The Scottish Parliament - Finance Committee Report

Report on the Financial Memorandum of the Tobacco and Primary Medical Services (Scotland) Bill

2. The Committee may also consider and, where it sees fit, report to the Parliament on the timetable for the Stages of Budget Bills and on the handling of financial business.

3. In these Rules, "public expenditure" means expenditure of the Scottish Administration, other expenditure payable out of the Scottish Consolidated Fund and any other expenditure met out of taxes, charges and other public revenue.

Jackie Baillie (Deputy Convener)
Derek Brownlee
Linda Fabiani
Joe Fitzpatrick
James Kelly
Jeremy Purvis
Andrew Welsh (Convener)
David Whitton

Report on the Financial Memorandum of the Tobacco and Primary Medical Services (Scotland) Bill

1. The Tobacco and Primary Medical Services Bill (“the Bill”) was introduced in the Scottish Parliament on 25 February 2009. The Health and Sport Committee has been designated as the lead committee on the Bill at Stage 1.

2. Under Standing Orders Rule 9.6, the lead committee at Stage 1 is required, among other things, to consider and report on the Bill’s Financial Memorandum. In doing so, it is required to consider any views submitted to it by the Finance Committee (“the Committee”).

3. At its meeting on 24 March 2009, the Committee agreed to adopt level two scrutiny in relation to the Bill.¹ The Committee took oral evidence from Scottish Government officials at its meeting on 26 May 2009.

5. The Committee also received further information from the Minister for Public Health and Sport and from the Bill Team manager. These letters and all other written evidence received is published as the Annexe to this report. The Official Report of the oral evidence session on 10 March can be found on the Parliament’s website.²

6. The Bill covers two distinct policy areas – tobacco and primary care medical services. Part 1 includes provisions relating to the display and sale of tobacco products and seeks to—

7. Part 2 of the Bill makes provision to amend and clarify the eligibility criteria for providers of primary medical services. These provisions include the introduction of a requirement that all parties under a contract for primary medical services must demonstrate a sufficient involvement in the provision of care and/or day-to-day running of services. As a consequence, the Bill will exclude providers which do not meet the eligibility criteria from providing primary medical services.⁴

Scottish Government
8. Additional costs are anticipated to fall on the Scottish Government as a consequence of the Bill’s provisions relating to the display ban on tobacco products and the registration scheme for tobacco retailers. It is estimated that the total cost, rounded to the nearest ten thousand, will be £750,000 and then £10,000 in each year after implementation of the registration scheme.⁵

9. The Financial Memorandum estimates that the one-off marketing and advertising costs relating to the display ban will be in the region of £350,000. Information packs will be sent to retailers notifying them of the necessity to comply with the display ban and a new website will be created. The Financial Memorandum states that the cost is expected to be spread over the period 2011-12 to 2013-14 and will be met from within existing public health programme budgets.⁶

10. In relation to the registration scheme, the Financial Memorandum estimates one-off costs to be around £400,000 in the first year and with running costs of £10,000 every year thereafter. The set up costs in the first year are attached to: the creation of a database to hold national level information, estimated at £7,500; the employment of a full-time analyst and part-time administrative assistant for the maintenance of the scheme, estimated at £44,000; and the marketing and advertising costs associated with sending information packs to retailers and setting up a website.⁷ These costs will fall in 2010-11 and 2011-12 and will be met from within existing public health programme budgets.⁸

Local authorities
11. Although local authorities will have a role in the enforcement of the provisions in the Bill, the Financial Memorandum considers that Part 1 of the Bill will not give rise to any additional costs to local authorities.⁹

12. The Financial Memorandum recognises, however, that there will be an increase in demand for Trading Standards Officers to provide advice to businesses in the run up to introduction of the proposals and that this would be likely to require a reprioritisation of duties and resources by trading standards. The Financial Memorandum suggests that the Bill’s long lead-in time will help to ease the pressure on Trading Standards Officers and that the Government will fund a national campaign to help Trading Standards Officers carry out these advisory roles.¹⁰

13. Balanced against potential savings to local authorities relating to the proposals in the Bill that will ensure that only the most serious offenders will be referred to the procurator fiscal, the introduction of banning orders under the Bill is expected to cost local authorities about the same amount as reporting a case to the procurator fiscal.¹¹

Other bodies, individuals and businesses
14. The Financial Memorandum estimates that the main costs to business in relation to the tobacco provisions will be in relation to the display ban and the ban on sale of tobacco from vending machines.

15. It is estimated that the cost to businesses of introducing a display ban would be a one-off cost in the region of £1,200 for a small retailer, £6,000 for a medium-sized retailer and £17,500 for a major supermarket. The Financial Memorandum notes, however, that there is a high degree of uncertainty to these costs because estimates provided by retailers do not take account of more innovative, cost effective solutions to the displays ban. It is also stated that, in order to minimise the impact on business, the Government intends to implement the display ban in 2011 for larger retailers and in 2013 for smaller retailers.

16. In relation to the ban on vending sales, the Financial Memorandum indicates that the Scottish Government is only aware of one company operating in Scotland that would be affected by the ban. This company advised the Government that it would expect to have to make 14 staff redundant as a consequence of the ban.¹²

17. The Minister for Public Health and Sport has subsequently written to the Committee stating that the National Association of Cigarette Machine Operators (NACMO) has contacted government officials. NACMO have advised the Government that there are a further 14 companies involved in the provision of cigarette vending machines and job losses could be potentially much greater than the 14 initially indicated. The Minister has, therefore advised that it will “be necessary to update and amend the Financial Memorandum.” NACMO has also provided written evidence to the Committee.

