Clause 3 — Duty on beverages made with spirits to be at spirits rates

Orders of the Day — Finance Bill — [2nd Allotted Day] – in the House of Commons at 2:00 pm on 4 July 2002.

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Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 2:00, 4 July 2002

I beg to move amendment No. 1, in page 2, leave out lines 20 to 25.

This is a debate about flavoured alcoholic beverages, otherwise known as FABs, but it might better take its title from another late-night beverage, Horlicks, because the Government have made a total horlicks of this provision in the Budget.

Clause 3 introduces a tax increase of 64 per cent.—the highest percentage increase—which is about a 12p duty increase on a standard bottle of one of these beverages. The Government justified that extraordinarily high increase in the explanatory notes on clause 3, which states that between 1999 and 2001

"the standard pub retail price"— of spirit-based coolers—

"rose by around 60 pence per bottle, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink in both the on and off-trades."

Based on that information, the Government said:

"it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks."

In Committee, I and other members of the Committee challenged the accuracy of the facts used by the Government to justify this massive increase in duty, which, incidentally, was introduced without any consultation with the industry. The problems that have followed would not have occurred if there had been proper consultation. I accept that the Government did not deliberately get the figures in a mess, but they were negligent because, had they had proper discussions, there would not have been this misunderstanding.

Photo of Tom Harris Tom Harris Labour, Glasgow Cathcart

The hon. Gentleman is right to criticise the Government for lack of consultation, provided that he is attacking the 1996 Budget statement, which also introduced a major increase in tax on those drinks without any prior consultation. I do not recall the hon. Gentleman complaining about that.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

Sadly, I was not in the House in 1996. If I had been, I am sure that I would have been alert to that matter. As the Committee heard, when I represented Southampton, Itchen—I did so until 1992—one of the largest manufacturing plants producing the beverages was situated there. It has also emerged, however, that the current incumbent, the Minister for Policing, Crime Reduction and Community Safety, last year opened a new production facility in the area and praised the company and work force in respect of the extra jobs that would be created by the investment, but did not say anything at that time about the fact that the Government had it in mind to change the duty regime and threaten that investment.

On 18 June, the Economic Secretary finally admitted that the Government were wrong and that the Opposition were right about whether there had been an increase of 60p or 20p in the retail price of coolers between 1999 and 2001. He said that in 1999–2001, the retail price of coolers went up not by 60p, but by an amount

"closer to the 20p figure suggested by the industry."

I understand that the exact figure is 20.7p—20p is almost spot on—rather than 60p. That represents a compound interest increase of about 6 per cent. over three years. To put it in context, that is slightly less than the average increase in council tax over the same period.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I wonder whether this could be a question of mixing apples and oranges. The explanatory notes refer to the standard pub retail prices, but is the hon. Gentleman referring to the retail price in, say, a shop, or to a pub retail price? As we all know, pub retail prices can be more expensive and can increase at a greater rate.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am referring, as the Economic Secretary was, to the retail prices cited in the explanatory notes. The Economic Secretary has admitted—as a member of the Committee, the hon. Gentleman will have received a copy of the letter that he sent to me—that the note in question was incorrect in its reference to an increase of 60p, and that the figure is closer to the 20p suggested by the industry.

After being forced to admit that there was such a gross error in the calculations, any decent Government would have apologised to the industry, consumers and Parliament. They would have withdrawn the proposal and deferred a decision on any tax increase while reassessing the impact of the evidence. However, I am sorry to say that that is not what the Government did; indeed, that is not the way in which they operate. The Economic Secretary had the gall to say in his letter to me:

"I want to assure you that—while regrettable—this error does not affect our rationale for this change or its estimated impact."

What a contrast with what the Chief Secretary, formerly the Financial Secretary, told us in Committee on 14 May:

"One of the key issues for consideration was whether the coolers market could support the removal of the concession. Our evidence showed that it could. There is nothing improper about considering whether a market can bear the burden of taxation. Between 1999 and 2001, the consumption of coolers more than doubled, and during that period, the average pub price of a bottle of coolers rose by 60p per bottle. Some hon. Members with peerages suggested that the increase was closer to 20p, but I have to tell them that the figure of 60p comes directly from an analysis of market research data by the Office for National Statistics. Customs has discussed that figure with the industry and I am confident that agreement will be reached to clear up confusion on the part of Opposition Members."—[Official Report, Standing Committee F, 14 May 2002; c. 47.]

