New Clause 1 — Rate of Duty on Spirits

Finance Bill – in the House of Commons at 6:00 pm on 14th May 2003.

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'.—(1) In section 5 of the Alcoholic Liquor Duties Act 1979 (spirits), for "£19.56" there shall be substituted "£18.99".

(2) This section shall come into force on 1st January 2004.'.

Brought up, and read the First time.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I beg to move, That the clause be read a Second time.

I am delighted to be able to move new clause 1, which is aimed at reducing the duty on spirits by 3 per cent. This measure is primarily aimed at helping to boost the Scotch whisky industry, but it would of course have a positive effect on the Irish whiskey industry, affecting colleagues from Northern Ireland, and on the constituency in Wales that produces the sole Welsh whisky, Penderyn. It would also help spirit producers elsewhere in the UK who do not produce whisky.

The new clause has been tabled after discussions with the Treasury, and I am pleased to see the Economic Secretary to the Treasury in his place this evening. A delegation from the all-party Scotch whisky group, on which I serve as vice-chairman, along with other Members from all parties in the House, lobbied the Treasury on this matter earlier this year. Members from all parties also pressed the Government to accept a 4 per cent. cut in duty. That move was supported by Labour, Conservative and Liberal Democrat Members, and, of course, by the Scottish National party. In that spirit, I hope that there will be cross-party support for this measure, as it is more modest than the proposal supported by the all-party group.

The Economic Secretary to the Treasury does not need reminding that Scotch whisky is one of the UK's top five export earners, generating more than £2 billion a year from sales in 200 markets. The industry uses around 25 per cent. of Scotland's barley, and 70 per cent. of all Scottish grain is used in grain distilleries, many of which are in my constituency in Speyside, which contains more than 50 per cent. of Scotland's malt whisky distilleries. The industry accounts for 5 per cent. of manufacturing jobs in Scotland and there is a £1 billion a year spend on the purchase of goods and services from local suppliers. Forty thousand jobs depend on the industry, including 7,000 in rural areas, many of which have fragile economies. Indeed, my constituency has the lowest weekly wage of anywhere in Scotland, although that is not something of which people are proud. Any measure that helps to boost an industry of such significant importance must, therefore, be welcomed.

Photo of Pete Wishart Pete Wishart Opposition Whip (Commons), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Transport)

I am sure that my hon. Friend will join me in welcoming the decision to reopen the Glencadam distillery in Brechin. Does he not agree that, for new businesses such as that to develop and thrive, we need a fiscal regime that encourages rather than penalises?

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I agree with my hon. Friend. That point is being made across the industry, no matter where the distilleries are located. All the key indicators that I have outlined underline the importance of the industry throughout Scotland, and illustrate the need for the Government to provide the optimal conditions for it to flourish.

Over the years, commentators have established that the taxation regime at home and abroad is one of the most significant factors in determining whether whisky sells as well as possible. In recent decades, Scotch whisky has made great strides in markets such as Spain, Italy, the United States and the far east—all areas with generally more benign tax regimes. Sadly, some of the worst taxation excesses are to be found in the UK, the state that benefits from massive revenue from the industry.

As most whisky drinkers will be aware, two thirds of the price of a bottle of whisky is tax. Since 1973, the price of a bottle, including the excise duty, has been subject to VAT, which is levied on the duty price paid. That means that the price of a bottle of Scotch whisky is increased by and subject to a tax upon a tax. On 10 occasions in 18 years of Conservative government, sadly, the Tories took the opportunity to raise the burden on the whisky industry. That discrimination has continued under the Labour Government, and the duty on whisky is one and a half times higher than on other competing beverages.

Photo of Mr Peter Duncan Mr Peter Duncan Conservative, Galloway and Upper Nithsdale

Before the hon. Gentleman launches into his usual discourse in anti-Conservative propaganda, he will note that his new clause only returns the situation towards that left by the previous Conservative Government.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I have sought to table a new clause that will attract maximum support across the House. I would like to see far more considerable cuts in duty, but this is a good first measure, and it is supported by Conservative Members, Scottish Labour party Members in the all-party group and Liberal Democrats. I hope that this modest proposal will receive the support of all hon. Members who have been lobbying the Treasury and that they will support it in the Lobby tonight.