18. The Financial Memorandum states that other costs will be incurred from banning orders and fixed penalty notices in the event that businesses fail to comply with the Bill.¹³

Costs associated with display bans
19. The FM states that the one-off costs to tobacco retailers for the implementation of the display bans are estimated to range from £1,200 for small retailers to £6,000 for medium sized retailers and £17,500 for major supermarkets. However, the SGF estimate under the counter installations will cost in excess of £10,000 and the SRC suggest that the cost could be anything between £2,000 and £25,000.

20. Government officials stated in evidence to the Committee that they are committed to working closely with the retail sector. They also pointed out that the Bill is intended to allow flexibility to retailers in relation to the storage of tobacco products once the ban on display is introduced and that the figures from the SGF ‘are indicative of the most expensive solution.’¹⁴ The more expensive estimates are based on a complete refurbishment of the gantry and refitting under the counter.

Costs associated with ban on cigarette vending machines
21. The FM states that the Scottish Government is only aware of one company operating in Scotland that would be affected by the ban on the sale of tobacco from vending machines. However, in a subsequent letter to the Committee the Minister indicated that there are in fact a further 14 companies which are likely to be affected by the ban. The Minister has, therefore, indicated that it will “be necessary to update and amend the Financial Memorandum.”

22. Government officials have since indicated to the Committee that it has not been possible to update the FM ‘because of the difficulties in bottoming out the figures – we keep getting different figures from NACMO.’¹⁵

Costs associated with registration scheme
23. The FM states that the costs of the registration scheme to business will be minimal. The FSB Scotland states, however, that “the time lost to the business in understanding and complying with new legislation is not adequately recognised in the document.” The SGF states that: “The financial burden placed on small retailers as a result of increased bureaucracy should not be underestimated.” There was also some concern that a charge may be introduced at some point for the registration scheme.

24. Government officials stated in evidence to the Committee that the Bill would not allow the Government to introduce a fee and a future Government would need to come back to the Parliament if it wished to introduce such a charge.

25. The FM states that the Government “does not consider that the provisions of Part 1 will give rise to any administrative, compliance or other costs for local authorities.” Both East Ayrshire Council and South Lanarkshire Council suggest that this is dependent on continued support for the Enhanced Tobacco Sales Enforcement Programme (ETSEP).

26. Government officials indicated that enforcement costs for local authorities should be met from the ‘continuing budget for trading standards as part of the local government settlement’ and ‘£1.5 million a year to support the enhanced tobacco sales enforcement programme.’¹⁶

27. The FM states that even relatively small reductions in the number of smokers will “yield significant health benefits both in terms of lives saved and reduced NHS costs.” Given that the legislative proposals are aimed at the under-18s it is likely to be 15 or 20 years before any savings become apparent. Government officials suggested that on the basis of the methodology employed in estimating the savings from raising the age limit for purchasing tobacco “our estimate is now somewhere between £5 million and £10 million per annum savings to the NHS.”¹⁷ This is an increase from the previous estimate of savings of £4 million as a consequence of raising the age limit.

28. The Committee has some concerns that the Financial Memorandum was drafted without a detailed knowledge of the number of companies and staff which the proposed ban on vending machines may impact upon. The Committee noted that Government officials were unable to contact NACMO prior to the publication of the Bill and the FM. This means that the FM is unclear as to the overall costs to business including the number of job losses which may arise from the proposed ban on vending machines.

29. The Committee is also concerned that despite the Minister suggesting that it would be ‘necessary to update and amend the Financial Memorandum’ as a consequence of the further information from NACMO no such update has been received. This is indeed “not ideal” as stated by the Bill Team manager in further correspondence to the Committee. The Committee would expect that the relevant information will be made available to the lead committee before it finalises its stage 1 report.

30. The Committee notes that the Scottish Government will continue to work with retailers in finding a solution to the display ban which will minimise costs and that it expects to have a clear set of proposals at stage 2. The Committee suggests that it would have been preferable to have these solutions in place before introducing the Bill.

31. The Committee agrees with the Scottish Government that Part 2 of the Bill in relation to primary medical services is not likely to give rise to any additional costs.

32. The Committee also notes that there would appear to be a different approach to the FM for this Bill and the Health Boards (Membership and Elections) (Scotland) Bill in relation to providing expected costs outwith the current spending review period.¹⁸ Notwithstanding that formal budget allocation will be subject to future spending review the Committee considers that FMs should be consistent in providing projections for costs in future years.

This annexe also contains correspondence received from the Minister for Public Health and Sport

The Federation of Small Businesses is Scotland’s largest direct-member business organisation, representing around 20,000 members. The FSB campaigns for an economic and social environment which allows small businesses to grow and prosper.

We welcome the opportunity to submit our comments on the Financial Memorandum which accompanied the Tobacco and Primary Medical Services (Scotland) Bill.

The FSB in Scotland did submit a response to the consultation on the Tobacco and Primary Medical Services (Scotland) Bill in April 2009, as a significant minority of our membership are small independent retailers and could be adversely affected by the proposals outlined in the Bill.

