Clause 4 — Duty Stamps for Spirits Etc

Part of Orders of the Day — Finance Bill — [1st Allotted Day] – in the House of Commons at 1:45 pm on 27 April 2004.

Alert me about debates like this

Photo of Mark Prisk Mark Prisk Shadow Paymaster General 1:45, 27 April 2004

Indeed. My hon. Friend makes an excellent point. We have not yet considered how this will impact on the consumer. It is right that we concern ourselves with the industry, especially the small firms, but the consumer will be hit as well. I thought I saw the Economic Secretary agreeing with my hon. Friend.

There are a number of issues concerning costs and practicalities. The Scotch Whisky Association estimates that the initial cost will be about £23 million and the increased annual overheads about £54 million, and I gather that the Minister has accepted those figures. I accept that the Government have made offers of help, but they remain incomplete and inadequate. Alcohols Ltd., which is based in Bishops Stortford in my constituency, uses a family firm to bottle its gin. I suspect that this is not dissimilar to the example given by John Thurso a moment ago. The bottling firm will have to spend £160,000 on new strip stamp machines, but may get only about £17,000 out of the Government scheme; clearly that is wholly inadequate.

Mr. Bill Oddy, the managing director of another small firm, The Drinks Company, said:

"Our costs will rocket and the Chancellor's offer of £3m to aid small firms, with capital investment, is totally out of proportion to the impact strip stamps will have in our sector. It potentially creates barriers to entry, restricts competition, pushes up prices and reduces ranges."

He goes on to make an important economic point that is worth bearing in mind:

"The irony is that" the scheme

"favours the large, established multinationals, whose high profile consumer brands are most easily traded in the black economy."

There is an acute problem for small firms.

The Minister referred to the fact that some countries have accepted, and many have rejected, this scheme. I gather that Ecuador, Greece and the USA have abolished tax stamps; Belgium, Germany and Norway have now backed away from their implementation; and Poland, where, it is believed, 80 per cent. of the Scotch whisky sold is contraband, has tax stamps.

We have heard from the Government that action must be taken; indeed, we agree. That is why over the last year we have talked to the industry and welcomed its ideas. Since the Chancellor's request for ideas, the spirits and whisky industry has come up with 17 anti-fraud packages—I heard no reference to that in the Minister's speech. The industry's approach is based on something that the Government usually applaud, a risk-based strategy. Focusing on higher risk movements would give us a better chance of securing lost revenue, without unfairly burdening legitimate traders. Sadly, the Government's response to those ideas has been deeply negative.

It is unclear what analysis the Government have made of other countries' schemes. The United States, for example, has a three-tier system of distribution, which links the producer, the wholesaler and the retailer. Yet when one looks through the Government's regulatory impact assessment, the only reference to that system by Customs is solely concerned with how it could use it to implement the strip stamp scheme. Is it the Economic Secretary's opinion that the system would not work on its own? If so, how come it works in the United States?

We come now to the numbers. The most peculiar aspect of this affair is the comparison of tax yields and costs, and what the Government plan and the industry proposes. In the Economic Secretary's briefing to Members he states that Customs' own estimate is that the industry's measure would deliver approximately £70 million per annum in previously lost tax revenue. That compares with the £160 million best estimate for the strip stamp scheme. However, the hon. Gentleman alluded to the fact that that scheme involves a number of other costs to the Treasury, including a £3 million capital fund, between £5 million and £10 million in printing and distribution costs and, as he just told us, £110 million in lost tax revenue over the next three years as a result of freezing spirits duty. What then, when all the aspects of the two schemes are considered, is the net financial difference between them? Based on those figures, either the Government are seriously underplaying the cost of the tax fraud that they expect to recoup or someone at the Treasury has got their figures wrong.