Photo of Mr Roy Beggs Mr Roy Beggs UUP, East Antrim

I note how enthusiastic the hon. Gentleman has been in his observations in the promotion of Scotch whisky. Is he prepared to accept that in North Antrim, a neighbouring constituency of mine, the Bushmills distillery also produces high quality and exportable brands of what I would claim to be the best whiskies in the world, and that we too would benefit from a sensible fiscal regime that would help to promote the industry?

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I am grateful to the hon. Gentleman for his intervention. I mentioned in my opening remarks that this measure would also benefit the industry in Northern Ireland, and I am delighted to see that the cross-party consensus is growing. I hope that that will be shown in support for the new clause—from Government Members as well—later this evening.

It is the discrimination against this key industry that the industry and the people who work in it baulk at. There has been some recent narrowing of tax discrimination against spirits, but the discrimination remains. It was continued in this year's Budget by a Chancellor who represents a Scottish constituency.

Like the Scotch Whisky Association, the Scottish National party has been in favour of a 4 per cent. cut in whisky duty, and experts believe that such a measure would be revenue neutral, creating a high demand for whisky, thereby maintaining duty and taxation income for the Treasury.

Most distilleries are based in rural areas, such as my constituency of Moray, and they are often the life-blood of the community. A duty cut for Scotch would have helped end the competitive disadvantage that discriminates against Scotland's farmers and rural communities. That can equally be said for Northern Ireland and Wales, and arguably also for spirit producers in England.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I agree with the substance of the hon. Gentleman's remarks, but does he agree that the vast bulk of whisky distilleries in Scotland are in remote areas where manufacturing industry is difficult to maintain, and that the discrimination is not just against the industry but against some of the most vulnerable and fragile economies in the United Kingdom?

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I agree with the hon. Gentleman and I am delighted also to have support from the Liberal Democrats on this measure. Undoubtedly, a reduction in duty would not harm the Treasury. It would boost rural and urban communities throughout the UK. I urge all hon. Members, many of whom have been lobbying the Treasury for a more generous cut in duty, to go through the Lobby with us tonight, although I hope that the Minister will announce that the Government are to accede to a 3 per cent. cut in duty, which would be welcomed by Scotch whisky producers and others.

Photo of Mr Peter Duncan Mr Peter Duncan Conservative, Galloway and Upper Nithsdale

I am delighted to have an opportunity to contribute to the debate on new clause 1—and to reach new clause 1, given the somewhat spurious point of order that was raised by Pete Wishart earlier. I am delighted that the official Opposition have done what they could to progress matters in the context of the Government's appalling knife on the Bill. The official Opposition have done their utmost to debate as much as was humanly possible.

There is no need to remind the Committee of the significance of the Scotch whisky industry to the people of Scotland. Angus Robertson has given some statistics. I can add a couple of others. One in 54 jobs north of the border is dependent on the Scotch whisky industry. More than 11,000 people are directly employed in it. It also provides jobs indirectly, crucially in some remote and vulnerable communities, and attracts tourism, so there is a significant cause around which, I hope, a significant number of Members of Parliament from Scotland will unite tonight.

I have drawn attention to the fact that the tax system on spirits originated early in the previous century. The comments by a Chancellor in the 1920s sum up where many of the problems originated. When he was asked to justify his decision to increase tax on spirits but not on wines, he said, "nobody drinks wine," which probably gives some background to why the imbalance has arisen, how it has been amplified over time and why we should do something to redress it.

The rates applied to typical pub servings of whisky, wine and beer show the imbalance: the rate is 27.38p for Scotch whisky, 19.3p for wine and 16.65p for beer. The industry in Scotland can no longer tolerate that imbalance. Something must be done to start to redress it; it is obviously having an effect.

Photo of George Osborne George Osborne Opposition Whip (Commons)

This is an important debate. Is it not worth noting for the record that only two Labour Scottish MPs are in the Chamber at the moment?

Photo of Mr Peter Duncan Mr Peter Duncan Conservative, Galloway and Upper Nithsdale

My hon. Friend is known to be a bit more pointed than I tend to be, coming from a very quietly spoken corner of Scotland, where we tend to be a bit more reserved and backward in coming forward, but I note that there are few Members of Parliament from Scotland on the Labour Benches. I am slightly surprised that the chairman of the all-party group has not managed to be with us tonight: I am sure that he is attending to urgent constituency business.