As we stated in our initial response, we are concerned that a ban of the display of tobacco products could cost small retailers a significant amount of money, while they are struggling to remain in business during the current economic downturn.

While the financial memorandum does give some estimated costs of approximately £1,200 for a small business to re-fit their premises, these are only estimates and could be higher. We also pointed out in our consultation response that coming so soon after the costs associated with the new licensing regulations, the costs associated with this tobacco display ban, to redesign or restructure premises, would fall disproportionately on small retailers, who are least able to absorb the costs.

The financial memorandum points to information gained from the Association of Convenience Stores, which suggests that tobacco gantries are replaced every 3 – 5 years and any restructuring could allow retailers to refit as part of a planned refurbishment. The FSB is not convinced that there will be any significant financial support from tobacco suppliers as they are unlikely to fund a display which does not market their products. This could lead to ongoing maintenance costs of fixtures, which will be an additional financial burden on the retailer.

We have also been made aware of a survey conducted by the Scottish Grocers Federation, which suggested that the majority of retailers are supplied with gantries on a five year contract. In reality however, they only tend to be replaced every seven or eight years. This information suggests that the removal of tobacco displays on the timescale outlined by the Scottish Government cannot be conducted as part of a planned refurbishment for many small independent retailers. This therefore means that there will be a direct cost to these businesses as a result of a display ban.

The financial memorandum talks about the ‘total costs’ to businesses of these proposals in terms of the redesign or restructuring of the premises. However, it makes no mention about the loss of trade, or ‘customer migration’, if a retailer is no longer able to stock tobacco due to space restrictions or increased costs of stocking the product. There is a fear that trade will fall due to smokers not purchasing other items they would usually have purchased when purchasing tobacco.

The financial memorandum briefly mentions the ‘simple registration form’ and the minimal costs and time needed to fill it in. The FSB is concerned that the time lost to the business in understanding and complying with new legislation is not adequately recognised in the document. Clearly this will be an additional burden on this group of businesses which they do not have to adhere to at present.

The FSB supports and encourages responsible retailing. We would therefore support sanctions against retailers who repeatedly break the law.

The FSB understands the Scottish Government’s objective to reduce under-age smoking, but we do not believe that the proposals outlined in the Bill necessarily offer the best way to achieve the objective.

We would like to see rigorous enforcement of existing regulations, particularly tackling the black market in tobacco as a first step to achieving the objectives set out in the Bill, before burdening small retailers with new regulations which will be costly and time consuming to enforce.

The Memorandum highlights the important role of Trading Standards. The FSB believes that the money allocated to implement this Bill could be more wisely spent on reducing under-age smoking, by supporting Trading Standards to address the important issue of black market tobacco.

Small independent retailers fear that a ban on tobacco products will impose a considerable burden on their businesses and as we pointed out above, coming so soon after the increased costs associated with the new licensing regime, these proposals are targeting the same group twice.

The FSB understands that registration will be free for retailers. We would like to see a commitment from the Scottish Government that this will continue to be the case in the longer term.

Scotland’s small businesses currently face very difficult trading conditions and so it is important that only proportionate regulations be implemented at this time. The FSB does not believe that it is the right time to introduce these regulations and we use this opportunity to call on the Scottish Government to think again about these proposals.

We look forward to a continuing dialogue as the Bill continues is passage through Parliament.

I represent the Northern Section of the National Association of Cigarette Machine Operators. Our members operate 1,566 cigarette vending machines in Scotland, there are 45 employees and our members have a turnover of £7,328,000.00 per annum.

NACMO operators’ businesses have not been included in the recent financial impact assessment when a ban on cigarette vending machines was considered in Scotland.

The announcement of the proposed ban has had an immediate affect on our members businesses, their bankers, suppliers and staff have become apprehensive and nervous putting these companies under intense pressure.

How would you feel if someone you had never heard of before takes it upon themselves to try and ban your legal business or trade without any consideration or thought for you or your employees?

We have opened dialogue with the Scottish Department of Health and we have proposals that will restrict the use of cigarette vending machines to adults.

Trials are taking place of a radio frequency control device we have developed to fit to cigarette vending machines. When a customer wishes to use a cigarette vending machine they approach the bar and request the staff to enable to cigarette machine, once staff have verified the customer’s age they use the remote control to “wake up” the machine allowing one vend to take place before again reverting to stand by. The remote control is clearly labelled informing staff to ensure age verification takes place prior to the machine being enabled.

Once the machine is converted to radio frequency control it is entered on to the NACMO database where all machines will be registered. Access to this database and training records will be available to Government Offices once agreed controls are in place.

We believe technological solutions are the way forward allowing legitimate vending companies to carry out their legal trade, selling to adult smokers in a secure manner.

Banning cigarette vending machines is not the answer. Bans would lead to bootleggers and smugglers being given our legitimate sales as they roam the streets selling illegal products. Scotland leads England, Wales and Northern Ireland in the amount of illegal sales and smuggled tobacco sold.

Cigarette vending represents 0.8% of the UK market sales. Smugglers and Bootleggers represent 26% of the cigarettes consumed in Scotland and 73% of all hand rolling tobacco consumed in Scotland. Scotland is loosing millions of pounds in uncollected taxes as a result of these actions. Do you think smugglers and bootleggers care whom they sell cigarettes to?

