Treasury Committee
Oral evidence: Tax and duty non-compliance on high streets, HC 360
Tuesday 30 June 2026
Ordered by the House of Commons to be published on 30 June 2026.
Members present: Dame Meg Hillier (Chair); Dame Harriett Baldwin; Bobby Dean; Jim Dickson; John Glen; John Grady; Dame Siobhain McDonagh; Ms Julie Minns; Catherine West; Yuan Yang.
Questions 1 - 68
Witnesses
I: Paul Monaghan, Chief Executive, Fair Tax Foundation; Hazel Cheeseman, Chief Executive, Action on Smoking and Health (UK); Alistair Townsend, Fellow and Past President, Institute of Revenues, Rating and Valuation.
Witnesses: Paul Monaghan, Hazel Cheeseman and Alistair Townsend.
Chair: Welcome to the Treasury Select Committee on Tuesday 30 June 2026. Today we are looking at tax and duty non-compliance on high streets. This is some of those shops that phoenix. They set up, close down and re-establish. We are concerned, as a Committee, about how a number of these businesses are not paying their fair share of tax.
We are here to talk to an expert panel today, as our first foray into this area of work. I am delighted to welcome Paul Monaghan, who is the chief executive of the Fair Tax Foundation, Hazel Cheeseman, who is the chief executive of Action on Smoking and Health (UK), often referred to as ASH, and Alistair Townsend, who is a fellow and past president of the Institute of Revenues, Rating and Valuation—IRRV for short. A very warm welcome to you all. We will be directing questions to you, but if you feel that you are not the right person to answer, please correct and deflect to another witness.
Q1 Dame Siobhain McDonagh: Thank you for being here today. We have heard evidence that some landlords repeatedly let premises to businesses that quickly disappear without paying their taxes, only for a nearly identical business to open in the same premises shortly afterwards, often selling the same products. To what extent are landlords facilitating this cycle?
Paul Monaghan: There is an epidemic out there of this type of behaviour. It was made famous in London with the candy shops. We can go up and down the UK and see the same candy shops in Manchester or Newcastle. There are gobstopper shops and souvenir shops. We need more incentives for landlords not to let their premises to people that is basically a way for them not to pick up the business rates. There is no due diligence in place.
The scams in this sector now are crazy. You have snail farms in Liverpool and false places of worship in other parts of the country. It is hundreds of millions to local councils. This is one of the areas where I would say that it is great that this Committee is flagging these issues. It is not just for phoenixing that it is happening. There is all sorts of it going on. It is an epidemic out there.
Alistair Townsend: There is no doubt that there is a proliferation of rates avoidance. It is probably caused mainly by the empty property charges. Business rates are chargeable to 100% on empty properties after a period of time. In terms of the short-term occupation, so three months for commercial property and six months for industrial property, after that initial business rate relief it becomes fully chargeable at 100% for empty rates. Rather than being incentivised to find new permanent tenants, landlords are incentivised to find anybody who will rent a property, even if it is for a short term.
It sort of makes two things there. We have talked about what I would describe as phoenixing, which is an issue in its own right where occupiers wind businesses up only to replace them with another business. It is normally the same occupiers. That is the basic definition of phoenixing. Then you have the other, which is the short-term lets that landlords are undertaking.
I slightly disagree that it is in the millions. I suspect that it is in the billions in terms of rates avoidance. The problem you have is that it is not recorded anywhere. It is an application of the law as it stands and it is not illegal, so there is no record of how much of this avoidance exists.
We have all seen the examples. Snail farms are one of the more rare examples. There are far more easier methods of rates avoidance than that particular one.
Q2 Dame Siobhain McDonagh: Do you not think that it is actually bigger than rates avoidance? If you follow the press site London Centric, you can see evidence of one of London’s most prominent landlords—Asif Aziz’s Criterion Capital—letting shops to people on student visas to set up gift shops. Is it not time that a landlord as big and wealthy as that took more responsibility?
Paul Monaghan: The tax abuses we are seeing on the high street are up and down the UK. HMRC has just re-released the tax gap figures for the UK. It went up 26% in one year, so we are talking a tax gap of £60 billion now. 62% of that has been allocated to small business. I think that that is the tip of the iceberg—62% of the UK’s tax gap has been allocated to small business.
Q3 Dame Siobhain McDonagh: There is nothing small about Criterion Capital.
Paul Monaghan: No, but the tax shortfalls take place at the small business level, not the higher level, because the duty to pay the tax is passed down the chain. That is what I think the previous witness was alluding to.
The sanction for when these small businesses are caught is that you cannot be a company director for a few years. Assuming that they follow that slap—and many of them do not—a sister, brother, son, daughter or friend becomes the director. It is not a sanction. One thing that worries me is that the direction of travel of the Government right now is that the way we will deal with this epidemic in small business tax avoidance is that we will just ban more directors. It is not going to be enough. They do not care.
Q4 Dame Siobhain McDonagh: What would make a landlord decide to let a premium premises on Whitehall to somebody on a student visa for a gift shop, rather than leave it with Tesco local?
Paul Monaghan: The landlord will say, “If I sublet to this person, they pick up the obligation for the business rates”. They do not care whether they pay the business rates or not.
Q5 Dame Siobhain McDonagh: Would you not prefer Tesco local as your tenant?
Paul Monaghan: I am sure that they probably would prefer to have a more legitimate business. I have read about the example you are referring to. There were many layers of corruption taking place in that particular one.
Q6 Dame Siobhain McDonagh: It was bigger than business rates.
Paul Monaghan: Yes, there were layers.
Q7 Jim Dickson: I am going to ask some questions about illicit sales of tobacco and vapes. Ms Cheeseman, as we know, around 80% of the price of a standard pack of cigarettes goes to tax. Some people think that that is too much; some people think that it is too little. Do you think that we have the taxation of tobacco right in this country?
Hazel Cheeseman: The purpose of tobacco taxation is not really about revenue. It is a public health measure to reduce consumption. The level of tobacco taxation that we have in the UK is one of the key drivers of falling consumption and falling smoking prevalence. It has been a big success story.
The way that we tax tobacco, and have done for a number of years, is to have a tax escalator. We predictably increase the rate of taxation above the level of inflation for cigarettes, hand-rolled tobacco and other tobacco products each year.
That approach has broadly been correct and we have managed to decrease the affordability and increase the tax on tobacco at a time when we have brought down the size of the illegal market for tobacco products. The illegal market for tobacco is 90% smaller now than it was in 2000. That is a combination of effective enforcement and falling consumption. Bringing smoking rates down is the most effective way to reduce the size of the illegal tobacco market.
The taxation on tobacco is not perfect and there is more that HMT could look at to close some of the loopholes around tobacco taxation. We have a minimum excise tax for tobacco, which has been an effective way to stop tobacco companies from selling products at very cheap prices to keep people smoking. Evidence more recently from colleagues at the University of Bath suggested that the minimum excise tax is not as effective as it used to be. Tobacco companies are prepared to sell products at lower prices while making up the shortfall by selling premium products, over-shifting and charging more for those premium products. There is an issue there that needs addressing.
We also have some tobacco products that are not well captured by our existing taxation model, including cigarillos in particular, which are cigarette-like. They are born of the loopholes that we have in tobacco regulation, because they can be branded and sold with flavours in a way that cigarettes cannot, but they look identical to cigarettes. They are also taxed at a lower level, perpetuating people’s consumption of tobacco.
