The Scottish Grocers' Federation has been made aware of the Treasury Sub-Committee's Inquiry but unfortunately we were not aware of this prior to the deadline for evidence of 1 October 1999.

  I hope you will therefore take the following evidence into consideration and we would be pleased to give oral evidence if required.

SCOTTISH GROCERS' FEDERATION

  The Scottish Grocers' Federation represents directly some 500 members operating around 700 convenience stores throughout Scotland and around 2,500 stores in total associated with the Federation's work through other symbol and franchise arrangements. All are independently owned, and many operate in rural and island areas, where they are often the only food retailer in a community. Our members' stores are open long hours, many of them from 7.00am to 10.00pm daily, seven days a week. Profitability is low, because a large part of the variety of goods stocked are low margin products, and rural stores, in particular, generate only a modest profit for the proprietor, a fact recognised by Government in recent legislation giving a statutory reduction in business rates for certain village stores.

THE PROBLEM

  The main reasons for Customs Fraud in cigarettes and tobacco and alcohol in its various forms, are clearly the differences in duty between other EU Countries and the UK. These substantial differences in duty or tax are obviously the basis for criminals to exploit the position and finding it convenient and profitable to bring substantially lower priced goods into the country or to carry out diversion of stocks which are ostensibly being exported and therefore duty free.

  We welcome the initiatives the government has taken so far but these initiatives are clearly not preventing the vast majority of smuggling from taking place. Currently as the goverenment has no plans to make any meaningful reduction in duty the position will not be reconciled through equalising duty rates.

  We have had sight of the Independent Retail News survey into the impact of bootlegging on retailers and would support its findings. Most of our members have reported a reduction in sales in their trade in tobacco and alcohol and in addition to this, anecdotal evidence suggests that the duty fraud has now become a major criminal industry and that agents are now selling bootlegged goods in pubs, clubs, factories etc. In fact, some of our members have had to sack staff because they were involved in bootlegging through a van sales operation which supplied non-duty goods but carried bootlegged goods to sell to shop staff on their visits to shops.

  In our President's speech to our 1998 Conference, he said that, "due to the high amount of duty on liquor in this country, bootlegging has become a very lucrative business. The effect of this illegal trading can be seen through the drop in our retail spirit and beer sales. In addition we believe that bootlegging has also played a role in the increase in underage drinking where many of the problems are thrown back to the door of reasonable and responsible retailers. Not only is this illegal trading affecting retailers' livelihoods, but it is also costing the Exchequer £1 billion per annum. We know that the government has stated it will act on this area, but action is required on this now, not later. We believe that the government needs to spend a lot more in order to prevent the reduction in duty and VAT income."

  The vast majority of our members, some 85 per cent, are licensed for alcohol and sell cigarettes and tobacco and these are key product areas in the viability of many of our members' stores.

  We also welcome the recent statement by Camelot that retailers prosecuted and found guilty should lose their lottery licence. We recently read a press report of one such loss of licence.

ACTION REQUIRED

  Because of the current government's approach regarding health and the sale of cigarettes and tobacco, hence the recent substantial duty increases, and their approach to duty on alcohol, we do not see a harmonisation of duty rates as an action that the government is likely to take in the near future. We therefore recommend that:

1.  A marking system for goods produced in this country for export would at least help to clearly identify what goods had been diverted or smuggled. We appreciate that bootleggers may re-pack illegal imports and this may not address the problem of the large criminal organisations who are now involved;

2.  We believe that the level of enforcement should be substantially increased and the "open" EU Market re-assessed as to what effective action can be introduced;

3.  Currently the penalties for bootlegging or smuggling are not an effective deterrent to criminals and we believe these should be increased substantially as we need a substantially greater deterrent to those getting involved in bootlegging. Note that apart from the loss in duty there is also a substantial loss in VAT, a reduction of £1,200 a week in takings also means a loss of £180 in VAT as no sales have arisen;

4.  An awareness campaign should be developed to ensure that all consumers or recipients of bootlegged goods are aware that in the longer term they may have to pay higher taxes themselves to offset the reduction in duty and VAT income;

5.  There is a need for much tighter security in the methods of transfer from various bonds and in the way that packaging is marked for export. New even stricter procedures are needed for the movement of goods and where vehicle hire is concerned there should be much greater penalties on vehicle hire companies who clearly do not check the real purpose of the hire of the vehicle. As regards export, it should be made illegal to sell on to more than two buyers so that an audit trail is more easily checked. Clearly, as the criminal gangs are saving up to £100,000 on unpaid duty on a single lorry load, with over 1,400 cases, this is a very profitable exercise.

  Customs investigators are obviously overwhelmed by the illegal trade and the need to check out paperwork which has the appearance of being legitimate but in order to check it requires a surveillance operation which is incredibly costly.

  We are aware that as far back as 1997 a Customs & Excise review team was set up and certain initiatives were taken. Quite clearly these are not working. There is a clear argument for spending substantially more than is currently being spent by Government to alleviate this problem.

CONCLUSION

  Substantial government action is urgently required to reduce the impact on the revenue from duty and VAT and to prevent further loss of sales and profits to the retail and wholesale trade.

  If we can do anything to support any further initiatives by the government we would be pleased to do so.

19 October 1999