Multiple grocers such as Tesco, Sainsburys and Morrisons represent 30% of UK and Scottish cigarette market sales – WHY are we being picked upon? We represent 0.8% of the market, a percentage so small it is not worth bothering with or maybe a market that does not answer back or small enough not to have the resources to answer back?

The proposed registration for the Sale of Tobacco Products I am afraid is also flawed. Responsible business people do not want to sell cigarettes to underage persons. Fines and prison sentences will not deter bootleggers and smugglers, they have nothing to loose. They live at the bottom of our society, thieving and cheating in their trade and no amount of fines work if you have nothing to pay the fines with and prison sentences are seen as holiday breaks.

There has been no reference to compensation for vending machine operators for the loss of their business, the collection of the cigarette vending machines and their disposal and staff redundancy and subsequent re-training. Cigarette vending machines have only one use for the sale of cigarettes and cannot be adapted for any other use.

Having taken advice, should a ban be enforced, we will look to the Scottish Parliament to fully compensate cigarette vending machine companies.

I think during this time of deep recession efforts should be put in to supporting business and employment not banning it.

Our comments are limited to the provisions of the Bill that were consulted on as part of the Scottish Government’s consultation on the Smoking Prevention Working Group’s Report: Towards a Future without Tobacco. The consultation ran from early December 2006 to the end of February 2007.

SGF is the trade association for the Scottish Convenience Store Sector. It is the authoritative voice for the trade to policy makers. The SGF brings together retailers throughout Scotland, from most of the Scottish Co-operatives, SPAR, Keystore, Nisa and local independents who are our largest category of members. Our members sell a wide selection of products and services throughout local town centre, rural and community stores. According to recent statistics (2007) there are just over 5,600 convenience stores throughout Scotland, with annual sales in excess of £3.2 billion.

SGF supports the Scottish Government’s objective of reducing youth smoking through tackling access and attitudes.

SGF members take their role as responsible retailers extremely seriously. Nearly all members have adopted either a “Challenge 21” or “Challenge 25” policy on the sale of age related products including tobacco. These policies have proved very successful at ensuring children do not gain access to tobacco from shops. Small retailers that sell tobacco responsibly should not be burdened with unnecessary regulation and the associated costs.

Retailers recognise the importance of their role in reducing the ability of young people to access tobacco. However, it is crucially important that the Government, when considering what action to take to reduce youth smoking, ensure any measure is supported by compelling evidence as to its effectiveness.

1. Did you take part in the consultation exercise for the Bill, if applicable, and if so did you comment on the financial assumptions made?

The SGF took part in the consultation exercise. Our comments focussed on Chapter 3 of the Smoking Prevention Working Group’s Report: ‘Towards a Future without Tobacco.’ This chapter reported on tobacco licensing schemes, changing the age of legal purchase of tobacco, the impact of price, packets of ten cigarettes and tobacco advertising and marketing strategies. There were no financial assumptions made within this report relating to these matters. The report devoted three lines to plans to prohibit the display of cigarettes at the point of sale. There was no indication given as to the justification behind this recommendation, no explanation as to how this approach would achieve the objective of preventing young people from taking up smoking or reducing smoking amongst those who already smoke and no details provided as to how this would work at a retail level.

At the time of the consultation SGF expressed its regret that no representative from the Scottish retail sector was invited to be part of the working group or contribute in any meaningful way to their deliberations. Subsequently SGF was invited to join the Ministerial Working Group on Tobacco but by this time a decision had already been taken by the Scottish Government relating to their intention to implement a display ban.

2. Do you believe your comments on the financial assumptions have been accurately reflected in the Financial Memorandum?

4. If the Bill has any financial implications for your organisation, do you believe that these have been accurately reflected in the Financial Memorandum? If not please provide details?

SGF is concerned that the impact of a display ban will have a disproportionate and damaging effect on small shops. Currently it is very difficult to estimate the level of costs and upheaval involved as the Government has not provided any detailed proposals, however any proposal that would require an alteration to the layout of stores would incur additional cost to businesses.

Convenience stores can be situated in newly or purpose built premises, but also in older buildings where alterations would be complicated and costly, if not impossible. Under the counter storage is difficult because convenience stores often do not have a large till space and often need to have cables and electrical connections underneath the counter. CTNs, also known as newsagents, by their nature would have a much smaller under the counter space while potentially stocking a larger range of tobacco products. Therefore it is difficult to come up with a single figure that would be relevant for most convenience stores and CTNs.

SGF has indicated the cost of a display ban for a typical convenience store will be in the region of £5,000 to £10,000. The Financial Memorandum estimates the cost of introducing a display ban to businesses is estimate at £6,000 for a medium-sized retailer. However, SGF estimate under the counter installations will cost in the region of £10,000+. Please see below estimated costs supplied by an SGF member to have a Smokythek under the counter storage system installed within their store.

Retailers receive the support of tobacco suppliers to provide necessary equipment and retail fixtures to display tobacco products. It is unlikely, if tobacco is removed from display, suppliers would be willing to offer retailers the same level of support. As a result the ongoing costs of renewal and maintenance of fixtures will be an additional financial burden for the retailer.

In 2007 independent convenience stores accounted for approximately 37.5% of cigarette sales in the UK. For almost all convenience stores tobacco will be the single largest contributor to sales at between 20 and 25%. The retail price of tobacco is high primarily due to duty and VAT. Consequently the gross margin associated is low, gross margin on tobacco is between 6 and 8%; by comparison a retailer can expect around 25% for newspapers and magazines.

