Curmudgeon's "Opening Times" Column - April 2001
* Al Capone Comes to Cheadle *
Gordon Brown's refusal to harmonise alcohol and tobacco taxation is actively encouraging organised crime
AMERICAN Prohibition must go down as one of the greatest public policy mistakes of history. By effectively turning over the legitimate drinks trade into the hands of organised crime, it established the Mafia in a position of strength from which it has never been possible to dislodge them. Now it seems that the present government's irresponsible and short-sighted taxation policies are doing much the same in this country.
In the early 1990s, restrictions on importing duty-paid alcohol and tobacco from the Continent were lifted, allowing people to bring in substantial quantities for personal consumption. This obviously opened up an opportunity for smugglers to import goods for resale, and naturally they were quick to take advantage of it, encouraged by the fact that successive governments not only did nothing to reduce the yawning gap between British and French rates of duty, but continued to make it wider.
We have now reached a situation where over 10% of beer, 33% of cigarettes and 80% of hand-rolling tobacco consumed in the UK are being imported - some legally, most illegally. The criminal gangs that once concentrated on the drugs trade are finding rich pickings in tobacco and alcohol smuggling, local pubs and off-licences throughout the country are struggling and closing, and 50% of teenagers know where to get hold of bootleg beer. Yet once again in his budget Gordon Brown did nothing to reduce the duty gap, so the problem will continue to get worse.
This isn't a plea for favourable treatment of the tobacco industry, and there's certainly a strong health case for high taxation of tobacco products. But it's now working directly against public health objectives, by making it easier for underage children to get hold of cigarettes, and for the first time in twenty-five years actually leading to a rise in smoking. The total amount of tax taken by the Exchequer has also plummeted, so the government doesn't even gain on that front. Neither are alcoholic drinks particularly expensive even after paying British duty - the extortionate prices in many pubs are due to inflated margins, not high tax.
But the fact remains that no taxation policy is sustainable if you can legally buy the same goods just over the border for half the price. With such a gap, no customs crackdown in the world will do much to stem the flow. The great economist Adam Smith who, like Gordon Brown, was a son of Kirkcaldy, made the point that a differential in national excise rates could only go so far, before a market became dominated by smugglers, which is precisely what we are seeing at the moment. And he was in a good position to know, since his day job was with the Scottish Excise Board.
The lasting legacy of the current policy will be that the former drug traffickers, through their involvement in alcohol and tobacco smuggling, get themselves inextricably intertwined with mainstream society. And, even if you slashed duty tomorrow, once they're established it will be well-nigh impossible to root them out again. It's astonishing that Gordon Brown, who is supposed to be such a clever politician, is so blinded by greed and political correctness that he is unable to see this. Even his counterpart in puritanical Sweden when faced with a similar crisis had to bow to reality in 1998 and cut tobacco duty by 23%.
It's a pity really that there isn't a land border between the UK and France, because if there was, half the population of the South-East would be over there every weekend stocking up on cheap fags and booze, and the government would have no choice but to do something about it.