The right hon. Gentleman referred to the increase in price as a key issue for consideration, but when the figure was proved incorrect, what did the new Minister say? He did not say that he was sorry and that he would go back to the drawing board. Instead, he is still blustering away, arguing that nothing has changed and that the previous arguments still apply.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

I want to back up the strength of the hon. Gentleman's argument by saying that, when the Committee questioned the Minister closely on the underlying rationale behind this change in the tax regime, he relied heavily on this piece of evidence. We were surprised, because there had been a change in the underlying rationale of the taxation of alcohol in other areas. Mr. Chope is right, and the fact that the Government have been found out suggests that this has nothing to do with rational taxation, and more to do with a raid on people's purses.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

The hon. Gentleman is absolutely right. It is apparent that the Government are motivated by prejudice rather than reason. That is their driving force, and, as so often happens, that prejudice is tinged with a certain amount of arrogance—the inevitable ingredient of this Government.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman quoted the Minister referring in Committee—I recall being there—to one of the factors. The other factor referred to in the explanatory notes is the chief medical officer's report of 2001, so the hon. Gentleman's suggestion that there was only one reason for the Government adopting this approach does not sit well with what we were told in Committee, or what is said in the explanatory notes about the health aspect of the issue.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I have not said that that was the only justification; there were two justifications. But, in Committee—the hon. Gentleman was there; he will remember this—the Minister had to back-pedal pretty rapidly on the assertion that there was some reason for raising the tax on this particular kind of drink, when it became apparent that certain lagers and ciders with a much higher alcohol content were less highly taxed. The Minister moved back from the position of saying that the provision could be justified as a way of addressing binge drinking. Indeed, the Government's argument in Committee was that the consequence of this steep increase in tax would not involve any reduction in the consumption of coolers.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

The hon. Gentleman is exactly right. The health argument put forward by the Government was put in total disarray by the fact that they had been arguing for a reduction in tax on cider. According to the chief medical officer—and evidence, no doubt, from all our constituencies—cider is a drink most associated with teenagers and with binge drinking. So the Government's coherence on this issue is, frankly, non-existent.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am grateful to the hon. Gentleman for reinforcing that point. Much as Rob Marris may try to argue the Government's case, I am afraid that the Government abandoned that particular ground in Committee, relying heavily on the 60p increase over the three-year period. Now, when that has been found to be totally wrong, they have resorted to bluster and other arguments.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

Not at the moment; I must make some progress. I am sure that other hon. Members want to contribute to the debate, and the hon. Gentleman will have the chance to make his own speech later.

The Government are still saying that the Budget duty increase will have little impact on the demand for coolers. That is why their argument that this would be a good way of addressing binge drinking is obviously ludicrous. A number of people who produce these drinks have written letters of complaint. One such letter comes from Bill Oddy, the managing director of a relatively small firm, employing about nine people. He says in his letter:

"We believe that this decision is unfair to the consumer and, since these products are price sensitive, will have a seriously adverse effect on our industry and those related to it, including producers, bottlers and glassware manufacturers, many of them SMEs"— small and medium-sized enterprises—

"who have enjoyed UK-based success in recent years bringing jobs and prosperity here. This success countered a large influx of foreign bottled beers in the late 1980s which saw UK bottlers and glass makers hit a low point."

He goes on to say how disappointed he was that this measure was brought in without any consultation.

In Committee, the Minister argued that the concerns of the industry were of no moment whatever. He quoted Karen Salters of Beverage Brands, using her words to make this assertion:

"I do not think that anyone could argue that the measure will be an inhibitor on the business and will cost jobs."—[Official Report, Standing Committee F, 14 May 2002; c. 45.]