Small retailers are concerned if a display ban was introduced customers, no longer able to see the range of tobacco, may assume a small retailer will not stock a less popular brand. The reduction in storage space resulting from a display ban will mean this is an actuality. In addition, the complexity of a transaction where cigarettes are not on display coupled with the time taken to complete the transaction may result in smokers altering their shopping habits and purchasing tobacco from large format stores. In Canada, sales restrictions have led to businesses closing down as a result of the burden placed on small shops. The Canadian Association of Convenience Stores attributes this to the ban on displaying tobacco products in shops.

The Memorandum states the cost to business of a Registration Scheme will be minimal as it is expected to merely involve the one off labour costs need to fill in a registration form. The financial burden placed on small retailers as a result of increased bureaucracy should not be underestimated especially during an economic slowdown, at a time when many retailers are not replacing staff that have left the business or are being forced to reduce staff hours.

SGF supports responsible retailing. Therefore when a retailer repeatedly flouts the law SGF believes they should lose their right to sell tobacco for a period of time decided by the Courts.

5. Are you content that your organisation can meet the financial costs associated with the Bill? If not, how do you think these costs should be met?

SGF are concerned many community stores will not be able to meet the costs of installing a storage facility in order to remove the display of cigarettes at the point of sale. For many small retailers already reeling from the costs associated with the Licensing (Scotland) Act 2005 and the economic slowdown, the additional bureaucracy and cost of a tobacco display ban could result in the closure of small shops across Scotland.

SGF is keen to see Government evidence which supports the implementation of a ban on display as a method for reducing youth smoking before placing the burden on to retailers to refit their stores. The evidence from countries which have implemented a display ban is not compelling. The Scottish Ministers Regulatory Impact Assessment refers to the UK Department of Health, ‘Future of Tobacco Control Consultation’ and evidence presented within it. The consultation papers say that a POS display ban is “unlikely to bring an immediate benefit to health or smoking prevalence” (Q8, 3.44) and concedes that the research it cites on the impact of advertising on young people and smoking is “not conclusive” (Q8, 3.45).

The New Zealand Government announced on 25th February 2009 that it would drop plans to ban tobacco displays at POS on the grounds that “the lack of international evidence does not justify the burden on small shops.”

Taking the above points into consideration SGF believes that a tobacco display ban should not be implemented. If the Scottish Parliament ignores this information there is a risk it could be seen as treating the businesses that will bear the costs and bureaucracy of this regulation as expendable.

6. Does the Financial Memorandum accurately reflect the margins of uncertainty associated with the estimates and the timescales over which such costs would be expected to arise?

The Financial Memorandum refers to the Association of Convenience Stores (ACS) who state tobacco gantries are replaced every 3-5 years. Whilst ACS has significant membership across England and Wales, the majority of convenience stores in Scotland are represented by the SGF.

A survey of SGF members confirmed the majority of retailers are supplied with gantries on a five year contract, however, in reality gantries tend to replaced every 7 to 8 years. Therefore even taking into account the extended lead in time for small retailers, removal of tobacco displays will not be part of a planned refurbishment for many convenience store retailers. Consequently there will be direct costs as a result of a display ban.

The Financial Memorandum states there is a high degree of uncertainty to these costsas estimates provided by retailers do not take account of more innovative, cost effective solutions to the display ban. In order to survive and maintain a competitive advantage SGF members recognise the importance of providing a desirable and attractive retail environment where consumers want to shop. For many retailers, the minimum requirement when deciding on storage options if a display ban is implemented will be to ensure the store environment is maintained at its current standard. As a consequence many of the low cost options used in countries including Canada, such as curtains and slats, would be unacceptable to our members.

7. If the Bill is part of a wider policy initiative, do you believe that these associated costs are accurately reflected in the Financial Memorandum?

It remains the case that 1 in 5 cigarettes smoked in the UK is bought from the black market and that 1 in 3 young smokers in deprived communities have smoked black market cigarettes. HM Revenue and Customs estimates that approximately 17% of all cigarettes and 59% of all hand rolling tobacco consumed in the UK in 2006/7 is non UK duty paid.

The Government should concentrate on enforcement of existing legislation together with supplying additional resources to support Trading Standards in addressing the black market in tobacco. It is clear that action taken to significantly reduce the availability of tobacco through the black market in Scotland would have a major impact on smoking in the population. A registration scheme, fixed penalty notices and banning order will present no deterrent to street traders and people who sell in pubs, clubs and car boot sales. Those that supply illegal product tend to have no scruples about who they sell to and they face no regulatory enforcement. The cost of the Bill to the Scottish Government is estimated to be around £750,000 and then £10,000 in each year after implementation of the registration scheme. The Memorandum refers to the essential role of Trading Standards within this whole process. SGF believe the funds allocated for implementation of this Bill could be used more effectively to reduce youth smoking by supporting Trading Standards in their work to address the back market in tobacco.

8. Do you believe that there may be future costs associated with the Bill, for example through subordinate legislation or more developed guidance? If so, is it possible to quantify these costs?

SGF understands from information provided by the Scottish Government that registration for retailers will be free. SGF would seek assurances that in the long term a registration will continue to be free of charge to the retailers.

There will undoubtedly be further costs associated with the Bill, however with the limited amount of detail provided it is extremely hard to quantify what these casts are likely to be.

