, “Just because you’re paranoid doesn’t mean they haven’t got it in for you”. From the brewers’ perspective, it seems as if the Government have a desire to ruin the British beer industry, and I ask the Government why.

The all-party parliamentary beer group—I urge those in the Chamber who are not members to join as a matter of urgency—held a hearing recently, in which, I think, Andy Leggett gave evidence to us. He said, at that stage, that duty stamps were not the number one option for the Treasury and Customs in relation to smuggling and fraud. We are therefore concerned to see that proposal in the Budget.

Does the Minister have any idea what cost this will add to the beleaguered British beer industry? Why single out beer? Why not cider? Why not wine? Does she have any estimate of the cumulative effect of the extra burden and red tape on the brewing industry, when adding in the beer duty escalator and this unnecessary extra cost? I ask the Minister to think about British beer. Some 80% of all beer drunk in this country is brewed in this country. The beer industry employs tens of thousands of people in all our constituencies. It is a great British product of which we should be proud. Let us not ruin it with an over-bureaucratic system that is costly and damages the future of British beer.