We still have a gap between hand-rolled tobacco and factory-made cigarettes, which should be closed over time. There are other tobacco products that attract a lower level of taxation that should also be looked at. One key thing that we would very much like the Treasury to do is to review the way that tobacco is taxed, and nicotine products, because we are about to bring in an excise tax on vaping products. We have other novel nicotine products on the market that do not currently attract an excise tax. We would welcome the Treasury, and perhaps this Committee, looking further at how the tobacco and nicotine tax regime works, its public health objective and how that could be improved to further improve public health.
Q8 Jim Dickson: Thank you for that answer. Obviously it is multi-layered and there are lots of issues involved in the level of tobacco taxation. However, it is the case that the tax gap appears to be rising. It was 13.6% last year. It is now 14.2%. That is the tax not collected on the cigarettes in circulation. Does that tell us that the level of illicit tobacco sales is going up and that that is a problem?
Hazel Cheeseman: The long-term trend on illicit tobacco is down. I will try to remember the actual figures. For example, in 2000 60% of the market for hand-rolled tobacco was illegal. Today, 19% of cigarettes sold are illegal. That is still a sizable problem, but it is nothing like the problem that we had 20 years ago. That is in a context where a higher proportion of smokers now use hand-rolled tobacco than did in the past.
I would say, perhaps controversially, that there is lots to applaud HMRC for in terms of its broader strategy to reduce the illicit market. The broader trend is down. We often get some bumping around, with the numbers going up and down over different years, but the long-term trend is down.
We see tobacco companies very much playing up any indication that the illegal market might be growing because it suits their objectives. They do not want to see tobacco regulated as heavily as it is. They want to see lower taxes. They certainly want to make these arguments in other countries and jurisdictions that might look to emulate the United Kingdom in terms of both our regulation and our tax regime. We see an awful lot of energy from tobacco companies going into making a case that the illegal market in the UK is somehow out of control or rapidly growing, which the evidence does not support.
That is not to say that there is no issue at all with the illegal market and no action that we should take. HMRC has a £100 million strategy to tackle illegal tobacco. That is a combination of overseas intelligence gathering, working multi-agency at international level and controlling the import at the borders, which is absolutely crucial. I would think that that is probably relevant to other illegal products that we see.
Q9 Chair: Are you saying that most of them are being imported?
Hazel Cheeseman: Yes. We do not manufacture illegal cigarettes, by and large, in the UK. They come from abroad.
One thing we have seen in the change in the composition of the illegal market for tobacco in the UK is that, if you go back to 2000, a large proportion of the illegal market was cigarettes made by the big tobacco manufacturers for sale in other countries and imported into the UK without the duty being paid. Several of the big tobacco companies were fined on a regular basis for complicity in that not paying the duty on those tobacco products.
Because we now have a track and trace system for tobacco products in the UK, so tobacco has a unique identifier and they are tracked from supply to destination, it is much harder for legitimate products to fall out of the supply chain in the way that they used to. They now make up a smaller share of the overall illegal market. That is part of the story of how the UK has a relatively well-controlled illegal tobacco market compared to many other jurisdictions.
Q10 Jim Dickson: Enforcement clearly is an issue. We see, in some parts of the country, there being insufficient resource to enforce properly, particularly around illicit tobacco, vapes and other products. There are some new powers coming in with the Tobacco and Vapes Act, which gives local authorities power to license shops that are selling tobacco and vapes. There is going to be a whole new regime coming in soon. Ms Cheeseman, do you think that this will give additional powers to local authorities to control some of the wider issue of illegal trading of the kind we are discussing today?
Hazel Cheeseman: It is definitely a useful additional power to have a licensing regime. I was talking with colleagues before we came in. The issue of most illegal tobacco now on the high street is straight up criminality and part of organised crime and so on and so forth. Licensing is a useful tool. It will help us to have a better understanding of the illegitimate market. It will probably help to prevent shops that might broadly be legitimate retailers from slipping into perhaps selling some of these illegal products.
For those enterprises that are primarily selling illegal tobacco and engaging in activities such as phoenixing and these other things that we have been talking about, licensing is not really going to be the tool that is going to fix that. We need boots on the ground in terms of trading standards. We need the multi-agency working. We need to maintain that over time, because criminals are not going to go and get a licence. It is a useful tool in the box, but it is not the be-all and the end-all.
Q11 Ms Minns: Thank you very much, Ms Cheeseman. I understand that, in 2024, Cancer Research UK estimated that 28 billion cigarettes were smoked in the UK. HMRC in the same year only cleared 14 billion for tax purposes. That suggests that half of the cigarettes being smoked are illicit. Do you recognise that 28 billion figure?
Hazel Cheeseman: I would have to go and look at the particular study. I wonder whether there is a difference there between Cancer Research UK also including the hand-rolled tobacco cigarettes that were being smoked in that calculation. I would have to go and have a look at it because I am not immediately familiar with it. A very large proportion of cigarettes that are smoked now are ones where people roll their own and maybe would not be counted in that 14 million clearance figure.
Q12 Ms Minns: Would it sound about right that half of the cigarettes that were smoked were hand-rolled?
Hazel Cheeseman: I cannot remember the proportion off the top of my head, but it is a quite sizable proportion now. Several billion cigarettes each year that are smoked are not legal. There is a sizable proportion of the market that is illegal.
The point that I want to make is that we have come a long way from where we were. It is something that we have a relatively effective strategy in place to control. It is not suddenly exploding. Plainly, it is something that we cannot be complacent about. We need to continue to maintain the strategy that we currently have and look at where we could improve our enforcement approach.
Q13 John Glen: It is understood that the number of people who smoke is much lower than it was, and most people think that that is a positive thing. We are trying to zone in on what proportion of that smaller pie is illicit. I have another statistic from some research from UCL, which says that 23% of smokers purchased illicit tobacco over a short period from November 2024 to April 2025, yet HMRC’s tax gap puts illicit tobacco at 14.2% of the market. I totally get the whole point about different datasets and all the rest of it, but that is a reputable piece of research with a significant difference.
We surely have to come to terms with the fact that, while the public health outcomes are desirable, we now have a much bigger problem with this illicit tobacco. Would you agree with that, even if you dispute the numbers? What do you think should be done? Let us face it: we all know that trading standards is pretty hollowed out. There are a very small number of people in different local authorities. I think that there are two in Wiltshire and maybe there are some agencies, in my constituency. Are we being honest about the nature of the problem and what we are going to do to tackle it?
Hazel Cheeseman: I do not think that those two numbers are incompatible. We know that something like one in 10 people are prepared to buy illegal tobacco, but it does not mean that all the tobacco that they are purchasing is illegal. It is totally reasonable that 14% of the market is illegal tobacco but that there are a higher number of people who would be prepared to purchase illegal tobacco, or indeed might do across a month. Those are not incompatible.
I would dispute whether this is a growing problem, because I do not think that the evidence that we currently have supports that it is a rapidly growing concern. We have certainly seen reports coming in, particularly sponsored by tobacco companies, which do not have very transparent methodologies and often use methodologies that are disputed, that give us a picture of the illegal market that would suggest very high levels of concern about the size if you were to take their numbers at face value. We have to treat them with caution.