We were slightly dumbfounded by that, so we looked up the whole quote. We found that Karen Salters said quite the reverse of what the Minister attributed to her, as she described the measure as wholly unjust and said that it would

"stimulate a shakeout in the trade as smaller" producers

"will not be able to weather the increased duty demands".

So, Karen Salters was arguing that the measure would put the small businesses under pressure, if not out of business, but the Minister used her words, selectively quoted, to justify quite the reverse proposition. I am afraid that it is not good enough for the Government, who should act responsibly, to address serious arguments by using selective quotes that really are critical of their policy and try to turn them round so that they seem supportive.

We are arguing that the Government should make a fresh start with the issue, because there is confusion between what is a spirituous drink and a made wine. There was no problem over that before, because both products were in the same tax category. Now, people will be able to use spirits as a base, mix them with wine and market them without having to pay the higher tax set out in clause 3.

To do so, however, people will have to agree their formulae and recipes with Her Majesty's Customs and Excise. I shall not trouble the House with the detail, but I have here a letter from Steve Nicholson, who is in charge of alcohol and tobacco regimes, which gives guidance on the excise duty liability of spirit-based drinks after the Budget. It runs to about three and a half pages. The guidance is incredibly vague, and because it is so vague it introduces uncertainty—indeed, it is oppressive for those who are trying to invest in the industry. That is another powerful argument for the Government going back to the drawing board, holding discussions with the industry and trying to achieve a just and fair result.

The Government have asserted fairness, consistency and consultation, and that is what we think they should deliver on the issue. Paragraph 7 of the Customs and Excise 2002 Budget press release says:

"The Government has taken consistent steps to deliver a fairer balance in the burden of taxation falling on different alcoholic drinks and on different types of drink producers."

They can be true to those words only by withdrawing clause 3.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

Although I support the Government proposal and oppose the Opposition amendment, I speak as an individual and as a concerned parent who has served locally as a councillor for a long time. I have seen the trends—perhaps not those in other parts of the country, but those in Scotland, where alcopops or coolers have become the predominant drink taken up by youngsters. The Treasury explanatory notes show that uptake of alcopops has doubled, but I do not believe that the increase in cider uptake, especially in my part of the world, is comparable. Such arguments are fatuous.

During my time in Committee, I came to hold the hon. Members for Arundel and South Downs (Mr. Flight) and for Christchurch (Mr. Chope) in very high regard. I believe that they are decent, polite and knowledgeable adversaries, but this advocacy of the amendment on behalf of the drinks industry does them and their party no particular credit.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

What the hon. Gentleman says about alcopops in his part of the world may be true. None the less, does he accept the comments about cider made in Committee by Mr. Davey and by me? Does the hon. Gentleman not accept that a strategy that cuts duty on one type of strong drink and raises it on another has no consistency, either in protecting industries or in protecting young people?

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

I am happy with my view on drinks taxation: it should be uniform and it should be high to discourage a large uptake, although I enjoy a beverage occasionally. Specifically, drinks targeted on and taken up by the young must be addressed, so I hope that those on the Front Bench take on board the points made by the hon. Gentleman and review the matter. I am setting out my concerns about the situation in my area.

Photo of John Healey John Healey The Economic Secretary to the Treasury

On the objection raised by Mr. Davey and echoed by Chris Grayling, does my hon. Friend recognise that the chief medical officer's annual report for 2001 expressed concern about binge drinking and young drinkers? It also mentioned designer drinks, but it did not mention cider.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

I acknowledge those points.

Photo of Tom Harris Tom Harris Labour, Glasgow Cathcart

Like me, my hon. Friend was present for the first couple of Committee sittings. He may recall Mr. Chope pointing out that alcopops are a particular favourite drink of members of Christchurch Conservative club. My hon. Friend may also remember that Mr. Bercow subsequently pointed out the 11.7 per cent. swing from the Liberal Democrats to the Conservatives in the Christchurch constituency at the 2001 general election. Does my hon. Friend agree that there may be a causal link between those two facts?

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

I am not particularly aware of the political situation in the Christchurch constituency, but I remember the informative and polite exchange between the hon. Member for Christchurch and me on that specific issue. I shall return to it, because certain elements must be addressed.

