Illegal Alcohol and Tobacco Sales

Chloe Smith Excerpts

Tuesday 27th March 2012 Westminster Hall

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

It is a pleasure for me, as it is for every hon. Member, Ms Dorries, to serve under your chairmanship for the first time.

I am grateful to have—I hope—a relaxed amount of time to respond in detail to the many points that have been raised today, beginning with those presented so well at the outset by my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman), who secured the debate, and then those of other hon. Members who have contributed. I welcome, as my opposite number did, a fairly consensual, constructive debate—if I blur some questions about tobacco packaging—in which hon. Members have sought answers rather than conflict.

I begin by reassuring hon. Members that the Government share the recognition that alcohol and tobacco fraud is serious. We are committed to bringing it down in the ways that I shall describe. Fraud of the kind that we have discussed this morning clearly affects not only public revenues and all the uses we put them to, but the livelihoods of honest businesses, as many hon. Members have said.

Questions have been asked about HMRC’s performance, for which I am one of two Ministers with departmental responsibility. First, my hon. Friend the Member for Hereford and South Herefordshire asked whether we could do better in publishing numbers of seizures and other such data. Such statistics are available on demand. I should be happy to enter into conversation with him about what he is seeking. In brief, detailed statistics on both seizures and prosecutions are no longer published. There was little evidence that such data were put to any use by those outside HMRC. However, I am happy to assist my hon. Friend if he has particular questions.

My hon. Friend also asked whether it is true that fewer cigarettes are seized today than in 2001-02. On that point, I will open up my description of the work that we have been doing to combat fraud. I assure him that between 2002 and 2011, between 1.7 billion and 2 billion cigarettes were seized every year. In this year, 2011-12, to the end of February—the period for which figures are available—1.7 billion have already been seized.

On HMRC’s broader strategy, starting with alcohol fraud, hon. Friends and other hon. Members will be aware that, in 2005, HMRC first launched its strategy to tackle alcohol fraud, focusing on fraud in the spirits sector. I am pleased to report notable success in halving the size of the illicit spirits market since 2005-06. In 2009, HMRC launched a refreshed alcohol strategy, which aimed at expanding the scope and reach of its compliance work and tackling all forms of alcohol fraud. Since then, its enforcement activity targeting alcohol fraud has been stepped up by more than 50%, which, again, I am sure that hon. Members welcome. However, the battle is not yet won, as all hon. Members have highlighted. We have a way to go. Our commitment to tackling alcohol fraud in all its forms remains strong.

Hon. Members will be aware that, only last Friday, the Home Secretary announced a new alcohol strategy, for which I welcome the support shown here today. That initiative, which is cross-Government work at its finest—I shall come on to the concept of cross-Government work—sets out a wide range of Government action to tackle excessive alcohol consumption and to turn the tide against irresponsible drinking, which, to put figures on it, costs the UK taxpayer £21 billion a year and led to almost 1 million alcohol-related violent crimes and 1.2 million alcohol-related hospital admissions last year alone.

The strategy sets out how local areas will be given more power to tackle local problems, including the ability to restrict opening and closing hours, to control the density of licensed premises and to charge a late-night levy to support policing. I am confident that my hon. Friend the Member for Bristol West (Stephen Williams) will support that kind of local approach—he nods to indicate that he does, which is excellent. Such a strategy clearly has the benefit of giving people the information and support that they need to make the right choices—in particular, through the health arena, for example, by asking the chief medical officer to review the alcohol guidelines for adults and by working with industry to take 1 billion units out of the market by 2015.

The strategy also reveals the Government’s determination to get to grips with one of the root causes of the problem by stemming the tide of cheap alcohol. We are doing so through methods such as the introduction of a minimum unit price, which will ensure for the first time that alcohol can only be sold at a sensible and appropriate price. Relevant to the debate, the strategy acknowledges the Government’s role in responding to emerging threats or issues, some health-related, such as the rising incidence of liver disease.

[Andrew Griffiths]

Does the Minister agree that the new proposal for minimum pricing will not only tackle the problems of binge drinking and preloading and the cost of policing and accidents and emergencies, but will support our community pubs and be good for the pub trade?

[Miss Smith]

My hon. Friend makes precisely the point that I have made myself several times in recent days. Our proposed pricing, which we are consulting on, will not affect the price of a pint in a pub—I am proud to put that on the record today. For good measure, I note that last week’s Budget added only 3p to the price of a pint in a pub, several of which I enjoyed over the weekend after all the hard work. Perhaps that returns me to the rising incidence of liver disease on a note of bad taste.

Some of the other threats and issues for the Government to look at in their alcohol strategy might be crime-related, such as the increase in alcohol duty fraud, which I am about to go on to, and some might be both health and crime-related, such as the growing availability of counterfeit alcohol, which can be dangerous for consumers. The strategy is targeted explicitly at harmful drinkers and at places such as problem pubs and irresponsible shops, including those that sell cheap or counterfeit alcohol. Over the forthcoming months, the Government will run a number of public consultations on the strategy’s proposals.