In terms of whether there is more that we could be doing, whether HMRC is doing enough and whether the strategy that we have is sufficient, obviously there are more things that we could be doing. The track and trace system and the investment that we have at borders and internationally is all very good. There has been more recent investment, through the Department of Health in trading standards capacity to address tobacco and vaping to enable it to enforce the law. You are completely right that trading standards has been stripped back and the boots are simply not there on the ground to enforce the law sufficiently.
It is very welcome that the Department of Health is putting additional investment in. I wonder whether that is a model in some of these other areas where there are benefits to public health from reduced consumption of illegal products and whether there is a role for the Department in relation to trading standards more broadly. We have some good examples regionally where there have been regional campaigns to encourage smokers not to use illegal tobacco and mass media campaigns to dissuade them from engaging with the criminality. That would be a useful additional plank to the strategy.
Q14 John Glen: Is the basic dynamic here not that, if 80% of the cost of the product is tax and it is going up all the time, and you have an addiction that you find it impossible to kick, you are going to be more likely to go to illicit sources to satisfy that craving? That is just a natural human instinct. People have limited money. That is what they are doing.
I totally get how people lobby hard in this industry, and tobacco companies have their own way of doing that, but surely there is lots of evidence. You see it in international evidence as well, looking at what has gone on in Australia. You see a complete collapse in tax revenues and then this explosion of illicit or borderline illicit or mixed consumption patterns. That must be the case, surely.
Hazel Cheeseman: I will talk about Australia in a bit more detail. In terms of the general point, increasing tobacco taxation is the most effective way to get people to reduce consumption, and it will continue to be.
Q15 John Glen: On the issue of what it provokes in terms of illicit activity and a tax gap, I totally get that you do not want to concede that from the point of view of the public health outcome. The reason we have this Committee sitting is because we see all this illicit activity on our high streets and elsewhere.
Hazel Cheeseman: I do not think that the evidence supports the idea that it is the tax that is driving the criminality or illegal activity. If you look around the world, countries with very low levels of taxation have wildly bigger illegal tobacco markets than the UK does.
Australia is a particular example. Australia is a very high-tax, high-regulation market and it currently has an issue with illegal tobacco. It also has nothing like the level of enforcement that the UK does. It has a very fragmented enforcement environment state to state. It does not have the same controls at the border. It does not have a track and trace system in the way that the UK does. It is not part of the illicit trade protocol in the way that the UK is. We are not similar to Australia in that sense.
Q16 John Glen: Can I bring in one of your colleagues on the panel? Mr Townsend, you have heard the discussion we have had about the gap between HMRC data points and other research. What do you think about HMRC’s data here and whether it is accurate to the scale of the illicit consumption?
Alistair Townsend: I cannot talk to the point about the scale. I can talk about the data and the sharing of data. HMRC asks for a considerable amount from billing authorities in relation to rateable occupiers and all the information that assists HMRC, but the data that HMRC provides to local government is very limited. That causes a disconnect and a lack of joined-up working.
While you have been discussing the taxation of tobacco products and whether it reduces or reaches a tipping point, there is no doubt that the avoidance of rates, which is another tax—it is just a local tax—is a driver to some of these illicit occupations. The landlord wins either way. If somebody occupies that property and pays rent, they win, because they are not liable for any rates and they are getting the rent. If somebody occupies that property and does not pay their rent, that is not as great for the landlord, but at least he is not being hit by the empty property rates on the property.
Q17 John Glen: I understand that the Chartered Trading Standards Institute estimates that around one third of vapes sold are illicit. In Salisbury, I have six vape shops. I think that one of them was challenged a year or two ago about what they were selling. This whole issue of the proliferation of shops that most people find slightly odd against their perception of the volume of demand is the reason why we are sat here today. You seem to be saying is that the incentives for the landlord are so weighted that there is really very little reason for them to do any proper scrutiny, as my colleague Dame Siobhain was saying earlier.
Alistair Townsend: Yes, largely, other than the social responsibility that that landlord chooses to apply, which is obviously a subjective test. Yes, largely, there is an incentive to avoid empty property rates. The test in business rates law is that, if the property is occupied, the person in occupation is liable. If the property is unoccupied, the person entitled to possession is liable. That means that, if you have an occupier, even if you are entitled to possession as the landlord, you are not liable.
Q18 John Glen: This is serious. Trading standards has apparently confiscated 59% more illicit vapes in the 2023-24 tax year than the previous year. That implies that we have an epidemic of illicit vape sales across the high streets of this country, does it not?
Alistair Townsend: It may do. I cannot really talk to the issue regarding the epidemic in relation to that. I can say that, even if they are acting illegally, if they are in occupation they are liable for the business rates and the landlord is not.
Hazel Cheeseman: I will pick up the point, particularly on illegal vapes. We do not have a good measure for the illegal vaping market. We hope that we will once the excise tax comes in. Relevant to this Committee is that they might not be paying the VAT, but there is not an excise tax currently on vapes. When they say illegal vapes, they are vapes that do not meet UK standards.
There appeared, from my conversations with trading standards, to have been a peak of some of those non-compliant products in the year that you cited there. More recently, they believe that that is on the decline. As the excise tax comes in, that will give us the sorts of controls that we have had in relation to tobacco at the border. Currently, products that do not meet UK standards can come in with not an awful lot of control, whereas that will change from October as the excise tax comes in. It is to be hoped that that will give us a bit more control over that particular part of the market, but it does not necessarily address the broader criminality or other structural reasons that might be driving some of these businesses.
Q19 John Glen: Mr Monaghan, you have heard what has been discussed. Is there anything you have to add to this topic?
Paul Monaghan: It is easy to have a go at the HMRC and the tax gap, and we do it. Everybody does it. They must get so sick of it. It is world-leading in many ways and every year it gets a little bit more accurate.
Q20 John Glen: It gets slightly bigger.
Paul Monaghan: Every time they dig deeper, the number gets bigger. That, to me, is informative, particularly when they get challenged on something such as phoenixing. Five years ago, when I talked to senior people at HMRC, they would say, “The whole phoenixing thing happens a little bit, but it is a myth. The barbershops are a myth”. I was told that they were a myth. You only have to pick up Private Eye to go, “Yes”.
Chair: Or walk down a high street.
Paul Monaghan: It was a myth. Then, when the pressure is on and they dig, “Actually, it is a big number”. Another example is R&D claims by small business: “It is not that big a number”. After pressure and digging, it is a big number. That is what worries me.
It worries me that the whole of the small business portion of the tax gap, which is that 62% of £60 billion, is based on a sample of 300 businesses. Other countries, when they calculate their tax gaps, use much bigger samples of small business that they dip into in order to form a point of view.
Maybe HMRC would say that it is a bit like polling. Once you have a representative sample, you do not need to increase the size of the poll. A representative sample for polls is 2,000 of 70 million people. It would be nice to challenge HMRC and say, “Widen the sample”. The equivalent in Canada is in the thousands. Widen the sample and let us see what it throws up. My experience has been that, every time it is challenged to dig, the number balloons.
Q21 John Glen: I think that most people will look at their high street over the last 15 or 20 years and say, “I have these vape shops and barber shops that I never had before”. I find myself sometimes thinking that it is a bit like a McKinsey job interview question where they ask you to estimate how many light bulbs there are. I remember that. It is a bit like, “Why do I have so many barber shops?” When I think about the commuting population to Salisbury and vaping, it does not add up.