What other European country would tax its own indigenous industry more severely and aggressively than it does its competitors' products? There is an important issue here, and the new clause goes some way towards dealing with it. There is a gain in taxation to the Treasury if taxation imbalances are addressed. Studies have shown that there is price sensitivity in the market for domestic spirits and that increasing tax again and again on the industry has done nothing to increase the net revenue to the Chancellor in total.

The increasing and dramatic expansion in bootlegging and the white van trade does not only affect south-east England; corner shops in Galloway or Brechin in north-east Scotland and in all rural communities, are affected. Their sales have dramatically declined because of the expansion in bootlegging and in illegitimate trade. That is to say nothing of the more tricky issue of diversionary fraud, which affects the industry significantly although it may be invisible to ordinary people in Scotland.

Redressing the tax imbalance would cost the Treasury nothing. I accept that more needs to be done to demonstrate that factually, and to test price sensitivity and elasticity of demand not just in the whisky market but, in cross-referential terms, in the wine and beer markets, but preliminary evidence suggests that the Treasury could implement a degree of reversal without causing itself much of a revenue problem.

All too often, the nationalists launch a grandstanding programme on issues such as this. We saw that yesterday when they attempted to hijack the bingo taxation issue. I understand that they have already been in touch with most bingo halls in Scotland, which suggests that theirs is the only party that acts on behalf of those who play bingo. It is not, however, the only party to stand up for the distillers: we in the Conservative party are stout defenders of the whisky industry, as we have been in the past. As I said in an intervention, the new clause would do no more than return us to the position brought about by the last Conservative Budget, which recognised the price elasticity I have mentioned and reduced the tax burden on spirits. My right hon. and learned Friend Mr. Clarke, who was Chancellor at the time, realised that reducing the tax need not mean a reduction in Treasury revenue.

As a member of the all-party Scotch whisky group, I support its cross-party objectives. I do not think that the hon. Member for Moray did much to strengthen his case by saying that the Liberal Democrats supported the new clause, but I accept that all parties are involved here, and I shall certainly implore Conservative Front Benchers to give it proper consideration.

I should like the new clause to mark the beginning of a genuine investigation of how an historic imbalance in the taxing of spirits can be redressed with no impact on Treasury revenues, to the benefit of an industry in Scotland that urgently needs assistance and from which our nation can derive great economic gain in the future.

Photo of Alan Reid Alan Reid Opposition Whip (Commons)

It is an important principle that taxation should be fair, and it can be easily demonstrated that the taxation of alcohol is not fair. The tax per unit of alcohol imposed on whisky is about 1.5 times that imposed on wine, and 1.7 times that imposed on beer. I shall support new clause 1 because I believe it is a step in the right direction, although I do not think it goes far enough. I know that Mr. Robertson agrees. It is important that we have a new clause before us that can be supported by members of all parties.

The all-party group lobbied Treasury Ministers for a 4 per cent. cut. The new clause proposes a 3 per cent. cut, but I presume that all members of the group will support it.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons)

The new clause would also redress to some extent the damage done to the industry by the effects of corporation tax, which was raised on Second Reading by my hon. Friend Mr. Laws and which I understand the Minister is considering.

Photo of Alan Reid Alan Reid Opposition Whip (Commons) 6:30 pm, 14th May 2003

My hon. Friend makes a very important point. The changes in corporation tax that the Government introduced last year are utterly ridiculous so far as the whisky industry is concerned. Whisky takes many years to mature, but the new corporation tax regime punishes the industry for that factor, which is an essential part of it. If accepted, the new clause would certainly help to mitigate some of the losses that the industry is incurring through that change in corporation tax.

If whisky were taxed at the same rate as wine for each unit of alcohol, the rate would be about £13 per litre of alcohol instead of £19.56. The Government have introduced a freeze in recent years, but it will take many years before the rate of taxation on wine and whisky is the same. We cannot wait that long, so it is essential that we make a start today by supporting new clause 1.