Alcohol duties are an important source of Government revenue, raising approximately £9 billion a year in public funds. Alcohol duty fraud, by contrast, costs the country as much as £1.2 billion every year, which takes money away from public services such as schools and hospitals. As has been mentioned, community pubs are facing difficult circumstances in tough economic times, as we are all aware in our constituencies. The Government want to protect community pubs and the tens of thousands of UK jobs provided by the food and drinks sector. Such jobs ought not to be put under even greater threat by the growing availability of illicit alcohol. Indeed, the overwhelming majority of law-abiding businesses throughout the industry, from small brewers to corner shops, that sell alcohol legally are put at a grossly unfair competitive disadvantage as a direct result of alcohol fraud.

Latest estimates show that beer fraud in particular is an acute problem, with losses to the public purse estimated at as much as £800 million in 2009-10. That is unacceptable and cannot be allowed to continue.

[Andrew Griffiths]

rose—

[Miss Smith]

My hon. Friend might want to ask about cider and wine, and I shall come to them in a moment. I would not dream of failing to answer that question for him, but I will work through a few more points before coming to that strand.

Ensuring that honest businesses can compete fairly is a Government priority. Another priority brings me on to joint working, as mentioned by several hon. Members, notably my hon. Friend the Member for Hereford and South Herefordshire and the hon. Members for North Antrim (Ian Paisley) and for Kilmarnock and Loudoun (Cathy Jamieson). I hear the calls for a single Minister in this respect, but let me first outline what we already do, which I hope will assist and which, I am sure hon. Members will agree, takes us fairly close to having accountability in the right places.

Her Majesty’s Revenue and Customs has a seat on the board of the UK border force and works closely with it, not only in designing and developing fraud strategies but in operational activity, such as sharing intelligence, tackling the organised criminals who have been rightly attacked in today’s debate and conducting joint exercises. The director of border revenue is accountable to the Treasury through me, the Economic Secretary to the Treasury, so hon. Members can see HMRC, the Home Office and the Treasury coming together. The border force was introduced recently, as announced by the Home Secretary; its responsibilities are explained on the website. I have regular meetings with the chief executive and others in that organisation, so that we work effectively together.

I hope that begins to reassure hon. Members that the right parts of Government are working together. Moving on to what we can do together, with the UK border force, HMRC already carries out substantial enforcement activity against all forms of alcohol fraud, successfully disrupting illicit supply chains and penalising those involved in the fraud. However, given the scale of the problem, enforcement alone is not enough to provide the level playing field that we all seek for our legitimate businesses, so I come to the Budget proposals for further ways to bust fraud and to explore all potential enforcement and legislative measures, which include restricting criminals’ access to stocks of illicit alcohol in the first place and tackling the illicit supply of alcohol to wholesalers and retailers. On the table are options including the introduction of fiscal marks for beer, supply chain legislation and a licensing scheme for wholesale alcohol dealers. I heard the points made by my hon. Friend the Member for Hereford and South Herefordshire on licensing more broadly and on the closure of premises, which is definitely one weapon in the arsenal.

I can clarify something for my hon. Friend at this point. HMRC can refer cases to other regulatory authorities for consideration of the revocation of a retailer’s licence to sell alcohol. I am aware of at least one case—from the Hereford and Worcester BBC news, no less, in 2011—in which a shop in Hereford lost its licence after smuggled cigarettes and alcohol were found during two raids.

[Jesse Norman]

As I mentioned to the shadow Minister, the hon. Member for Kilmarnock and Loudoun, some premises are not licensed at all and therefore not subject to the loss of a licence. In many cases, such premises are not controlled by the people in them, so raiding them, fining them and impounding the goods may deter the individual but does not deter the criminal ring behind the business. What is required is some method of closing the premises for a period.

[Miss Smith]

My hon. Friend makes an extremely valuable point. That will require joint discussion and consideration, but I hope that local authorities will seek to take a role in it under the powers that we wish to allow them through the alcohol strategy and other means.

Questions were asked about fiscal marking. The consultation document was launched yesterday and is available on the HMRC website. In response to the point about how we are conducting the consultation, I welcome the continued engagement of the alcohol industry. There is already a joint HMRC and industry group on fraud and other matters of concern, which I hope satisfies the hon. Member for Kilmarnock and Loudoun.

Turning to wine and cider specifically, cider revenue losses are not believed to be as substantial as losses elsewhere. On wine, I am well aware of the points about equivalence not only of wine, to which my hon. Friend the Member for Great Yarmouth (Brandon Lewis) referred, but of cider. Most wine comes from outside the UK, so fiscal marks are less practical than for beer. The consultation refers to how to mark bottles and cans that move through the UK.

[Andrew Griffiths]

First, I am intrigued that the Minister says that because wine is imported, it is less likely to be controlled. Surely, it is more likely to be smuggled because it is being imported. Secondly, why is there is no publishable estimate of wine fraud? Why does her Department have no estimate of the value and cost of wine fraud into this country?