The Government's proposals have merit in several areas and they deserve universal support in the House. First, there is an anomaly in the tax regime that should be addressed. Secondly, given how such drinks are marketed and targeted, specifically at the younger drinker, there are moral and health imperatives to introduce this tax change. Any price increase may restrict access and discourage the purchase of what is a particularly addictive drink by the most vulnerable, young and often under-age consumers.

I was brought up in a strongly Presbyterian household, where the consumption of strong drink was frowned upon, but I must confess that I have lapsed from those strict religious leanings. [Hon. Members: "Shame."] One has to be open and honest in the House. I have become more of an irregular Episcopalian in later years. Like many of my generation, I was introduced to the demon drink through the accepted convention in Scotland at that time—sipping lager and lime.

That mixed drink was commonly how young, inexperienced drinkers came to grips, for better or for worse, with the initially harsh taste of alcohol on the younger, more innocent palate. Alcohol was made much more acceptable by the use of a sweetener, and a dash of lime cost one old penny. Times have moved on, however, and the market has become more sophisticated. Young people today have much more money than the youngsters of my generation could ever have dreamed of.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

Yes. More young people, often at an early age, are encouraged to take a drink whose true strength is often masked by sweetness, which is the basis of alcopops or coolers. Such drinks can have an impact on a younger person's health owing to greater intake prompted by sweetness and accessibility, and that can cause serious damage in later life.

The habit is strengthened through the fashionable image given to such drinks by high-profile marketing campaigns undertaken by the producers of the commodity who are promoting opposition to the tax change. Again, that marketing is aimed solely at the young and the partying life that they are so desperate to enjoy as an introduction to adulthood.

Life for the young, if it is anything, is an experience to be enjoyed to the full, with little thought for the consequences of their lifestyle. Ageing can be a difficult process, but it can also be educative. The hon. Member for Christchurch entertained us in Committee by revealing the drinking habits of members of the Christchurch Conservative club, where, he said,

"every hour is a happy hour".—[Official Report, Standing Committee F, 14 May 2002; c. 33.]

It seems, however, that in that club the ageing and educative process I have described stands still.

It also emerged from our Committee debate on clause 3 that the favourite alcopop—or cooler, as it is described in the Christchurch Conservative club—is a drink called WKD.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury 2:30, 4 July 2002

I feel duty bound to defend the honour and integrity of the upstanding—even after their consumption of alcohol—members of the Christchurch Conservative club. Will the hon. Gentleman confirm that he is not suggesting that my hon. Friend Mr. Chope secured the result he secured because of the inactivity of those members, who were busily engaged in another pursuit, and that he recognises that they were celebrating the success of their efforts to increase his majority?

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

That was an entertaining intervention. The formula succeeded in Christchurch, and may indeed be adopted by other Conservative clubs to ensure success at the next general election.

In Committee my right hon. Friend the Chief Secretary was quick—perhaps too quick—to let us know that another name for WKD was Wicked. As that libation is based on a mixture of vodka and Irn Bru, the more the Christchurch Conservative club consume it, the more the people of Scotland—where Irn Bru originates—will celebrate. Given the state of the Conservative party nationally, other Conservative clubs may seek to emulate the Christchurch club's intake of WKD. Irn Bru, which purports to be made of girders, could go a long way towards stiffening the Conservatives' performance at the next general election.

The more serious comments I made in Committee still stand, despite the changes contained in the explanatory notes and mentioned in letters from Ministers. Whatever the price increases involved, such are the sales of coolers—promoted through the "happy hours" more commonly found in student union and trend-setting bars than in the Christchurch Conservative club—and the heavy discounts to encourage overall sales and increase bar takings, that those changes will have no significant impact on jobs in the company that produces them. The Opposition's main argument against the tax increase was that jobs would be lost.

Those who take time to study local off-sales will find that nine times out of 10 there is a cut-price offer on drinks of this kind. Marketing techniques and fashionable images aimed at the young have led them to start drinking, which often—although not always—results in a catalogue of disorderly acts, especially among young females. Drinkers in that particular group have also fallen prey to a range of well-documented drink problems in later life, which may lead to criminal activity and health problems.