The Chancellor should not worry about any loss of revenue if the new clause is accepted. Studies produced for the Government Economic Service and the European Commission indicate that the sale of spirits is very sensitive to changes in price—far more than is the sale of wine. So reducing the tax on spirits and increasing that on wine to a comparable level would actually bring in more money for the Treasury.

Scotch whisky is the world's leading spirit drink. It can be produced only in Scotland, but it also relies heavily on products produced throughout the United Kingdom. It therefore seems bizarre that a product that is so important to the UK economy be taxed far more heavily than wines, most of which are imported. I doubt whether any other country in the world would be so daft—talk about shooting yourself in the foot! The high rate of tax not only damages sales in our own country; it also encourages other countries to impose punitive rates of duty. India, for example, has a tariff of more than 400 per cent. on Scotch whisky. Yet when British trade negotiators protest about this harsh treatment, such countries have a simple riposte: "But your own country also discriminates against whisky!"

I need not remind the Committee of the importance of Scotch whisky to our economy. The industry employs more than 10,000 people directly, and supports a further 50,000 jobs through its spending on inputs. And it boosts our balance of trade by more than £2 billion a year. The industry is also a major employer in areas where other jobs are very hard to find: in urban areas with high levels of deprivation, and, of course, in remote rural areas with fragile economies and little alternative employment. For example, on the islands of Islay and Jura, where the finest single malts are produced, there is very little alternative employment. As a result of the Government's punitive actions, their product brings in large sums for the Treasury, only a fraction of which is returned to the islands to be spent on public services. An industry such as the Scotch whisky industry should be encouraged, not penalised; surely it has the right to be taxed at the same rate as its rivals.

New clause 1 is a step in the right direction and I hope that all members of the Committee will support it.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

New clause 1, which was introduced by Angus Robertson, would reduce the rate of duty on spirits, and would thereby affect, of course, the domestic Scotch whisky industry. I ought really to declare an interest at this point, in that I do enjoy partaking from time to time. I shall not pass comment on which is my favourite brand, except to say that it is both famous and of the bird variety.

The new clause would reduce the rate from the current level of £19.56 per litre of alcohol to £18.99, and, as was rightly pointed out by my hon. Friend Mr. Duncan, the latter rate was held in 1996, in the last Budget introduced by my right hon. and learned Friend Mr. Clarke.

Photo of Alex Salmond Alex Salmond Scottish National Party, Banff and Buchan

Some of us have reasonably long memories. We remember Mr. Clarke, the last Conservative Chancellor, being overturned on VAT on fuel in this Chamber. He recouped the revenue the very next day, announcing a punitive rise in tax on whisky. May I have an assurance that that was a mistake on the part of the Conservatives?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

The hon. Gentleman and his party are introducing a new clause. If they want to persuade hon. Members throughout the House, they might find it more constructive to introduce their arguments in a more consensual and less nitpicking manner. The Conservative credentials on Scotch whisky are there for all to see. [Interruption.] At least my right hon. and learned Friend the Member for Rushcliffe had the decency to have some whisky next to him when he presented his Budgets. The current Chancellor, despite representing a Scottish constituency, never has whisky anywhere near him. That is one great difference on Budget day.

We need to examine the rate at which my right hon. and learned Friend the Member for Rushcliffe had reduced whisky duty when he presented his last Budget. My right hon. and learned Friend told me earlier today that he had hoped to attend the debate, but he is otherwise detained on other parliamentary business. He may be able to join us later; let us wait and see.

It is interesting to note that, since we started debating the new clause, we have had only one Scottish Labour Member in the Chamber—the Secretary of State for Scotland—

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am sorry. We have the Under-Secretary of State for Scotland, Mrs. McGuire in her place. [Interruption.] Noises from behind me suggest that the Secretary of State is feeling bored with her present job. She may be trying so hard to sell the euro that she has forgotten to help the Scotch whisky industry to sell its product.

Photo of Mr Peter Duncan Mr Peter Duncan Conservative, Galloway and Upper Nithsdale

I would like to reassure my hon. Friend on one point. The Scotland Office alcohol bill last year represented a substantial increase on the previous year, so the Secretary of State's commitment to Scotch whisky cannot be in doubt, bored though she may be.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I hope that when my hon. Friend received his parliamentary answer, the disaggregation of the different alcohols consumed in the massive increase showed that whisky was the main spirit consumed, thus making an important contribution to the local economy.