[Miss Smith]

I think that I had better come back to my hon. Friend in slightly more detail than I can in the time remaining now. I urge him and anyone else who is interested to take a close look at the consultation paper and the information contained within it, and to reply. I reiterate that I am keen to work with industries of all shapes and sizes, whatever their products, to understand the impact on them and the available data. One of the key efforts that I and my officials have made to date has been to work with several key industry groups, including the British Beer and Pub Association and independent brewers in advance of publishing the consultation document to understand the available data that can be acted on.

We are aware of course that any new measures might attract costs during implementation. The Government are sensitive to that and keen to be on the side of legitimate businesses in drawing out issues of cost and practicality and moving to a solution that safeguards them and jobs.

On tobacco fraud, it is a sad fact that although tobacco duty raises around £9 billion a year, duty fraud costs the UK more than £2 billion a year and undermines the efforts by the Department of Health to reduce smoking prevalence. Trade in illicit tobacco makes cheaper tobacco more readily available to the youngest and most vulnerable people in society, as the hon. Member for Stockton North (Alex Cunningham) ably described. As with alcohol fraud, tobacco fraud takes trade away from honest businesses, so it is a matter of pride that HMRC has halved the illicit cigarette market in the UK since 2000.

I want briefly to introduce minimum indicative levels, which some hon. Members will be aware of. The hon. Member for North Antrim made a point about how to stop and search what is coming in. Since October last year, the Government have reduced the MILs for personal import of cigarettes and tobacco into this country, which reduces the opportunity for fraud and brings us into line with the rest of the European Union. MILs are a guide to personal use, so if someone has more than the level, having already been stopped, they will be more likely to be challenged further on their assertion that the goods are for personal use. There are, of course, points to be made, perhaps in another debate, about the free movement of goods and the fact that all goods imported for commercial purposes must have their excise duty paid.

I turn to what HMRC must do further to avoid complacency and, with the border force, to maintain a strategy to address the source, supply and demand for illicit tobacco in this county. The aim of the tobacco strategy is to intercept as much illicit product as possible before it crosses the border into the UK. The Government are providing more than £25 million in additional funding over the next four years in direct support of that strategy. That is part of the extra £917 million reinvestment in HMRC specifically to tackle organised crime, tax evasion and avoidance, all of which contribute to the delivery of an additional £7 billion per year in tax revenue by 2014-15. That is a sign of our intention, commitment and confidence on reducing fraud.

Details of the strategy and what our increased investment will provide that might be of interest include additional criminal investigators to target criminal gangs and to prosecute more offenders involved in tobacco fraud at all levels, additional intelligence and enforcement staff to tackle smuggling and an expansion of HMRC’s intelligence and enforcement work overseas, to target supply-chain activity in high-risk source and transit countries for illicit tobacco.

I heard the call by my hon. Friend the Member for Bristol West for better registration and to work with the World Health Organisation to trace the movement of tobacco products. He will know that the UK is a partner and a signatory to the WHO. The agreement is worldwide and in the form of the framework convention on tobacco control. During the next few weeks, a UK representative will attend a meeting in Geneva, where we hope to obtain agreements to that framework convention, which will provide a wide range of control measures. I shall be happy to talk to my hon. Friend about that later if he wishes.

The hon. Member for North Antrim referred to organised crime. I have joined him at a Select Committee evidence session covering some of the issues. In addition to duty losses that we have discussed—illicit production, counterfeiting and the abuse of cross-border shopping rules—the most significant threat that we face in relation to alcohol and tobacco fraud today comes from organised criminal gangs, which smuggle alcohol products into the UK in large commercial quantities, duty unpaid. HMRC is working closely with key partners to tackle organised crime in line with the Government’s strategic approach, which was set out in a paper published in July 2011.

That strategy outlines a comprehensive approach to reduce the risk to the UK and its interests from organised crime by reducing the threat from organised criminals, vulnerabilities to the UK and criminal opportunities. The key players in that work include HMRC, the UK Border Agency, the Serious Organised Crime Agency and, of course, the police. They are overseen in their work by the organised crime partnership board. I hope that that reassures hon. Members that we have a truly multi-agency response to organised crime. All four bodies are represented, for example, in the establishment of the new organised crime co-ordination centre. They are all closely involved in the design and build of the new National Crime Agency.

In conclusion, the Government’s response to alcohol and tobacco fraud is articulated in HMRC’s alcohol fraud and tobacco strategies and was reaffirmed in last week’s cross-Government alcohol strategy. It represents a coherent package of measures to hit back hard against these types of fraud from several directions. I thank my hon. Friend the Member for Hereford and South Herefordshire and other hon. Members who have contributed to today’s lively but well-informed and wide-ranging debate. I am sure that my colleagues in other Departments who have been mentioned today will be grateful for the comments and insight provided and will take the points made into account in the further development of their work in this area and with industry when appropriate.