It is outrageous of the Conservative party to support an amendment of this kind. The proposal should be seen for what it is. It is not accepted by the vast majority of the population, I think it deserves little sympathy in the House, and I am sure that it will find little sympathy among my many constituents. I urge my hon. Friends to vote against it.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

It is tempting to follow the speech of Mr. Luke with accounts of my own revelries as a youngster, or of revelries I have observed in various political clubs across the country. I am sorry not to share my memories of those enjoyable events, but I want to take up some of the serious points that the hon. Gentleman made so well.

It is true that there is a problem of binge drinking. It is true that many youngsters have a bit more money in their pockets than they had a few years ago, and—partly owing to advertising campaigns—are choosing to spend it on alcohol. I think, however, that alcohol problems extend across the age spectrum. Having spoken to magistrates and police in my area, I understand that alcohol is the drug behind most offences, especially violent offences, both in the home and on the streets. I am sure that the same applies in all constituencies, and I am sure that members of all parties accept that it is a problem.

What we must decide now is how to tax alcohol in general. There are many types of alcohol, as our debates have revealed. I did not know that this "Wicked" drink existed, and I certainly did not know that it contained girders or Irn Bru. I now know that there is a huge variety of alcoholic drinks that people can purchase.

Parliament, the Government and Customs and Excise really must develop an overall approach to alcohol taxation. I see no consistency or coherence in the present policy. Should there be changes in the retail price? The Government initially said that that was behind the strategy. Should the tax be based on alcohol content, on competition between different products, or on the impact of smuggling or cross-border shopping? There are a number of possibilities.

The decision on which drinks should be taxed most heavily might indeed be based on health findings, as the hon. Member for Dundee, East suggested, but the Government have produced no such rationale. They have made no clear statement since their election in 1997. They have not said "Here we have a number of alcoholic products, which are varied and which are changing. Here is our overall strategy for taxing alcohol." Theirs has been a piecemeal, reactive approach, driven more by revenue-raising considerations than by anything connected with such matters as health.

I accept that the hon. Member for Dundee, East has good intentions, but I think it unfair to castigate Mr. Chope or, indeed, to describe other Conservatives who oppose the present position as "outrageous". We share the hon. Gentleman's concerns, but we are trying to probe the Government. We are asking for consistency and coherence in an important policy area.

I shall not repeat points made by the hon. Member for Christchurch, which appeared in briefings I received from the industry and which the hon. Gentleman made very well. Let me, however, refer to an example on which he touched but did not dwell. Changes such as this have an impact on the market. The associations are worried because they fear that people may switch from coolers to wine-based drinks. As a result of a ministerial decision, Customs and Excise is having to grapple with the business of labelling and categorising, and with trading standards in the regulations, when dealing with different types of drink. When the market was taxed uniformly, some of those problems did not arise. Now Customs officers must—as the hon. Member for Christchurch pointed out—deal with such matters as the difference between spirituous drink and made wine. Even from the briefings that I have received, I know that the issue is incredibly complicated. It is not yet clear what form the regulations will take. They are still under discussion because the matter is so complicated.

When such a tax change is made, with all its implications for the market, one has to question its root cause. The Government have not given us a good reason for this change. I am not suggesting that it is easy to achieve consistency in this area, but I am pushing the Government for it, because if we do not get it we will have little changes every year that will affect relative prices, market shares and investment decisions.

We want to avoid such uncertainty. If we want a thriving drinks industry, which I am sure the hon. Member for Dundee, East wants, despite his reservations about some of the outcomes, we have to allow it to plan and invest and take strategic decisions. Unless there is a long-term strategy on the taxation of alcohol, problems will arise. We are worried because the Government have not shown that. That is why it is right for us to probe them further on the matter today.

Photo of John Healey John Healey The Economic Secretary to the Treasury

This has been a useful short debate, although it reopens discussion on a matter that was extensively dealt with in Committee. The amendment is designed to achieve the same result as Opposition Members wanted then: to allow spirit-based coolers—or alcopops, or FABs, as Mr. Chope called them—to retain the concessionary duty treatment that they have enjoyed since 1988 and to continue to be treated in the same way as low-alcohol wines.