The one Scottish Labour Member who was present earlier appears to have disappeared already. Perhaps he is hanging his head in shame for not being able to persuade his party to think constructively along the lines of the new clause. It proposes a reduction of approximately 3 per cent. The Scotch Whisky Association advocated a more substantial reduction, so it is important to reflect on the most appropriate level that is potentially sustainable. We have to assess the background reasons and ensure that the level can be justified.

As my hon. Friend Mr. Duncan pointed out, the Scotch whisky industry employs more than 50,000 people in Scotland—one in 54 jobs—and the UK spirits industry as a whole employs 65,000. Whisky, the major domestic drinks industry in Scotland, is taxed more heavily than other alcoholic drinks, particularly beer and non-fortified wine—more than 150 per cent. more heavily per unit of pure alcohol.

Another good background argument is that the Government increased the duty in their first Budget in 1997 to the same level imposed by my right hon. and learned Friend the Member for Rushcliffe, but have frozen the duty since. It was interesting to hear the Chancellor claim in his Budget speech this year that he had a wonderful track record—I use the words advisedly—over the past five years, in which he had frozen the duty. He managed to overlook the fact that, six years ago, he had increased it sharply. It is for people outside this place to judge whether the level of spin in his Budget speech resonated in any way with the words of the former Secretary of State for International Development, Clare Short. The imbalance in the duty levels—highlighted in other contributions as well as my own—has effectively been frozen. It would be a shame if any party sought to claim to be more of a friend of Scotch than any other. The Scottish National party likes to think that it is the only friend of Scotch, although the record shows that not to be true. Scotch has many friends, including those of us in the official Opposition. Given what we have just heard from Mr. Reid, the Liberal Democrats are also claiming to be friends of Scotch. However, are the Government Scotch's friend? Are they looking at the genuine issues involved in the serious costs implications, the competitive position and the imbalances that have been created?

An important point in this context has been made about corporation tax, which adds about £25 million to the costs of the Scottish whisky industry. Again, that flies in the face of the rhetoric of a Government who like to claim that they bring only good news for everyone. The reality in the real universe—if not in the parallel universe that the Government seem to inhabit—is what people have to deal with. The Government merely like to spin about such matters.

It is important to find a position that is fair for Scotch whisky, and for spirits in general but, given the proportions involved, it is Scotch whisky that is uppermost in our minds. We welcome any party that supports returning to levels of tax that existed before the current Chancellor came to office. The new clause moved by the Scottish National party proposes just that.

The Minister will no doubt want to tease out of us our view of the revenue implications of the new clause. That is a difficult judgment. The Treasury claims that it has the only model that works, but that model's performance in relation to other matters—such as forecasts—has not been especially reliable. One problem in connection with Committee discussion of the Finance Bill is that it is very difficult to get the Government to acknowledge that data that are difficult to square with they want to achieve ought to be published—not least because the data have been paid for by the taxpayer.

According to our best estimate, a reduction in duty is likely to be revenue neutral, as it will be compensated for by higher UK sales. Even Government economists believe that a duty cut could boost revenues. However, that is anecdotal, in the absence of the demonstrable evidence that we believe that the Treasury has but chooses not to publish.

The Government's economic service data—the best data that I have been able to find on this matter—suggest that the excise cut proposed in the new clause would be neutral. That is based on the argument that the cut would reduce smuggling. I do not want to go over the arguments that we usefully explored yesterday in connection with tobacco smuggling. However, it is clear, although they will not say so, that even the Government think that the proposal is likely to be neutral. If it were adopted, the new clause would support corner shops throughout the UK, and especially in Scotland. It would also offer a way of reducing the problems of what is known as diversion fraud.

The Conservative party is Her Majesty's official Opposition. We believe that there is a genuine prospect of being able to govern again, and that, in government, we will be able to deliver. It is therefore appropriate for us to support the new clause.

We support the duty reduction in principle and consider that an important point has been made. However, the Government must also commit to making an updated, open assessment of the impact of duty levels on sales of spirits. Only then would we be able to support further duty reductions—a trend that I suspect may tempt other parties. It is important to get a genuine impact assessment as to where elasticity operates in terms of price and volume, and in relation to cross-border sales and smuggling sales and non-sales.

