Illegal Alcohol and Tobacco Sales

Jesse Norman Excerpts

Tuesday 27th March 2012 Westminster Hall

[Jesse Norman (Hereford and South Herefordshire) (Con)]

It is a pleasure, as always, Ms Dorries, to serve under your chairladyship today.

I am grateful to colleagues from across the House for their support in this debate, and to the Economic Secretary and shadow Economic Secretary, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), for attending. Many issues will be raised in this debate—including, I am sure, the issue of duty and minimum alcohol pricing. I will restrict myself to describing and discussing the core issue of the illegal smuggling of tobacco and alcohol.

Such smuggling is becoming a serious issue in Herefordshire, particularly in Hereford city itself. My investigations have made clear to me what will already be apparent to many Members—namely, that such smuggling is only the tip of an iceberg and only the beginning of a much bigger problem nationwide. In that context, I especially want to pay tribute to PC John Yarwood, who is the Hereford city beat manager; to Councillor Mark Hubbard, who first brought this issue to my attention; and to the trading standards team at Herefordshire council, who have been fighting to keep the smuggling under control.

The problem is easily stated. A number of shops in my constituency persistently sell illegal tobacco and alcohol under the counter. A regular pattern is emerging: the shops are raided by the police and HM Revenue and Customs, goods are seized and fines are imposed. But weeks later, exactly the same thing happens again—the shops are raided, goods are seized and fines are imposed. And so it goes on. In the past 18 months, some 360,000 cigarettes have been seized in Herefordshire alone.

That pattern does not happen by accident. There is a simple explanation—the profits to be made from illicit sales far exceed the losses from fines and seizures. A single lorry-load of cigarettes can be worth £1.5 million in profits to the smugglers. Costing just 9p, a pack of 20 cigarettes has something like a 4,000% mark-up when it is sold on the street.

It has been reported that HM Revenue and Customs seizes some 1.7 billion illegal cigarettes every year. As a whole, tobacco trafficking is estimated to cost the taxpayer £2 billion a year and alcohol trafficking £1.2 billion a year so this is very big business. In effect, the fines and seizures have become just another cost of doing business—literally, a licence to smuggle. It appears that they have little or no deterrent effect. Many of these shops have had their alcohol licences revoked, but that has proven to be little or no deterrent against illegal sales.

These actions make a mockery of the law and our law enforcement agencies, and they need to be stopped. They cause a huge loss of tobacco and alcohol duty to the taxpayer, they undermine the sales of law-abiding businesses on the high street and of distributors, and there is nothing to prevent under-age sales and illegal working in these shops; one man arrested in a raid in Hereford last year had been awaiting deportation since 2008. They also create serious additional hazards to health.

Someone smoking a smuggled cigarette could be smoking anything, just as someone drinking a smuggled bottle of spirits could be drinking anything. These products are not subject to the same rigorous controls as the legal products. Generally, they are made in backstreet premises in countries far distant from the UK, and they are specifically made to be smuggled. Moreover, there is evidence that illegal tobacco and alcohol outlets are often used to fund organised crime on a far wider scale.

However, the problem goes much deeper than that. There appears to be no way in law to prevent these shops from reopening and no clear line of accountability within Government. The issue sits unhappily poised between HM Revenue and Customs, which reports to the Treasury; the UK Border Agency and the police, which report to the Home Office; and licensing policy and trading standards officers, which report to local councils. I am extraordinarily grateful to the Economic Secretary for coming today, but she cannot be expected to answer questions about policing or border controls. Those topics are for the Home Office, not the Treasury.

I am aware that the Government have taken important steps to address the issue in recent years—providing extra resources during the next four years to increase investigations, intelligence and enforcement; expanding the work of HMRC overseas to tackle importation into the UK at source; and developing new technology and resources to strengthen our borders. I am also aware that, at least in theory, HMRC has a range of penalties at its disposal, including the seizure of goods, civil penalties, fines of up to £5,000, criminal prosecution and the recovery of criminal assets. However, those penalties are not anything like enough. I repeat that a single lorry-load of cigarettes can be worth £1.5 million in profits to the criminal rings behind it.

Furthermore, recent history has not been encouraging. Far from raising their game during the past 10 years, I understand that HMRC and the UK Border Agency have been doing worse over that time: they seized fewer cigarettes and less rolling tobacco in 2008-09 than in 2000-01; they have seized fewer vehicles; and fewer people have been sentenced for tobacco smuggling.

What can we do? I suggest three things. First, we need more information. Is it true that HMRC has been less effective and not more effective during the past few years? How many prosecutions have there been? We need regular and detailed data on prosecutions and seizures. Secondly, it is not enough for the police and HMRC just to be able to seize goods and impose these relatively modest fines. They need to be able to close down premises for significant periods when there have been repeated violations of the law. That may require new law-making.