Surely it is pretty obvious—it should be—to HMRC that something is happening. We are not seeing any consequential activity because we seem to be reluctant to concede on the tax side because we do not want to get into that issue. We have something that is happening on the high street that is thoroughly undesirable.
Paul Monaghan: Our relationship with HMRC is a bit Marmite. It loves us and it hates us. It loves us because we say, “Let us get more tax and people paying more tax”, and it hates us because we are saying, “You are not doing your job well enough”. Depending on who we talk to, it is smiles or groans.
Things are changing for the better. The fact that the new Government are going to announce these 5,500 extra compliance officers, 350 of which will be dedicated to small business tax avoidance, is really welcome. There is the new 50-person unit that is going to be in the National Crime Agency. It feels like people have finally woken up to something that, to be honest, was out there for a decade.
It matters so much because the UK tends to be quite blessed compared to other nations, in that we have very high degrees of what is called tax morale. People will pay their taxes, by and large, in this country. There are lots of other countries where that is not the case, but in the UK people will generally pay their taxes if they think everyone else is paying. That is the crucial thing.
That is what worries me so much about the high street tax dodging. It is so in your face and pervasive that, at some point, it is going to weaken tax morale in this country. That is why it needs to be hit hard. The sanctions for me are not about when you catch them, get the company behind it and stop them from being a director for a few years. I would make them personally liable for any taxes due. I would remove the limited liability status from the individuals who serially abuse companies. It is £100 for limited liability status in this country.
Q22 John Grady: Ms Cheeseman, tobacco itself is a high-risk product, self-evidently. Where would I look for reliable evidence as to any additional health risks arising from illegal tobacco?
Hazel Cheeseman: It is cheaper and therefore enables you to smoke more of it. A legal cigarette is lethal. An illegal cigarette is no less lethal. They are as bad as each other. One is cheaper and so it enables you to smoke more.
Q23 John Grady: There are no additional risks from one to the other to public health.
Hazel Cheeseman: There is an additional risk to society from the criminality, the tax not being paid and keeping products cheap. For the individual, the legal cigarette is full of terrible toxins. The illegal cigarette is also full of terrible toxins.
Q24 Dame Harriett Baldwin: I am really interested in this statistic that we have heard from Mr Monaghan a couple of times about the tax gap and how much of it now is coming from small businesses. I wanted to focus on business rates and specifically ask about how much of this tax gap might be coming from business rates. In terms of your experience, Mr Townsend, what have your members found when they have tried to pursue shops for the business rates?
Alistair Townsend: It is important to note small business rate relief. Any property that has a rateable value of less than £12,000 will not have any liability for business rates. That does not really apply in London, but certainly in the provinces most of the high street shops would not be paying business rates. They would get 100% small business rate relief at the smaller size.
The difficulty that my colleagues face in relation to the business rates is establishing who is in occupation. Getting the liability right is very difficult. There is a lack of information. There is no law that requires a landlord to notify the council of who they have put into occupation, so it is a matter of the local authority finding who is liable, which is a definite weakness in the law. There should be a requirement upon landlords to be notifying. There is in council tax. Landlords are required, if asked, to tell you who is in occupation. That does not apply equally to businesses. That creates difficulties.
You see more of the difficulty around complex leases in business rates, so you will get multi-layer leases. An owner is defined as the person entitled to possession, which is not necessarily the freeholder. It is the person entitled to possession. It could be a 25-year lease and there could be a number of leases under that. That makes it difficult to establish. Above all, the issue you face is that, where a landlord is using legal avoidance, so he has set upon a scheme to avoid the rates, they are not working on the same side as the local authority, which is wanting to make somebody liable.
Q25 Dame Harriett Baldwin: What are the types of schemes that you are seeing? We have heard evidence of snail farming, of something called box shifting and in terms of listed places of worship. Do you recognise those forms of avoidance?
Alistair Townsend: Yes, all of them. Over the years I have dealt with all of those. On the places of religious worship, I have even seen anecdotal information about an industrial unit that had 60 different properties on it—separate hereditaments—each of which was a separate prayer room, with the aim of avoiding business rates on the whole of an industrial estate.
Q26 Chair: Was each prayer room a separate business?
Alistair Townsend: It was a separate property for the purposes of business rates.
Q27 Dame Harriett Baldwin: It was a whole industrial estate of prayer rooms.
Alistair Townsend: Yes, indeed.
John Glen: A revival.
Alistair Townsend: The snail farm one was an early wheeze. Let us put it that way. You do not see as many of them as you did because it has been proven to be not normally a suitable environment for producing snails that should be farmed for human consumption.
You have charities occupying properties. It is sometimes hard to see what the public benefit is to that charity, but they are a registered charity and so are entitled to 80% mandatory rate relief.
You have the special purpose vehicle companies set up that go immediately into members’ voluntary liquidation. That has narrowed down a little bit over the years, because some councils have fought cases and the owners were found liable because they retained control of the property.
We have mentioned phoenixing already. There are guardianship schemes. There was a rather famous case called Ludgate House in London with Southwark, which involved a number of guardians occupying a very large building. There were only a handful of guardians and they were trying to claim that it should be maximum of band H council tax because it is now a domestic property.
I have seen Bluetooth boxes. Occupation is occupation. It is similar to the box shifting but, if you are going to occupy to get that three or six month exemption, you want to do it in the most conservative way possible. Make sure that it is occupied, but not so that it is costing you a lot of money emptying it out at the end of it. I have seen examples of large offices with one Bluetooth machine in that is sending out messages and claiming that that is occupied. There is the box shifting that we have mentioned already. That is just short-term occupation, in and out. You see that quite a lot.
Q28 Dame Harriett Baldwin: That is literally physical boxes being shifted around.
Alistair Townsend: It is. It comes from a case that involved Makro. It had a warehouse and, as I recall, 0.01% of the property was occupied with some boxes, but it needed those boxes. There was no law that said it could not keep them in this warehouse. It was successful in arguing that it was occupied for that period, so therefore it restarted the clock on the three or six-month exemption. That can just continue. I have known of councils that say, “We have seen the same boxes move around the borough”. You begin to recognise the boxes. They are shifted around that often. All these exist.
At the heart of it is the fact that there are a number of exemptions to business rates for absolutely the right reasons, but they are being misused for the purposes of avoidance. Scotland and Wales have introduced some form of general anti-avoidance rule. England has not. I actually think Scotland and Wales are slightly on the wrong track because they have been too prescriptive with it. It needs to be quite a broadbrush anti-avoidance piece of legislation.
Q29 Dame Harriett Baldwin: That is your recommendation. No one wants to see empty shops. You would tackle it a different way.
Alistair Townsend: I would tackle it a different way. The original intention of bringing in empty property rates was to encourage landlords to bring properties back into use. It is easier to avoid the empty property rate than it is to bring it back into use. If we want to incentivise bringing property back into use, we have to make it less easy to avoid empty property rates. That is a simple equation, really. In my view, councils desperately need a wide-ranging, flexible general anti-avoidance rule that means that the landlord remains liable where there are artificial circumstances such as avoidance.
Q30 Dame Harriett Baldwin: How big a part of this small business tax gap would business rate avoidance be?
Alistair Townsend: I do not believe that local taxes are included within the tax gap calculation that HMRC does.
Q31 Dame Harriett Baldwin: It is on top of the tax gap we have already heard about. Is money laundering a factor, Mr Monaghan, in terms of the tax gap numbers that you cited earlier?