The Scottish Retail Consortium (SRC) is the leading trade association for Scottish retailing and exists to promote and enhance the economic, political and social climate in which its members operate. SRC members sell a wide selection of products through centre of town, out of centre, rural and virtual stores. Reflecting the diversity of modern retailing, SRC members include most of the large multiples and department stores, as well as a large number of small and medium sized independent retailers, in total representing 80% of Scottish retail sales by value. This includes 14 trade associations who between them represent thousands of small, specialist retailers.

The SRC’s parent association is the British Retail Consortium (BRC) based in London and Brussels.

1. The SRC welcomes the opportunity to comment on the Tobacco and Primary Medical Services (Scotland) Bill. As responsible retailers we understand the concern regarding the sale of age-restricted products and all members have strict policies in place to control them.

2. SRC members that sell tobacco take their obligations in this regard very seriously. Tobacco is not treated in the same way as the majority of other products sold in our stores; tobacco is always sold behind a kiosk or counter and those employed to work in that part of the store are well aware of the laws concerning underage sales.

3. SRC members have all adopted the ‘Challenge 21 and Challenge 25’ policy on the sale of age restricted products such as alcohol and tobacco and this has been hugely successful in restricting the availability of tobacco to young people. It is worth noting however, that neither the proxy purchasing of tobacco nor the attempted purchase of tobacco by a minor are illegal activities thereby limiting retailers’ activity in this regard.

4. Despite the necessary regulations governing its sale and the undisputed effect on the smoker’s health, tobacco is a legal product.

5. Retailers that sell it responsibly should be able to do so without undue regulatory burden or disproportionate cost. The SRC and our members remain of the view that restricting the display of tobacco, any form of licensing or registration scheme and further changes to the criminal system are unnecessary and that they will place additional and unnecessary costs on retailers and further stress on staff.

6. We are also not convinced that these changes will have the intended result of reducing the prevalence of smoking amongst the Scottish public.

Consultation:
9. Did you take part in the consultation exercise for the Bill, if applicable, and if so did you comment on the financial assumptions made?

10. Do you believe your comments on the financial assumptions have been accurately reflected in the Financial Memorandum?

11. Did you have sufficient time to contribute to the consultation exercise?

Costs:
12. If the Bill has any financial implications for your organisation, do you believe that these have been accurately reflected in the Financial Memorandum? If not, please provide details.

SRC Comments on the cost of banning displays:
The SRC represents a diverse mix of retailers that sell tobacco. Stores vary considerably in their size and format (convenience, out of town, high street, petrol station) but also in their business model.

Members have estimated that it could cost anything from £2,000 to £25,000 per kiosk to refit a store to comply with new regulations.

A range of different options have been discussed relating to banning displays, all of which have substantial cost and staffing implications for retail business.

Members feel that a shutter/curtain style of covering for tobacco products is unlikely to be a realistic option. This is due to the issue that during busy periods, the covering is likely to be to one side of the products on display as staff work to serve customers quickly. This would be likely to leave stores in breach of any regulations requiring products to be concealed. The space behind any kiosk, be it a large or small retailer, is very limited. If tobacco products are to be kept below the counter, then all the goods currently stored there, would have to be moved. This could include supplies such as extra till rolls and internal information, but it is also likely to include computer systems for the tills in use in the kiosk and extra supplies of other high value products sold from the kiosk. There would be considerable costs attached to rewiring systems and finding other secure yet convenient places to store products.

Furthermore, to comply with the likely regulations, it is likely that current kiosks would have to be extended where possible to make room for tobacco products and the other goods. In addition, the current materials would need to be disposed of sustainably and additional material would be necessary to install drawers that are suitable to store products in. This cost is likely to have to be met by retailers as tobacco manufacturers are unlikely to fund this in the same way that many displays are currently funded.

We would also like to highlight that moving tobacco, for example, under the counter, would change dramatically the way in which kiosk staff will have to work and the SRC is concerned for their health and safety. Considerable bending will be necessary to reach products which will place additional strain on backs and knees, as well as requiring more room behind the counter. We would also urge Committee members to bear in mind the large number of products that would have to be stored. There are many different brands of cigarettes, different size of packets and different strengths available, not to mention the cigars, lighters, loose tobacco etc also sold in our stores. Ensuring all these products can be found by every member of kiosk staff quickly and easily would be a considerable challenge for every type of retail outlet.

SRC comments on creating a register of tobacco retailers:
Overall, members remain unconvinced that a registration scheme is necessary or would in any way help the Scottish Government achieve its aim of reducing the prevalence of smoking amongst the Scottish public or help reduce underage sales. Instead, members feel better enforcement of existing legislation would be a better way forward.

Members have specific concerns about the legal status of a proposed register. Current licensing legislation provides retailers with a legal framework within which to operate and therefore gives stability in terms of licensing operations. As the current proposals suggest that failing a specific number of test purchases within a proposed time will mean removal from the register and therefore a ban on being able to sell tobacco for a given period, clear understanding of a register is essential.

We also have concerns that there could be competition issues if the register is viewable by retailers or those with an interest in the supply and sale of tobacco.

Given the current economic climate, and the issues outlined above, the SRC does not think that retailers should have to pay for registration. We understand that, currently, the Government is suggesting that this scheme is free for retailers to join, however there is no guarantee that this will always be the case. If there is to be a charge for registration, this should be as low as possible and should only cover the costs to implement the system.