The new clause is a matter of fairness; it is common sense and is wholly in line with what the Conservatives were able to achieve when we were in government. We believe it to be right. We believe it to be tax neutral and are glad to support it on behalf of the Scotch whisky industry of Scotland and all those who wish to enjoy the benefit of a reduction.

Photo of John Healey John Healey The Economic Secretary to the Treasury 6:45 pm, 14th May 2003

I welcome both the chance to debate the new clause and the fact that Angus Robertson has tabled it. I also welcome the strong turnout of officers of the all-party Scotch whisky group.

The new clause would reduce the rate of excise duty charged on spirits by 2.9 per cent. and, as the hon. Gentleman said, restore the rate to its 1997 level. In essence, the hon. Gentleman argued that, without the new clause, the Finance Bill would not go far enough to support the UK spirits industry. Both he and Mr. Reid made the case for what is known as unitary taxation, whereby all alcoholic drinks are taxed equally, according to the percentage of alcohol that they contain.

As my right hon. Friend the Chancellor announced in his Budget statement, we have this year frozen excise duty on spirits for the sixth successive Budget. I shall explain in a little more detail exactly what that means, as it seems that some people take the duty freezes for granted and are clamouring for more.

This is the longest period of duty freezes on spirits since the 1950s. Without those freezes, the total tax on a standard bottle of spirits would have been about 92p higher, if duty had increased in line with inflation. The freezes represent a real-terms cut of 12 per cent. The duty on spirits is almost 40 per cent. lower in real terms than it was 10 years ago. It is 57 per cent. lower in real terms than 30 years ago. In recent history, this and previous Governments have constantly reduced the incidence of excise duty on spirits.

Photo of Mr Peter Duncan Mr Peter Duncan Conservative, Galloway and Upper Nithsdale

I accept the Economic Secretary's point about the freezes for the past five years, but does he agree that we should be freezing the iniquity so that Scotch whisky is not at a disadvantage compared to beers and wines from outwith our country?

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

I shall deal with the accusations of discrimination and iniquity later.

Alcohol in spirits is more heavily taxed than alcohol in beer, still wine and cider. Spirits duty is 60 per cent. greater than beer duty, but there has been a gradual move towards reducing that differential and, since 1997, the Government have played a part in that. As I said, there is a 60 per cent. difference in the duty for beer and spirits but in 1997, it was 76 per cent.

Our approaches to decisions on alcohol duty are made Budget by Budget, and they take into account a wide range of relevant factors, including relevant duty levels in different drinks sectors. They also have regard to the particular circumstances at the time; for example, the state of the industry or the level of demand for particular drinks.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons)

In an industry where there is such a long time lag, it is a pity that the Budget decisions are made only on a yearly basis. Earlier, we discussed the need to give industry long-term indications of the Government's intentions. Would it not be helpful to see a forward plan for the tax basis for spirits?

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

Our record speaks for itself, but at present we have no plans to change the approach whereby we make such decisions on a Budget-by-Budget basis.

Like previous Governments, we recognise that the benefit of taxing categories of alcoholic drinks rather than alcohol itself is that it allows tailored responses to inevitably changing circumstances. If we were to tax rigidly on the basis of alcohol content alone, we might lose that valuable flexibility. Nevertheless, we are committed to delivering a fairer balance in the burden of taxation falling between different alcoholic drinks and different types of drink producer, and we have consistently done so, as I said, Budget by Budget, since 1997.

The hon. Member for Moray describes the UK duty regime for spirits as discriminatory. On the contrary, we have one of the least discriminatory regimes of any country. [Interruption.] I hear the question, "What about those on the continent?" asked from a sedentary position. No EU member state applies a system of unitary taxation and all member states apply a higher rate of duty to spirits than to beer and wine. It is also a fact that the UK has the lowest differential between spirits and beer of any EU member state. In Germany, spirits duty is more than six and a half times beer duty. In France, the factor is five and a half times and, in Spain, spirits duty is more than three and a half times that of beer. To answer the question asked by Mr. Duncan, those are all significant spirits producing nations.