Paul Monaghan: I am not aware either that there is a breakout by that granularity of taxes such as business rates in the tax gap. There are some estimates of the size of the hidden economy, which they put at something like £3 billion. That feels widely out of sync with what most people would say is a cash economy that operates out there. The best estimates I have seen are in the hundreds of millions for how much the business property avoidance is costing.
Q32 Yuan Yang: Mr Townsend, I have almost the inverse of the problem that you have just described. I think that we can see this in all of our high streets. There are empty properties that are stood vacant for many years, often attracting graffiti and other kinds of antisocial behaviour around them. I can think of several properties even in my own constituency in Earley and Woodley. I am sure that we can all think of those examples. Given that we have the blight of, as you just described, landlords getting rid of empty properties too quickly to potentially dodgy tenants, but also these empty properties that stay a blight on our high streets, how would you tackle the latter issue?
Alistair Townsend: They are connected. The question I would ask is whether it is a rent issue. Is it the level of rent? Are rents able to stay artificially high because the empty rates is being avoided? If empty rates was being paid by the landlord, would they be more open to reducing the rents? That would allow a wider selection of people to be able to occupy that property.
Q33 Yuan Yang: You would argue that the avoidance behaviour is inflating the commercial rent on high streets.
Alistair Townsend: There is a risk that that is the case.
Q34 Yuan Yang: Are there other measures that would help reduce vacancy on high streets?
Alistair Townsend: To rather a large extent I am focused on the business rates side of things. I have mentioned small business rate relief already. A property with a rateable value of under £12,000 pays no rates if it is occupied. If it is unoccupied, it is 100% empty rates. Government could consider whether those levels that are set in statute are still relevant today, because they have not changed for a while, and whether, if the cap on rateable value was increased, it would incentivise occupation because they would not be paying any rates. They would get full small business rate relief. That is another option.
Q35 Yuan Yang: Mr Monaghan, is there anything that you might add to this question of getting rid of vacant shops?
Paul Monaghan: No, not in the sense of how you would incentivise. I take your point that that is the other side of the argument.
Q36 Yuan Yang: We talked about box shifting, but I wonder whether there is an element of responsibility or blame-shifting among the different agencies that are involved in tackling high street evasion of taxes. We have just heard about how local authorities are involved and there is the Ministry of Housing, Communities and Local Government at one level. There is also HMRC and the Valuation Office Agency. Then there is police, National Crime Agency and enforcement.
Even from speaking to other MPs and my experience in my own constituency, often people do not know who is responsible and who is going to do the actual enforcement. Mr Monaghan and Mr Townsend, we have seen that there is a big national debate right now about Treasury reform, fiscal devolution and increased devolution of powers. In the midst of that debate, what do you think would be a better arrangement to make sure that everything is joined up and the enforcement actually happens?
Alistair Townsend: A multi-agency approach to these issues would absolutely be the right way forward. There are blockages in the way at the moment regarding legislation and sharing of information. The Valuation Office Agency is part of HMRC. It is very limited on what information it can share with local councils that are attempting to bill for the business rates.
Q37 Yuan Yang: Would you want to share more information?
Alistair Townsend: Absolutely, yes. This is a multifaceted issue that we are dealing with and there should be a multifaceted approach to it, which involves a multi-agency approach. All the different organisations ought to be working together and be able to share information more freely than they can do currently under the current legislation, so that it can be dealt with more holistically than it currently is being.
Paul Monaghan: We have very weak sanctions in this country and they are less and less frequently implemented. The UK Public Accounts Committee in 2025 criticised HMRC for the fall in the number of criminal prosecutions for tax evasion, and it has fallen again since it made that criticism. It is down again. I look at the same trends visible when it comes to prosecuting the enablers of tax evasion, which has reduced by 70% in the last five years. We are talking about a handful of people being prosecuted.
The killer for me is the new law that was introduced nine years ago, which was designed to prosecute people who facilitated tax evasion. There has been one prosecution to date in nine years. If you talk to people at HMRC, the problem is that the burden of proof to get a prosecution is so ridiculously high that it is impossible to get a prosecution. That is not even one conviction. There has been one prosecution in nine years. It is incumbent on all of us sometimes to design the legislation in a way that it actually can bite. It is impossible for that piece of legislation to bite.
There is this general thrust that I see right now, though. The way we deal with phoenixism is that we simply identify the directors and ban them for a few more years. That is not going to do anything, in my opinion. People have to think that, if they are fraudulently doing this year after year, there are cars or houses on the line. That is the only way we get to this.
It is interesting though that RSM did a freedom of information request very recently. It said that HMRC is now deploying personal liability notices and joint and several liability notices more frequently. That is something that I know the Government have been urging it to do. I do not have a sense yet, though, of whether things are up by 10%, 50% or 300, but that is the direction of travel.
The way tax avoidance works in this country is that, once a scam is invented—the snail farm, the box scheme or the phoenixing—and people see it, it is like wildfire. It goes through the country. All the accountants know about it. All the businesses know about it. I met a guy at a financial services conference last week. He was literally crying. He was a decent man and an accountant. He said, “Every one of my clients asks me to do this, this and this, which is fraudulent, because their accountant lets them do this, this and this. They tell me they will move if I do not do it”. How does he act in that circumstance? When these wildfires start, we have to find a way to put them out immediately. We will put them out immediately if people do time.
Hazel Cheeseman: There is the communication element. Having the legislative powers is obviously really important, but it is also communicating to the public and businesses when prosecutions happen.
Paul Monaghan: They are on the way down. You cannot make a big deal about prosecutions going down.
Hazel Cheeseman: We have to address that as well, of course. On the tobacco side, one key concern that we have is that HMRC does not always communicate when it has successfully prosecuted someone. Through the track and trace system, it will prosecute people and levy fines, but they are civil fines, and it does not tell anyone.
Q38 Chair: It does not catch the news.
Hazel Cheeseman: It does not even try. It is important that businesses know that it is real and that the prosecutions do happen, and we obviously have to address the barriers to that. When they happen, it is important that it is out there and communicated.
Q39 Chair: As Mr Monaghan said, often HMRC does not take a case because of the cost for the relative success. There is a school of thought that says that it sets an example, but it is a costly example on a cost-benefit analysis. It is a political decision, ultimately, that might need to take place.
Alistair Townsend: In my experience there has been quite a proliferation of companies that operate schemes—speaking to the point the member made—that are openly advertising rates avoidance. You do not even need to get anywhere near evasion, because rates avoidance in the current climate is so simple. There are so many exemptions and removals from the rating list for very good reasons that people are running through all those reasons and working schemes around them, such as the faith rooms. That is a very good example. Landlords are paying quite significant amounts of money to organisations that will operate the scheme from their premises to avoid the rates.
Q40 Bobby Dean: Mr Townsend, I wanted to raise with you the prospect of reforms in the areas of business rates. This Committee has heard lots of evidence about different reforms out there. One of them—a proportional property tax or a commercial landowner levy—would put all the liability on to the property owner going forward. There are discussions about whether those rates, in effect, would be passed on through rent.
Picking up on your comment earlier, you said that there is this perverse disincentive, where, even if they do not collect rent, it does not matter, because they are relieving themselves of that business rates burden. If it was always the landlord that was responsible, would that not drive them towards finding somebody who is going to more reliably pay their rent, because it helps them cover their costs for business rates too? Do you think putting the entire onus on the property owner might have other effects?