Members felt that further clarity on how fixed penalty notices would be used is necessary before they we can give a comprehensive views on the impact and cost of the proposed fixed penalties regime. For example, would a fixed penalty notice issued against an individual count towards a store’s failed test purchases? Can a fixed penalty notice issued against an individual be applied to the company as a whole?

13. Are you content that your organisation can meet the financial costs associated with the Bill? If not, how do you think these costs should be met?

14. Does the Financial Memorandum accurately reflect the margins of uncertainty associated with the estimates and the timescales over which such costs would be expected to arise?

Wider Issues:
15. If the Bill is part of a wider policy initiative, do you believe that these associated costs are accurately reflected in the Financial Memorandum?

16. Do you believe that there may be future costs associated with the Bill, for example through subordinate legislation or more developed guidance? If so, is it possible to quantify these costs?

Until the regulations and associated guidance is available it is hard to comment on future associated cots.

In conclusion, we understand why the Scottish Government is looking at these issues and we support it in its aim of reducing the number of smokers in Scotland. We are also committed to playing our part and only selling tobacco responsibly and legally. However we feel that any changes to the current legislation in this area must be backed up with firm evidence that the measures will go some way to achieving the aim of reducing smoking amongst the public and reduce the chances of young people taking up the habit. Additionally, any changes to the retail environment must be proportionate, add a minimal amount of regulatory burden and cost, and take into account the possible pressures placed on staff on the frontline of retail sales.

Consultation
1. Did you take part in the consultation exercise for the Bill, if applicable, and if so did you comment on the financial assumptions made?

2. Do you believe your comments on the financial assumptions have been accurately reflected in the Financial Memorandum?

Costs
4. If the Bill has any financial implications for your organisation, do you believe that these have been accurately reflected in the Financial Memorandum? If not, please provide details.

No. The government has supported Local Authority Trading Standards Services in a three year enhanced programme of Tobacco Test Purchasing with the aim of achieving the target in reducing the numbers of young people taking up smoking. This support funding will close during 2011 and later a new Tobacco Registration Scheme will be introduced to further address issues of teenage smoking. Trading Standards will be at the forefront of assisting, advising and enforcing the new legislative measures. This will not be self policing measures and certain businesses will not willingly undertake to comply with existing and newly introduced measures. Trading Standards Services argue that Local Authorities should be supported through appropriate measures in these new enforcement activities.

5. Are you content that you organisation can meet the financial costs associated with the Bill? If not, how do you think these costs should be met?

6. Does the Financial Memorandum accurately reflect the margins of uncertainty associated with the estimates and the timescales over which such costs would be expected to arise?

Wider Issues
7. If the Bill is part of a wider policy initiative, do you believe that these associated costs are accurately reflected in the Financial Memorandum?

8. Do you believe that there may be future costs associated with the Bill, for example through subordinate legislation or more developed guidance? If so, is it possible to quantify these costs?

Derek Brownlee MSP sought clarification on powers under section 1(4) of the Bill. Section 1(4) states that, “The Scottish Ministers may provide in regulations that no offence is committed under subsection (1) in relation to a display of tobacco products of smoking related products which complies with requirements specified in regulations.”. As outlined in Committee by Mary Cuthbert, Bill Team Leader, this provision allows the Scottish Government to make regulations to outline “allowable” displays, i.e. where a display should not be considered so for the purposes of the Bill. We are currently in detailed discussions with stakeholders around this issue and intend to draft regulations in time for Stage 2.

Jeremy Purvis MSP sought clarification on why the Scottish Government had not provided a global sum for the impact on business of banning the display of tobacco products. To estimate costs faced by retailers as a result of the displays ban, data was obtained from a number of sources. Industry representatives included those from the Scottish Grocers’ Federation, the National Federation of Retail Newsagents and the Scottish Retail Consortium. Representations received from these groups make clear that costs to individual retailers will vary according to the size of the premise, the nature of the new sales unit (or alteration to the existing one) and the extent of the shop refitting. Therefore, in consultation with the tobacco retail sector, it was decided that the fairest way of representing costs on business was to provide a range of costs based on the size of business.

As outlined in the Minister’s letter to the Committee of 24th April, we endeavoured to update the Financial Memorandum prior to stage 1 consideration to take account of updated information provided by the vending machine sector. Unfortunately, as outlined by officials to the committee, we have been unable to do so in the time set out. We are currently in discussions with NACMO and things are progressing well. However, the Scottish Government will not be able to update the Financial Memorandum prior to the Finance Committee reporting to the Health and Sport Committee on the financial implications of the Bill. This is not ideal; however we feel that it is more important to delay updating the Financial Memorandum in order to ensure that the information is accurate.

I hope that this information is helpful. Please do not hesitate to contact me if you require any additional information.

I am writing in respect of the Tobacco and Primary Medical Services (Scotland) Bill, which the Finance Committee is due to consider shortly.

Some new information has very recently come to my attention that affects the Bill’s Financial Memorandum. I therefore wanted to write to both the Health and Sport and Finance Committee at the earliest opportunity to provide an update with the amended information ahead of Stage 1 consideration.

The new information relates to section 6 of the Bill, prohibition of use of vending machines for the sale of tobacco products.