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

I think that the hon. Gentleman has just joined this debate, although he has been in the Chamber for most of the day, as I have, so I will give way to him.

Photo of John Baron John Baron Conservative, Billericay

I thank the Minister for being so generous. The fact that there is a greater inequality on the continent surely does not lessen the fact that the inequality that we have here is basically wrong, and one cannot get away from that. I put it to him that most economists, including some of the Government's economists, are of the clear view that, if the Government were to lower the duty, they could boost revenue. To what extent are the Government examining that case, with a view to taking that action?

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

Perhaps the hon. Gentleman should have been a little more patient because I am about to deal with that very point, which a number of hon. Members made, perhaps before he rejoined the debate.

We recognise the enormous contribution that the spirits industry makes to the UK economy and, indeed, to the Scottish economy, and its importance to our balance of trade. I also recognise its particular importance to the constituency of the hon. Member for Moray. However, I have to tell him that we have taken consistent steps since coming to power to deliver a fairer balance in taxation between alcoholic drinks, including six successive freezes in spirits duties. In deciding spirits duties, my right hon. Friend the Chancellor has to weigh up a range of factors, including the different circumstances of all sectors of the alcoholic drinks industry, as well as our spending priorities.

The fact remains that duty freezes and, even more so, cuts, cost revenue. The estimated cost of this year's freeze in spirits duty is £30 million. New clause 1 would cost an additional £30 million in the first full year of its implementation. The hon. Member for Moray shakes his head, but I have to tell him that there is no free way to cut alcohol and spirits duty. May I tell him, the hon. Member for Galloway and Upper Nithsdale, especially if he is about to jump to his feet, and Mr. O'Brien, who asked about modelling, that we publish the demand elasticity models on which excise duty costings are based?

The alcohol model that the Government published most recently was based on the model devised by Professor Marcus Chambers, which was updated in 1999. That is an independently, expertly and academically devised model. We are working on, and have almost completed, a substantially improved alcohol demand model, and we are currently preparing it for publication. It will be published as a Government economic service working paper before long. The improvements that we have been able to make to the model will help to answer some of the points that have been made, but, more importantly, they will better inform such debates in the House and elsewhere in future.

The key improvements to the new model involve splitting beer into on and off-trade sales to achieve a better understanding of the dynamics in the beer sector and using better data, specifically following the completion of the European single market, to take better account of cross-border shopping as a factor in overall demand. As I said, that will be published shortly as an economic service working paper.

The point made by the hon. Member for Argyll and Bute about corporation tax treatment was raised by at least two other hon. Members on Second Reading last week. As my right hon. Friend the Paymaster General indicated in her response then, we are aware of the concerns of the Scotch Whisky Association, which it raised directly with me in our meeting before the Budget. We are discussing the issues with its representatives, and the measure was not designed to achieve such outcomes.

I am grateful to the hon. Member for Moray for giving us the opportunity to have this debate. To hear him speak, however, one would have expected universal disappointment from the spirits industry and universal condemnation of this year's Budget freeze, which is not the case. Let me quote Hugh Morrison, chief executive, no less, of the Scotch Whisky Association:

"The Chancellor's decision to narrow the duty gap is good news for the industry and represents further progress towards the industry's goal of a modern tax system for alcoholic drinks. Distillers will be raising a collective toast to the Chancellor."

In summary, we recognise the importance of the whisky industry to this country and to Scotland. In this Budget we have frozen spirits duty for the sixth successive year—the longest period of freeze since the 1950s. That has been warmly welcomed by the industry on behalf of which the hon. Member for Moray seeks to speak. We are pursuing a policy aim of fairer taxation between drink sectors but not a policy of equalising taxation. For those reasons, I urge the House to reject the new clause.

Photo of Alex Salmond Alex Salmond Scottish National Party, Banff and Buchan

I want to make a slightly unexpected contribution in support of my hon. Friend Angus Robertson—it is unexpected because I was hoping to speak on the next clause on oil taxation, which is equally important to the Scottish economy, but a combination of guillotine procedures from the Government and some long-winded speeches earlier made that impossible. I therefore want to add my voice to my hon. Friend's excellent arguments in relation to the whisky industry.