Alistair Townsend: Speaking on behalf of local government, which is my background, I believe in localism and the connection of businesses within the locality they are in. There is an issue with ownership. A massive amount of property these days is not even owned by UK companies, let alone within the borough. There is a connection that we talk about between the high street and the local authority within which they are, and that would be disconnected entirely. There are arguments for a different form of tax, such as land tax, but then you get into areas of understanding how you would value it. Is it highest and best use?
Q41 Bobby Dean: Leaving aside all those other elements, because we are not going to work that out in today’s session, and assuming that they could maintain some sort of local revenue link for authorities, specifically on the tax evasion measure, would that create the right level of incentive for the landlords to have responsible tenants?
Alistair Townsend: I do not think that it is necessary to break that local connection to that extent. It would be perfectly possible to keep the local connection between the occupier and the local authority and create an anti-avoidance piece of legislation that would deal with the exception to the rule.
Q42 John Glen: I have two questions for Mr Monaghan. I would like to address the issue of the implications for sound businesses of illicit activity. I wondered whether you have any quantification of the negative consequences, for law-abiding businesspeople on our high streets, of dealing with the tax evaders who are not doing the right thing. Is there any way that we can understand the implicit subsidy that exists?
Paul Monaghan: I am not aware of any bespoke studies in the UK. I am aware that the IMF and the World Bank have done international studies where they try to look at what the impact is in countries where tax evasion and criminality is poorly policed, for example, and the effect that has on legitimate businesses. They identify a massive reduction in productivity in those localities in the countries because the inefficient tax-avoiding businesses push out the efficient tax-compliant businesses.
On your exact question, I am not aware of what that number is. It would just be anecdotal. It would just be that there is a number of businesses we talk to that we have met that say, “I cannot operate in that sector now because I cannot price against that. It is impossible to price against it”.
One problem we have in this country is that we still have this obsession that the UK will be the easiest and quickest place to establish a small business. We are still rooted in this obsession. You can establish a business in the UK in 24 hours. It will only cost you £100. It is £100 for limited liability. It used to be £15. It only costs you £13 to shut the business down at the back end, which is insane. It is not just cheap to establish a business; it is cheap to shut a business, and we worry about why we have so much phoenixing.
Look at the UK company register. When the Economic Crime and Corporate Transparency Act was introduced, we all assumed that the measures in that would see it shrink and that that would be a good thing. It has grown again. The latest stats from Companies House are that there are 5.7 million businesses on the UK company register. I still think it is the case that there are at least tens of thousands of fraudulent businesses on it, if not hundreds of thousands.
Until we grasp the nettle of this obsession, how on earth can any agency do compliance when the UK says that you can have a business in 24 hours? How can any agency police when 830,000 new businesses were established in the UK in 2025? There are only 2,000 people in Companies House. They get to set it up in 24 hours. We need to break the cycle. I would double it. I would move to at least £250 as the cost of establishing a business in this country, which is the norm for Europe. All that money would get ploughed back into Companies House, which would be revenue-neutral. Actually, it would be positive because it would shut people down.
Alistair Townsend: £250 to set up a business would be a drop in the ocean compared to the business rates.
Q43 Chair: Do you think that it is a proportionate number?
Alistair Townsend: Business rates is based on rateable value. Rateable value is based, in retail areas, on price per square metre. If a property is £500 per square metre, you can start to guess the level of business rates that is payable on it. The cost of setting up another company would not put anybody off avoiding their business rates, I do not think, if that is the method that they are using to avoid it.
Q44 John Glen: I recognise the passion that you express on this matter, but is it not something more to do with not just what you have said but also the lack of connectivity between the criminal justice system, the HMRC system, the regulation of identity and who is doing this? There is a live debate about digital ID. Some of these things around knowing your customer and anti-money laundering can be done now much more efficiently. Do you see anything in that space that would be an enhancement and not potentially have the perception of a higher barrier to create businesses, which is something that people are concerned about for other reasons?
Paul Monaghan: There need to be higher barriers to create businesses. I know that that goes against the grain in some ways, but there is a reason that we have the most bloated company register in the world. There is a reason that we have a company register full of hundreds of thousands of fraudsters. The Insolvency Service has just recently shut down five illegal company service providers, which between them had set up 12,000 illegal companies in the UK, and we are only halfway through the year. We have got a problem in this country that the obsession to set it up cheap and quick creates all the other problems.
Phoenixing is so rife here because it is so easy to do. The cost of setting up a business is £100 here and £13 there. The sanctions when you are caught are less than if you are caught littering. In many ways, phoenixing is driving the abuse of the vacant properties, because they can step in for a few hundred quid.
It is good that the Government are now requiring that abridged accounts can no longer be filed at HMRC, because HMRC previously was only seeing abridged accounts. That is going to be ruled out from 2028. Those accounts are supposed to go on the company register, but we have now allowed that a business can say that they do not want their small business or partnership accounts on the company register. That should not be allowed, because I will tell you exactly the businesses that are going to not make that public. It is these businesses.
Q45 Dame Siobhain McDonagh: There are also the issues about who is allowed to be a company director. Are they really the director of that company or merely a nominee? In the case, as you will know, of the American sweet shops on premium sites on Oxford Street, and, again, including my friends at Criterion Capital, it seems that the director is somebody here on a student visa from a small village in India. It is impossible for anybody to believe rationally that that individual has the access to funds, knowledge and all sorts of support that a company running a business like that would actually have. Will the Companies House reforms actually prevent that, or will it still be too easy to put someone else’s name on the paperwork?
Paul Monaghan: In theory, they will lead to a marked reduction. I am not seeing that yet. Something like 4 million directors by November will have gone through electronic verification, but most of the verification takes place through a service provider. HMRC will check those service providers off to make sure that they are legitimate, because it is like a third party. You have outsourced it to a third party. There are many abuses taking place now among the service providers.
In the example I gave a minute ago of the Insolvency Service, it had identified five who between them had illegally registered 12,000 companies, most of them in China, to individuals largely based in China. That does not just affect the high street bricks and mortar. These businesses then pop up on the Amazon, Shein and Temu platforms. That allows them to then try to dodge VAT.
We need to get serious. For me, sanctions work backwards. If accountants tell their clients, “If you do this, this will happen”, they are less likely to do it. If the sanction is, “If you get caught, ask your sister to sign on”, it is nothing.
Q46 Dame Siobhain McDonagh: What measures could we introduce that would really show who is controlling a business?
Paul Monaghan: It is the measures that we have progressing. They are still progressing and they deserve to be given time to bite. They need to be better and more robustly implemented. I would argue that there needs to be a bigger Companies House compliance function, paid for entirely by an increase in the cost of setting up a business.
Alistair Townsend: The difficulty we have is that what we are talking about here is a very basic, fundamental principle of English law around the legal entity and the separation of the legal entity from the human individual. It is set down in many cases that they are entirely separate things. They are different legal persons for the purposes of the law. It does not really matter who is controlling. If it is a limited company, the limited company is liable as the legal person. It does not matter who is controlling them. That is the difficulty you would have in relation to business rates, because the limited company would be liable for the business rates, and that will not change.
Q47 John Grady: On that, you are correct, Mr Townsend, and it is called piercing the corporate veil. Is there a need to review company law to enable the corporate veil to be pierced to a civil standard on a more frequent basis, so that those behind these entities are held personally liable for the tax?