As committed in my Parliamentary Statement in May the Scottish Government conducted a full and rigorous Regulatory Impact Assessment (RIA) in order to minimise the impact of proposals on business. Throughout this period my officials actively sought the views of affected businesses, including tobacco retailers and wholesalers, vending machine operators and specialist tobacconists.

The Scottish Government has been transparent in developing the Tobacco and Primary Medical Services (Scotland) Bill, and, in relation to reducing the availability of tobacco from vending machines to under-18s, I stated publicly on a number of occasions my intention to legislate in this area prior to the Bill being published. In developing the RIA on these proposals the Scottish Government met with Imperial Tobacco and its subsidiary Sinclair Collis, which provides, operates and maintains the majority of tobacco vending machines in Scotland. The Scottish Government attempted to make contact with the National Association of Cigarette Machine Operators (NACMO) by phone and e-mail on a number of occasions with no response.

The Scottish Government has now met with NACMO and the updated information is outlined in Annex A. NACMO advise that a ban on vending machines being used to sell tobacco products would lead to a loss of tobacco vending business to 15 companies, which would result in 56 job losses in Scotland. Whilst the Financial Memorandum recognises that the ban would result in a loss of tobacco vending business it only reflects the information provided by Sinclair Collis (14 job losses).

I think it would be helpful for me to put the proposed ban on the sale of tobacco products from vending machines in context. Over the last 50 years, tobacco smoking has come to be recognised as uniquely dangerous and highly addictive, killing half of long term smokers before their time. Some 13,500 Scots die each year as a result of smoking and many more receive hospital treatment for smoking related illnesses. Not only does this represent an enormous personal tragedy for the individuals concerned and those close to them, but for Scotland as whole. For example, it is estimated that the annual cost of hospital treatment is in excess of £200m and lost productivity £400m.

Over 80% of smokers start in their teens and, in spite of the major progress which has been made in recent years to shift cultural attitudes to smoking, 15,000 young people take up smoking each year. When you bear in mind that someone who starts smoking at 15 is 3 times more likely to die of cancer as a result than someone who starts in their mid-twenties, I am sure you will agree that the Scottish Government has a responsibility to do all it can to prevent children and young people from smoking.

In finalising the legislative proposals contained in the Bill we were, of course, conscious that, though a sector which has been in decline for some years, cigarette vending machines have been a feature of tobacco retailing for many years. However, by their very nature, they are self-service devices which means that no age-checks are carried out prior to purchase. Even although cigarette sales from vending machines account for less than 1% of overall Scottish sales, around one in ten of 13 and 15 year old smokers report buying cigarettes from that source. This is clearly unacceptable. There are those, including Sinclair Collis, who suggest age-restricting mechanisms are the way to solve these youth access problems. However, notwithstanding the fundamental questions which arise about a dangerous age-restricted product of this nature being available from a self-service machine (can you imagine the outcry if fireworks, alcohol or solvents were sold in such a way?), we concluded that a complete ban on selling in such a way is the only way to be sure that under 18s do not access cigarettes from that source.

While I appreciate how difficult this decision is for the companies directly affected and their staff, I firmly believe that it is the right thing to do for Scotland. As you know the Scottish Government is committed to do everything in its power to help the people of Scotland to sustain and improve their health and, as such, have a responsibility to act decisively to protect this and future generations from the impact of tobacco. We will, of course, continue to have dialogue with cigarette vending machine operators about the implementation of the ban, including the scope for diversification of their businesses.

Ban on sale of tobacco from vending machines
91. According to information obtained from the National Association of Cigarette Machine Operators and Sinclair Collis, a cigarette machine operator, there would be 15 companies affected by the ban. The Scottish Government has been advised that all staff employed in Scotland, totalling 56, would have to be made redundant as a result of a ban on the sale of tobacco from vending machines.

¹ Information on the Committee’s three-level system of scrutiny for Financial Memoranda is available at: http://www.scottish.parliament.uk/s3/committees/finance/financialMemo.htm

² Scottish Parliament Finance Committee, Official Report, 10 March 2009 available at: http://www.scottish.parliament.uk/s3/committees/finance/or-09/fi09-0701.htm

³ Tobacco and Primary Medical Services (Scotland) Bill, Policy Memorandum, paragraph 3.

⁴ Policy Memorandum, paragraph 4.

⁵ Tobacco and Primary Medical Services (Scotland) Bill, Financial Memorandum, paragraph 77.

⁶ Financial Memorandum, paragraphs 69 and 77.

⁷ Financial Memorandum, paragraph 71.

⁸ Financial Memorandum, paragraphs 70 and 77.

⁹ Financial Memorandum, paragraph 82.

¹⁰ Financial Memorandum, paragraphs 79 and 80.

¹¹ Financial Memorandum, paragraph 81.

¹² Financial Memorandum, paragraph 91.

¹³ Financial Memorandum, paragraphs 88 and 89.

¹⁴ Scottish Parliament Finance Committee, Official Report, 26 May 2009, Col. 1323.

¹⁵ Scottish Parliament Finance Committee, Official Report, 26 May 2009, Col. 1334

¹⁶ Scottish Parliament Finance Committee, Official Report, 26 May 2009, Col. 1339

¹⁷ Scottish Parliament Finance Committee, Official Report, 26 May 2009, Col. 1326.

¹⁸ Scottish Parliament Finance Committee, Official Report, 26 May 2009, Col. 1336