I sat through these debates all afternoon, and I am one of very few Members who are present who did so. I sat through amendment after amendment, but there were never more than eight Conservative Members in the House speaking to amendments, which they said were crucial. They were right to berate the Government for having no Labour Back Benchers from Scotland present for a whisky debate—the Under-Secretary of State for Scotland, not the Secretary of State, was the only representative. Equally, however, the Government and the Opposition should look at what is considered to be worth the allocation of time in Finance Bills. Many of the debates—I am sure that many Members who are now present were not here—were so detailed that hon. Members would have had some difficulty in bringing themselves to participate in them.

When we debate this new clause, however—and the new clause on the oil industry, had we been able to reach it—we are debating matters that touch the livelihoods and jobs of thousands of people in Scotland and elsewhere. Perhaps the attendance that we have now in the House is related to the fact that we have finally reached a new clause about which most hon. Members feel confident that they know something. That does not excuse the Government, however, for not allocating time to allow significant, substantial amendments affecting employment to be properly and adequately debated.

It is unfortunate that the Chancellor was not able to join us today. I understand that he was closeted away with the Prime Minister discussing other things. It is unfortunate too that the Secretary of State for Scotland was not able to join us—no doubt she was away making speeches stabbing the Chancellor in the back. Both right hon. Members should be concerned about the fate of the whisky industry, and both should be concerned about kick-starting exploration and jobs in the North sea. Given the amount of revenue that this and previous Treasuries have accumulated from the whisky and oil industries, one would think that the Government might allow sufficient time for a proper debate and make the relevant concessions that will keep those vital Scottish industries on the road.

The level of interest, time and concern that the Treasury Bench has devoted to such vital matters will not go unnoticed by people in Scotland. I thought that the Economic Secretary did a substantial and useful job on the concession on oil pipeline taxation. I hope that the next time we debate vital industries in Scotland, he allows us the time to do that and ensures that the personnel are available so that we have a substantial discussion. I also hope that the Government give those vital industries the priority to which they are entitled.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office) 7:00 pm, 14th May 2003

I am pleased that I tabled the new clause. The Scottish National party feels strongly about the measure, which is crucial to an industry throughout Scotland. I am glad that at this late stage, in the last few minutes of our proceedings, some Scottish Labour Members have turned up to hear the debate and argument on this key issue. I am surprised, however, that not more are present because I went with them to lobby the Treasury earlier this year on the matter, on which there was cross-party consensus. Scottish Labour MPs agreed that duty should be cut by 4 per cent. That idea was also supported by Liberal Democrat and Conservative MPs, and had the support of Northern Irish colleagues, as we heard. I am surprised that not one of those Labour Members who were prepared to lobby the Treasury for a 4 per cent. cut were prepared to speak in the debate and I hope that they will vote in favour of the more modest 3 per cent. proposal in the new clause.

The Economic Secretary said that there is no discrimination. That is news to anyone who lives in a whisky-producing region. I know that he has an interest in the industry and I extend an invitation to him to visit Speyside to explain why whisky produced in Dufftown costs more to buy at home than on holiday in Spain. The idea that the duty rates do not discriminate against Scotch whisky is preposterous, and everyone in Scotland knows it.

Members who have just arrived in the Chamber should understand that the new clause is not just about Scotch whisky; it would also have a positive impact on whiskey produced in Ireland, which is important to colleagues from Northern Ireland, and on spirit producers in Wales and England. It is a modest proposal and does not even go as far as the Scotch whisky industry wants it to. That is why I will press the new clause to a vote.

The Economic Secretary did not give a commitment to continue the freezes. Such freezes are welcome, but the discrimination continues. We should end it and roll it back. With the support of hon. Members on both sides of the Committee, I hope that we can start that process.

Question put, That the clause be read a Second time:—

The Committee divided: Ayes 174, Noes 292.

Division number 199 Finance Bill — New Clause 1 — Rate of Duty on Spirits

Aye: 174 MPs

No: 292 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Bill (Clauses 1 ,4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules 5, 6, 19 and 25, and new clauses and schedules tabled by Friday 9 May relating to excise duty on spirits or R&D tax credits for oil exploration) reported, with amendments, pursuant to Order [13 May]; to lie upon the Table.