Alistair Townsend: I am not a lawyer. I think that there is an argument for it, but it would require some significant legal thinking to work out how it could be done.
Paul Monaghan: HMRC has the powers. They have just been poorly deployed. This is why I was alluding to this RSM data request recently, which said that there seems to be an increase in the deployment of PLNs—personal liability notices—and JSLNs. HMRC has the right, if someone is really taking the mick and frequently setting up fraudulent companies and getting away with it, to ask for securities and start establishing personal liability notices, or joints if there are a number of individuals.
There is an indication, because of the recent utterances of what is going on in society, that it is starting to do it a little bit more. It would be really interesting to ask it what the real numbers are, what the trends are and where we are going on this. If that happened in a decent number, I think that it would change the climate in the UK for who does what.
Q48 John Grady: Briefly, to your wildfire point, is there a need for a much stricter remedy for accountants who advise snail farms and things like that, so some sort of interim order that would stop them from advising them to do that?
Paul Monaghan: We need to revisit the law, which is about the facilitation of tax evasion, which is not fit for purpose, and get the bar lowered so we can get some real prosecutions in place.
Q49 Bobby Dean: Mr Monaghan, you have talked about the Economic Crime and Corporate Transparency Act needing an opportunity to be able to bite. When I have been looking at this, it feels like there is still some feet‑dragging going on. We might need further secondary legislation over verifying directors. On the abridged accounts issue and wanting to see more detail in the accounts, the Government this year in January stepped backwards on it and said that they might not do it now. What would be the effectiveness of these measures if they were introduced today? Are you also frustrated with this? Do you think that it is feet-dragging, or do you think that there are some technical problems?
Paul Monaghan: There was feet-dragging. In the summer of last year, every single small business in the UK was written to and told that henceforth their accounts had to be full and they were going to go into the public domain. That communication had gone out. Then the Government chose to backtrack and say, “We need to think about this a bit more”. Very recently, in the last few days, they have now said that it is actually going to happen. That is great. However, businesses that do not like it will have the right to not have the numbers in the public domain. We do not know what that mechanism is yet. We will talk about it. To me, that is ridiculous.
Q50 Bobby Dean: They can opt out. Which businesses do you think are most likely to want to opt out?
Paul Monaghan: There is Nigel Farage and his company. There is PPE Medpro. We would have had those numbers properly in the old days when there were all the covid scams. We need those numbers in order to understand what is going on. Other businesses need those numbers to make a decision about whether they want to transact with those people: “Am I transacting with a business that is effectively bust and I am going to lose my money? Am I transacting with a business that is profiteering?” We need those numbers.
Q51 Bobby Dean: Given what you just said, it sounds to me that we are going to end up in the worst of all worlds, which is adding on to the compliance cost for businesses that are trying to do the right thing. They are all going to go ahead and do what they think they are supposed to. All the ones that we are trying to catch out are going to say, “I am not going to disclose. I am not going to bother”.
Paul Monaghan: To be fair, the full report and accounts are going to HMRC anyway. In many instances they are just going to upload them. That is not an extra cost. There are businesses that were preparing abridged accounts for their directors, so even the directors were not seeing the full state of play because they are shown an abridged balance sheet. That was ridiculous. That is gone, so that is wonderful. This compromise of businesses having the option to opt out, for me, is ridiculous and needs to be looked at.
Q52 Chair: There may be a competitive issue for businesses if they are putting all their numbers in the public domain. Presumably that is why the Treasury pulled back.
Paul Monaghan: I am sure that that was the lobbying from the small business organisations. The flip, I would argue, is that we have many Fair Tax Mark businesses that voluntarily put that information in the public domain because they are proud to talk about the taxes they pay or do not pay and then put an argument in place, which is, if they are not paying tax, why they are not. Maybe it is carried forward losses, et cetera.
Q53 Chair: Do you think that there is any scope to look at what information goes out? What would be the top bits of information that you think need to be put out there in the public domain?
Paul Monaghan: Income, profit and tax paid or not.
Q54 Chair: You do not need to go to a minute level; it is just those three.
Paul Monaghan: We are not talking about detailed breakdowns, but right now it is just an abridged balance sheet, which tells nobody anything.
Q55 Chair: You need it to be between that and the full detail, so somewhere in the middle.
Paul Monaghan: Yes.
Q56 Bobby Dean: We have already covered ground on enforcement, particularly at HMRC, being low and actually lower than it was prior to the pandemic. Can I also ask you about the Insolvency Service, which I read disqualified just seven directors for phoenixism over a five-year period? What more needs to be done with respect to the Insolvency Service?
Paul Monaghan: I have a lot of admiration for the Insolvency Service. It feels to me that a lot of the enforcement that goes on is via the Insolvency Service. When it gets called in at the end and it starts digging, the things it finds will then tip off other agencies.
Once a business is in the Insolvency Service, we are dealing with a problem. We need to move upstream. For me, that is HMRC. I am hopeful that maybe some culture change is taking place in HMRC because of the discussions at Committees such as this and in the media. It can no longer say, “I am not going after the small business tax non-compliance because there is no money in it. It is too small. Big picture, there is not enough money in it”. We talk about the deterrent effect. That is the problem. It sends that signal that there is no compliance taking place in the small business sector. Tax avoidance becomes rife. Deterrent is so powerful. The tax morale system relies entirely on deterrent.
Q57 Catherine West: Do large online marketplaces such as Amazon, Shein and Temu contribute to the scale of high street tax evasion, Mr Monaghan?
Paul Monaghan: Yes.
Q58 Catherine West: What measures would you recommend to fix that?
Paul Monaghan: Fair play to the Government. They have a consultation under review right now, which is about levelling how those online platforms work with UK-resident businesses. We have seen many overseas businesses pretend that they are resident in the UK in order to avoid VAT. I feel like they are getting on with it, so to speak.
One slight worry I have is that we have this de minimis thing in the UK where there is no customs duty on anything under £135. It is leading to this massive flush of imports. The UK is going to get rid of it in about two and a half years. The US has already got rid of it. The EU gets rid of it in a few weeks. The number of cheap goods flooding the UK has already doubled in 12 months. Everything that was in the US and Europe is coming into this country in the next 12 months.
Q59 Catherine West: You think that 2028 might be too late.
Paul Monaghan: They have just brought it forward by six months, which is great. They need to move quicker.
Q60 Catherine West: Do you think that our system is prepared for that? Presumably that will add to more checks at the border.
Paul Monaghan: The US did it like that. I know that there are different politics in the US right now, but it just did it. The EU can do it three years quicker than us. The EU’s kicks in in July.
Q61 Ms Minns: I want to return to the issue of illicit tobacco and vapes on the high street. Sadly, my Carlisle constituency is very afflicted, not just by vape shops, but minimarts that sell vapes and barbers that seem to sell vapes as well. It has been an increasing problem in the last 18 months. I want to look to the future. My question is to you, Ms Cheeseman, about the Tobacco and Vapes Act. I know that this is something you have welcomed. Could you describe to us how you believe the licensing scheme needs to be designed so that we tackle the illicit trade?
Hazel Cheeseman: There are many things that are going to come into force before the licensing regime that will help with the issues that we see on the high street around non-compliant vaping products or products being sold underage and so on. From an ASH point of view, we think that vapes are less harmful than smoking. They are valuable tools to help people stop smoking, but the way that we see them on our high street at the moment is not appropriate.