Finally, there is a clear case for having a Minister who is specifically charged with dealing with the issue and able to work across Departments to be as effective as possible. I note that the Minister with responsibility for broadband, my hon. Friend the Member for Wantage (Mr Vaizey), works across both the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport. Perhaps there is scope for similar joint-reporting lines across HMRC, the Treasury and the Home Office in this area.

[Andrew Griffiths (Burton) (Con)]

I thank my hon. Friend for securing this debate. As the chair of the all-party group on beer, I recognise his commitment to the brewing industry; he has been a great supporter of it since he has been in this place. Does he share my concern about the Government’s recent estimate of alcohol smuggling into this country? They estimated that the equivalent of 28,000 lorry-loads of alcohol come into this country every year, which is about 538 illicit movements per week. If so, does he also share my view that if such a massive amount of alcohol is being smuggled into this country, the problem lies with the customs authorities, which are not policing our borders efficiently and effectively?

[Jesse Norman]

I thank my hon. Friend and colleague for his intervention and questions. He puts his finger on the scale of the problem and he must also be right that the UK Border Agency is not being as effective as it should be in preventing this illegal importation of goods. That is a further element to be addressed by a Minister with the kind of joint-reporting lines that I described earlier.

Let me sum up my argument. Better information, new powers and better co-ordination between Government agencies are all required. Those three steps could make a crucial contribution to tackling the scourge of alcohol and tobacco trafficking, and I am sure that I speak for all Members in Westminster Hall today when I urge the Government to consider those steps carefully as they develop their thinking in this area.

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[Andrew Griffiths]

I agree wholeheartedly that the duty regime is encouraging imports into this country. The fact that the British beer industry pays up to four times the duty paid by the British cider industry is encouraging companies such as Stella Artois to produce cider—or cidre, as it calls its brand—and import it into the UK. We are exporting jobs as a result of our duty regime.

[Jesse Norman]

On a point of information, I would like to make it perfectly clear to hon. Members that the cidre product has nothing to do with Herefordshire.

[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?

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[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to have you as Chair this morning, Ms Dorries. I congratulate the hon. Member for Hereford and South Herefordshire (Jesse Norman) on securing the debate, and on giving a very good outline of some of the issues.

We have heard a wide-ranging debate covering the amount of money lost to the Treasury through illegal sales of alcohol and cigarettes, and also issues relating to health, smoking, alcohol and so on. I will not stray too much into that territory. However, I was a member of the Scottish Government when Scotland was the first part of the UK to introduce a ban on smoking in public places. That ban was not universally popular at the outset, but I think it has been proved to be the right thing to do. The idea that some policies on health are unpopular but ultimately turn out to be the right thing to do has run through the debate, and I may return to it.

The hon. Member for Hereford and South Herefordshire made the point that this is the tip of the iceberg. People try to avoid paying their fair share of tax in a whole range of areas. Illegal alcohol and tobacco sales are an important part of that, but not the only part. I think the hon. Member for North Antrim (Ian Paisley) mentioned that people try to avoid the appropriate duty on fuel, as well as on tobacco and alcohol. The hon. Member for Hereford and South Herefordshire talked about shops selling under the counter and the amount of goods seized, and how those shops and premises are back in operation a few weeks later. That not only results in a loss to the taxpayer, but has very little deterrent effect. It almost sends a message to people that they can pretty much do what they like—they can take it as a business loss and simply get back up and running again, rather than changing behaviour. I think that the hon. Gentleman felt that there needs to be a change in legislation.

I was surprised that the issue was seen as one for the Treasury Minister only. Tie-ups happen between Her Majesty’s Revenue and Customs, the UK Border Agency, police and local authorities in terms of licensing and trading standards, which indicates that this is a wider issue than just money lost to the Treasury. Many hon. Members have talked about a cross-cutting approach, and that is worth considering.

The hon. Member for North Antrim gave a very powerful description of this serious multi-million pound organised crime industry, if I can call it that. Of course, we will always see situations where some people will try to make a few extra pounds for themselves at a local level by bringing back a quantity of cigarettes or alcohol products if they have been in another country. However, it is absolutely right to focus on those who are seriously involved.

As the hon. Member for North Antrim will be aware, when businesses are shut down as a result of effective action, product substitution occurs: they move on to another product to make money to fund whatever other activities they wish to fund from the illicit gains. Therefore, these issues sit across Departments. I hope that the Minister will say how she will ensure that the Government are able to deal with issues that relate not just to the Treasury—of course, such issues are very important—but that they will begin to consider the deterrent effect of appropriate sentencing for those who persist in breaking the law.