It is clear that the pretext for reopening the argument is the fact that since we debated the clause in Committee, the Office for National Statistics has uncovered a mathematical error in the data that it supplied to Customs before the Budget, concerning increases in the retail price of coolers between 1999 and 2001. I was disappointed by what Mr. Davey said. He is normally rational and moderate, but to describe the Government as being "found out" on this, when it was a genuine technical error, is a gross overstatement.

I wrote to all Committee members and made a statement to them concerning the error. I do not propose to trawl over all the details again here, other than to remind Opposition Members that the most important thing that I said in my letter and my statement—it could have saved us all a lot of time this afternoon if they had taken greater note of it—was quoted only partially by the hon. Member for Christchurch. My letter said:

"I want to assure you that—while regrettable—this error does not affect our rationale for this change or its estimated impact. The fact remains that—over a period when consumption of coolers was rising rapidly—their retail price was also rising well above inflation. This suggests that the Budget duty increase will have little impact on demand for coolers, but will ensure that they are taxed at a fair rate rather than retaining their previous concessionary duty treatment."

For the benefit of Opposition Members, let me explain as simply and clearly as I can why the mathematical error makes no difference whatever to the rationale for the measure proposed in the Bill. Contrary to the assertion of the hon. Member for Christchurch, its justification does not rest on data that have proved to be incorrect.

Whether the increase is 20p or 60p, the fact remains that, over a period when the consumption of coolers was doubling, the retail price was rising at a rate well above inflation. That suggests to us, and to independent market analysts, that demand for coolers is very inelastic. That suggests, in turn, that we can remove the concessionary treatment of coolers without damaging the growth of the sector. That was one of the key issues that we stressed in Committee.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 2:45, 4 July 2002

The Minister says that it makes no difference whether the increase is 20p or 60p. How, then, does he explain what the Financial Secretary—now Chief Secretary—said in Committee, at column 47, where he informed us that one of the key issues for consideration was whether it was 60p or 20p? He rejected our arguments for 20p and said that it would definitely be 60p.

Photo of John Healey John Healey The Economic Secretary to the Treasury

The hon. Gentleman intervened too soon and did not hear out the rest of my argument. One of the key issues, as my right hon. Friend indeed said in Committee, was whether the proposed increase in the duty rate would damage the growth of the sector. The evidence demonstrates, regardless of whether the rise is 20p or 60p, that consumption rose at the same time as prices were rising well above the rate of inflation. The sector can withstand this duty increase, and it is appropriate to make such provision.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

Is the Minister now saying that the Government's taxation of alcohol is driven by an underlying rationale of price elasticities and that, where the price is deemed to be most inelastic, they believe that they can get away with shoving up the tax? Is the rationale that they will charge what they can get away with?

Photo of John Healey John Healey The Economic Secretary to the Treasury

No, it is not the underlying rationale, but it is one of the factors that we take into account when considering duty changes.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I have to say to the Minister, who is as honest and upright a fellow as a member of this Labour Government can be, that no one believes a word of it. Everyone believes that Governments tax as much as they can get away with at any particular time.

On a lighter note, whatever the implications of the tax regime for the elasticity of demand for coolers, there is likely to be some increase in the demand for them this afternoon, in the light of the splendid news that Tim Henman has won his match.

Photo of John Healey John Healey The Economic Secretary to the Treasury

I do not know whether Mr. Henman will celebrate by consuming alcopops this evening, but I am sure that the whole House will welcome his victory.

The hon. Member for Kingston and Surbiton pressed me on the narrow point concerning the first part of the justification and rationale for the duty increase, which is, as I stress again, that in our judgment removing the concessionary treatment, whether the price increase is 20p or 60p, can be done without damaging the growth of the sector.

Secondly, whether the increase is 20p or 60p, the fact that coolers remain the fastest growing sector in the drinks market, and now rank alongside cider as the fourth largest sector, renders obsolete the original rationale for granting them the concessionary status alongside other obscure niche products.