We expect restrictions to come in around the way the products can be displayed, so that they are put out of sight. When the same restrictions came in for tobacco, we saw that a lot of the more informal settings that were selling tobacco stopped selling tobacco. We would expect to see a similar phenomenon around vaping products. The many weird and wonderful places you can currently buy a vape will probably start to decline.
With the introduction of the excise tax in October and because of the additional requirements—you have to buy tax stamps ahead of time—we are probably going to see a slimming down of the importers and manufacturers of vaping products. It may also have an impact on retail. We would expect as well for it to help with the controlled products coming in at the border, so we do not have non-compliant products and non-duty paid products.
Those things will already help and there are other things in the Tobacco and Vapes Act that will raise the cost of selling vapes on the high street. There will be more enforcement capacity from trading standards to enforce the new vaping regulations and new resources from HMRC around the excise tax, so there should be more things coming. Then we will have a licensing regime that will come further down the line.
It is really important that that licensing regime has a public health objective, both on the tobacco side and on the nicotine side. It is really important that it is seen as a public health tool and that we have a national system, unlike with alcohol, that means that, if you have had your licence taken away from you or been sanctioned in one local authority, you cannot move to another one and set up. There are powers currently in the Act that relate to where there is an ability for the licensing regime to be structured, so it can limit where licences are granted or how many licences are granted. Those powers need to be retained and the responsibility given to local government to understand its community and where it does and does not need these retail outlets.
Q62 Ms Minns: That all sounds great for regulating a legal market, but how are we going to tackle this illicit market? What is it going to do for that?
Hazel Cheeseman: On reducing the number of informal places that are selling products, we have a combination at the moment with vaping products. You have people who are not very experienced in relation to these products and are inadvertently selling products that do not meet UK standards. That will be much harder once we have a tax stamp and it is really clear whether something is legally imported or not. That will help with the inadvertent stuff.
On the more deliberate criminality, there is a market for vapes and tobacco products and there is criminality on the high street. We can do things at the border to prevent the flow of illegal products coming in, internationally to disrupt criminal networks and on the high street to disrupt the illegal supply.
For the various different things we have been talking about today, so the underlying structural problems and the organised crime that is out there, we need tools that are outside the Tobacco and Vapes Act and our illicit tobacco and vaping strategies and are probably more about what my colleagues here have been talking about. That is outside my expertise for sure. If criminals are setting up shop, wanting to make a profit and illicit tobacco is available, they are going to sell those products. We can do what we can to limit the supply, but we also have to tackle that high street criminality. That goes beyond the remit of the people working in tobacco control, generally speaking.
We have seen this growth. I hear from trading standards colleagues that more and more there is organised crime involved in the sale of illegal tobacco in particular, and probably in due course in relation to illegal vapes as well. There is a limit to what trading standards can do on its own when you have organised crime and criminality and violence surrounding these things. We have talked about inter-agency working. We need that inter-agency working on the high street as well, so that law enforcement are alongside trading standards when it is enforcing these laws, to make sure that trading standards is protected from the criminality that is associated with these products.
Q63 Chair: On trading standards, as Mr Glen highlighted, we see a very wide range of numbers of trading standards officers in local authorities. Some really prioritise it and some do not. Often it is down to financial standing. You are talking about these new resources for trading standards. Do you have any sense of how that will be deployed, because some local authorities will say that it is not a priority for them?
Hazel Cheeseman: It is starting. There is ringfenced additional resource and a scheme to train up apprentices to enhance the workforce, which is absolutely needed. As has already been alluded to, over the last decade we have seen the erosion of the trading standards workforce. All these things are still coming online, but it will hopefully give us more capacity into the future.
Q64 Chair: It is not ringfenced for these particular businesses, is it? Those trading standards officers could be deployed in other areas of trading standards.
Hazel Cheeseman: At the moment there is ringfenced resource into trading standards that relates to tobacco and vaping. Clearly that could change in the future, but at the moment there is.
Q65 Dame Siobhain McDonagh: My issue with vapes and the non-compliance is their likelihood of setting stuff on fire. We have had quite a lot of that across my constituency in Mitcham and Morden. Do the new rules that come in about licensing with the Tobacco and Vapes Act have any influence on that?
Hazel Cheeseman: No, not those particular rules, but the Tobacco and Vapes Act is very broad so there are additional powers in the Act that will give Government powers over product design. That will enable them to set rules around how batteries can be removed and things like that.
There is already remit with Defra. There are WEEE regulations that are being looked at at the moment. We do not think that manufacturers or retailers are living up to their responsibility to make sure that these products are responsibly recycled and disposed of in the right way. We have survey data that suggests very large numbers of people are prepared to tell us in a large survey that they just chuck these products into the waste. That is where we see these fires in lorries and on refuse sites.
Q66 Dame Siobhain McDonagh: On waste sites they are costing companies millions and millions of pounds.
Hazel Cheeseman: We have to absolutely make sure that it is businesses taking responsibility, so that customers know that they should and can recycle, and making it easy. As we implement the licensing regime, you would absolutely want to make things like that part of the criteria around licensing, so that people are fully complying with their responsibilities around the responsible recycling of these products.
Q67 Ms Minns: I have a slightly different issue with regard to safety and public health. I have recently become aware of smart vapes, Ms Cheeseman. I do not know whether you have come across these. I am alarmed to discover that, in essence, they are now electronic devices. They have chips in them. You can play games and send messages on them. Is this something you are looking at or concerned about?
Hazel Cheeseman: We expect the Government to bring forward a consultation on product design possibly in the autumn. Gamification and these smart devices will be covered by that, we understand. There may be a case for some element of electronic features within these products, but I do not think that it is necessary for you to be able to play video games on your vape in order for it to act as a smoking cessation device.
Q68 Ms Minns: No, indeed. My understanding is that these are already on the market. They are arriving pre-boxed from China. Nobody knows what is in them. They do not know what the contents are in terms of safety, but I can already send messages on something that I can go and buy on the high street.
Hazel Cheeseman: Products that are legal on the UK market should be notified to MHRA and have controls on them. I think that the Government have conceded in this piece of legislation that they have passed that those requirements and controls are insufficient for the way that the market has developed. In addition to a licensing regime, which will be about the retail environment, there will also be a product registration system. We await the consultation, but that certainly can have far stricter controls over what information has to be disclosed before a product comes to the market and what standards the product has to meet before it can come to the market.
Chair: I think that we are going to hear more from Ms Minns on that. Can I thank our witnesses very much indeed? We have had a very interesting discussion. I should alert witnesses and members that the Exchequer Secretary has told me that he is going to be watching closely what was said today, so I think that there is food for thought for the Government there. We are expecting HMRC to come in front of us in the autumn, we hope—that is a nudge—and the Exchequer Secretary at some point thereafter.
We have, I think, mentioned five Departments’ work in discussions today, so it shows some of the complexity of tackling this issue. We are very grateful to our witnesses. That is Paul Monaghan, chief executive of the Fair Tax Foundation, Hazel Cheeseman, chief executive of Action on Smoking and Health, and Alistair Townsend, who is a fellow and past president of the Institute of Revenues, Ratings and Valuation. The transcript of this session will be available on the website uncorrected in the next couple of days, with thanks to our colleagues at Hansard. Thanks to our colleagues at Bow Tie for the broadcasting.