Closure orders were considered in Scotland, particularly in relation to alcohol. For premises that persistently sold to underage drinkers or persistently broke the licensing laws, legislation was introduced to provide the opportunity to shut them down—a message to the retailer and to the local community.

[Jesse Norman]

To be clear, that would close down retailers who have breached the law by selling to underage drinkers, but are otherwise legal in their operations. I also have it in mind to target retail outlets that are not doing any legal trading—they have been set up simply for the purposes of the illegal sale of alcohol and cigarettes.

[Cathy Jamieson]

I hear what the hon. Gentleman says, which is very important because there are two separate issues. If an operation is set up simply for the purposes of selling illegal products or trading illegally, that should be taken very seriously with the full force of the law, not only with an appropriate sentence when it is brought to court, but with the ability to act quickly to stop these activities. That needs to be considered.

The hon. Member for North Antrim talked about the report published by the Northern Ireland Affairs Committee. I will certainly read that with interest, as I am sure other hon. Members will. His contribution, and the contributions of my hon. Friend the Member for Stockton North (Alex Cunningham) and the hon. Member for Bristol West (Stephen Williams), highlighted the consideration of smoking policies more generally as they relate to health, as well as to business and trade.

There was a fairly lively debate on the issue of plain packaging. I am not a smoker. I have never been a smoker, and in my former careers I took a fairly dim view of smoking generally. Therefore, I think that the Government should take an interest in anything that can be done to deal with health issues, but it must be done in a way that makes sense and is enforceable. I take the point that many people who work in the industry are worried about their jobs. We have to have some cognisance of that in our discussions.

My hon. Friend the Member for Stockton North mentioned some of the work that was done by the Labour Government. I had no wish to make this a party political debate—that is not a criticism of my hon. Friend—because I think all hon. Members share common ground in trying to deal with these important issues.

My hon. Friend also raised one of the more serious issues: the so-called tab houses, which have been the subject of responses to parliamentary questions and on which work has been done previously, with a particular focus on the introduction of children to smoking. We are also concerned about whether children and young people are being introduced not just to smoking, but to crime, drug misuse and other activities in which they should not be involved.

In debating these issues, it is important that we do not focus simply on packaging. There will be different views about how much packaging and branding impact on consumer behaviour—I am sure that there are plenty of PhD theses about that, even if they are not in this room—and that debate will continue. One important point, which my hon. Friend mentioned, is how we deal with the problems of criminality relating to these issues. Again, I do not wish to make this a party political point, but the appropriate number of people must be involved in intelligence-led policing and the joined-up approach between policing, trading standards, licensing authorities and the UK Border Agency. There would be concern that elements of that approach rely on many people who are sometimes described as the backroom staff in police forces. None the less, they are the ones who gather the intelligence, analyse the data and information and do the forensic work to track down some of those involved in serious and organised crime. That will be important as we consider a way forward.

As well as discussions on smoking and the impact on health, we also heard from the hon. Members for Great Yarmouth (Brandon Lewis) and for Burton (Andrew Griffiths), the chair of the all-party parliamentary beer group, particularly about duty stamping. Again, that is controversial and both hon. Gentlemen are putting forward viewpoints on how this would work in practice and what the impact on the industry would be. Will the Minister reply to the hon. Gentlemen’s questions, which I should also like to pose?

We heard about some technical issues in respect of duty stamping and whether it would be the correct option. Have the Minister and her colleagues considered forming a working group, bringing together different industry interests to look at what is technically the best way to work on avoidance of duty and whether duty stamping is the correct way to take this forward? If other options are being considered, perhaps the Minister could lay those out for us today, because we will have to consider this matter in more detail as we debate it, following on from the Budget.

Overall, we have had a useful debate. It is clear that there are different interests and views across the political parties, and within them, particularly on plain packaging on cigarettes. I should like briefly to highlight another issue relating to tobacco. Work done by HMRC on avoidance considered what it called the tax gap. In 2009-10, the spirits duty gap was 3.4%, the beer duty gap was 14%, the gap in cigarette duty was 10% and in respect of hand-rolling tobacco the duty gap was estimated at 46% and had reached a high point of 50% in 2008-09. We have not looked at that in detail this morning. None the less, there could be greater focus on that area as we move forward.

In conclusion, we have had a good debate. We have covered smoking and issues to do with the duty stamp, about which, I hope, we will get more information. We have heard about enforcement issues and about how we have to take health policy into account. We have heard how important this matter is for the Revenue and for business. But the important message that must be taken away by the Government is that we have to find solutions to all the problems that have been identified. I reiterate the point that has been made: having a lead Minister or someone identified to work on the cross-cutting agenda and take this forward would assist the process. I hope that the Minister addresses that point as well as the other questions that have been raised this morning.

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[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.