Thirdly, it seems unfair that a vodka and orange mixed at the bar should be taxed differently from a vodka and orange drink pre-mixed in the bottle. It seems especially unfair that such a bottled drink should bear a lower rate of tax as a proportion of its average price than any other alcoholic drink.

Whether the increase was 20p or 60p made no difference to our deliberations on whether it was right to retain concessionary treatment for a drink with links to binge drinking among young people, about which the chief medical officer has raised specific concerns. In a thoughtful speech, my hon. Friend Mr. Luke echoed those concerns in respect of his constituency, as did the hon. Member for Kingston and Surbiton in a moderate, measured and rational contribution.

I genuinely hope that, based on my explanation, Opposition Members can see why the 20p-60p issue does not affect our decision that the concessionary treatment for coolers can no longer be justified, and does not warrant reopening the debate. Having said that, I am glad that this debate has enabled me to alert Opposition Members to what industry experts themselves have said about the strength of the coolers market—just as my right hon. Friend the Chief Secretary to the Treasury did in Committee when he was responsible for this clause. On 1 June, a full 18 days after our debate in Committee, Drinks International said:

"New figures reflect the relentless march of pre-mixes in the UK on-trade. Of the top 5 premium packaged drinks . . . in value terms, 3 are spirits-based mixes."

On 31 May, Off Licence News said that suppliers of "Flavoured alcoholic beverages"—one of the many alternative names for coolers—

"are looking forward to a buoyant summer, despite duty on spirits mixers being raised recently. The sector was worth £1.4bn in 2001. This year it is estimated that the category will be worth £1.6bn."

Although I shall not stray into mentioning individual brands, I am aware that one leading cooler manufacturer has recently forecast turnover for 2002 of £50 million—a full two hundred and fiftyfold growth in just four years.

I conclude by assuring all hon. Members that although we regret reproducing the erroneous 60p figure—which I have been happy to correct on becoming aware of it—its revision makes not one bit of difference to the rationale for the change or its estimated impact. This measure supports the steps that we have consistently taken to deliver a fairer burden of taxation on different alcoholic drinks and different producers. These drinks are spirits, they are marketed as spirits and they should be taxed as spirits. Any justification that may once have existed for affording them concessionary status no longer applies. They are well established in the marketplace and they can pay their fair share of duty—at a rate that properly reflects the nature of the alcohol that they contain. Doing so will not damage the future growth of their sector. On that basis, if the amendment is pressed to a vote, I urge the House to reject it.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

We are not convinced. The Government argued that there was significance in the 60p retail price increase—and if they did not think that, why did they include it in the explanatory notes to clause 3? Why did it feature in Budget day press releases, and why did it feature so prominently in the arguments deployed in Committee by the then Financial Secretary? Only one month after being pressed on the matter, the Government admitted that the figures on which their argument was based were incorrect. They should therefore go back to the drawing board and discuss with the industry the introduction of a rational and consistent taxation regime that fits with other alcoholic beverage duties. It appears that this type of beverage is being discriminated against badly, compared with some of the more potent lagers and ciders. That is a significant factor.

Mr. Luke made an entertaining speech and tried to draw me back into our debate in Committee on Christchurch Conservative club. The relevant extracts from Hansard have done wonders for the reputation of the club's secretary. The hon. Gentleman made some serious allegations about the use of flavourings in such beverages to appeal to the underage market, but that practice was put to an end by the Portman Group, which worked closely with the Government. In Committee, Ministers and the then Financial Secretary accepted that, thanks to the work of the Portman Group and other responsible people in the industry, hooches are no longer on the market. The hon. Gentleman's arguments may have been relevant at one time, but they are certainly out of date now. We are talking about a growing, successful and responsible part of the drinks industry, and it is a great pity that the Government have chosen to discriminate against it in this way.

Question put, That the amendment be made:—

The House divided: Ayes 136, Noes 276.

Division number 291 Orders of the Day — Finance Bill — [2nd Allotted Day] — Clause 3 — Duty on beverages made with spirits to be at spirits rates

Aye: 136 MPs

No: 276 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Question accordingly negatived.